I have to warn you. Compared to almost all other companies mentioned on this blog, Agios is not generating any meaningful cash flow at the moment and, as you may have guessed, is in the “risky” biopharmaceutical business. Do I have any special knowledge in this sector? No. So why bother?
Without going into any details in terms of their products or clinical pipeline which consists of programs in alpha- and beta-thalassemia or sickle cell disease where I certainly cannot add any value, I will try to focus on what I better understand: its financial position.
At the end of 2020, Agios sold its oncology business for up to $2 billion plus royalties. The proceeds will and have been used to advance its pipeline and to buy back roughly $1.2 billion worth of its own shares.
Valuation
At the end of March 2022, Agios had cash and marketable securities worth almost $1.2 billion and pretty much no financial liabilities. There are currently 71 million shares outstanding which translates into a cash per share figure of almost $17 – just shy of the current trading price of $17.60. In other words, we can almost buy the company now at its cash value while giving no value to its pipeline and royalty position. Of course, there is a catch (as pretty much always): Agios is losing money which – in a worst case – yields no returns and doesn’t leave any cash left for shareholders.
What’s next?
Although being in a riskier sector than other companies, Agios shows a margin of safety through its cash balance and good optionality regarding its medical portfolio and later maybe its royalties on some products of the sold oncology business. Agios also states that the current cash balance enables to execute its operating plan through major catalysts and to cash flow positivity without the need to raise additional equity.
If “Mr. Market” leaves its manic-depressive characteristics towards the biopharmaceutical sector behind, chances are good that Agios will be getting credit not only for its cash position but also for its pipeline. Might be a good time to load up.
Current Price
$17.60 per share
Disclosure
As with most shares discussed on here, the author is
long AGIO.
