Biotech: Who Will Survive When The COVID-19 Hype Ends?

05/27/2020

Over the last couple of months, companies have found a way to muster up an effort to align their objectives with helping society recover from this global pandemic – COVID-19. The result: share prices have soared like never before. 

The line up of biotech companies trying to come up with COVID-19 vaccines or cures is longer than the line up outside Vancouver liquor stores each Friday night (thanks to social distancing).

But as an investor, how do you determine which company is the real deal? It’s easy to “ride the wave”. It’s much harder to do due diligence to think about the companies that will survive once the COVID fuelled market hysteria ends. 

Here’s a simple heuristic for investing in biotech now: Invest in companies that you’ve invested in, even if the pandemic had never happened. Across the board, you have to ask questions around three major themes:

  1. Leadership
  2. Business Operations (Finances), and 
  3. Technology (Patents, unique value proposition)

In other words, ask yourself the following:

  1. Is there a competent leadership with a track record of success?
  2. Are revenues growing? Are the margins? How big can the operating niche be?
  3. What’s the science and technology driving #2? Is the technology entering a new market? Is it developing a better, cheaper drug? 

When it comes to finding answers to these questions, Canadian small caps aren’t the ideal place to go looking. Mostly. 

Because more or less you’re likely to find a press release here and there, some “financing round” here and there, but most of all some pump and dumps here and there. 

You keep at it, and you begin to separate the wheat from the chaff. Last time we found PredictMedix (CSE.PMED). Here’s how that’s done so far:

PMED Chart

PMED data by YCharts

Here’s another gem we found today: ImmunoPrecise Antibody Ltd (IPA.V). To be fair, this had us as excited as when Gold mining companies found out that the Fed just “marks up the size of the account” to print money. You know this is going to work. 

 

We had the questions, let’s see if $IPA has the answers:

What does $IPA do? Is there something unique about the technology?

Immunoprecise Antibody Ltd, is a full service end-to-end CRO. So,

What is a CRO? 

A CRO is a contracted research organization. 

Why are they important? 

Let’s say you want to make laptops. Sure, you can make every single part on your own. But for that you need time and money and expertise, and chances that you have three out of three are unlikely. You need a display, a ram, a processor, a keyboard, a trackpad etc, all of which are complex components themselves, but are so essential that without either of them the laptop wouldn’t work. 

The next best thing to do is to assemble the laptop instead. Get the chips from Intel, the display from LG, and the ram from Micron. Maybe manufacture the motherboard.

Outsourcing chip production to Intel and ram production to Micron is analogous to outsourcing parts of the research to CROs – like ImmunoPrecise. 

What’s with the “full service end-to-end” part? 

Well, let’s make you the CEO of Dell for a second. Would you rather go to a different vendor for every single stage of development of every component of the laptop? OR have a trusted company that will take on the project and provide you with everything you need from start to finish? 

In other words, you might just need a processor and motherboard, but if you also need the display, the assembly, and the entire laptop put together as one, ImmunoPrecise will do that for you. 

That’s what IPA did  for their customers that look to utilize their Well-Established B cell Select™ Antibody Discovery Platform. They guaranteed its success. In a sector where no one can predict whether or not a research project can be successful, $IPA is guaranteeing that it will be

Do they have some niche they’re operating in? How do I know the hype won’t die down after COVID-19 ends?

ImmunoPrecise offers a selection of high-quality antibodies, enzymes, enzymes activity assays, arthritis animal products, proteins, deiminated proteins, and hybridoma licensing for research purposes.

Why should I care about antibodies or immunotherapies?

Because it’s something that was booming, well before COVID-19 hit. And because it’s something that offers a better solution to some of the most pressing medical problems. 

According to research released in February of 2020, “therapeutic antibodies have become the predominant class of new drugs developed in recent years. Over the past five years, antibodies have become the best-selling drugs in the pharmaceutical market, and in 2018, eight of the top ten best selling drugs worldwide were biologics

The global therapeutic monoclonal antibody market was valued at approximately US$115.2 billion in 2018 and is expected to generate revenue of $150 billion by the end of 2019 and $300 billion by 2025.

Yeah yeah, that’s all good, but is there an example of an actually profitable antibody therapy?

Sure. Abbvie’s HUMIRA® (adalimumab), was its top-selling Rx Drug Globally bringing in $19.9B in 2018.

So far, so good. Let’s talk management. 

Is there competent leadership with a track record of success?

The company has been around since 1984, humming along and doing good business, but in February of 2018 as soon as they appointed Dr. Jennifer Bath as the president and CEO, they began to roar. She set goals, achieved them, and then went about setting some more ambitious ones. 

The new management understood what it takes to excel in this sector and slowly put things together. If you’ve binge-watched The Last Dance, think of Jennifer Bath as Jerry Krouse (except that she won’t try to blow it up to get more attention. Scientists don’t build successful companies, organisations do, you know?). 

Similar to the Bulls era of the late 80’s, the IPA management understands what is needed for success. Now no one’s saying The Pistons and The Knicks aren’t out there, but they’ve put the team together that’s got what it takes to win.

With Dr. Stefan Lang and Brian Lundstrom added last year, their all-star roster has added another 50 years of collective experience with numerous key relationships.

Science and all is good. But are they smart at the business of business?

Corporate History

A quick glance at the company timeline provides overwhelming evidence that strategy has not only been thought of, but has been executed well. IPA’s acquisitions over the last 2 years have cemented its place as the “best-in-class therapeutic antibody discovery capabilities for the global industry”.

What are the financials like?

Revenue

IPA Revenue (Quarterly) Chart

IPA Revenue (Quarterly) data by YCharts

Revenue in 2017: $2.631M

Revenue in 2018: $5.441M

Revenue in 2019:  $10.93M

What about the margins?

IPA Gross Profit Margin Chart

IPA Gross Profit Margin data by YCharts

Final Thoughts

IPA has built a powerhouse. They’re able to do research and come up with solutions in their field faster and more effectively than almost all their competitors.

In times of crisis, you don’t rise to the occasion. You fall to the level of your preparedness. 

So when COVID-19 happened, $IPA was prepared. And they were loaded with action. 

And there’s a lot more where that came from…

Full Disclosure: ImmunoPrecise is currently not an EquityGuru marketing client.

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