SmileDirectClub Inc

SmileDirectClub Inc (NASDAQ: SDC) is an oral care company and is the creator of the first Medtech platform for teeth straightening. The Company was co-founded in 2014 by Jordan Katzman and Alex Fenkell. It is based in Nashville, Tennessee.

Investment Highlights – SmileDirectClub Inc – Watch at USD 8.91

• On the leverage front, the debt-to-equity ratio of SDC (3.38x) remained significantly higher than the industry median (0.21x) during Q1 FY21, illustrating a high amount of debt piled up on the balance sheet.
• The Return on Equity and Return on Assets remained in negative territory during Q1 FY21.
• The consensus estimate indicated that the Company would report negative earnings per share for two more years (FY21 and FY22).
• The top-line revenue had witnessed a significant decline during FY20 as compared to FY19.
• From a technical standpoint, 20-day EMA (USD 8.95) seems unfavourable and resist the upside potential in the stock price.

Key Risks

• The Company recently faced a cybersecurity incident that affected the near-term growth guidance of the Company. SDC is prone to the same incidents in the future, which could lead to substantial loss.
• The product of the Company is under constant review, and any negative effect of the product could lead to reputational and financial damages to the Company.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 10 May 2021)

 (Source: Company result)

• The revenue of the Company for Q1 FY21 was USD 199.5 million, a rise of 8% on a QoQ basis.
• The Q1 FY21 remained the record earnings quarter for the Company.
• The gross margins of the Company remained around 76%, 225 bps higher on QoQ basis and 640 bps higher on YoY basis.
• The Company’s marketing and selling expenses were 47% of the net revenue while it was 72% in Q1 FY20.
• SDC had USD 434.5 million in cash and cash equivalents at the end of the quarter, while the free cash flows were lower than Q4 FY20.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

The Company's management remains confident of achieving revenue growth per year ranging from 20% to 30%. However, due to the recent cyber-attack, the Company expects revenue growth ranging from 5% to 7% in the coming quarter as compared to Q1 FY21. The Company will continue to expand into the international market by aggressive marketing spending. The unique business model of the Company with no pricing pressure keeps the Company in a unique position to grow and cement its position in the market. The stock made a 52-week low and high of USD 7.01 and USD 16.08, respectively.

Based on the weak profitability and high debt on the balance sheet, we have given a "Watch" stance on SmileDirectClub Inc at the closing market price of USD 8.91 (as of 24 June 2021), while we will update when we identify fresh growth catalysts for the Company.

Onconova Therapeutics Inc

Onconova Therapeutics Inc (NASDAQ: ONTX) is a clinical-stage biopharmaceutical Company engaged in the discovery & development of novel products for patients with cancer.

Investment Highlights – Onconova Therapeutics Inc – Watch at USD 7.43

• According to the consensus estimates, ONTX will report negative earnings per share for the next four years (FY21 to FY24).
• The Company has been consistently reporting negligible revenues and posted a wider net loss during FY20 as compared to FY19.
• ONTX recently announced a reverse stock split effective 20 May 2021.
• From a technical standpoint, 50-day EMA (USD 8.81) does not support the upside potential in the stock price.

Key Risks

• The Company is making negligible revenue as its lead drug remained in the development stage.
• Changes in government policies and regulations could affect the overall business of the Company.

Recent Developments

On 01 June 2021, ONTX announced Mark Gelder, M.D., would be joining the Company as Chief Medical Officer (CMO) with effect from 14 June 2021.

On 21 May 2021, the Company updated that the first patient was dosed in the U.S. Phase 1 Clinical Trial of the lead drug candidate, ON 123300.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 17 May 2021)

(Source: Company result)

• The Company had cash and cash equivalents of USD 48.0 million as of 31 March 2021.
• On the profitability front, the Company had reported a slight improvement in net loss from negative USD 5.09 million during Q1 FY20 to negative USD 4.72 million for Q1 FY21.
• Due to lower expenses for the oral rigosertib combination program, ONTX had reduced the R&D expense to USD 1.9 million during Q1 FY21.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Conclusion

Onconova has been productive in raising capital and advancing its clinical anti-cancer programs. Moreover, ONTX had managed to strengthen the balance sheet with net proceeds of USD 35.2 million from two equity offerings. The Company would remain focused on the clinical trials for the lead product candidate ON 123300. Also, it believes that it has adequate cash to fund clinical trials for more than 18 months. The stock made a 52-week low and high of USD 2.85 and USD 28.95, respectively.

Based on the negligible revenue and weak profitability, we have given a "Watch" stance on Onconova Therapeutics Inc at the closing market price of USD 7.43 (as of 24 June 2021), while we will update regarding the commercialization of the lead product candidate ON 123300.

*The reference data in this report has been partly sourced from REFINITIV.