Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: [email protected]Update Equity Research 7 April 2020 KEY STATS Ticker Genob.st Market First North Price (SEK), April 3 21.9 Market Cap (SEKm) 1434 Net Cash 20E (SEKm) 33 Free Float 100 % Avg. daily volume (‘000) 145 BEAR BASE BULL 15.0 50.0 100.0 ANALYSTS Håkan Östling, tel +46 (0)70 520 1967 [email protected]Anders Hedlund, tel 46 (0)70 952 0912 [email protected]KEY FINANCIALS (SEKm) 2017 2018 2019 2020E 2021E 2022E Net sales 23 35 61 53 108 139 EBITDA (adj.) (6) 4 17 1 25 38 EBIT (adj.) (8) 1 14 (4) 21 35 EPS (adj.) (0.14) (0.06) 0.1 (0.06) 0.32 0.53 EV/Sales 8 9 20 26 13 10 P/E (adj.) NM NM 195 NM 67 41 5 5 4 0 5 10 15 20 25 30 35 20-mar 18-jun 16-sep 15-dec 14-m OMXS 30 Genovis Paradigm Play Redeye lowers 2020 estimates in anticipation of a transition year for Genovis, a cutting-edge enzymes producer, but ups its long-term fair value following company visits and a review of the case. The emerging paradigm shift in bioprocessing plus solid fundamentals promises superior long-term growth. Falls in the stock in the challenging current environment would provide entry points to a compelling case whose best is yet to come. Genovis remains on Redeye’s Conviction Buy List. Exceptionally well positioned, strong balance sheet Genovis benefits from excellent market positions, driven by its unique product offering combined with the successful strategy of working closely with customers. This allows it to launch innovative new products regularly. Its facilities are well invested, the organisation strong and management outstanding, in our view. The recent capital injection provides a cushion and should help Genovis muddle through in a difficult period. Strong post-corona prospects Genovis operates in an attractive niche that is set to grow by around 10% per year. Benefiting from several secular trends through new launches and geographic expansion, it should grow much faster and could even outdo its own target of 25% a year in the core Analytics area. Bioprocess step change We regard the new project that uses Genovis’s enzymes in a clinical test phase for the first time as very exciting. This development has the potential to become a real game-changer offering growth opportunities of an altogether different magnitude. Unlocking long-term value While sales and earnings are likely to dip substantially this year due to the corona crisis, we expect an impressive revival in 2021-22 as Analytics grows solidly and the new Bioprocess business starts ramping up. Apart from a stabilising global economy, possible catalysts include new product launches and potential follow-up orders on the bioprocess pilot project. Genovis’s profile and ownership structure suggest the company may also be a takeover candidate in the longer term, which should lend further support to the case. Please note that this Update introduces a change in analyst responsibilities. Håkan Östling is Redeye’s new Lead Analyst on Genovis. Anders Hedlund remains on the team as No. 2. Genovis Sector: Medtech REDEYE RATING Genovis shares versus OMXS30 - LTM FAIR VALUE RANGE Financials People Business
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Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: [email protected]
Update
Equity Research 7 April 2020
KEY STATS
Ticker Genob.st Market First North
Price (SEK), April 3 21.9 Market Cap (SEKm) 1434 Net Cash 20E (SEKm) 33 Free Float 100 %
Paradigm Play Redeye lowers 2020 estimates in anticipation of a transition year for Genovis, a cutting-edge
enzymes producer, but ups its long-term fair value following company visits and a review of
the case. The emerging paradigm shift in bioprocessing plus solid fundamentals promises
superior long-term growth. Falls in the stock in the challenging current environment would
provide entry points to a compelling case whose best is yet to come. Genovis remains on
Redeye’s Conviction Buy List.
Exceptionally well positioned, strong balance sheet
Genovis benefits from excellent market positions, driven by its unique product offering
combined with the successful strategy of working closely with customers. This allows it to
launch innovative new products regularly. Its facilities are well invested, the organisation
strong and management outstanding, in our view. The recent capital injection provides a
cushion and should help Genovis muddle through in a difficult period.
Strong post-corona prospects
Genovis operates in an attractive niche that is set to grow by around 10% per year. Benefiting
from several secular trends through new launches and geographic expansion, it should grow
much faster and could even outdo its own target of 25% a year in the core Analytics area.
Bioprocess step change
We regard the new project that uses Genovis’s enzymes in a clinical test phase for the first
time as very exciting. This development has the potential to become a real game-changer
offering growth opportunities of an altogether different magnitude.
Unlocking long-term value
While sales and earnings are likely to dip substantially this year due to the corona crisis, we
expect an impressive revival in 2021-22 as Analytics grows solidly and the new Bioprocess
business starts ramping up. Apart from a stabilising global economy, possible catalysts
include new product launches and potential follow-up orders on the bioprocess pilot project.
Genovis’s profile and ownership structure suggest the company may also be a takeover
candidate in the longer term, which should lend further support to the case.
Please note that this Update introduces a change in analyst responsibilities. Håkan Östling is
Redeye’s new Lead Analyst on Genovis. Anders Hedlund remains on the team as No. 2.
Genovis Sector: Medtech
REDEYE RATING
REDEYE RATING
REDEYE RATING
REDEYE RATING
REDEYE RATING
Genovis shares versus OMXS30 - LTM
REDEYE RATING
Genovis shares versus OMXS30 - LTM
REDEYE RATING
REDEYE RATING
Genovis shares versus OMXS30 - LTM
REDEYE RATING
Genovis shares versus OMXS30 - LTM
REDEYE RATING
REDEYE RATING
FAIR VALUE RANGE
Genovis shares versus OMXS30FAIR
VALUE RANGE
Genovis shares versus OMXS30 -
LTM
REDEYE RATING
Genovis shares versus OMXS30FAIR
VALUE RANGE
Genovis shares versus OMXS30FAIR
VALUE RANGE
Genovis shares versus OMXS30 -
LTM
REDEYE RATING
Genovis shares versus OMXS30 -
LTM
REDEYE RATING
REDEYE RATING
Financials
Financials
Financials
Financials
Financials
Financials
People
People
People
People
People
People
Business
Business
Business
Business
Business
Business
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Investment Thesis High-quality small cap
Genovis benefits from a combination of excellent market reputation, a unique and powerful
product platform and very close relationships with its key customers. Its integrated set-up and
dynamic culture make it highly innovative, launching smart new solutions regularly.
Furthermore, its risk profile is low: it generates cash and is not subject to traditional regulatory
burdens.
Steep curve from 2019 milestone…
Last year was a notable breakthrough for Genovis. Its overall development was very positive,
with new product launches, geographic expansion and a continued organisational build-up
spurring further organic growth. It also posted its first-ever full-year profit and received a
potentially game-changing order in a new and highly exciting field. The future promises much
more of the same.
…thanks to highly favourable outlook
Genovis’s future growth opportunities are exciting. Its traditional and core business area,
Analytics, appears excellently positioned to benefit from strong growth for a long time to come.
The underlying market is growing some 10% per year but Genovis, coming off a small base and
benefiting from several secular themes, should be able to more than double that for the
foreseeable future, we judge. On top comes the potential golden egg – the new bioprocess
business area, which won a strategic and pioneering pilot order last year.
Long-term potential not priced in
The stock has been an exceptional performer. It is up a further 50% or so over the past 12
months and has held up rather well this year. Even so, current valuation fails to do justice to
Genovis’s exceptional opportunities. If the bioprocessing paradigm shift that we are already
seeing indications of occurs, we firmly believe the stock will remain a compelling investment
for the future. In addition, the company looks increasingly like a takeover candidate, which
would merit premium pricing.
GENOVIS SHARE PRICE (SEK) PERFORMANCE 2018 - TO DATE
Source: Genovis, Redeye Research
0
5
10
15
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25
30
35
2018 2019 2020
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Bear points Temporary trouble
We acknowledge the risk that 2020 might end up being an in-between year. Not only is the
corona crisis a real challenge (see further below), but the company already delivered its pivotal
bioprocess order in full in 2019; even if this area is set for exceptional future growth, it is far
from certain that much further evidence will be visible this year. Similarly, the EBIT margin could
suffer temporarily as Genovis strengthens the organisation and invests in new capacity. We
regard this as reasonable and factor it into our forecasts, but investors may nonetheless react
with unease as the picture starts to show through.
Little margin for error
Valuation raises the stock’s near to medium term-risk. While it remains very attractive in view
of the long-term evolution we picture for Genovis, the combination of limited nearer-term
evidence of success and news of a more worrying kind may be unsettling - especially to
investors with shorter horizons.
Covid-19 challenge
Even if Genovis’s profile suggests it will be less directly exposed to the virus outbreak and
developments around the world, the strong reactions from many large countries - including the
US (the company’s biggest market) - to limit activity, travel and human encounters will take its
toll on marketing and sales for some time. The logistics chain may also face difficulties. As a
small, illiquid stock, Genovis may also suffer the common disproportionate impact on small
caps in times of market turmoil. On balance, however, and despite our view that 2020 is likely
to be somewhat of a lost year with a bottom-line loss, we still judge Genovis to be rather well
positioned even in this context - particularly for investors with long time horizons. Its business
profile and financial strength offer relatively defensive characteristics, in our view.
Catalysts Quarterly results
Over time Genovis’s steady quarterly progress should reassure investors that the company is
on track in executing on its aggressive growth strategy. Besides financial performance, news
could also emerge on new product launches, the interesting exciting cooperation with Thermo
Fisher and next steps on the new bioprocess front. We caution, again, about potential
challenges this year as a consequence of the corona and economic crises.
Product launches
New product launches are the most obvious new initiatives we are likely to hear about going
forward. The current portfolio of 13 enzymes is set to continue growing: we forecast around
four ‘smart’ launches in 2020. If the Thermo Fischer cooperation yields one of these, this would
be particularly enticing.
New orders
While not our expectation at this point, a follow-up order this year from the pilot bioprocess
customer is possible. If this happens, it is likely to be a powerful trigger as the incremental
volume would probably be substantial – and the signalling value would be huge. Other orders
might follow too.
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Table of contents
Page
Investment Thesis 2
Genovis in brief 6
Positioning 8
Financials 16
Estimates and valuation 23
Appendix: I – Key Financial Statements 28
Appendix II – Enzymes and Genovis’s products 30
Appendix III - Redeye Rating and Background Definitions 31
Appendix: IV - Redeye Equity Research Team 32
Disclaimer 33
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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[This Page is Intentionally Left Blank]
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Genovis in brief Founded in 1999, Genovis initially focused on nanoparticles before launching its unique
enzymes for the analysis of biological drugs around 2010. The enzyme portfolio grew, and by
2015, Genovis had streamlined its operations to specialize in development, production, and
sales of enzymes to the global pharmaceutical industry. Genovis has been successful for the
past five years, seeing strong growth. 2019 brought a tangible breakthrough with an exciting
pilot order in a new area, Bioprocess, as well as figures in the black. Genovis runs its operations
from Lund in southern Sweden, where its production facility is also located. It employs about
35 staff (including the recently acquired QED Bioscience). Sales in 2019 reached SEK 61m and
its current market capitalization is SEK 1.4bn.
Sarah Fredriksson, the original founder of Genovis and the CEO until 2015 (when the current CEO, Fredrik
Olsson, took charge), left the company in 2016 having served for a year as Chairman of the Board.
Interestingly, she returned to Genovis and an interim role as Chairman early this year, after Mårten Winge
abruptly resigned from the position, citing personal reasons. On March 23, the Nomination Committee
announced its proposal to appoint Torben Jørgensen as new Chairman at the AGM on May 5. Torben served
as CEO of Biotage in 2006-20 and is currently Chairman of that company’s board. Biotage is a life science
company active in the field of organic and analytical chemistry. Torben is also the Chairman of Atlas
Antibodies’ board and serves on a number of other boards in the industry.
A world-leading developer of analytical tools for biopharmaceutical companies
Genovis offers a broad portfolio of enzymes, known as ‘SmartEnzymes’, aimed at global
pharmaceutical companies that develop biologicals for immunotherapy. Common therapeutic
areas include cancer and inflammatory and autoimmune diseases. The development of new
biological drugs for the treatment of such serious diseases requires new and advanced
analytical tools, and Genovis’s enzymes address the pharmaceutical companies’ needs in this
respect. Appendix II offers a brief description of enzymes and Genovis’s product areas.
On a strong financial curve
Genovis’s financial progression over the past five years has been impressive. Steady growth
and increasing momentum have fuelled the top line. Sales growth for 2015-19 averaged 50%.
Gross margins are very high, averaging 88% over the same period, with the EBIT margin
trending decently after Genovis reached critical mass, thanks to higher volumes. In fact, 2019
was the first profitable year for the company.
Exceptional stock price performance
Mirroring the fundamental progress, particularly over the past few years, the shares have
performed phenomenally. Currently trading at SEK 21.9 apiece, the shares are up 742% over
three years and about 50% in the last 12 months. In this note, we will explain why we believe
this success story is likely to continue.
ANNUAL REVENUES & GROWTH RATE EBIT & EBIT MARGIN
Source: Genovis, Redeye Research Source: Genovis, Redeye Research
13
1923
35
6161%
40%23%
51%
75%
2015 2016 2017 2018 2019
Revenues (SEKm) Revenue Growth (%)
-25
-20
-8
1
143.0%
22.3%
2015 2016 2017 2018 2019
EBIT (SEKm) EBIT Margin (%)
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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As is evident from the chart, the share started its recent phenomenal run in the second half of
2018, spurred by a series of reassuring quarterly results and strong progress overall. Highlights
include the company breaking even, the co-operation agreement with Thermo Fisher Scientific,
and the bioprocess order.
During the first quarter of this year, the stock has obviously been hurt by the impact of the
corona crisis and the resulting economic uncertainty and stock market turmoil. It initially
plunged with the rest of market, also suffering from poor liquidity, but it has recently recovered
quite encouragingly. Indeed, it now trades at SEK 21.9 and it appears the market views Genovis
as relatively well positioned as far as the corona crisis.
Investor sentiment, however, soon to be stress-tested
We highlight the large prevailing risks in terms of the ongoing economic turmoil for investors
looking at the Genovis case. While the long-term story is arguably strong and intact, in our view,
near-term news flow is likely to challenge market sentiment on the stock regardless,
particularly as it has been holding up rather well of late.
Several of Genovis’s main markets are severely affected by far-reaching restrictions, including
key European countries, such as Italy, France, and Switzerland. Moreover, Germany, the
Netherlands, and Belgium are other important markets and are also affected, albeit a little less
so. It also appears that its single largest market, the US, is heading for a perfect storm in the
coming months, and more severe measures are currently being imposed there. Asia may be
seeing some light at the end of the tunnel, which is positive, but this region has also been
constrained for most of the first quarter of 2020 and it is also too early to announce a
sustainable recovery there.
The sudden and simultaneous halt of economic activity across virtually all Genovis’s core
markets will, in our view, prompt a severe (if temporary) slowdown for the company and its
aggressive growth strategy. Indeed, we expect the top line to drop considerably year-over-year
(on an underlying basis; note that we have pencilled in the QED acquisition from Q2), which is
likely to bring operating losses as early as Q1 20 and almost certainly for the full-year.
It is difficult to predict how things will pan out, but our base case implies that Q2 will be the
hardest-hit quarter and Q4 is when matters will start to return to normal. By the same token,
we expect a real recovery to take hold next year, with Genovis gradually returning to previous
trends. It is comforting that the world is likely to come out of this crisis with a renewed interest
in medicine and drug development. To sum up, we caution that the near-term news flow and
Q1 20 and Q2 20 results are likely to be poor and may disappoint the market.
SHARE PRICE HISTORY (SEK)
Source: Genovis, Redeye Research
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May 5th: FredrikOlsson becomes the new CEO
April 8th: Genovis enters into a collaboration agreement with Thermo Fisher
November 27th: Genovis shows a positive EBITDA result for the first time
September 18th: Genovis signs distribution agreement with Chinese Beijing Zhongyuan
November 11th: Genovis signs license agreement with Life Technologies
February to date: Corona crisis hitsAugust 19th: Genovis receives
order worth 13.5 MSEK in the Bioprocess segment
June 30th: Genovis and Promega reach a settlement in the patent infringement lawsuit
2015 2016 2017 2018 2019 2020
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Positioning One of several distinguishing features of Genovis is its close relationship with its customers.
In combination with its attractive product palette, we regard this strategy as highly compelling
and believe the decision to switch to direct sales in 2015 was a very positive move. Deep
relationships and close interaction help Genovis stay at the forefront and swiftly transform
customer needs into specific new products.
▪ Unique and competitive product offering
▪ Close relationships with customers
▪ Innovative and agile business
▪ Covers the entire value chain
Genovis’s product offering is unique, differentiating itself through high quality, reliability, time
efficiency, and flexibility. The company today offers 13 different smart enzymes for the
biopharma industry (further information is available in Appendix II).
To get closer to its customers, Genovis took the decision in 2015 to reduce sales via
distributors and switch to direct sales. Direct contact with customers is critical for Genovis as
full information in real time about the underlying market is a key input in its development of
new products. Genovis is effectively positioning itself as an important partner to its customers.
According to Genovis, customer satisfaction is very high and complaints extremely rare.
Genovis is an agile and innovative company that continuously launches new products. It
carried out two new product launches last year, and we expect about four this year. Genovis
has developed all its products in-house and its facilities in Lund are configured for efficient
product development. Indeed, the exciting new bioprocess business area, established in Q4 19,
is the result of Genovis’s innovative work.
Further strengthening its good grasp of customers’ requirements, Genovis has built an efficient
and reliable organisation for support and deliveries. It has skilled support personnel and local
warehouses in both Europe and the US (San Diego) and, impressively, Genovis offers next-day
delivery to virtually all customers worldwide.
BUSINESS AREAS
Source: Genovis
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Brand reputation is top-notch We regard Genovis as an exceptionally strong brand. It has a reputation as an innovative and
customer-oriented quality leader in its field and has fully proven this over the past several years.
It seems able to combine a sound, hasten slowly approach with creativity, flexibility, and new
ideas. We believe Genovis simultaneously stands for both stability and change.
Genovis has a proven record. Its products are used by 24 of the 25 largest pharmaceutical
companies in the world. The company has been in business for more than 20 years and is now
profitable. It has a diversified business base. It is active in a field that is likely to enjoy structural
growth for a very long time.
The company has a reputation as an astute quality supplier of tools for advanced analytics. It
is innovative and clearly one of the leading players in the field. The partnership agreement with
Thermo Fisher Scientific, a large player and global leader, is also a clear stamp of quality (as
well as being an interesting project).
Genovis has developed all its products on its own and its overall setup allows for an integrated
process across the value chain. This ensures a solid base and strong operational control.
It has a well-protected business with strong recurring characteristics. Indeed, we believe the
majority of sales and sales growth to be driven by the existing customer base.
The business is, by its nature, sticky. Research tools are a totally negligible part of the overall
costs of the biological process for a pharmaceutical company, and the incentives to change
supplier of analytics tools are very small.
Unusually attractive risk profile As a healthcare company and part of Redeye’s Life Science universe, Genovis distinguishes
itself as an unusually low-risk corporation. Consider this:
▪ Little or no regulatory risk
▪ Diversified portfolio
▪ Established company with a validated technique
▪ Profitable
As Genovis is not itself a pharmaceutical company, it is able to work and help (all) such
companies, without suffering their inherent risks. Genovis’s tools are needed regardless of
CUSTOMER BASE
Source: Genovis
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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whether the pharmaceutical companies successfully develop new drugs or not. In other words,
Genovis is not exposed to the typical risks the pharmaceutical companies are subject to, the
extreme but not uncommon examples of which are companies consisting of a single
development project, facing a binary outcome.
Specifically, Genovis’s traditional business – its core Analytics business chiefly used in the
discovery and pre-clinical phases – is not subject to regulatory approvals of any kind in any
market. As Genovis is making advances up the value chain, however, and by aspiring to play
an increasing role also in clinical development, it will be affected indirectly. The pharmaceutical
companies will place greater demands on Genovis as a reflection on the requirements they
themselves are facing. Still, Genovis will not have to interact with regulators directly.
Genovis has gradually established quite a broad business base. Launching new products on a
yearly basis, it today offers 13 smart enzymes. Its exciting aspirations to expand further up the
value chain (clinical phase) and an increasingly global business make Genovis a rather
diversified company in its field.
Genovis has been in business for many years and its technique and business idea are well
established and validated. Almost all the world’s leading pharmaceutical companies are
business partners. Thus, Genovis is here to stay – in contrast to the many small make-or-break
stories seen across the sector.
Crucially, Genovis has also delivered financially. In 2018-19, the company was profitable for
several consecutive quarters and it started to generate cash in 2019. Expansionary
investments may need special funding, of course, such as the recent acquisition of QED
Bioscience, but the underlying business is now cash flow positive in normal circumstances.
Apart from the corona crisis, the ’only’ pertinent risk investors should consider concern
valuation, according to us. We will discuss this later in the note, but again, the company-specific
analysis tells a story of a high-quality company with quite a low risk profile. Such companies
never come cheap.
Management & Ownership We have met CEO Fredrik Olsson several times. We value his down-to-earth approach. It is easy
to get carried away when looking at Genovis’s progression over the past five years, but Fredrik
always appear humble and realistic. He has been with the company since 2002.
Overall, we regard the company’s management and board as truly first class, and we believe
shareholders can rest assured that the company will continue to execute on its strategy in a
PEER REVIEWED PUBLICATIONS USING GENOVIS PRODUCTS
Source: Genovis, Redeye Research
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2011 2012 2013 2014 2015 2016 2017 2018 2019
Publications New Publications
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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skilful manner, making the most of the many exciting opportunities that the company is
presented with.
Encouragingly, institutional investors have started to take an interest in the story over the past
few years. The divestment of Hansa’s position and the block trade of part of Mikael Lönn’s
holding during 2019 provided liquidity and led to a number of institutions entering the scene.
Early in 2020, Genovis raised SEK 50m in a directed issue, which brought a further inflow of
institutional owners.
Uplisting a possibility during the second half of 2021
While a move to the Main List from First North appears logical in light of Genovis’s evolution,
we see no reason for the company to rush such a decision and do not expect this to happen
until 2021 or 2022.
In our central scenario, Genovis returns to its steady growth path towards the end of the year
and accelerates again in 2021 and beyond. On such a basis, we believe the interest among
institutional investors, even internationally, will continue to grow – helping the stock to perform
and further boosting the company’s market cap.
Against such a backdrop, we believe an uplisting to be logical and highly likely. The added
visibility and attention that such a strategy would generate, in our view, would be positive for
the valuation of the shares. Although there is little point in doing this in 2020, events could likely
unfold in this manner 18-24 months ahead.
At present, we estimate that institutional ownership amounts to about 15% of the company
(up from virtually zero only one year ago). Mikael Lönn remains the single largest shareholder
with 15.3% following the recent capital raising.
Poised for growth Genovis is well positioned to enjoy strong growth for a long period of time, in our view. Its end-
market is growing significantly (at around 10% per year, we believe), while Genovis also benefits
from a number of secular trends. On balance, we see good scope for the company to meet its
OWNERSHIP STRUCTURE
Number Total
Rank Shareholder of shares Capital
1 Mikael Lönn 9 990 653 15.3%
2 Avanza Pension 7 262 121 11.1%
3 Nordnet Pensionsförsäkring 3 352 352 5.1%
4 Aktia Asset Manager* 2 132 986 3.3%
5 TIN Fonder 1 709 679 2.6%
6 Andra AP-fonden* 1 700 000 2.6%
7 Handelsbankens Fonder 1 500 000 2.3%
8 Leif Ohlsson 1 107 000 1.7%
9 ÖstVäst Capital Management 1 070 000 1.6%
10 Lars Björck 880 000 1.3%
Other shareholders 34 760 923 53.1%
Total number of shares 65 465 714 100%
Source: Modular Finance, Redeye Research
* Participated in the rights issue in February with unknown size
** Other participants in the February rights issue that could potentially join the list are:
Core Ny Teknik, Coeli SICAV II - Absolute European Equity and Islet 2
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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own target of 25% annual growth for many years to come. The USD 100 million question,
however, is the extent to which the new bioprocess project will succeed and potentially
transform the company by driving exceptional growth.
▪ Solid underlying growth
▪ Taking market share
▪ New product launches
▪ Geographical expansion
▪ Moving up the chain
Solid underlying growth
The underlying driver of Genovis’s end-market is the development of new antibody-based
biologics based on proteins. According to MarketsAndMarkets, three clear trends can be seen
for the next decade that will drive demand for analytical tools:
▪ New mAbs1 will be approved
▪ The biosimilar2 market
▪ Second-generation mAbs
In addition, drug regulatory authorities put patient safety first and want the industry to increase
their understanding of regulatory processes, resulting in more testing. A further trend is the
robust growth of mass spectrometry, which is boosting the enzymes market, and especially
smart enzymes. We believe the end-market may grow by around 10% per year.
Taking market share
Genovis’s core business, Analytics, has been growing by about 40% on average over the past
five years. The company is still quite small, so there should be good scope for it to grow faster
than the market for many years to come. Genovis’s own financial target is 25% top-line growth
per annum.
New product launches
Genovis launches new products on a continuous basis. In 2019, it introduced two new
products, and we expect this pace to continue. New product launches typically drive higher net
sales.
Geographical expansion
Genovis is also expanding geographically. Asia, in particular, is an untapped region and
strategically important. China, India, Japan, South Korea, and Singapore are likely to be in focus
but will require a different approach to Europe and the US. Geographical expansion is likely to
add an extra component of future growth for Genovis.
1 mAbs = monoclonal Antibodies. Since 1986, more than 30 monoclonal antibodies have been
approved and about half of the best-selling drugs in the world are mAbs. 2 Biosimilars are generic drugs that are similar but not identical to already approved biological drugs.
Both new biological drugs and biosimilars must be analyzed biochemically. During 2020, patents with a
commercial value of approximately USD 70bn are expected to expire, opening up the market for
biosimilar offerings.
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Moving up the chain
Genovis has traditionally focused on the discovery and pre-clinical phase (illustrated below),
and is increasingly seeking to make advances into clinical phase in Analytics.
Bioprocess, its new business area, also breaks new ground in the clinical landscape. We will
discuss this important new area in more detail later, but it clearly has huge potential and could
generate substantial further sales.
Competition The key competition generally stems from relatively large, broader players, particularly two
private US companies: Promega and its product Ides Protease, and New England Biolabs.
These are enzymes companies that started during the 1970s and the early phase of the DNA
era. They are fairly large operations with quite broad product portfolios, mostly reagent profiles,
and with limited overlap with Genovis.
Indeed, most product offerings in the marketplace represent older technology. A leading
supplier in this regard is Thermo Fisher Scientific, a huge instrument company, with which
Genovis is involved and co-operating on a special project.
GE Healthcare, BioRAD, and ProZyme are other key players. Wako, controlled by Fuji Film,
Genovis’s distributor, is also competing to a certain degree. Waters is originally an instrument
SALES BY MARKET - 2019 PROFORMA*
Source: Genovis, Redeye Research
* QED's sales are included
65%
28%
7%
US Europe RoW
GOING CLINICAL
Source: Genovis, Redeye Research
GENOVIS OPPORTUNITYGENOVIS TODAY
dsfdsf REDEYE Equity Research Genovis 7 April 2020
14
supplier, but also operates a consumables business. Sigma-Aldrich is quite a large speciality
chemicals company with a small enzymes business.
Genovis’s focus on new technology and high-end solutions differentiates the company in the
competitive landscape. Flexible, high-precision tools that are easy to use and very time-efficient
represent a largely unique offering in this segment of the industry. Characteristically, Genovis
is not represented at the commodity end of the spectrum. True, its recent acquisition of QED,
a US antibodies supplier, arguably adds a such flavour but Genovis aims to facilitate a value-
enhancing move up the curve.
Interestingly, prevailing industry trends suggest that some competitors could even be excellent
partners for Genovis. ProZyme, a competing US enzymes company (mentioned above), has
been part of Agilent, a large global instrument company, since 2018. This acquisition is a
pertinent example of forward integration among hardware manufacturers (see further below).
Genovis’s strategic co-operation with Thermo Fisher is indicative of such a move and we
expect activities of this kind to continue, as Genovis has proven itself and reached a position
that implies it could be an interesting partner for particularly large instrument companies.
Its work in the new area of bioprocess is also of greater scale and allows Genovis closer
customer relationships at a more strategic partnership type level.
A clear takeover candidate As a small, fast-growing company in the biotech space, Genovis is increasingly an interesting
target for larger industry players. Indeed, our belief is that a public bid for Genovis is a distinct
possibility in the longer term. Also, its ownership structure is no hindrance whatsoever for such
a development. Therefore, in our view, Genovis should trade with a meaningful takeover
premium.
A theoretical possibility is for a large pharmaceutical company to acquire Genovis and fully
integrate its operations. This would ensure control and pave the way for the perfect adaptation
of the Genovis product range, focused on the specific needs and wants of the pharmaceutical
company concerned. If the tests currently taking place in the new bioprocess area prove
successful, the resulting shift in terms of strategic weight and volumes would likely require
customers to evaluate all options for future collaboration.
FASTER AND MORE EFFICIENT ANALYSIS OF BIOLOGICAL DRUGS
Source: Genovis
dsfdsf REDEYE Equity Research Genovis 7 April 2020
15
At present, the most obvious alternative is large instrument companies. Instrument companies
are struggling to protect margins on hardware sales and are increasingly looking for new ways
to grow their business and earn money, such as adding consumables to their product offerings.
Consolidation among instrument companies and downstream integration have fuelled M&A
activity over the past several years.
Thermo Fisher is a world-leading and giant instrument producer, with annual revenues of USD
25bn and 75,000 employees. Thermo Fisher is a US company, listed on the NYSE. To add to
this, it has, since 2018, had a co-operation agreement with Genovis in the field of automation
in quality analytics of biopharmaceuticals. We note that Thermo Fischer is a very acquisitive
company.
In 2018, Agilent, a US instrument company and peer to Thermo Fisher, acquired ProZyme, an enzymes
company.
Agilent, a public US company and 1999 spin-off from Hewlett-Packard, is a large global player in the test
and measurement industry. The company generated revenues of USD 5bn in 2019 and employs about
16,000 people worldwide. An acquisitive company, in 2009, Agilent acquired Varian (chemical analytics)
and in 2012, it bought Danish company Dako (cancer diagnostics).
Agilent spun off its electronic measurement business in 2014 and stepped up acquisitions in the core Life
Science area, buying companies such as Seahorse Bioscience (instruments) and Multiplicom (a European
diagnostics company) during the following years.
Striving to become a complete workflow solutions provider to its large base of customers worldwide,
Agilent acquired ProZyme, a private US company, in 2018 – an illustrative example of an instrument
company expanding its consumables portfolio.
Founded in 1990, ProZyme was a leading developer of glycan reagents, which are required for efficient
sample prep in the analytics of free glycans. ProZyme had about 50 employees at the time of acquisition,
and our guesstimate is sales to the tune of USD 10m.
Sergey Vlasenko, then president and CEO of ProZyme, was quoted at the time: “ProZyme and Agilent make
a perfect strategic fit. Our glycobiology and glycoanalytics expertise together with Agilent’s market-leading
position in LC and LC/MS will allow us to provide our biopharma customers with the complete solutions
they need to accelerate their research.”
Details of the deal were not disclosed. However, Agilent acquired seven companies in 2018 for a total
consideration of about USD 500m.
AN ILLUSTRATIVE EXAMPLE
dsfdsf REDEYE Equity Research Genovis 7 April 2020
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Financials
Summary: financial progression mirroring strategic and tactical gains Genovis’s financial performance over the past several years has been very impressive, in our
view. Multifaceted and strong growth – with 2019 boosted by the pilot order in the new
Bioprocess area – has paved the way for a staggering sevenfold increase in the top line since
2014 (when sales were SEK 8.2m).
Gross margins have been largely stable at a very high level and the last few years have seen
phenomenal operating leverage, which Genovis will benefit from should the strong growth
continue. Indeed, the EBITDA and EBIT margins jumped considerably (adjusted for non-
recurring items) in 2018 and, in particular, during 2019.
The recent, well-timed equity infusion (SEK 50m) secured financing for the planned expansion
and strengthened the balance sheet at a time when a cushion is valuable.
The corona crisis will almost certainly cause a few bumps in 2020, but in the longer term we
find the financial picture reassuring and promising.
Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflicts of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:
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