Time to buy27 Apr 2022 21:25
(Long post)
I truly enjoyed the CMD presentation and discussions thereof - a rare occasion, since Covid, to meet, listen to and discuss with management & leadership team on the business status, progress and plans. As I mentioned yesterday, I had the privilege to sit next to Dr Bill Chang and asked if he has sold - he said no - and yes, one can withhold the truth but not Dr Bill Chang. He is major shareholder, director and even though shares in a different vehicle it is a declarable event. So, people, please stop making things up.
I wrote before re Genmark Diagnostics, loss-making but with IP & repeatable sales company, being bought for $1.8bn at 9x sales by Roche. It is reassuring to see John's presentation highlighting the same, at 10x sales or 40x EBITDA. Companies are flush with cash and need to deploy them. Why 9-10x sales? Well, these companies have very high GP%, say 60% - this makes the multiple versus GP closer to 15x (they don't need the overheads) which if in a growth category, will quickly reduce again. Most of the large co's are on multiples higher than 15x, so it is market value enhancing.
I think we have to almost "write off" the 2 Covid yrs, like most companies in our space. It created an abnormal down / upturn in results in a non-continuing event. We have capitalised on revenue & its contribution to scale up and expand our offerings, geographic presence and structure / infrastructure. We should now focus on the core - and let's be very clear - YGEN is not a Covid business. Many of those have taken a hit, like we have, but in time the market will realise we are not a Covid business!
Back to the core. We have a great NIPT test but I have always thought the difference in quality (we are better) isn't going to allow the land grab. To change and adopt new, there has to be clear business cases for existing labs, and new labs are enticed by the big players with their own tests. BUT in Ranger, and in the same way we improved our NIPT test / workflow - working 2-3 years with Ranger / Coastal Genomics on it , YGEN have spotted a significant USP that not only opens up a new market (the DNA enrichment) in the workflow but also the door towards YGEN end-to-end solution. This will be the game changer for us. Add to that, the ability for us to improve existing diagnostic tests within our own genomic services. I wrote as a Q - why would an existing / new lab adopt this ie value proposition - well, they answered it: cost savings, improvement in tests ie patient and clinical benefits and ability to do more with less. A no-brainer almost! Something we did not have before.
With any disruptive new tech, market adoption is key. For that, we need validation. Well, we have only just begun. We have 2 of the 4 megalabs. They are live. When this permeates in the industry, it could be the gold standard. That's the entry point, a small part of the end-to-end solution of course. But significant for us, and allows us to move to the end-to-end....c
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