This month the ShareSoc Seminar moved to a new location at Capita Asset Services, now that the compliance department of Finncap has put the kibosh on use of their meeting room, and very nice it was too. With three companies lined up, and only Bioventix being familiar to me, I was once again looking forward to being informed and amused. Next month I believe that the seminar will take place in Holborn just to keep us on our toes.
Haydale Graphene Industries
As Haydale's full name suggests this is a company formed to exploit the properties of wonder material graphene and deliver on its commercial benefits. It turns out that this is a tall order, and Haydale are not alone in this goal, but they have a decent R&D background stretching back to 2003 and a patent protected process. As a result the company floated exactly three years ago, in April 2014, in the belief that they were ready to add value for customers, drive growth and benefit from the enhanced corporate profile of a listed company.
Since then Haydale seems to have spent time refining their processes, collaborating with clients and looking for new applications but without notable success. This is why they're transitioning from being a technical business to a more sales-focused organisation that delivers other nanomaterials, such as silicon carbide, in addition to graphene. The key differentiator here appears to be their knowledge of how to reliably mix and disperse these materials within various mediums, such as epoxy resin and other polymers, to boost their strength and stiffness whilst also reducing weight.
To this end they are partnering with Huntsman to improve their industrial Araldite product and this appears to be a key contract - although it's hard to be sure as CEO Ray Gibbs raced through a large number of possible applications and markets in his presentation! On another front they're collaborating with, and receiving a £3.3m investment from, Everpower with a view to breaking into the huge Chinese market. This isn't the investment fund's only graphene investment but it's surely a vote of confidence in the company - although I am concerned that the company may be spread too thin with only 60 employees to handle numerous global opportunities. Still if just one comes off I reckon it'll be a game-changer for Haydale.
On a more familiar note I first heard about Bioventix when CEO Peter Harrison give a presentation at Mello 2014. I was hugely impressed by his clear, down-to-earth explanation of how the company creates sheep monoclonal antibodies (SMAs) for diagnostic testing worldwide and immediately established a small holding. At the time he described how Bioventix successfully pivoted on a lengthy research history to design SMAs that outperform those created by global diagnostic companies (such as Siemens and Roche) and this convinced them to use these SMAs in their diagnostic machines. No mean feat but in this case science wins!
Now the obvious weakness to this arrangement is that these giant diagnostic companies have large research teams producing in-house antibodies and surely they'd like to drop Bioventix at the first opportunity - especially as Bioventix has no IP protection whatsoever? Well in practice the process of getting a test to market is very arduous and while it takes Bioventix about a year to create a new antibody it then takes their partners at least 2-4 years to formulate a test, conduct trials and acquire regulatory approval. As customers are very reluctant to go through this expensive process more than once they then prefer to pay Bioventix their 2p per test royalty and thus revenues are essentially protected and predictable for many years.
The downside to this arrangement is that there's a substantial lag between Bioventix doing their research and any sales coming their way - currently they're working on SMAs which won't pay back until some time in the next decade! Right now they're waiting for Siemens to release their new troponin test with the hope being that sales here will offset the NT proBNP licence that ends in July 2017 and is currently the 2nd largest revenue generator. Peter Harrison seemed reasonably positive that this would happen and implied that they're well on track to hit, or exceed, the current broker forecasts. So I'm very happy with how the company is performing and feel pleasantly reassured by the steady progress that they're making - not bad for an outfit with just 13 employees!
At first glance LiDCO looks like a typical sub-scale, healthcare equipment company that has struggled for years with no benefit to investors. On flotation in 2001 the shares were sold at a hopelessly optimistic 140p before collapsing to around 7p in 2003 - coincidentally just about the current share price - with no profits or dividends along the way. While this value destruction is ancient history it does rather conflict with LiDCO's claim to have a world-class medical product, that's currently used in over 50% of NHS hospitals, but numerous clinical studies attest to the effectiveness of their technology in reducing both patient mortality and overall costs. So there appears to be the heart of a great company here.
This is exactly why LiDCO has recently reinvented itself by establishing a brand-new board, hiring Matt Sassone as CEO and raising £3m in new funds (at 6p a share) to accelerate growth in the US market. Previously they had just 3 sales people in this $100m+ market (and just 1 for the Rest of the World!) and now plan to boost this figure to 10 sales people with a brand-new sales proposition. Currently Edwards Lifescience is the entrenched incumbent in America and Matt plans to undercut them by offering a fixed annual cost, high usage programme to a select group of the very busiest US medical centres. If money talks, and their technology really is better than the competition, then LiDCO have a real chance of cracking this market right open.
Obviously there are substantial risks to being so aggressive but I like the fact that the board have a clear strategy for growth and are realistically targeting only seven new US sales in the next year. In addition there's a tailwind from recent clinical recommendations which may push hospitals into using LiDCO technology; if only to avoid lawsuits rather than for any medical reason. On top of this LiDCO are refreshing their monitor platform (to make it more sexy!), pushing for further UK and RoW growth and keeping a lid on fixed costs. With a high gross margin of 79% on disposables this suggests that incremental growth should drop straight to the bottom line and growth is on the agenda. Risky, of course, but if LiDCO don't need to tap shareholders for more funds then finally investors might see a return on their investment!
Disclaimer: the author holds shares only in Bioventix out of those discussed here.