Stage Zero Life Sciences could achieve a billion dollar market cap: Clarus

Expect the revenue ramp to keep climbing for StageZero Life Sciences (StageZero Life Sciences Stock Quote, Chart, News TSX:SZLS), according to Clarus Securities analyst Noel Atkinson, who provided clients with an update on the name on Tuesday.

Atkinson reiterated his “Speculative Buy” rating and $0.50 target price, which at press time represented a projected 12-month return of 426 per cent.

StageZero, which has its primary testing laboratory in Richmond, Virginia, makes proprietary liquid biopsy tests for cancer, with its Aristotle diagnostic platform expected to be the first commercially-available multi-cancer blood test. The company also has COVID-19 testing services and has garnered new corporate customers for the service such as a municipal government in Arizona, a large healthcare system, an airline and several organizations that need COVID testing for airline travel.

The company on Monday issued a second quarter 2020 progress report, saying that its COVID testing business has grown such that further staff have had to be hired, while revenue since the end of the second quarter has been about $1 million.

Management said it’s using its COVID testing business to increase exposure of its capabilities, to highlight its cancer screening business and to build long-term relationships with healthcare systems and large employers, all with the commercialization of Aristotle as the goal.

“The COVID-19 pandemic has severely impacted many diagnostic labs. Our ability to pivot quickly during Q2, and to initiate both PCR and antibody COVID-19 testing to survive an unprecedented downturn is testimony to our group’s ability to innovate,” said James Howard-Tripp, Chairman and CEO, in a press release. “It is now for us to use the opportunity to springboard into the launch of Aristotle and to use the incremental revenue and new partnerships we are building.”

In his update, Atkinson noted that the $1-million in revenue so far in the Q3 is already ten times higher than StageZero’s total revenue in its Q2, with the analyst saying he expects the sharp ramp in COVID testing revenues to continue until peaking in the first quarter 2021 and then trailing off as vaccines and treatments arrive.

“Our base case scenario remains that Covid-19 testing will be StageZero’s primary revenue stream until mid-2021, at which time Aristotle cancer testing revenue should overtake the Covid testing revenue. Expenditures on FDA trials for Aristotle (which, if successful, would likely drive a billion-dollar market cap for StageZero) in 2021 and 2022 will likely be a restraining factor on Adjusted EBITDA but we still expect StageZero to reach positive Adjusted EBITDA on a quarterly basis by Q3/22,” Atkinson said.

Atkinson said Aristotle remains on track for launch by the end of 2020.

“Our 12-month price target for StageZero is unchanged at $0.50 per share, or 6x 2022e price/sales using a projected fully-diluted share count as of the end of 2022. Our target multiple is materially below the consensus average and median 2022e price/sales multiples of StageZero’s peer group, which we believe is currently appropriate given that Aristotle has not yet generated revenue and that StageZero’s overall revenue base is relatively small compared to the peer group,” he wrote.