Hey all, I am experimenting with a new video format for my monthly summary. Any feedback is welcome!
There is also a video I created about the company GeneDx (WGS) which had a really strong Q4 report.
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I enjoyed getting a deeper dive into your thoughts on the companies. I think you should add time stamps to improve rewatch ability or to allow the viewer to get to the targeted information faster. I did like your written posts before and the transcript from youtube does leave a little to be desired.
But overall thank you for the effort you put into this. It was nice to hear your thoughts.
Drew
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Nice review as always! And congrats on your new Youtube channel. It appears that you have several investments in Biotech but you don’t seem to pay much attention to pipeline. I’m still learning about investment so I might be wrong, but I think pipeline does matter for Biotech companies.
Investing into Biotech companies can be very different from other types of companies we talk about on this board. Almost every biotech company who has a newly FDA-approved drug will experience rapid revenue growth, which makes them look like a nice growth company. But there are several differences worth our attention:
- Biotech company’s drugs usually have a way more smaller TAM than software companies. For example, ARDX’s current peak sale potential is expected to be only $1.75B by the company itself. It’s not only doubtful whether that can really be achieved, but the revenue growth rate also often significantly slow down even before reaching that target.
- The speed of innovation in Biotech industry is rapid. A new drug approved could quickly replace an existing one.
- Last but not least, a biotech company is often valued with Price / Peak Sale Potential (P / PSP) ratio. So the peak sale potential of a drug can often already be priced in at least partially when the growth starts to ramp up.
ARDX’s P/PSP ratio is less than 1, which means it may be undervalued because the industry norm is typically 1~3. But without anything meaningful in the pipeline, ARDX’s upside is still pretty limited and the execution risk is high.
IMHO, the ideal biotech companies to invest into are those which have both hyper-growth from existing drugs and also have a packed pipeline that can ensure no cliffs in future growth, e.g. $AXSM. Although trial studies can fail, if there are multiple late stage studies, it could help to de-risk.
Luffy
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Thank you for the feedback!
For biotech financials I am typically looking for the same type of numbers I would in other industries of accelerating revenue and profitability. Especially with biotechs I like to see profitability to show that the business model, or reimbursements are already working. That generally means the company has at least one or hopefully more approved products that can sell at a decent profit margin.
With regards to TAM on biotechs I prefer if the condition they are treating is relatively common. I ended up selling my shares of ADMA Biologics because they treat only a few thousand patients for autoimmune diseases and their revenue per patient is astronomically high. I believe that adds extra risk that if insurers or reimbursements stop coming through most of those patients cannot pay out of pocket. On the other hand with the biotechs I am currently in the market for genetic testing, wound care, and IBS a more common condition seems large. So basically I want revenue growth, profitability and a big TAM.
In terms of an expanding pipeline, I’d prefer to see significant R&D spend that is going up over time. I don’t want to see a company which just bought the patents and is capitalizing off that primarily as the company probably cannot innovate much beyond where they are currently. For example, GeneDx’s R&D spend is increasing an encouraging sign. If there is any narrative around the innovation they have to bring new drugs to market I like to see that.
On drugs in trial I typically do not want to count eggs before they hatched. A long time ago I tried investing in biotechs that depended on the binary event of getting the trial to approval. I never once guessed correctly a product coming to market and in a couple cases I held a biotech for a couple quarters before they dropped a huge percentage when the trial got rejected. I am cautious about biotechs that depend on a trial outcome. I’d like them to at least have a current profitable product so if they do miss that trial on a new drug trial the stock might drop 10% as opposed to 50%.
One more observation is that the three biotech’s I own currently make up 9.1% of my portfolio, so it’s not a huge allocation there even though it is 3 out of 11 companies that I own. Those three companies are on the smaller side of market caps where the valuation of the company seems attractive and I can see them having upside just from the current product lines.
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The Supply and Demand Imbalance Driving ASCENIV’s Pricing Power
ASCENIV, a flagship intravenous immunoglobulin (IVIG) product from ADMA Biologics, commands premium pricing due to an extreme supply-demand imbalance in the market. The company is constrained by the availability of high-quality plasma donations, a crucial raw material for IVIG production. While there are an estimated 25,000 patients who require ASCENIV for a healthy life, current production capacity can only serve 700-900 patients. This drastic shortfall allows ADMA to charge high prices, as demand far outstrips supply. If an insurance company does not want to pay the high prices for ASCENIV it will not change the supply demand situation, which limits the insurance companies ability to negotiate prices down.
Expanding Production: A Multi-Year Growth Catalyst
Recognizing the massive unmet demand, ADMA Biologics is aggressively scaling up production. Over the next two years, the company plans to increase output by 5-6 times. While this expansion will improve supply, it will still fall significantly short of meeting total market demand, ensuring that ASCENIV remains a high-value, premium-priced product.
A price correction may occur over time as more product enters the market, the shortfall will remain severe, preserving ADMA’s strong pricing power. Even at higher production levels, the company would still only be addressing less than 20% of the total patient need.
Recurring Revenue Model and High Margins
Unlike one-time treatments or curative therapies, ASCENIV operates under a recurring revenue model. Patients require infusions every 3-4 weeks, ensuring a consistent and predictable revenue stream. This dynamic not only provides stability but also makes ASCENIV a key long-term growth driver for ADMA Biologics.
Additionally, ASCENIV is ADMA’s highest-margin product, contributing to over 50% of total revenue. As production scales, margins are likely to compress, but the company will still maintain a premium pricing tier due to ASCENIV’s role as a final-step treatment for immunodeficient patients. Even with minor price adjustments, overall revenue and profitability are expected to increase substantially.
Why ASCENIV and ADMA Biologics Are a Strong Investment
- Massive Market Demand – There are far more patients in need than ASCENIV can currently supply, ensuring sustained demand for years to come.
- Pricing Power – Due to supply constraints, ADMA has significant leverage in pricing negotiations, keeping margins high.
- Production Expansion – Increasing production 5-6x over the next two years will drive major revenue growth.
- Recurring Revenue – ASCENIV is a long-term treatment, not a one-time cure, ensuring stable and predictable income.
- Long-Term Growth Potential – Even with increased production, ADMA will still be serving less than one-fifth of the current market, leaving plenty of room for future expansion.
Final Thoughts
While some are rightfully cautious about biotech companies with niche markets, ADMA Biologics presents a unique case of extreme demand exceeding supply, allowing for strong pricing and sustainable growth. Even if pricing normalizes slightly over time, ADMA’s expansion will ensure rising revenues and continued market dominance in the IVIG sector.
With ASCENIV as the company’s primary revenue and profit driver, and with a clear path to 5-6x production growth, I remain extremely bullish on ADMA’s future.
Drew,
Long ADMA
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To this point my observation about diagnostics companies is a lot of them have had low-margin, race-to-the-bottom business models; some, like $NVTA ended up bankrupt.
So I’m trying to figure out the competitive moat of $WGS
They published a paper which I think describes in some detail, exactly what process they use and exactly what sequencing equipment they use
https://www.nature.com/articles/s41467-023-40898-3
And they are long-time participants in the GeneMatcher platform, which they both benefit from, AND add data to, to the benefit of others, including their competitors
https://pmc.ncbi.nlm.nih.gov/articles/PMC9306743/
Which makes me wonder: what is their moat, if they have told their competitors what process they use, what equipment they use and where to access the resulting data? They must have a moat; without one, they couldn’t charge the prices they charge.
…is it just first-mover advantage? And/or proprietary knowledge of how to do the clinical work to get value-added results like fast turnaround time ?
And/or IP? From their presentation:
Patent applications have been filed to develop an IP portfolio directed to our
innovative platform of genetic variant identification, clinical interpretation and
innovative diagnostic tools developedusing artificial intelligence"
Regarding data, their presentation says:
Our data is unmatched in size, breadth, and depth— making it highly infeasible for competitors to recreate
…so even though they upload data to GeneMatcher,…apparently they don’t upload ALL of their data to it? They keep some data as proprietary?
I’m interested in any/all thoughts surrounding $WGS’ competitive moat.
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GeneDx has sequenced 750k exomes and genomes so far which is up from 710k recently and up from 250k some years ago. My understanding is each gene sequence added creates potential new indications for severe conditions like autism. Effectively the system is getting better at finding more conditions and rarer conditions.
I believe this increase in number of genes, combined with the faster turn around times allows them to raise the price of the tests which have gone up significantly in each recent quarter. The test currently sells for $3500, and that compares to a test that Natera has for $1000. The price differential exists because Natera is testing for less conditions. Part of my thesis here is the more expensive deeper test will get more demand over time, possibly taking market share from the more shallow tests.
My understanding was GeneMatcher is a separate system from their system which gathers test results. I don’t think they are giving everything away that would allow someone to copy cat their product, but it sounds worthy of further investigation.
On the moat, I haven’t seen a bunch of competitor products, most seem to be early stage competitors or nonpublic companies. I’m still trying to understand the competitive dynamic between Natera and GeneDx though. With GeneDx’s data sets growing fast, I believe they have the potential to separate themselves from a lot of the potential competition.
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