Competitor Analysis - hfac

clatteringlippsBiotechnology

Dec 5, 2012 (8 years and 10 months ago)

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Stock Pitch for Techne Corporation


Healthcare Sector

Harvard Financial Analysts Club

Firm Summary


Incorporated in Minnesota in 1981, Techne is
a holding company with two wholly
-
owned
subsidiaries, R&D Systems and R&D Systems
Europe


Two operating divisions: Hematology and
Biotechnology


Hematology products are used by hospitals to
check the accuracy of blood analysis equipment


Biotechnology Division develops and manufactures
purified proteins and antibodies that are sold
primarily to the research market and also assay
kits

Firm Summary


World’s leading supplier of research and
diagnostic cytokine products with over 20,000
products


Market Cap of 2.72B


Recently opened R&D Systems China in
Shanghai to provide support and better
product distribution there




Porter’s Five Forces


Rivalry


3 segments: Biotechnology, R&D,
Hematology


High cost of switching, lack of highly
perishable products


Acquisition of Fortron Bio Science, Inc., and
Biospacific



Threat of Substitutes


Drugs cannot be easily replaced by other
products in the industry.


Unique drugs needed.




Buyer Power


Products are not standardized


Difficult to switch to another product.


Number of different buyers.



Supplier Power


Hard to find generic substitutes


Patent protection


Federal trademark registration




Barriers to Entry


Government barriers: FDA regulations


Patents


Knowledge base


Asset specificity

SWOT: Strengths


Unique and diversified array of biotechnology
products and hematology calibrators and controls


Over 11,000 products available with a growing
catalog


Access to key distribution channel as an established
and reputable company with a long track record of
reliability


Has long term relationships with universities and
government centers


Customers are more likely to buy from again due to
the technical nature of their products


Announced a $150 million stock buyback last month



SWOT: Weaknesses


Some claims of patent infringement
from other companies in the past


Cutback in the biotech industry in the
past few years


Sales of older products have leveled off
due to changing technology

SWOT: Opportunities


Just opened a wholly owned foreign
enterprise in China


Growing biomedical community in China


Can provide better technical support for their
equipment in China


Worldwide operations with subsidiaries in
Minnesota, England, China, California, and
Germany


Large area for continued research as
cytokines play a central role in the immune
system and their function is crucial to
combating a number of diseases


SWOT: Threats


Other biotechnology companies such as
Amgen Corporation, which successfully filed a
lawsuit against Techne in 2002, especially as
the biotechnology industry becomes more
concentrated


Takeover of biotech companies by more
traditional and larger pharmaceuticals


Changing technological landscape means that
Techne needs to be constantly updating its
catalog of products



C o m p e t i t o r A n a l y s i s

Invitrogen (IVGN)


Invitrogen Overview


Leading biotechnology company


Market Cap (4.58 B) Price: 98.43


Same market niche


pre
-
made products to facilitate research process


Direct competition


products and tools in analyzing components in serum


Invitrogen’s Strength


Larger R&D base


Widely
-
recognized product
-

Gibco


Invitrogen’s Weakness


Heavy reliance on research funding


Fluctuation in Fetal Bovine serum pricing


International sales affected by exchange rates


Advantages and Disadvantages between Invitrogen and Techne


Market expansion


Invitrogen has larger base of research institution, international market.



Bureaucracy


Invitrogen relies heavily by grants from NIH


Techne’s R&D is wholly owned and self subsidized, making the company
more flexible (quality especially critical in biotechnology industry)

Competitor Analysis: Millipore (MIL)



Life science company that provides
technologies, and tools and services
to facilitate discovery, development,
and production of therapeutic
drugs, vaccines, and detection tools
worldwide


TECH

MIL

Market Cap:

2.73B

4.28
B

Employees:

628

6,100

Qtrly Rev
Growth
(yoy):

10.80%

12.40%

Revenue
(ttm):

229.12M

1.51B

EBITDA
(ttm):

135.16M

362.45M

Net Income
(ttm):

88.55M

109.84M

EPS (ttm):

2.239

2.004

P/E (ttm):

30.82

39.13

Beta:

.64

.54

5 year Comparison of TECH
and MIL stock prices

Strengths


From 2006
-
07, revenues grew 27 percent to $1.26 billion (compared to TECH’s 10%
growth)


Bioscience market performance was driven by strong growth in laboratory water,
successful new product launches, and execution of go
-
to
-
market initiatives

(acquired
Serologicals)


Bioproduction market performance was driven by strong consumable sales to
biopharmaceutical customers (acquired Newport Bio Systems)


Sales outside the United States were approximately 61 percent and 64 percent of total
sales in 2006 and 2005, respectively

Weaknesses



Demand for MIL bioprocess products and services are subject to the commercial success
of customer products, which may vary for reasons outside of MIL control


MIL uses third party manufacturers, which exposes it to increased risks that may affect its
ability to supply customers


Relies heavily on air cargo carriers and other third party package delivery services


Operations must comply strictly with government statutes and regulations


TECH’s Competitive Advantages


Direct competition in bioscience and bioprocess market; however
TECH and MIL production lines have different niches


In general, TECH is known for its temperature control and
regulator products while MIL is known for its filtration products.


Example 1: Water
-
baths and temperature regulator (TECH),
Water filtration system (MIL)


Example 2: Stirring 125
-
5000 mL (TECH), up to 75 or 300 mL
(MIL)


The advantage of TECH over MIL is that temperature control and
regulation is widely used among laboratories while MIL products are
used in specialized laboratories to perform micro
-
level experiments


Valuation Metrics


TECH:

Max since

8/30/04:

Min since
8/30/04:

Indust
r
y:

Market Cap (in B)

2.72

2.58

1.41

317.70

Price/Book

5.84

8.23

4.28

6.25

PEG Ratio

2.26

2.41

1.67


Price/Sales

11.88

12.56

8.45

8.13

Trailing P/E

30.78

42.04

24.90

29.49

Return on A
s
sets


20.3
5%

23.30%

17.50%

0.24%

Return on Equi
t
y


21.39%

25.75%

19.14%

4.27%

Total Debt/Equity

0.00%

0.061

0.036

0.52


Financial Statement

Techne Inc.

(NASDAQ: TECH)

Balance Sheet: Analysis


Current Assets: 212.8M; Current Liabilities: 17.2M


Solvency: 12.4


Cash as Percentage of Market Cap: 3%


Inventories: decrease by 3% from June 2006

Inventory

30
-
Jun
-
07

30
-
Jun
-
06

Raw Materials

3,821


3,561


Finished Goods

4,811


5,344


Supplies

125


119


Total Inventory

8,757


9,024


Balance Sheet: Analysis


Long Term Assets and Liabilities


Goodwill: 25.1M


Intangible Assets: 5.1M


Long Term Debt: N/A

Inventory

Useful Life

30
-
Jun
-
07

30
-
Jun
-
06

Goodwill

N/A

51,374


51,614


Goodwill Less
Accumulated
Amortization

25,068

25,308

Customer Relationship

2
-
10 years

20,200


20,200


Technology

8
-
16 years

4,213


4,213


Trade Name and
Trademark

5 years

1,396


1,396

Supplier
Relationship

1 year

14

14

Intangible Asset

25,823

25,823

Intangible Asset
Less Accumulated
Amortization

5,099

6,713

Income Statement: Analysis


Interest Expense: 1.08M


Anomalies


No One Year Bumps


2005
-
06: 13% revenue and 16% net income increase


2006
-
07: 10% revenue and 11% net income increase


2007 Q: Stable and steady revenue


Income Tax Expense: No abnormalities: 43.8M

PERIOD
ENDING

30
-
Sep
-
07

30
-
Jun
-
07

31
-
Mar
-
07

31
-
Dec
-
06

Total
Revenue

57,987


58,425


60,197


52,509


Net Income

23,072


22,924


23,893


18,663


DCF Model

Relevant WACC analysis data:


Risk
-
free rate = 4.15%


Beta = 0.64


Market premium = 6.5%


Total capital = 481.06M


Total debt = 0


Total equity = 466.26M


Other = 14.8M


Discount rate = 8.3%

DCF Model

Value per share: $47.48

(Current Price: $68.66)

Assumptions

Past values

Revenue growth

8.0%

11.2%, 13.4%, 9.9%

Total expense

49%

48.9%, 45.1%, 46.3%, 44.5%

Other general expenses

1.0%

0.5%, 0.6%, 0.5%, 1.2%

Net interest expense

-
2.5%

-
1.6%,
-
1.8%,
-
1.8%,
-
3.3%

Tax rate

36%

35%, 34%, 34%, 34%

Depreciation & amortization

4.0%

3.7%, 3.4%, 3.4%, 3.1%

Changes in working capital

5.0%

1.0%, 0.6%, 5.9%,
-
1.3%

Capital expenditures

4.0%

2.3%, 6.4%, 2.3%, 3.6%

DCF Model

What might be missing?


Expanding market into China


Zero debt outstanding


Niche market

Conclusion


Industry
-
leading operating margins, strong
cash flow, and strong balance sheet


Potential for growth as cytokines and proteins
are becoming increasingly important in
understanding biological processes


Growth into China


Niche market