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KemPharm and Cardano


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RECAP OF LAST WEEK AND RESULTS:


Aurinia Pharmaceuticals: The fire sale was over in a flash! We wrote about why the company fell after its earnings and became a fire sale opportunity. The stock price was $10.19 as of writing. It is currently back up to $11.99


Cryptocurrencies: Wild week in the crypto market, who is surprised? We released our thoughts on information on some crypto coins that we think will win long term.


IN THIS ISSUE


KemPharm

Intriguing drug pipeline aiming to treat a myriad of diseases with their drug compounds. They have already had success with two FDA approvals and are showing strength with no debt on their balance sheets. They are currently about to commercially launch their ADHD drug in the early second half of the year.


Cardano

Maybe a winner alongside Ethereum in the crypto bull market.

KemPharm: KMPH


This company was founded in 2006 and went on the public exchange in 2015 at $177 per share after all of the dilutions have been equated. They make drugs that have non-abusive/addictive qualities. This company has had a hard road and has not benefited early shareholders as the current share price is only $9 a share with a market capitalization of 266 Million. The stock price hit all-time lows recently in May 2020 at around $2 a share. This was only months after they started their commercial launch with their first FDA-approved acute pain drug APADAZ. This was also the time that COVID-19 crashed the market. Then momentum started to gain as another FDA approval date was coming and the price started to rise to around $9 before doubling to $18 a share on FDA approval of their next drug which is the biggest change to the ADHD market since Vyvanse was approved.



The ADHD market is $17.5 Billion and growing. KemPharm could capture 1-3 Billion of this market and more in the coming year or two. We think the main challenge to overcome is getting the drug differentiated from Vyvanse and having prescribers aware of this new drug. The commercial launch of the non-abuse ADHD drug AZTARYS will happen in the second half of this year with partnership agreements between two companies. KemPharm is set to make money from royalties up to the high single digits to mid-20s on the drug profits. This means they have the potential to make roughly 400-500 million a year or more off of this ADHD drug. This could double or triple their share price alone if this narrative is shown in the next couple of quarters. We like the approach they are taking by outsourcing their sales and marketing to prescribers with companies that are efficient in manufacturing and creating sales of the drug. We think if sales go well we should start seeing this company becoming a billion-dollar market cap sooner than later. 


We also like that they have restructured and have no debt on their balance sheets. They have 76 million in cash as of Q1 and appear to be able to maintain solvency without any further dilutions to shareholders. They have milestone revenue incoming from their drugs as well.  This is very important as this shows that the stock price is near the bottom and has a high probability of increasing. This company is turning around and we think in our opinion that it is time to buy.


They also have other drugs in their pipeline with the market potential to increase their share price by another 2-3 fold on top of the previous catalysts mentioned. Worst case scenario by 2024, we could see it go to $8-$16 a share.  In the best-case scenario, we could see $60-$80 a share by 2024.  There are a lot of positive perspectives that I omitted for this letter, but I think this is a good start for understanding where this company stands.


Price Forecast

Company has reduced risks and created an all-cash balance sheet with no debt. We think this price is going up and it will go up substantially on any strong sales data for their new ADHD drug.

Current Price: $9.00

One Month Target: $10.10 (Thinking the bio sector will have money rotated into it.)

One Year Target: $25 (Both commercial launches should propel the market cap to $650 million. I used some of the assumptions from this article here.) 

Two Year Target: $34 


Special thanks to some of the community on the Stocktwits board for helping us look into this company: @WhidbeyIslandWA, @WaynD01, @doctor01


This stock is a buy and hold. We think they will be able to pay dividends and increase share price a few multiples in the coming year.

Cardano: ADA


“Cardano is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake. It can facilitate peer-to-peer transactions with its internal cryptocurrency Ada. Cardano was founded in 2015 by Ethereum co-founder Charles Hoskinson.” We are also going to link a full explanation on how Cardano works and that can be found here. We could have an entire article just on how the cryptocurrency works, but this is more for providing information on why ADA will be a profitable investment.


Price forecast: We expect this cryptocurrency to continue to grow over time

Current price: $2.18

One month target: $2.60

6-month target: $5.00


Predicting the price of cryptocurrency is challenging due to its nature of being untethered to value-producing assets. Instead, it is based on the price the next person is willing to buy it for. The price can fluctuate a lot day to day however we see a lot of value in ADA. “Cardano is a proof-of-stake blockchain platform: the first to be founded on peer-reviewed research and developed through evidence-based methods. It combines pioneering technologies to provide unparalleled security and sustainability to decentralized applications, systems, and societies.” The blockchain is also more environmentally friendly which is why it received a generous bump from Elon Musk dropping Bitcoin because of the number of resources used to acquire it.


The approach we would recommend is purchasing Cardano and holding while in the bull market which is expected to last somewhere between 6 months and a year. This is not guaranteed but, just due to the history another crash is expected. However, Cryptocurrency’s market cap hit 2 trillion dollars for the first time and is predicted to possibly reach anywhere from 5 to 8 trillion dollars. There is still a ton of room left in this bull run.


Another upside to Cardano is the similarities to Ethereum. “When Hoskinson left Ethereum, he recognized the need for a different kind of blockchain that would be immediately scalable and secure, two things that he feared Ethereum would never become.” Two issues that Cardano solved. The scalability is really what makes this Crypto so valuable to investors and why we see this as a good purchase. We aren't saying that it will reach the same value as Ethereum, but it definitely could skyrocket in value.

All stocks talked about we have invested in, and do not intend to give advice nor recommend acting upon the information.

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Until next week,


Brad Mitchell

Colby McCoy

and the Optifinancial Team

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