Radius Health Inc: Big-Time Growth Means Large Gains on Horizon

Radius Health, Inc: Does Current Growth Signify Large Gains Ahead
iStock.com/ipopba

Radius Health Inc: Why This Small-Cap Biotech Has Big Dreams

In the biotech sector, I generally tend to favor large-cap stocks because of the uncertainties of investing in biotech companies, wherein success or failure rides on developing and commercializing drugs.

You could take a safer route and go for Pfizer Inc. (NYSE:PFE) or Allergan plc (NYSE:AGN), but if you want to add some risk-reward to your portfolio, you might want to consider a small-cap biotech stock like Radius Health Inc (NASDAQ:RDUS).

I rarely discuss biotech, but Radius may be primed for a sustained rally, given the strong revenue outlook for the company’s drugs.

Trading at the $21.00 level, RDUS stock is well off its 52-week high of $31.92 and its record high of $84.64 in February 2015, offering traders a nice risk-reward situation.

Advertisement

Chart courtesy of StockCharts.com

But be mindful that the “risk” portion of the risk-reward equation with Radius Health Inc means that the company’s fortunes could reverse quickly.

Radius researches and commercializes drugs targeted at osteoporosis and oncology. The company’s core product in commercialization is its “TYMLOS” injection, which has been approved for treating postmenopausal women with osteoporosis coupled with a high risk of fractures. A similar injection for men is in Phase 3 clinical trials.

The company has several other drug candidates in the clinical stage, but there is no guaranteethat they will ever see commercialization. Such is the risk for small biotech companies.

Bull Thesis for RDUS Stock Rests on Strong Revenue Outlook

Radius Health Inc is still at its early stages of generating revenue, but the company’s outlook for the next few years is bullish.

Revenues surged 349% from $22.1 million in 2017 to $99.2 million in 2018.

The future estimates are bullish, with Radius expected to drive revenues up 70.7% to $169.4 million in 2019 and up 44.1% to $244.7 million in 2020. (Source: “Radius Health, Inc. (RDUS),” Yahoo! Finance, last accessed May 29, 2019.)

Much of the expected growth will depend on the demand for TYMLOS, especially if it is approved for men. The fact that the company’s revenues are currently dependent on one drug entails a high risk.

Radius is burning through cash, but this shouldn’t be a surprise, given the current stage of its development. The following table shows the company’s generally accepted accounting principles (GAAP) diluted earnings per share (EPS).

Fiscal Year GAAP Diluted EPS
2014 -$4.04
2015 -$2.56
2016 -$4.24
2017 -$5.80
2018 -$4.88

(Source: “Radius Health Inc.,” MarketWatch, last accessed May 29, 2019.)

A positive sign is that, as the company’s revenues ramp higher, its losses are expected to narrow to $3.59 per diluted share this year, and could fall to as low as $1.45 per diluted share in 2020. (Source: Yahoo! Finance, op cit.)

Radius has about $204.2 million in cash and $191.3 million in debt, which will allow the company some time to cut its losses. (Source: Ibid.)

Analyst Take

Radius Health Inc is extremely speculative, but the trade-off is attractive, given the company’s strong revenue outlook.

As is usually the case with small biotech stocks like RDUS stock, it’s a good idea to test with a small position and see how things unfold.