Medpace Holdings Facing Some Challenges To A Model That Has Worked Well

Medpace (MEDP) had some challenges in its first year as a publicly-traded company, as this full-service contract research organization (or CRO) saw revenue growth and margins weaken through 2017. Compounding those issues is a greater effort on the part of Medpace's larger rivals to target its core business - smaller biotechs that have historically been ill-served by the larger players in the CRO market.

Valuation is an interesting dilemma right now. It would seem that Medpace could generate high-single-digit to low-double-digit annual returns to shareholders even if it can't reaccelerate growth beyond peer/industry norms and has to absorb some additional margin pressure. While I don't expect it to be a quick (or certain) process, if management were to succeed with its efforts to reignite revenue growth there would be enough incremental return to make this a more interesting idea.

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Medpace Holdings Facing Some Challenges To A Model That Has Worked Well

PRA Health Sciences' Special Mix Could Have More To Offer

It's hard enough to find undervalued stocks today, and a stock that is already up more than 40% over the last year and within a few percentage points of its 52-week high is not initially the most promising candidate. To be sure, PRA Health Sciences (NASDAQ:PRAH) is not conventionally cheap on backward-looking multiples and there are valid concerns that the CRO market could be in for a harder stretch as biotech funding dries up and Big Pharma pushes another round of consolidation. On the other hand, PRA's strong foundation in clinical trial management and its growing capabilities in strategic outsourcing and data/analytics shouldn't be ignored, and I believe there are opportunities here for the company to outgrow its addressed market.

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PRA Health Sciences' Special Mix Could Have More To Offer

Seeking Alpha: LipoScience Rescues Some Value For Shareholders In A Sale To LabCorp

When I last wrote about LipoScience (NASDAQ:LPDX) in May, I pointed out that there was a reasonable chance that LabCorp (NYSE:LH) could acquire the company. LipoScience has struggled mightily as a public company, but the struggles have been related more to the company's limited resources and not the value or quality of the LipoProfile test. That prediction has come home to roost now, as LabCorp announced that it will in fact be acquiring LipoScience.

This deal by no means rescues the call I made on LipoScience back in my first piece on the company for Seeking Alpha, as the premium paid by LabCorp only makes it an incrementally less-lousy call. For LabCorp, though, this is a solid (albeit small) tuck-in deal and the sort of acquisition that could produce some worthwhile value down the road.

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LipoScience Rescues Some Value For Shareholders In A Sale To LabCorp

Seeking Alpha: LipoScience Nearly Back To Square One

LipoScience (LPDX) has developed a blood test (NMR LipoProfile) that has the potential to meaningfully improve outcomes for patients at risk of cholesterol-related cardiovascular problems, but it takes more than an FDA-approved test to make a business work. LipoScience is perilously close to becoming a company with a great future in its past, as the company continues to struggle to generate commercial interest in its test. A journal article based upon a retrospective analysis of LDL-P measurement could help spur interest and a takeover is a credible potential outcome, but LipoScience's current circumstances make this a highly speculative stock.

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LipoScience Nearly Back To Square One

Seeking Alpha: LipoScience - A Small Company Targeting A Large Market

Healthcare is arguably defined by a continual push for better mousetraps, and LipoScience (LPDX) may have a better mousetrap for diagnosing and characterizing heart disease. Not only does LipoScience provide information to doctors that other systems currently on the market do not, it does so with a platform that offers meaningful potential value for the hospital or lab using it. Diagnostics is a very crowded market and it is absolutely essential that LipoScience broaden its array of assays, but this looks like a small med-tech well worth keeping an eye on today.

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LipoScience - A Small Company Targeting A Large Market

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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Investopedia: Want A High-Yield Healthcare Stock? Look To Canada

Canada doesn't factor into discussions about healthcare very often outside of its national single-payer system. Nevertheless, investors looking for rich dividend payers in healthcare have to be willing to go the extra mile, and Canada rewards that search. While CML HealthCare (TSE:C.CLC) is not the easiest stock for American investors to buy or follow, the rich 8% yield, strong margins and growth potential make it worth the effort to consider. Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

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Seeking Alpha: Exact Sciences Could Be Exactly What Biotech Investors Need

Genomic testing has been a mixed blessing for investors thus far. While progress in the lab and clinic has been significant, the investment picture has followed a pretty familiar pattern - huge enthusiasm (and overvaluation) up front, crushing disappointment, and then general apathy and pessimism. If the pattern continues, a host of commercial successes should begin to appear over the next few years.

One of the more promising molecular diagnostics companies to watch at present is Exact Sciences (EXAS) - a small biotech company in pivotal studies for its non-invasive screening test for colon cancer.

Two Years To The Starting Line
If things go to plan, Exact Sciences should be launching the Cologuard test about two years from now. As of the company's last report, there are 59 sites enrolling patients for its pivotal study, and another 20 or so should come online in the first quarter of 2012.

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Exact Sciences Could Be Exactly What Biotech Investors Need

Seeking Alpha: Lincare - Unreasonably Cheap For A Good Reason

On first blush, Lincare LNCR) would look like one of those great undervalued GARP companies that famous investors like Peter Lynch gush about in their memoirs. The thing is, while Lincare may well have a lot of value in it, that value is a little like a bag of gold resting atop a pedestal … in a minefield … surrounded by razorwire … and on fire. Lincare management has indeed done a great job over the years of running this business, but it seems like government price cuts are going to be an unrelenting drag on the company.

A Pretty Mixed Third Quarter
Lincare's third quarter highlights some of the challenges that the company has to deal with now and in the near future. Reported revenue growth of over 13% sounds great, as does the little note that growth would have been nearly 16% without the impact of negative Medicare changes. Unfortunately, the organic growth was more on the order of 6% and that growth was not especially profitable.

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Lincare: Unreasonably Cheap For A Good Reason

Investopedia: Quest Diagnostics Opens Its Wallet One More Time

Quest Diagnostics (NYSE:DGX) is certainly not shy about spending shareholders' money to expand its business opportunities. Quest's latest deal, announced Friday morning, will have the company paying $8 per share in cash to acquire all of Celera (NYSE:CRA), a small company with a focus on molecular diagnostics and cardiovascular tests.

The Terms of the Deal
Quest Diagnostics will be paying $8 per share for Celera, a deal that has a sticker price of $671 million but a net cost of $344 million. Moreover, given the tax credits, loss carry-forwards, and capitalized R&D at Celera, the effective price of the deal will be even lower. Nevertheless, the deal represents a nearly 28% premium for Celera, nearly five times trailing sales, and a little more than four-and-a-half times forward sales.

At these prices, Quest is paying a premium similar to what Clarient received from General Electric (NYSE:GE) and superior to the deal Genoptix struck with Novartis (NYSE: NVS). Still, it might be a sobering reminder to MDx fans that the days of companies paying 10 times sales for molecular or esoteric test technology is long past. 

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Investopedia: Novartis Building Itself Into One-Stop Shop

Monday's announcement that Novartis (NYSE:NVS) will acquire Genoptix (Nasdaq:GXDX) offers an interesting lesson in how quickly things can change in the medical technology market. It was not so long ago that Genoptix was a hot idea and analysts treated it as an example of how the practice and business of medicine was changing. At that same time, Novartis was seen as a sluggish pharmaceutical company and a lagging part of the old guard. 

More recently, though, Genoptix appeared to have hit a wall in its near-term growth and management seemed to have a nearly empty bag of tricks to change that. Novartis, though, has remade the investment community's vision of the company, with more credit being given to its attractive pipeline and growing generics business. To that end, Monday's deal gives Genoptix shareholders a decent exit strategy, while giving Novartis yet another growth option for the future. (For more, see The Latest Greatest Corporate Mergers And Acquisitions.)

The Terms of the Deal 

Novartis announced that it will acquire Genoptix for $25 in cash, a 27% premium to Friday's price, but still a relative bargain on an EV/revenue or EV/EBITDA basis. Even acknowledging the low apparent valuation ratios on the deal, the terms were in line with the recent General Electric (NYSE:GE) acquisition of Clarient (a similar business) and reasonable relative to Genoptix's own near-term growth outlook. (For more, see Investment Valuation Ratios: Enterprise Value Multiple.)

What Novartis Is Getting 

Genoptix is a specialized lab services provider that targets community-based oncologists and hematologists with its specialized diagnostic services in leukemias and lymphomas. In very simple terms, an oncologist will send a patient sample to Genoptix, who will perform a variety of advanced tests on it to determine whether the sample is cancerous (and if so, what type).

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