HTL - Hamilton Thorne

[Cigarbutt]

https://www.technologyreview.com/s/612258/are-we-designing-inequality-into-our-genes/

It's unclear how this will evolve.

For those interested, most of the expected developments have come using the CRISPR method.

 

Short video for introduction but there is, out there, a litany of more specialized videos:

 

The component related to disease cure or improvement is not that controversial.

However, the potential for human "improvement" is.

If unconvinced, just read Huxley's  Brave New World.

https://gutenberg.ca/ebooks/huxleya-bravenewworld/huxleya-bravenewworld-00-h.html

 

Will need constructive and respectful discussions and maybe will need to suppress the genes that get activated in political discussions. :)

 

[Jurgis]

Will need constructive and respectful discussions and maybe will need to suppress the genes that get activated in political discussions. :)

 

It sucks that human improvement through genetics is strongly associated with eugenics and Nazis. IMO we could be (way?) farther ahead if the research was not considered third rail and funding-starved. I wonder what will happen when some country (China? Russia? (see Russian approach towards Olympic athletes...)) decides that they are fine with this and start doing it on its population. But that would precipitate even more cries of racism based eugenics (and Nazis).  ::)

 

But when even progressive (?) people object to GMOs and get them essentially banned through large swaths of the globe, this is tough.

[Gregmal]

I think what's neat is that, like in the article, this may lead to breakthroughs when it comes to solving things like certain cancers/diseases. For decades billions has been poured into R&D. But maybe the biggest piece of the puzzle is screenings like the one mentioned... Very interesting stuff.

[Cigarbutt]

The article Gregmal refers to and Jurgis' comments underline some interesting challenges.

 

Hamilton Thorne is in a market (ART and IVF) that will be hugely affected by technological and regulatory changes. For example, the laser tools and sperm motility analysis software they sell may become obsolete when germ cells harvesting and analysis techniques change. Not for tomorrow but change is coming.  On the regulatory front, the US is a major market for HTL and the market is likely to grow tremendously but the regulatory landscape which is relatively vague and piecemeal will go through sweeping changes and these changes may impact HTL, mostly in defining potentially large opportunities.

 

If interested:

 

Gene editing is behind the designer babies theme but the issues raised by genetic engineering are already relevant in today’s world. The distinction between gene selection (through “mating”) and gene editing is much fuzzier than first level thinking would suggest. Gene selection has been used by humans (plants and animals) with amazing results and humans, when selecting a partner with whom to share DNA, apply, to a certain degree, gene selection. But the principles behind choosing a partner for humans have an evolutionary basis and remain poorly understood. Now, a human looking for an offspring can consult a sperm bank and choose a “donor” based on a multitude of factors based on ethnicity, eye color, genetic profile etc as really the only factor off-limit being the identity of the donor.

Example:

https://www.spermbankcalifornia.com/donors/donor_data/bzmpj5xgkt/docs/518MA_level1_app.pdf

 

If left unchecked, this expansion of genetic selection may give rise to really weird results and gene editing just adds an amazingly powerful level of complexity and risks.

 

If really interested:

 

Ages ago, Richard Dawkins wrote The Selfish Gene (recommended book by Mr. Munger). In the above video, he does not say if we should or should not embrace this new technology. He’s saying that we should tread carefully if we do.

 

On the technology aspect, difficult to discount but in a not so distant future (5, 10 or 20 years?), it is likely that ovum sampling, sperm “sampling” and analysis as well as the traditional fusion between the two “sources” of DNA will become optional with the use of alternative stem cells. Theoretically, these alternative stem cells could even be derived from simple skin sampling. In theory, one could produce a very high number of “results” with only a few selected based on a subjective set of criteria (physical appearance, ability in sports, music or Warren-Buffett-like ability to invest). Mind boggling. And these scenarios don’t even include the almost potentially limitless possibilities of gene editing.

 

Huge potential for terrible unintended consequences and I would tend to put on lid on this Pandora’s box but helpful to consider alternative perspectives.

 

https://jetpress.org/v27.1/araujo.pdf

 

[Gregmal]

There are certainly risks here. Only time will tell if HTL can navigate them. But one company's risks and regulatory issues are another company's moat...These are called barriers to entry if you are good, and they become excuses if you aren't.

[Jurgis]

In theory, one could produce a very high number of “results” with only a few selected based on a subjective set of criteria (physical appearance, ability in sports, music or Warren-Buffett-like ability to invest).

 

The real CoBF question is: did we get the sperm of Warren and Charlie in time?  8)

[Gregmal]

https://www.apnews.com/010a03a69e1730a743679f4e4d4a03ef

 

Ho hum earnings. It definitely appears the company has another acquisition target in it's cross-hairs. I'll most likely be adding once the dust settles.

[Cigarbutt]

Waiting for the dust to settle and keeping a long term orientation, there are a few key variables that will determine the "addressable" market, among those are the following two:

 

1-Coverage issue

The employer-sponsored coverage is likely to continue to become more comprehensive and, for the public or quasi-public coverage in the US, we need to continue to have a politics section for our discussions.

 

2-Another key determinant is the mean maternal age at first birth

A recently released report (figure 3) shows a trend.

Even if families are getting smaller (less babies), the delay before the first child is born remains a very strong indicator for the need to use services such as IVF later on.

https://www.cdc.gov/nchs/products/databriefs/db323.htm

[Gregmal]

Waiting for the dust to settle and keeping a long term orientation, there are a few key variables that will determine the "addressable" market, among those are the following two:

 

1-Coverage issue

The employer-sponsored coverage is likely to continue to become more comprehensive and, for the public or quasi-public coverage in the US, we need to continue to have a politics section for our discussions.

 

2-Another key determinant is the mean maternal age at first birth

A recently released report (figure 3) shows a trend.

Even if families are getting smaller (less babies), the delay before the first child is born remains a very strong indicator for the need to use services such as IVF later on.

https://www.cdc.gov/nchs/products/databriefs/db323.htm

 

Good stuff.

 

I've been also looking at the branch off's, such as what's been in the news lately with gene editing and as a result, companies like CRSP, EDIT, PTLA. I am not invested in any of those but want to kind of better grasp this space and opportunity. As Mark Cuban once said on Shark Tank to justify a rather unorthodox investment he made, "there's not too many opportunities that walk through those doors where I can make a billion dollars. This is one"... I think the same kind of rationale applies to the above. While unlikely, the potential is truly massive.

[Cigarbutt]

The company reported more of the same and building cash in the present situation may correspond to capital discipline.

The assisted reproductive landscape is changing and the US may continue to be the laboratory for various "social" experiments, given the patchy and incomplete regulatory environment.

 

An example:

https://www.wired.com/story/inside-lucrative-business-donating-human-eggs/

[Cigarbutt]

An interesting article about:

1-the potential growth of the fertility clinics (IVF) market

2-consolidating nature of a fragmented industry (site of services delivery and equipment supply)

3-private equity capital involvement

https://www.institutionalinvestor.com/article/b1ff3x6hcl5wbb/This-Venture-Capital-Fund-Wants-to-Get-You-Pregnant

 

On the topic of paying for growth and the targets that HTL is likely looking at now, interesting to note that premium paid will influence the return on the investment. A few years ago, Sagard Holdings (PE firm related to Power Corporation, eg involved with the purchase of Bauer BK assets with Fairfax) privatized IntegraMed Fertility, a leading consolidator, with an about 92% stake (some of equity shared with clinic owners). The company is private but inference can be made from Power Corporation reports and, last year, it looks like a major write-down (about a third of purchase price in 2012) was taken.

https://www.integramed.com/

 

I think the baby recession will continue in the conventional "market" but there is room to grow in the alternative and consolidating market.

[Gregmal]

https://finance.yahoo.com/news/hamilton-thorne-announces-acquisition-planer-120133171.html

[writser]

Interesting article in the Economist on the 'fertility business': https://www.economist.com/business/2019/08/08/the-fertility-business-is-booming .

[Cigarbutt]

Interesting article in the Economist on the 'fertility business': https://www.economist.com/business/2019/08/08/the-fertility-business-is-booming .

The article is well researched and identifies the main drivers behind trends.

The key drivers have been and will be: increasing maternal age at conception, declining male fertility irrespective of age, gap between demand and supply with growing awareness and increasing coverage, and relatively poor success rates which are bound to increase but which imply repeat cycles.

How to make money in this growing industry may mean getting into clinics or into the equipment and services side (capital equipment, disposable devices, media).

HTL is well positioned but is a small player. It must be hard to apply a roll out model under present circumstances because the sector tends to consolidate in an environment where (like the article says) "investors are pouring money into companies that promise to help people conceive". Discipline required. The Planer acquisition (capital equipment, incubators etc) is hard to assess because the acquired was private and price paid is described to include synergies which may be reasonable but still unproven. HTL had been working with the entity as a partner. As an example of the dynamics of the industry, an Asian conglomerate which includes the Mason Group and We Doctor holdings has acquired 89.5% of the leader in Australia with a global footprint (Genea Biomedx, private) in 2018. It is said that investor interest is going through the roof at this point and I like the patience displayed by HTL.

The US is a large market and because of patchy regulations (fewer rules than nail salons according to The Economist), innovation is likely to play a leading role. The CDC is keeping a record (with a lag) of relevant statistics. The number of cycles has been steadily rising, "success" rates remain low, multiple pregnancies are becoming less frequent especially in younger mothers and the number of embryos transferred per cycle has been coming down. See following for 2007-2016 trends, pages 56-67 of pdf document:

https://www.cdc.gov/art/pdf/2016-report/ART-2016-National-Summary-Report.pdf

2017 preliminary numbers show more of the same.

[Gregmal]

Definitely agree with you on that Cigarbutt. I have been very impressed with the discipline here. I had long thought the next acquisition would be a big tell for investors. Planer was at worst IMO a 5/10 with the potential to be better. What they paid seemed to be more in line with market rates vs stealing a few companies like they had done prior. But I've gotten very comfortable with Mr. Wolf and think it's clear at this point he is not just some dimwit kingdom builder. This still remains a top 3 position for me.

[Gregmal]

http://www.globenewswire.com/news-release/2019/11/21/1950758/0/en/Hamilton-Thorne-Reports-Record-Revenue-and-Adjusted-EBITDA-for-the-Quarter-and-Nine-Months-Ended-September-30-2019.html

 

I love earnings releases that consistently lead with "record". Organic growth pushing 20%.

[Cigarbutt]

^Also mentioned, almost as a footnote, is the record amount of equity grants. At least, the vesting period is long, 10 years, pretty much the time required to determine how your offspring (artificially conceived or not) will turn out.

[Artha158]

Gregmal,

 

What's your view on recent inventory buildup?

 

Thanks

[Gregmal]

Cigarbutt; noticed as well, however this translates to what? A mil and change(CDN at that) over the allotted vesting period? Not outrageous IMO. Although I am still transitioning in my development as an investor, from value only, so any time I see shares being given out it makes me wince.

 

Artha, I have only had the chance to read the release so Ill circle back here when Im able to sit down and look at subsequent and more detailed release with regard to updated financials. I'll hopefully be back in time to tune in for the call later so will pass along anything from there as well.

[Cigarbutt]

Gregmal,

 

What's your view on recent inventory buildup?

 

Thanks

Hi,

I'm not Gregmal but if you accept a second class answer:

Ending inventories Q2 2019=3.97M

Ending inventories Q3 2019=5.88M

At first glance, the growth in inventories has outpaced growth in sales.

But I would submit that the interim increase can almost be completely reconciled with the Planer acquisition completed during the quarter as it included 1.76M in inventories. As you are likely aware, this side of the business (capital equipement vs consumables) tends to be associated with higher and slower moving inventories.

 

Here's an additional comment to make sure I end up on your ignore list if not the case already. :)

 

In 1975, Geoffrey Planer published a very interesting article describing how "scientists" do not necessarily have the tools to bring an idea to market and to grow it profitably. I guess he was an exception as he was able to grow the inventory and said then that the growth required skills alien to the laboratory and also required more determination than expertise.

[Artha158]

Cigarbutt,

 

Glad to have more than one First class answer.

 

Thanks

[Gregmal]

So, the inventory as Cigarbutt said, has some to do with the acquisition(todays call reminded me of just how fun reconciling everything can get with roll ups!). I would also imagine its somewhat seasonal as previously Ive been told Q3-4 skew stronger than 1-2...not 100% sure why, but thats just how its been.

 

As for the call, overall I agree it was a very encouraging quarter and a bright outlook. I'd just add that Brexit did have an impact(positive) on the Q that will likely trickle into Q4 with October being stronger than normal and Nov/Dec somewhat weaker in terms of UK related biz.

 

Planer had a very strong stretch and is pretty much said to be integrated, although again, Brexit may have helped as far as the #'s go, which came in way above what was initially anticipated.

 

Lykos sales were robust and not said the be just a one off burst. Im a tad skeptical of that, but will be happy to remain surprised.

 

Margins roundaboutly seemed to be hinted as boosted on a one off basis. They've always said you've have fluctuation and that some acquisitions and third party sales would skew them lower. So thats fine.

 

Future acquisitions were mentioned and they remain ready to act. Not looking to get into back end stuff on the genetics testing side. Mentioned Illumina again which across the board from all the companies in and around this space I follow, seems to be a recurring thing, if nothing else, just highlighting how dominant Illumina is.

 

 

[Cigarbutt]

Random add-ons:

 

-They do seem to have an ability to target niches where they may have an edge and to avoid others areas where they don't. The cell media business is interesting to watch. The planer acquisition seems to have the potential to realize expected 'synergies', going in both directions.

 

-For the inventory part, they said on the call that they added 0.82M, year to date, most of which seems to have occurred earlier in the year and the growing the inventory with the business argument makes sense, given the altered profile with the recently integrated Planer acquisition.

 

-For the equity grants, I would submit that the expense, even if felt to be low now, may be largely unrecognized for a while. Looking at what happened to the 'book' value of convertible debentures used for the Gynemed acquisition and the quarterly variation of the output for the models, dilution may end up quite costly. Of course, with a long-term orientation and if the stars are aligned, this cost should eventually be easier to digest.

 

-For the seasonal part, this is largely immaterial but indirectly gives an insight into business dynamics. For instance, Vitrolife regularly report marginal seasonal variations because of holidays (before the summer and before the Christmas period) simply because some of the stuff they sell is perishable (media has short shelf life). It's funny in a way because there are seasonal variations in births (births in general) over the world but these variations show geographic (and cultural) patterns. The historical patterns inherited from agricultural and more 'primitive' periods have been attenuated but often data shows less births in November and December. A major factor behind the attenuation is the fact that women have become more educated and are conceiving later in life in the context of couples making more conscious decisions in the 'planning' process. Lately, IVFs account for about 2.5% of all births and older and more educated women representation in this segment is higher than in the general population. Another interesting feature is the almost complete disappearance of the 'Christmas' effect with a bump in births then occurring the following September. Instead of actual performance, couples spend more time on their phones to schedule their next IVF cycles and share Christmas pictures on Facebook with a mention that they obtained an appointment. Interesting times. Another comment on the potential seasonal variation related to IVF 'success' rates: good studies have showed quite clearly that this phenomenon does not apply but this is a typical area where quackery and pseudo-science can have a field day.

[Gregmal]

https://moiglobal.com/barr-walker-202001/

[longlake95]

 

  FT  article - Hungary’s Viktor Orban designates fertility clinics ‘strategic’ sector.

 

https://www.ft.com/content/72f71db2-32ed-11ea-9703-eea0cae3f0de