In this post I will explain why TCRT is a substantially overvalued company. Optimistic speculation has caused the stock’s valuation to rise significantly past rationality which is why I expect a decline of over 50% in share price in the coming months.
Alaunos Therapeutics is a clinical-stage cell therapy company that is focused on developing T-cell receptor therapies that target tumor specific mutations within genes. These therapies are aimed at aiding clinical patients diagnosed with cancer. Speaking frankly, I have very little understanding of what this company is doing nor do I think that I could fully grasp the science behind the business even if I tried. What’s important is that I have a precise understanding of the core fundamentals behind Alaunos Therapeutics and can clearly recognize and articulate its unmistakable overvaluation.
Starting with it’s balance sheet, TCRT’s cash balance of $60M is the majority of all it’s assets. The company holds around $30M of long-term debt making stockholder equity as of it’s last 10-Q approximately $40M. It’s important to note that Alaunos Therapeutics generates zero revenues and has not generated any revenue for years. To the best of my knowledge TCRT has managed to stay afloat through both debt and public offerings since the company does not create any value.
This quote from their last 10-Q reaffirms this:
“The Company has operated at a loss since its inception in 2003 and has no recurring revenue from operations. The Company anticipates that losses will continue for the foreseeable future.”
The underlying notion I want to emphasize is that TCRT’s valuation of $700M is nowhere near justified when realizing that they not only have a p/b of over 17, but revenue is nonexistent. Alaunos Therapeutics, in essence, is a cash burning business spent on R&D that can only stay alive through continuous shareholder dilution.
Since June 2021 and beyond, shareholder equity has steadily declined due to incremental capital deployment on R&D and G&A.
On June 30, 2021, equity was $88M On Sep 30, 2021, equity was $68M On Dec 31, 2021, equity was $58M On March 31, 2022, equity was $49M On Jun 30, 2022, equity was $40M
Book value has declined over 50% in the past year due to the high cash burn. To further exhibit my claims, this is a quote from Alaunos Therapeutics last 10-Q:
“Based on the current cash forecast, management has determined that the Company's present capital resources will not be sufficient to fund its planned operations for at least one year from the issuance date of the financial statements, which raises substantial doubt as to the Company's ability to continue as a going concern.”
However, on the off chance that these high multiples were standard in the industry, I compared Alaunos Therapeutics to other competitors in order to determine whether TCRT was really an outlier or not. Autolos Therapeutics, Adaptimunne Therapeutics, and MaxCyte are all clinical-stage companies developing cell-based therapies aimed at aiding cancer patients. Like TCRT, all companies are cash-burning businesses, spending aggregate amounts on R&D quarterly, all the while maintaining zero if not minuscule revenues over a prolonged period of time. Though these companies are all similar in nature, the only discrepancy in value lies among Alaunos Therapeutics. After a brief examination of each 10-Q, it became clear that TCRT was an outlier. Autolos Therapeutics for example holds cash reserves of $200M that equates to its book value yet has a market valuation of an astonishingly low $280M resulting in a p/b of 1.3. MaxCyte and Adaptimunne follow nearly identical stories with a p/b of 2.4 and 2.3. Again, for reference, TCRT has a p/b of over 17. Alaunos Therapeutics has the lowest cash reserves and stockholder equity yet has a higher valuation than all three companies! Factoring in TCRT’s supposed future prospects and offering a generous p/b of 5, a $350M valuation would be justified at best giving a share price of around $1.60.
It’s also important to note that despite overvaluation, I believe that Alaunos Therapeutics will continue as a going concern for the time being, but at the shareholder's expense. On September 7th, Alaunos released a prospectus outlining plans for a public offering that will increase shares outstanding from 217M to 233M granting the company up to $50M. Unless Alaunos achieves any real clinical success, dilution will be their only method of financing, something that they have done for years, and also because they have no other way besides debt to raise sufficient capital to continue operations. Their most recent offering diluted TCRT's share price by 15% but does not include dilution caused by offerings in years prior.
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