Fluidigm Corporation: Investment Opportunity
Summary
- According to preliminary results, the company's revenue amounted to $38.2 million in the 4th quarter, up 36.4% from the previous quarter.
- Sales of CyTOF XT introduced to the scientific community in the first half of 2021 showed a 133% increase in sales in Q3 2021 compared to Q2 2021.
- 490 articles were published mentioning mass cytometry in 2021, which is 47.6% more than in 2020.
- Partnered with Rover Labs to perform COVID-19 PCR testing at more than 200 New Jersey public schools.
- 2 leading investment funds namely Casdin Capital and Viking Global Investors LP have invested $250 million in the company.
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Fluidigm Corporation (NASDAQ:FLDM) is a leader in the development of equipment and diagnostic solutions in an emerging technology, namely mass cytometry. According to the company, the global cytometry market will reach $4 billion by 2025, which creates prerequisites for improving the company's financial position.
Under the leadership of Chris Linthwaite and according to preliminary results, the company's revenue was 38.2 million dollars in the 4th quarter, an increase of 36.4% from the previous quarter. In addition, mass cytometry product and service revenue will be $21-21.2 million in Q4, up 33.5% from Q3 2021 and up 8.2% from a year earlier. Over the past quarters, one can observe significant progress in reducing the company's net loss, namely in the 3rd quarter it amounted to $13.8 million, which is 19.3% less than in the 2nd quarter of 2021.
Mass cytometry and the company's patent technology, namely CyTOF, allows you to simultaneously determine about 50 markers, and flow cytometry only no more than 13. The advantages of mass cytometry are reflected in the growth in the volume of studies in which this technology is used. So, 490 articles were published mentioning mass cytometry in 2021, which is 47.6% more than in 2020, and in my estimation this trend will continue in the coming years. Sales of CyTOF XT introduced to the scientific community in the first half of 2021 showed a 133% increase in sales in Q3 2021 compared to Q2 2021. In addition, the demand for the company's equipment using microfluidic technology is also growing. According to preliminary results, the revenue of this direction will be $14.1-14.2 million in the 4th quarter, which is 43.9% more than in the 3rd quarter of 2021 and 21.6% more than a year earlier. In addition, in partnership with Rover Labs, the company will provide its Covid-19 PCR testing services to more than 200 New Jersey public schools through the end of the school year.
Continued quarter-over-quarter revenue growth, the potential expansion of mass cytometry applications in various areas of the pharmaceutical industry, and the launch of next-generation equipment sales in 2021 make Fluidigm Corporation an excellent candidate for long-term investors.
Company's Financial Position. Revenue Growth Opportunities
The impact of the difficult situation caused by Covid-19 at the beginning of 2020, which is still affecting the financial situation of many companies in the diagnostic industry, including due to supply chain disruptions, the company's business continues to develop in a positive direction. Under the leadership of Chris Linthwaite and according to preliminary results, the company's revenue was 38.2 million dollars in the 4th quarter, an increase of 36.4% from the previous quarter.
Author's elaboration, based on Seeking Alpha
At the same time, the revenue of one of the company's key areas, namely mass cytometry, continues to grow from quarter to quarter. According to preliminary results, the revenue will be 21-21.2 million dollars in the 4th quarter, which is 33.5% more than in the 3rd quarter of 2021 and 8.2% more than a year earlier, namely,
Source: Author's elaboration, based on quarterly securities reports
At the same time, the revenue of another leading direction of the company, namely microfluidics, also continues to grow from quarter to quarter. According to preliminary results, the revenue will be 14.1-14.2 million dollars in the 4th quarter, which is 43.9% more than in the 3rd quarter of 2021 and 21.6% more than a year earlier, namely,
Source: Author's elaboration, based on quarterly securities reports
Over the past quarters, one can observe significant progress in reducing the company's net loss, namely in the 3rd quarter it amounted to $13.8 million, which is 19.3% less than in the 2nd quarter of 2021. However, less modest results were shown on an annualized basis, namely, the net loss in Q3 2021 was 130% more than in Q3 2021. The main reason for this is the receipt of an $11.7 million payment in Q3 2020 on a $34.6 million contract with NIH that was aimed at increasing the company's Covid-19 testing capacity.
Source: Author's elaboration, based on Seeking Alpha
In my estimation, the downward trend in net loss will continue in the coming years as revenue from Covid-19 testing increases, sales of CyTOF XT increase, new product launches around the world and the performance of existing equipment increases.
The cash situation
Fluidigm is a leader in the development of equipment and diagnostic solutions in a nascent field like mass cytometry, which has had a negative impact on cash flow. However, since the launch of CyTOF XT and the Hyperion Imaging System, things have begun to improve. In Q3 2021, the company had $29.3 million in cash, down $5.2 million from Q2 2021.
Source: Author's elaboration, based on Seeking Alpha
Moreover, on January 24, 2021, Fluidigm management announced that 2 leading investment funds, namely Casdin Capital and Viking Global Investors LP, have invested $250 million in the company. Thus, if the transaction is closed, the company's cash and cash equivalents will be about $250-300 million in Q1 2022, which will contribute to the faster development of ongoing CyTOF XT and Biomark X research.
Source: Author's elaboration, based on quarterly securities report
Let's take a closer look at the most promising diagnostic direction of the company, in which the company continues to strive not only to expand its geographical presence but also to produce more productive equipment.
Mass cytometry
Mass cytometry is a type of cytometry that is used in fields such as oncology, immunology, pharmaceuticals, and various scientific research. According to the company, the market for cytometry can grow to $4 billion by 2025, thereby creating the preconditions for continued growth in the company's revenue,
Fluidigm is one of the pioneers and leaders in the development of equipment and solutions for mass cytometry. Mass cytometry and the company's patent technology, namely CyTOF, allow you to simultaneously determine about 50 markers. While flow cytometry, which is currently widespread, can analyze no more than 13 markers per measurement. Thus, I believe that mass cytometry has a significant advantage over flow cytometry in terms of the amount of information obtained in studies of heterogeneous cell populations per analysis. This advantage is reflected in the growth of the equipment used, namely
Source: Author's elaboration, based on quarterly securities reports
Also, sales growth of both the Hyperion Imaging System and the recently developed CyTOF XT, which are the leading instruments in mass cytometry at the moment, can be seen. Thus, the sales of CyTOF XT, presented to the scientific community in the first half of 2021, showed a significant increase in sales in the 3rd quarter compared to the 2nd quarter, namely
Source: Author's elaboration, based on quarterly securities reports
In addition, despite the negative impact of the pandemic and the restrictive measures associated with it, they did not affect the growth in the volume of studies in which mass cytometry is used. It should be noted that 490 scientific articles were published that mentioned this technology in 2021, which is 47.6% more than in 2020, and in my estimation, this trend will continue in the coming years.
Source: Author's elaboration, based on NIH
On May 25, 2021, the company launched the sale of a new generation cytometer, namely CyTOF XT for mass cytometry, which has significant advantages, namely
CyTOF XT has more performance than previous generation cytometers, it can also speed up and reduce the cost of ongoing research, which in my opinion will facilitate faster implementation in various research centers and also in pharmaceutical companies to more comprehensively understand the development of oncological diseases. Also, according to the company's plans, it is expected to improve the characteristics of cytometers in the future.
In addition, on February 10, 2021, an agreement was reached with PLT Tech, under which the company will sell CyTOF equipment and reagents in China, where the target market is growing at a double-digit rate, thus creating huge opportunities for significant growth in the company's revenue in the future. Thus, Fluidigm being a leader in the development of equipment and solutions in mass cytometry, numerous partnerships in high-growth markets, recently received funding from two leading funds, this sets the stage for faster growth in the use of this technology, which in my opinion will improve the financial position of the company within the next 2 years.
Covid-19 testing
The company has a portfolio of microfluidics products, including the recently introduced Biomark X, which integrates Juno's microfluidic platform with the company's current BioMark HD instrument. BioMark HD is a PCR/qPCR system capable of performing a variety of genetic analyzes of samples, including the presence of Covid-19 and its variants in nanoliter volumes. Since the spread of the coronavirus in 2020, the company has been among the first to develop saliva-based Covid-19 tests. This is how the company obtained EUA approval from the FDA to use BioMark HD to analyze samples for the virus, including home testing, which is gaining popularity as a result of Omicron's proliferation. The spread of a new variant, namely Omicron, led to a significant increase in the number of cases and, as a result, contributed to an increase in testing volumes, namely
Source: Author's elaboration, based on CDC
As part of President Biden's strategy, in Q1 2021, HHS announced it would begin investing in Covid-19 school testing totaling about $10 billion. As a result, on January 11, 2022, Rover Labs partnered with Fluidigm to announce the start of Covid-19 testing at more than 200 New Jersey public schools through the end of the school year. The company's estimate that thousands of tests a day will be carried out, thus contributing to the improvement of the epidemiological situation in the state. A significant increase in demand for the company's Covid-19 testing services will help improve the company's cash flow in 2022.
Risks
Negative impact of Covid-19
The Covid-19 pandemic is disrupting the supply chain, causing delays in the production of equipment, which ultimately results in longer delivery times for equipment to customers. These delays harm the company's revenue and also lead to additional costs associated with finding other suppliers of key cytometer components. Thus, even though the company is one of the diagnostic companies producing equipment for Covid-19 testing, the pandemic is negatively affecting the growth of revenue in the company's core area, namely mass cytometry.
Macroeconomic risks
As already mentioned in my previous article "Phathom Pharmaceuticals: Undiscovered Gem", the Fed is expected to raise rates as early as 2022, namely
As a result, the increase in rates may have a negative impact on the growth of index quotations and, as a result, lead to a temporary decrease in the prices of the company's shares.
Fluidigm Corporation Forecast and Price Target
To determine Fluidigm's target price, I used a discounted cash flow model through the end of 2025, using the Revenue ratio to estimate the value of the company. I made the following assumptions based on historical data, company management forecasts for 2021, and also my assessment of Fluidigm products and developments for the next 5 years.
Source: Created by author
When determining the target price of the company, several criteria were taken into account, namely, an EV/Revenue ratio, equal to 15.8x, calculated on the basis of data from diagnostic companies. It should be noted that this coefficient for the company is significantly lower than the average value for the selected companies, which is one of the signals that Wall Street underestimates Fluidigm.
Source: Author's elaboration, based on Yahoo Finance
Between 2023 and 2024, I expect Fluidigm's revenue to grow by 20% due to the launch of new equipment, the beginning of the commercialization of CyTOF technology in China, and the increase in partnership agreements with pharmaceutical companies. In addition, between 2022 and 2025, the company's gross profit will increase to 35% by 2025 as the company's portfolio grows and the impact of Covid-19 on the pharmaceutical and diagnostic industries decreases. It should be noted that due to the effective management of the company, the company's net debt remains at a stable level, namely,
Source: Author's elaboration, based on Seeking Alpha
When developing the DCF Model, I predicted that the company would continue to redeem the bonds according to the maturity, namely,
Author's elaboration, based on 10-Q report
Thus, my forecast for the key financial indicators of the company, taking into account the above assumptions, is as follows:
Source: Created by author
As a result, based on the DCF Model and my assumption that the company will redeem the senior notes, Biomark X and CyTOF XT sales will show double-digit growth and also taking into account the risks associated with the company's business and the US macroeconomic situation, my target price is $10 per share by 2025.
Source: Created by author
Conclusion
Fluidigm is a leader in the development of equipment and diagnostic solutions in the emerging field of mass cytometry.
Under the leadership of Chris Linthwaite and according to preliminary results, the company's revenue was 38.2 million dollars in the 4th quarter, an increase of 36.4% from the previous quarter. In addition, mass cytometry product and service revenue will be $21-21.2 million in Q4, up 33.5% from Q3 2021 and up 8.2% from a year earlier. Over the past quarters, one can observe significant progress in reducing the company's net loss, namely in the 3rd quarter it amounted to $13.8 million, which is 19.3% less than in the 2nd quarter of 2021.
Mass cytometry and the company's patent technology, namely CyTOF, allow you to simultaneously determine about 50 markers and flow cytometry only no more than 13 markers. The benefits of mass cytometry are reflected in the growth in research volumes in which this technology is used. Sales of CyTOF XT introduced to the scientific community in the first half of 2021 showed a 133% increase in sales in Q3 2021 compared to Q2 2021.
In addition, the demand for the company's equipment using microfluidic technology is also growing. According to preliminary results, the revenue of this direction will be $14.1-14.2 million dollars in the 4th quarter, which is 43.9% more than in the 3rd quarter of 2021 and 21.6% more than a year earlier. In addition, in partnership with Rover Labs, the company will provide its Covid-19 testing services to more than 200 New Jersey public schools through the end of the school year.
Given the risks and catalysts described in the article, I set a target price of Fluidigm at $10 per share until 2025.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of FLDM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article may not take into account all the risks and catalysts for the stocks described in it. Any part of this analytical article is provided for informational purposes only, does not constitute an individual investment recommendation, investment idea, advice, offer to buy or sell securities, or other financial instruments. The completeness and accuracy of the information in the analytical article are not guaranteed. If any fundamental criteria or events change in the future, I do not assume any obligation to update this article.