Ok, that’s it. I’ve had it…
The last couple of months I have endured a barrage of abusive emails from Anteo (ASX : ADO) shareholders and received a ton of crap on trading forums. I get that I am at best misguided and at worst, a flaming idiot. But I have decided that the only thing I respect less than this company, are the shareholders that have invested in it. It is a fundamental tenant of investing that when your money ain’t working for you, you pull it out and put it somewhere else. In the case of ADO shareholders, I have a few creative ideas where they can put their share certificates…
Just as a reminder, this is what your investment looks like:The first time I wrote about ADO, my timbre was quite respectful. I invited comment and discussion about why the company was better than I thought it was. All I wanted was for someone to really come forth and explain why Mix&Go (after 10 years) was going to challenge something like AlphaLISA (or the bead based-proximity assay variant thereof) that PerkinElmer sells quite a bit of (and I use one PEI product as one example, there are many other surface chemistry offerings on the market). I questioned ADO’s commercial strategy, I questioned why they don’t have any “content” to their product offerings and I questioned why the CEO is paid so damned much money relative to the income and capitalisation of the business.
If you are an investor or an analyst, don’t you think those are fair questions to ask?
My second review of ADO was a little less friendly, frankly because of I was tired of getting emails from angry Western Australians by that stage, usually after they had quaffed a bottle of excellent Margaret River chardonnay and were keen to augment my lexicon in all kinds of wild and wonderful ways. But I was also a bit irritated by the sort of underwhelming marketing vapourware of “Nanoglue” (and those that chose to spruik it), frankly an embarrassment to any firm claiming to be a nanotechnology company. I have written several fairly detailed analyses of nanotech companies over the years based on personal experience of trying to commercialise nano/material science platform technologies (and studied a couple of hundred companies as a journal reviewer / editorial board member, a small business grant reviewer for the NIH/NCI/NSF and doing diligence for VCs).
By the time I got to my 3rd review of ADO, I guess you could say it was gloves off as far as the punters were concerned.
I am not going to cover ADO any more on this forum because there are some delusional individuals that believe my continued “pokes” only serve to reinforce that there must be either a personal grudge or affirmation that there is “something there” worth investing in. Crazy, I know – conspiracy theories abound. In this post, I am not going to talk about the company because there is nothing more to say that has not already been said (and to be fair, I have never really said anything unkind about individual people, except that Geoff is overpaid – which is a statement of fact based on annual industry compensation surveys that we all have access to).
Instead I am going to talk about ADO shareholders. There are two types of ADO shareholders (ignoring any “sophisticated” investors that may, for whatever reason, hold equity in this company). They are the “Snake Oil Salesman” and the “Whinger”. I will address each in turn.
The “Snake Oil Salesman” (hereafter “SOS”) is all in. This person wants to climb back up the Everest that is ADO’s depleted stock price and as soon as it is a smidgin’ over their entry point, they are going to be heading for the fire escape like a bat out of hell. This species of shareholder believes that if they spruik enough imaginary, correlative deals and throw around enough headline numbers from Frost & Sullivan reports, that some stupid wanker will buy up or at least hold their position long enough for a miracle to happen with the share price (yes, that’s the trainwreck that the ASX is sometimes). These shareholders talk to God on a regular basis, they have found new ways of interpreting the English language that astound even amateur hacks like myself. They run analytics on top of analytics to the point where you might actually be led to believe that this turd is a juicy fillet steak cooked rare with black truffles and a side-order of French asparagus. I despise them for their thinly veiled manipulation and the fact that half of them are probably “second cousins”.
In contrast, the Whinger is the insecure, intellectual type that specialises in reading tea leaves, consulting fortune tellers and endlessly complaining about the travesty that obviously everyone has failed to grasp that this company is actually brilliant. The Whinger faces every day with a puckered sphincter, perversely watching the stock price edge ever lower, without the courage to simply pull out and walk away. When I get emails from Whingers they are long, exploratory missives – heavily versed in the quasi-science that they effortlessly regurgitate from both SOSs and management like some sort of deranged parrot that was locked in a science lab. They plead, they argue, they beg for understanding in the hope that I will join them in their exquisite misery, like a cuckold watching his wife getting an ecstatic servicing from the guy next-door.
Well, for both the SOS and the Whinger, I have some news for you. Even if ADO has in fact done a deal with Philips and the “revolutionary” Minicare system based on the astounding “Magnotech” technology (yeah, no marketing there) incorporating ADO’s technology, who cares? You are still not going to get rich. By the way, anyone who has ever wielded a pipette in a laboratory (and I will be the first to admit, I am not personally that accomplished in terms of lab skills) knows that this kind of magnetic bead technology is neither here nor there. Philips is using concepts that have been around for at least a decade – the magic of Philips is in their productisation and their consumer marketing. Unfortunately most ADO shareholders don’t seem to get this.
So let us look specifically at the widely discussed troponin Minicare application.
Let’s ignore the existing players in the high-throughput testing area – like Siemens and Roche (both of whom have about a 30% market share). Let’s ignore some of the small players that already have approved products in the troponin PoC space (like Trinity). Let’s be SOS-style evangelists and take the position that emergency room / ambulatory applications for troponin testing (and maybe a few other things like CRP, etc.) is an exclusively accessible $350m global market (out of a $1.2Bn market, inclusive of centralised testing).
Now make a few very “reasonable” assumptions:
- That $350m addressable market is available today. Hmmmm…
- Philips does what Philips does … and becomes a top-three player, and captures 30% of the PoC cardiac biomarker market. That would be a stunning accomplishment by the way. Let’s call it a $100m business.
- We can ignore that this will take between 5 and 8 years to accomplish and let’s also be kind and forget about the time-value of money or the investment $ that need to be recovered.
- Assume that in terms of the intellectual property stack, less the machine, the reagents, the magnetic doo-dah system, etc. ADO manages to pick up 1% of net sales as a royalty. No, dammit, let’s be optimistic and imagine that they do a phenomenal job of inserting themselves in to the patent stack for the product and pick up 3% (that would be amazing for a surface chemistry by the way).
That’s THREE MILLION DOLLARS OF REVENUE.
Now let’s ignore profitability and just focus on the top-line. If ADO were PerkinElmer, they would have a market cap based on approximately 12 x revenue (keep the math simple and take 2014 GAAP top line as $500m). This is a reasonable benchmark for a life-sciences company. In this scenario, at steady-state, the valuation contribution of a Philips deal to ADO would be USD $36m. As an approximate rule of thumb.
With a current market cap of AUD $67m, I think it is fair to say that the company is overpriced. If you apply a reasonable NPV (with a discount factor suitable for a growth-stage company) and generously allow that full market capture will happen in 5 years, the story is even less compelling. If anyone is confused by this and trades on the stock market but doesn’t know how to use Microsoft Excel, send me an email and I will send you a spreadsheet (DYOR).
Now both the SOS and the Whinger will tell you that I have this wrong, that Philips isn’t the only deal in town, that ADO has a veritable pipeline of partnerships just waiting to be disclosed at the appropriate juncture. Unfortunately, I have seen exactly ZERO proof of this other than some dodgy comments from punters on HotCopper, who have allegedly had “wink wink nudge nudge” suggestions from the CEO. We don’t even know if Philips gives a shit about ADO technology, the only real evidence we have is an accidental comment a couple of years ago and some keen correlative shenanigans around the timing of press releases and marketing information from Philips.
Well, let me tell you about correlations…The bottom line is this.
One day, ADO may indeed pull off a collaboration for its technology. It may even be a “big one” as far as top-line device/consumable sales go. But because it is a platform technology, and because its “contribution” to an overall product will be fairly minor, the “piece of the pie” for ADO is going to be inherently small, and it is going to take some time to get there. Shareholders (SOSs and Whingers alike) have a very long way to go before the current valuation of the company is justified. Meanwhile, plenty of other firms are going to have a go in the PoC space and I can promise you that it will never even occur to them to contact ADO, that’s how unimportant this technology is.
My final thought for ADOs annoying* shareholders is this. Imagine if you were Philips, don’t you think it would be interesting to understand the vulnerability of the company (in the eyes of shareholders) before doing a deal by reading your thousands of pages of relentless speculation? If I were Philips, and I were (miraculously) interested in doing a deal, I would be setting a low-ball offer for technology, knowing that there would probably be a lynch mob if – and when – ADO disclosed to their fan club that they were not successful in closing a deal (which, by the way, they would have to disclose because based on your speculative shenanigans it would be a price-changing event).
So BOOM.*as opposed to the nice shareholders that have just quietly gone about the business of losing money and have left me alone. Thank you.
Feature Photo Cred : Still from Hollywood’s version of Much Ado About Nothing (1993).