GenMark's Credibility Is Dented, But The Sell-Off Is Excessive

If anything has been consistent about GenMark (NASDAQ:GNMK) over the past couple of its years, it has been this small diagnostic company’s difficulties in meeting its own development timelines. While the company did see the approval of its key ePlex multiplex molecular diagnostics system this June (after a roughly two-year delay), the company recently missed earnings expectations in a big way, lowered guidance for both revenue and system placements, and announced further delays for its blood culture cartridge.

GenMark is the kind of stock that will make investors prematurely grey as they wrestle with the meaningful potential of the system (and the molecular diagnostics market more generally), management’s execution issues, and the competitive landscape. I do believe the major downward move in the stock since August has created another opportunity for aggressive investors, but that opportunity has to be balanced against the very real risk that this is a company that will never get its ducks in a row and/or will not be bailed out by a buyout at an attractive multiple.

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GenMark's Credibility Is Dented, But The Sell-Off Is Excessive

Seeking Alpha: Bio-Rad Built For Consistency, Not Short-Term Out-Performance

Within the life sciences and clinical diagnostics worlds, Bio-Rad (BIO) is an odd duck. More like Techne (TECH) than Illumina (ILMN), Cepheid (CPHD), or even Thermo Fisher (TMO), Bio-Rad isn't looking to redefine its markets or change the game. Instead, this is a company that lets others be the first-movers and focuses on leveraging its large global distribution system and driving consistent, dependable financial results.

That's all well and good when the stock is priced that way. Unfortunately, Bio-Rad is often picked as an undervalued "hidden gem" in the life sciences/diagnostics space on the basis of its EV/EBITDA or EV/rev ratio, but without the acknowledgment of the differences in the models. None of this is to say that Bio-Rad is a bad company - trailing growth rates of 8% to 16% for revenue, free cash flow, and book value per share are quite good - but I do think investors have to be careful about the extent to which they goose their growth rates when considering the shares' fair value.

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Bio-Rad Built For Consistency, Not Short-Term Out-Performance

Seeking Alpha: Gravity's Only A Theory With Neogen

Neogen (NEOG) is one of the more remarkable med-tech companies out there, but I'll bet it's all but unknown to a large swatch of the Seeking Alpha reading audience. This relatively small ($1.4 billion market cap) med-tech has grown its revenue by an average of 16% a year for the past 10 years, with the stock price rising almost 900% over that same stretch of time, and there could yet be ample room to the upside.

The problem is that Neogen always looks expensive and I just cannot get comfortable with the idea that the stock's multiples will always continue to defy gravity. While the company's record of organic growth, solid margins/ROIC, and accretive acquisitions would make this a very dangerous stock to short, I'd nevertheless need to see a substantial sell-off before wanting to buy it as anything more than a growth trade.

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Gravity's Only A Theory With Neogen

Seeking Alpha: Can New Management Drive New Growth At Techne?

Techne (TECH) has always been a little different in the realm of publicly-traded life science companies. While the company's headquarters are pretty pleasant once you're inside, the surroundings are a pretty nondescript commercial/light industrial zone. Likewise, it's a little strange to sit down as an analyst with a management team that tells you they will not do road shows or conference calls, and doesn't much care whether they get any attention from Wall Street at all.

None of this is meant as a criticism against the company - management was always unfailingly polite and helpful to me in my analyst days, and the company's stock has generated excellent returns over the past 20 and 10 years. Where there is an issue, though, is in the more recent performance, where Techne has notably lagged other life sciences companies like Thermo Fisher (TMO), Sigma-Aldrich (SIAL) and more specialized/focused companies like Illumina (ILMN).

I'm optimistic about the potential for new management to put Techne on a more growth-oriented footing, not only with an expanded international focus but also perhaps a wider view of the company's addressable market opportunities. While I could see bull-case upside into the low $80s for Techne, that requires a level of transformation that is pretty aggressive. A more probable trajectory suggests Techne is close to fair value today, but still offers good near-real time exposure to life sciences spending.

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Can New Management Drive New Growth At Techne?

Investopedia: Danaher Proves Even The Nimble Can Stumble

I don't want to sound like too much of a fan-boy when it comes to Danaher (NYSE:DHR) (many, if not most, sell-side analysts seem love it more than I do), but I do think it's fair to say that when even Danaher is struggling to put up a good quarter, you know the industrial sector is in a tough spot. With growth decelerating across the board, even Danaher's much-vaunted margin improvement has come up a little short. Even so, this is still a bull market and the shares are just shy of a 52-week high.

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http://www.investopedia.com/stock-analysis/051413/danaher-proves-even-nimble-can-stumble-dhr-emr-bio.aspx

Seeking Alpha: Luminex Has Both Many Opportunities And Many Questions To Answer

While I'm not opposed to paying up for a strong growth story, particularly in an area like molecular diagnostics (MDx), I think there are too many questions about the basic business model at Luminex (LMNX) to pay up for this stock today. The company does indeed have significant potential and large addressable markets, but the combination of inherent business model volatility, less than full control on product development, and rampant technological and commercial competition are all significant factors as well.

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Luminex Has Both Many Opportunities And Many Questions To Answer

Investopedia: Bio-Reference Labs Taking Advantage Of Esoteric Opportunities

Bio-Reference Labs (Nasdaq:BRLI) is an odd diagnostics company. It combines a somewhat sleepy conventional diagnostics business centered on the Northeast (New York City, in particular) with a nationwide esoteric testing business. The company has had a less-than-spectacular record of cash flow generation and cash conversion, but it has improved significantly in recent times. While its smaller scale and fierce competition from Quest (NYSE:DGX) and LabCorp (NYSE:LH) are risk factors, growth in the esoteric testing business could make this a name worth following.

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http://stocks.investopedia.com/stock-analysis/2012/Bio-Reference-Labs-Taking-Advantage-Of-Esoteric-Opportunities-BRLI-DGX-LH-BIO0622.aspx

Investopedia: Neogen's Valuation Defies Gravity

While investors are often willing to pay high premiums for above-average growth, many companies see significant underperformance in their stock when they transition to a slower growth profile. That has not yet happened at Neogen (Nasdaq:NEOG). While it may indeed be premature to say that this food safety and animal health company is past its days of double-digit organic growth, the expectations that the Street has baked into this valuation seems difficult to justify.

A Sluggish Quarter, as Expected
To its credit, management didn't serve up any particular negative surprises this quarter. Revenue growth was sluggish at 6.3%, but broadly in line with expectations. Although there were some solid individual performances this quarter (veterinary products up about 30% and animal care up around 40%), it looked more as though the company saw a lot of individual items compress the growth - from de-stocking in Europe to tougher comps from vomitoxin sales last year and so on.

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http://stocks.investopedia.com/stock-analysis/2012/Neogens-Valuation-Defies-Gravity-NEOG-DD-GPRO-IDXX0402.aspx

Seeking Alpha: Luminex Has A Lot To Live Up To

I'm a sucker for a good gadget, but investors considering putting their money into Luminex (LMNX) may want to take a closer look at the business model and the current expectations. While Luminex does indeed have an interesting story to tell and growth potential in molecular diagnostics, valuation leaves little room for error.

A Quarter That Came In As Expected
For better or worse, there weren't a lot of surprises in Luminex's final quarter of the year. Overall revenue growth was as expected at 16%, though there was a little less in the consumables (down 16%) and royalties (up 17%) than investors may have wished. Although the company made up for that with strong assay sales (up 28% organically) and stable system revenue (up 1%), these are generally lower-margin businesses for the company.


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Luminex Has A Lot To Live Up To

Seeking Alpha: Roche Looks To Regain Life Sciences Legitimacy With A Bold Bid For Illumina

It wasn't that long ago that I mused about Roche (RHHBY.PK) having lost its way and much of its relevance in the life sciences space. With a bold announcement Tuesday night, it looks like this Swiss medical giant is looking to fix this problem in a big way. Roche is proposing to acquire sequencing giant Illumina (ILMN) for $44.50 in cash.

The Proposed Deal
At the proposed price, Roche is offering to pay Illumina investors an 18% premium over Tuesday's close, but a 60% premium to Illumina's price when rumors of a possible deal started lifting these shares up off the mat. If the deal goes through, Roche will be paying a lofty 18 times trailing EBTIDA and more than five times trailing revenue.

That may be a reasonably large "if", though. Like most companies in the med-tech space, Roche prefers to keep things quiet and relatively friendly. The fact that Roche is taking this approach suggests that Illumina either turned them down flat or held out for a sweeter price. Now Roche is looking for shareholders to apply pressure on the Illumina board to sit down at the bargaining table.

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Roche Looks To Regain Life Science Legitimacy With A Bold Bid For Illumina

Investopedia: Neogen Is Almost Cheap

Investors who want to play the really interesting stories in med-tech have to be ready to act fast or step up when times look uncommonly tough. That's about the only way to get a decent valuation on stocks like Intuitive Surgical (Nasdaq:ISRG), Cepheid (Nasdaq:CPHD) or Illumina (Nasdaq:ILMN), and that seems largely true for animal and food safety specialist Neogen (Nasdaq:NEOG). Although valuation and earnings quality are still problematic here, these shares also highlight the importance of being up-to-date on research and able to pull the trigger quickly.

A Disappointing Second Quarter  
Although Neogen doesn't generally step far out of line, this quarter was a notable exception. Revenue rose just 2% this quarter, not only missing the averaged estimate but missing the low-end estimate as well. Animal safety revenue was up just 1%, due at least in part to lower activity in the GeneSeek agricultural genomics business. Food safety was hardly stellar, though, as revenue was up just over 3% this quarter.

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http://stocks.investopedia.com/stock-analysis/2011/Neogen-Is-Almost-Cheap-NEOG-ILMN-BIO-LIFE-IDXX-WAT-SNY1229.aspx

Investopedia: Cepheid Soaring

Molecular diagnostics company Cepheid (Nasdaq:CPHD) has long been one of my go-to names whenever I need a high-growth name that the Street did not quite fully understand and appreciate. The good news is that the stock has made my advice look good by more than tripling since the start of 2010. The bad news is that the stock has gone so far so fast that the company is simply going to have to become one of the MDx leaders to validate its current valuation. 

Another Great Quarter for Both New and Recurring Business  
Cepheid did everything it was supposed to do in the second quarter, and a little more besides. Revenue jumped 35% in the quarter as the company saw product revenue growth of 31%. This growth was fueled by an increase in systems revenue of 53% and reagent revenue of 40%, all of which more than offset the 25% decline in non-clinical revenue. Cepheid's international business is also doing well, growing more than twice the rate of the North American business this quarter. 


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http://stocks.investopedia.com/stock-analysis/2011/Cepheid-Soaring-CPHD-BIO-GPRO-BDX-LMNX0802.aspx

Investopedia: Immucor Passes Its Last Test

Perhaps moreso than in any other industry, there are companies in medical technology that just seem destined to eventually get bought out. A leading player in immunohematology, Immucor (Nasdaq:BLUD) was a very good example of this type of company and the Immucor announced on Tuesday morning that it had accepted a bid from private equity group TPG Capital. 

The Terms of the Deal 

Immucor shareholders are going to get $27 in cash for each of their shares, a 30% premium to the stock price on Friday but still shy of the stock's all-time high in 2007 of $39.96. At this price, Immucor is going out at a reasonable price/sales multiple (a common metric for med-tech deals) and the company does not seem to be leaving much cash on the table with respect to a discounted cash flow model. (Valuing firms in this sector can seem like a black art, but there is a systematic way to pin a price on potential. For more, see Using DCF In Biotech Valuation.)

Not that it will matter much to the selling shareholders, but this deal further extends TPG Capital's involvement in the health care sector. Arguably more known for involvement in deals for companies like Neiman Marcus, Univision and TXU, TPG has investment interests in other significant health care companies like Biomet, Quintiles and Surgical Care Affiliates. 

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http://stocks.investopedia.com/stock-analysis/2011/Immucor-Passes-Its-Last-Test-BLUD-JNJ-BIO-DHR-GRPO-LMNX-EXAS0705.aspx

Seeking Alpha: Not All Great Med-Tech Is Exciting

There is no question that investors can find a lot of exciting growth stories in the medical technology space. From surgical robotics to gene sequencing to radiation therapy, a winning idea can produce not only eye-popping revenue growth, but very solid margins and returns on capital. Better still, customers have yet to show much price sensitivity and the FDA approval process means that competitors cannot exactly sneak up on a company overnight. 

And yet, a lot of would-be world-beating ideas never quite work out as expected. Companies have tried drilling holes in the heart with lasers to improve angina, using pacemakers to treat depression and obesity, and developing entirely new sequencing technologies only to meet with failure.

The good news for investors, though is that there are a lot of "boring" medical technology companies out there that avail themselves of most of those positives – decent (if not great) growth, solid margins, and good returns on capital, and protected market share – without the risks of trying to push risky moon-shots into the market. With these names, investors can often look to remarkable consistency over time, with the shot at occasional break-out winners. All in all, then, investors should give a serious look at some of the less-exciting ideas in medical technologies.

To read the full piece, please go to Seeking Alpha:
Not All Great Med-Tech Is Exciting

Investopedia: Agilent Goes Three For Three

It is interesting to see that however sophisticated the markets get (or market participants think they are), there are still plenty of oddities. For a decent stretch of time, Agilent (NYSE:A) was undervalued. Then it began moving on no particular news and not only made up the valuation gap but perhaps overshot it a bit. Individual investors can look at this in one of two ways: Take heart from the fact that the "professionals" leave plenty of fat opportunities on the table for retail investors, or despair that the market is less about finding and assessing value and more like a casino full of hyperactive traders with attention deficits. 

The Quarter That Was
Agilent reported a very solid beginning to its fiscal year. While revenue was a bit light relative to expectations, that seems to be solely a byproduct of some revenue recognition adjustments tied to the acquisition of Varian. All in all, revenue rose more than 25% from last year (though down 4% sequentially). Organic growth was led by measurement and test business (up 31%), with both chemical analysis and life sciences chipping in high single-digit growth as well.

Profitability was a little bit of good and bad news, more heavily weighted toward "good". Gross margin slipped almost a point from last year, but moderate growth in SG&A and R&D spending allowed the company to deliver nearly three full points of operating margin improvement. Although gross margin is important, there is still a "settling in" process going on with the company's acquisitions and divestitures, so this quarter's decline really does not seem like anything to worry about at this point. (For more, see R&D Spending An Profitability: What's The Link?)


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Investopedia: Danaher Hopes To Revive Beckman Coulter

Ending weeks of speculation, industrial conglomerate Danaher (NYSE:DHR) announced a bid for Beckman Coulter (NYSE:BEC) on Monday morning. Assuming that the deal goes through, and that is likely given the Beckman board's support, Danaher will join the likes of Abbott (NYSE:ABT), Siemens (NYSE:SI), and Roche (Nasdaq:RHHBY) as the biggest fish in the diagnostics pond. That said, Danaher is paying a rich premium for the chance to apply its operational magic touch to a company that desperately needs help. 

The Deal
Beckman has been trading on deal speculation since early December, and it was only last week that a Reuters article speculated on private equity bids in excess of $5 billion for the company. At that time, little mention was made of a strategic buyer for the business, though this author has been maintaining that Danaher would likely be the most credible buyer and that a price of eight times trailing EBITDA would be a fair price.

Lo and behold, Danaher has offered $83.50 in cash for Beckman, a nearly $7 billion deal that values Beckman at a trailing EV/EBITDA of just a bit over eight. That bid also represents a 45% premium to Beckman's pre-rumor price, and a pretty generous price for a true turnaround project. Given the operational improvements that Beckman needs and some of the peculiarities of the business, the last large deal in diagnostics (Siemens' acquisition of Dade Behring for 16 times EBITDA in 2007) is really not an apples-to-apples comparison, so Beckman shareholders should not feel too badly abused in this transaction. (For related reading, Does Beckman Bow To The Inevitable?)

What Danaher is Getting
In Beckman Coulter, Danaher is acquiring a diagnostics business with some major heft in many sizable markets. Beckman is a leader in the clinical chemistry market and has been at the vanguard of the fast-growing lab automation market (where expensive and increasingly hard-to-find technicians are being replaced by machinery). Beckman is relatively less of a factor in the faster-growing immunoassay market, but has a large share in the hematology market and a decent foothold in flow cytometry, where it competes with Becton Dickinson (NYSE: BDX) (among others).


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http://stocks.investopedia.com/stock-analysis/2011/Danaher-Hopes-To-Revive-Beckman-Coulter-DHR-BEC-ABT-SI-BDX-LMNX-BLUD0209.aspx

Does Beckman Bow To The Inevitable?

If multiple reports from respected sources like Wall Street Journal and Bloomberg are to believed, Beckman Coulter (NYSE:BEC) is on the block. If true, the board deserves applause for bowing out and seeking the best possible source of good returns for its shareholders. 

A Long Way From a Deal 

Beckman itself has not commented on any of the rumors, but multiple reports indicate that the company has tapped Goldman Sachs (NYSE:GS) to manage a potential sale of the company. Some reports have gone so far as to indicate that this is in direct response to the receipt of bids or indications of interest for the company - though apparently from private equity buyers and not other companies. (For more, see Potential Takeout Targets.)

 
Match Game 
The stock has shot up more than one-quarter in response to these rumors, and the market is once again playing the Chinese menu game (pick one from column A and then one from column B). It is unlikely that any of Beckman's current major rivals would want to make a bid. It would not make sense for Abbott (NYSE:ABT) to be eager to buy into the chemistry business (where Beckman is strongest). Siemens (NYSE:SI) and Roche (Nasdaq:RHHBY) would not only have potential antitrust worries to reconcile, but would also have to explain to their shareholders how that deal would complement their stated efforts to produce more growth from their testing businesses from next-gen technology.


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Immucor Investors Out For Blood

It's not uncommon for Wall Street to strike unspoken bargains with certain companies in the healthcare space; If companies provide reliable, by-the-numbers performance, they will receive rich valuation multiples in return. That deal worked well for specialty diagnostics company Immucor (Nasdaq:BLUD) and its shareholders for many years, but has fallen apart since the company was beset by problems starting in 2009. Although the company had been making some progress, this latest quarterly report is likely to send the stock straight back to the penalty box for some time. (For background reading, see The Ups And Downs Of Biotechnology and Investing In The Healthcare Sector.)

The Quarter That Was
Immucor reported that sales rose only 1% for the fiscal first quarter, falling slightly short of the average estimate on the Street. Although the company saw decent growth in instrument sales (up 18%) with the ongoing launch of the Neo, traditional reagent sales fell 9%. That's a problem given that this figure represents almost 60% of total revenue. Capture reagent sales did better, though, with 18% growth. What was more worrisome was the company's shortfall in instruments and the lower guidance for system sales throughout the year. New machine sales fuel future reagent sales, so a reduction in system sales has broad implications for future profits.

For the full article, please click here:
http://stocks.investopedia.com/stock-analysis/2010/Immucor-Investors-Out-For-Blood-BLUD-BIO-GENZ-BSX-ABT-GPRO1007.aspx

I hope these guys get it all sorted out. I followed the stock as an analyst, and there are some very good people working there. 

By the way, Johnson & Johnson (JNJ - which I own) is the other half of the U.S. blood typing duopoly. Because I own the stock, I could not mention that in the piece...

Neogen Is No Bad Egg

There seems to be a sad inevitability to food safety scares in the United States. While the latest outbreak revolved around contaminated chicken eggs, it has not been all that long since numerous people were sickened by bad peanut butter, jalapeno peppers, ground meat or scallions. In fact, the CDC estimates that one in four Americans experiences food poisoning every year (those "24-hour flu" cases are far more likely to be food poisoning). 

Given the huge potential consequences to a brand or business being associated with food poisoning, it may be surprising that food safety testing is not a larger business in the United States. Yet, it is big enough to make Neogen (Nasdaq:NEOG) an interesting business. 


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http://stocks.investopedia.com/stock-analysis/2010/Neogen-Is-No-Bad-Egg-NEOG-PFE-ABT-BIO-HSY-GPRO0928.aspx

Please note - a mistake was made in the editing process and an editor accidentally replaced Merck KGaA with Merck (MRK) as the owner of Millipore. I've pointed this out and it should be corrected shortly. 

Chocolate 2.0

Perhaps humanity has seen the first step towards a long-held dream. No, not a manned mission to Mars, a cure for cancer or a solution for world peace; those would pale in comparison to the promise of healthier, cheaper and tastier chocolate. 

Scientists from Mars (the chocolate company), the U.S. Department of Agriculture and IBM (NYSE:IBM) have announced that they successfully sequenced the cacao plant. Although this is merely the first step, it opens up the door to a lot of potential changes. Though there will no doubt be howls of protests about the grim spectre of "Franken-chocolate" ruining the candy aisle forever more, agricultural companies and chocolate producers could ultimately forge a more sustainable crop and a healthier, tastier end-user product. 


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http://stocks.investopedia.com/stock-analysis/2010/Chocolate-2.0-IBM-HSY-NSRGY-TR-KFT0916.aspx