Quiet at Champions Oncology

Champions Oncology (CSBR) has been a frustrating stock to own in 2019. After bottoming out with the rest of the market in December 2018, CSBR share price has had many fits and starts.

Source: https://finviz.com/chart.ashx?t=CSBR&ty=c&ta=1&p=d&s=l

At the end of February 2019, National Securities — the firm who brokered CSBR’s 2016 follow-on — initiated coverage on CSBR and attached a buy rating with a $17 price target based on 6x CY2020 revenue estimates.

Two weeks later, CSBR reported Q3 FY2019 numbers (for the quarter ended January 31, 2019), and missed consensus sell side estimates. The explanation from management was they had an operational issue while managing aggressive growth.

Fair enough. CSBR plays in a hot oncology and immune-oncology space and is experiencing growing demand for their services. While management provides some qualitative color on bookings, the company does not provide specific bookings numbers. Naturally, this creates some opacity around future revenue growth and if there is one thing the market dislikes, it is uncertainty.

To make matters worse, I understand the analyst covering National Securities is no longer with the firm, and the CSBR research was removed from the website. This creates a lack of awareness and/or demand for CSBR shares.

Meanwhile, CSBR continues to chug along and is rolling out two new services — ex vivo and clinical flow cytometry — at the request of customers. To that end, there should be some built-in demand for these service offerings and I’m expecting ~$3M from the new services in FY2020. When coupled with ~20%+ growth in the core TumorGraft business, it appears like there is a real path to accelerating revenue growth in FY2020 with attractive earnings leverage given the inherent fixed costs in its operating model.

Having said all this, I believe management needs to do a much better job communicating with the Street and retail investors. More data should help investors put a more accurate valuation on the firm which is now profitable and generating cash with a solid pipeline. As noted in my research notes on Seeking Alpha, management canceled a $1.5M credit line in October 2018 and paid $224k early on a capital equipment lease on February 1, 2019.

Clearly management is confident in the pipeline. And management, the Board and three strategic investors (Batter Ventures, NEA and the Pessin family), own nearly 70% of the shares (including the in-the-money warrants due in 2020).

Conclusion

While the stock price has been volatile, CSBR is on firm ground with a solid runway for growth in the years ahead. I expect the shares to be higher as investors cue in on the story. But management must get everyone’s attention: the best way to do that is to put up the numbers. Time will tell.

Disclosure: long CSBR