America has a history of welcoming refugees from foreign shores. And now Wall Street is doing its part by welcoming a refugee from the United Kingdom.
Unlike the U.S. market, the U.K. market has never been very fond of technology stocks, including biotechnology companies. Their valuations—and the levels of interest the attract—are usually low.
That’s why recently a British biotechnology company with expertise in the emerging and increasingly profitable field of biological analysis delisted in Britain and moved its sole listing to the Nasdaq. It has had a secondary listing here since October 2020.The company is Abcam (ABCM), and here is its story…
Abcam is not a typical biotech or pharmaceutical company.
Its business involves identifying, developing, and distributing research-use-only (RUO) antibodies, which are used both by companies engaged in drug discovery, as well as academics involved in biomedical research.
Here is a clue as to how important Abcam’s RUO antibodies are globally: more than half of all life science research papers published in 2020 cited the use of one of the company’s products.
The key point, apparently missed by British investors, is that the company’s research-use-only antibodies are not, in fact, just used in research. Their use in diagnostics and other applications is growing rapidly, opening up new markets for Abcam.
Puneet Souda, a senior research analyst at SVB Securities, explained this point to Jennifer Johnson of the Investors Chronicle. Sousa said one major market opening up for Abcam is proteomics. This is the study of the proteome, investigating how different proteins interact with each other and the roles they play within an organism. Proteome is a blanket term that refers to all of the proteins that an organism can express. Each species has its own, unique proteome.
For many years, researchers have analyzed the human genome to help them diagnose and treat disease. But now, some scientists believe that looking at the proteome will be much more effective for treating certain diseases, as proteins can provide real-time insight into a patient’s health and disease state.
And note that Abcam’s antibodies are the key building blocks of the diagnostic panels that will be used to detect disease. As Johnson wrote:
According to Souda, these diagnostic tools haven’t yet been fully built, but their potential is significant, especially in diseases that aren’t driven purely by genetics. Cancer, for instance, has a significant genetic component, whereas heart disease is driven by a combination of factors. “Many chronic diseases are a function of our environment and lifestyle patterns—the genetic component is there, but they’re more environmentally driven,” Souda explains. “In order to identify what’s really happening, one really has to look at a snapshot using proteomics technology.”
This will translate to proteomics being a major growth industry. Grandview Research forecast that the global proteomics market size was valued at $22.3 billion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 13.5% from 2022 to 2030. According to Grandview, the key factor driving this growth is rising demand for personalized medicines and advanced diagnostics in targeted disease treatment and the high prevalence of those target diseases.
That’s why SVB Securities says Abcam’s goal of hitting sales of between £450 million ($530 million) and £525 million ($618 million) by 2024 as “conservative” given the company early leadership status in proteomics.
Abcam’s Future Outlook
While the future may look very bright, it has not been an easy road for Abcam.
The company is just now over halfway through a five-year investment cycle, whose goal was to scale the business globally over the next decade. The debts incurred to finance expansion plans, along with the coronavirus pandemic, had the effect of knocking profit margins hard.
However, capital spending has now started to level off. Abcam forecasts that total revenue will grow this year about 20% at constant exchange rates, due to greater contribution from higher-margin products. In the first six months of its fiscal year, the company expects to report revenue of around £185 million ($217 million), up 19% year on year at constant exchange rates.
And with top-line growth and efficiency gains, the company’s board expects the adjusted operating profit margin to exceed 30% in 2024, up from 19.2% in 2021.
If the company hits the upper end of its 2024 goals, Abcam could by then be generating adjusted operating profits of $188 million a year.
That makes Abcam a speculative buy.
Biotech stocks, at the moment, remain out of favor. Abcam stock is down more than 26% over the past year and has fallen about 37% year-to-date. Slowly accumulate the stock when the price is anywhere in the teens.
Then when biotech stocks rebound, the market will recognize Abcam’s full potential, and you will have a nice gain for your portfolio.