I thought, in the interests of encouraging some interactivity here, I would ask if others would like to share their reasons for being invested in Cellestis. You might assume that everybody would give the same answers but I suspect that there may be some variations that will be of interest to all of us. For example, I would think that where each of us is in our jog through life will give us different considerations of how our investment choices should perform over various time frames.
Just to kick the discussion off, here are some of my reasons for being invested in Cellestis. (In no particular order)
- I can understand the business that Cellestis is in. Essentially they are in the business of exploiting their Intellectual Property (IP) to build a complete business that generates profits. It's easy to understand - they make stuff and then sell it. It may be that the specifics (eg Tuberculosis) require some research but, again, it's not that hard to follow.
- They have not "sold the farm" in the process of building the company. An awful lot of Australian biotech startups have taken what seems to be a shortcut to success by climbing into bed with big International pharmaceutical companies. In virtually all of these cases, the long time to commercial success has meant that when (if) commercial success is achieved, most of the profits go to the International pharmaceutical company, rather than the shareholders that were attracted to the initial company.
- They have a financial structure that I can understand. No complex financing arrangements. No part owned subsidiaries. No bonds. No complex derivatives. Their financial statements are as easy to interpret as those of my own little company (was).
- No borrowings. Borrowings are not necessarily a bad thing (see previous discussion of ROE). However, for a startup biotech, borrowing during the development and early commercialisation phases can be a real weight around the neck. Unlike equity financing, borrowed finance imposes real timewise deadlines. Cellestis has taken much longer to reach the current commercial success than any of us initially thought. Had they had borrowings to service during that time our equity would have been put at severe risk.
- Trust in Directors. This is probably one of my most important considerations in making and maintaining an investment. Whilst the directors of Cellestis may have made one or two mistakes along the way (in hindsight) they have never, to my knowledge, been dishonest to us, the shareholders. Furthermore, the directors have drawn quite modest salaries through the development phases of the Company. They have been very conservative in their expenditure of our money. This whole Company has been built on around $25m.
- A definable market. We know what our market is and we know the potential size of our market. We know who our competition is and we know that the barriers to entry are large (not so much in terms of $ cost but in terms of time to market).
I could continue but I'll leave some for you to add. Hopefully, I can compile and publish a complete list at the end of this exercise.
Over to you.
Hello Forrest
ReplyDeleteNothing too technical here. Came to CST through a trusted friend.
I like: Australian business taking on the world. Rattling the cage of a 100 year old test.
Two blokes saw the potential and the need for a product that will change the way things had been done for over a century and will benifit mankind.
Honest and ethical management.
Position, position, position well we have in CST, POTENTIAL, POTENTIAL and POTENTIAL.
Science, biotechnology, nanotechnology is almost only limited by imagination today.
Where CST will be in 5, 10 or 15 years is anyones guess.
Not a PE or ROE in sight, just a hunch and passion.
A1
Forrest
ReplyDeleteIn the words of Warren Buffett – CST has a wide moat – that is:
"something that gives a company a clear advantage over others and protects it against incursions from the competition".
The key to CST as a company is the Quantiferon test, and now the Quantiferon In tube test
CST has patents over the current antigens that take them through to 2017 but with the in tube technology, QFT IT has patent protection until 2023. The Quantiferon Intube test is the key to testing for the largest part of the market for Tb testing – that is Latent Tb.
To identify Latent Tb requires an immunological test – and the only other options for Latent Tb are Tspot and the skin test.
We all know the problems of the skin test from your blog, and the Tspot test is more expensive, technically more difficult, more difficult to batch and test multiple samples with, and probably too sensitive so it has lost some of its specificity.
QFT IT and Tb testing has a very wide moat – and that is another important reason why CST is a great investment.
Skorpian
Hi Forrest,
ReplyDeleteI was given the company info just aftyer the float and got in on the ground floor,my initial thoughts were a quick profit however the potential for good dividents became apparent and the behaviour of the Board and Management getting on with the job of building a market without bullshit impressed me.
I agree with A1 and yourself on reasoning for being a stockholder.Marcus Padley would roll his eyes if he read this,Warren Buffet would agree with us .I decided many years ago to bottom draw stock.
We are still a few years out from the big returns,in the mean time stephen g can dream of barra,you a new JD mower ."There is no life without dreams"
Love The Bird
Don't you fret about me and the Barra, Mr.Bird. CST is like the mystical forty pounder; sooner or later I will win both. I got in to Cellestis via an "adviser" who saw the potential. It is the only "speculative" share that I own. All the rest are to give the "boss" an income for when I fall of the twig. I am convinced about the efficacy of CST and of the directors. I believe now as before that it will be one of my best investments due to the long term returns. I am not interested in the SP at present and I get a warm glow every time I read of new labs taking up the product.
ReplyDeleteP.S. Going after that forty pounder again in June.
Thanks for the comments so far everybody. This is turning into an interesting exercise.
ReplyDeleteTasmanseabird, Nah, don't want a John Deere mower. I'll just buy a new motor for my faithful old Deutscher. For the big stuff, my big old Kubota tractor does the job. I'm just a simple man.
I also came to Cellestis via a friend. Once I had a basic understanding of the business I invested with visions of building capital like my father did years ago with CSL and Newscorp. Over the years my knowledge has increased enormously thanks to all you posters and while caital gains are still a consideration, they now take a back seat to the income potential.
ReplyDeleteAnd when I drill down, all the reasons listed by forrest, skorpian et al jump into focus to reinforce my investment. CST is by far my largest share holding.
Thanks for a great blog forrest.
I pretty much agree with everything that has been said so far, I have been heavily invested in CST (for a long time).
ReplyDeleteIt is nice to be able to draw so much useful information from the knowledge and investigative powers of so many posters.
A special thanks to Rog for his daily findings which are very much appreciate and to Forest for this new Blog!
I did not initially invest in CST for the reasons outlined below but have since come to be proud that I am invested in an Australian company, that does not leave a giant carbon foot print, does not leave giant holes in the ground, or destroy whole forests, or contribute to obesity, lung, heart or any other disease, does not turn our children into square eyed zombies with giant thumbs etc etc! CST is helping to save lives, spare people from unnecessary and potentially harmful treatment and save valuable health care resources (ahh a warm fuzzy feeling).
I can’t wait for the end of year financials; I think they’re going to be very good and will stir up some interest! Did I hear someone mention another tipping comp!
PS talking of catching the big one I am reminded of the Lotto add where the 3 old gentlemen have been fishing the same lake for years without so much as a nibble, until one of them wins the big one in lotto and then secretly one night stocks the lake with a truck load of large fish. The next day the other two old gentlemen can’t believe their luck!
What a great way to spend your winnings!
Regards
BigOldTosky
G'day forest
ReplyDeletere your item on selling the farm, I see that Biota exist on royalties from the big pharmas and are therefore at their mercy - which with 4 years of patent left will be hard to find.
I agree with all of the above comments, except that I do think that market potential has tended to attract greater attention than the quality of the management. Buffett warns against looking at annual reports and says to follow the trend over time and let the management earn the value.
Thanks for your kind words bigtosky.
cheers rog
Hi Forrest and all others
ReplyDeleteI'm invested in Cellestis because
1. I want substantial capital gain, and substantial dividends
2. I believe that CST can deliver on the above because they have a product that works, is needed, is easy to manufacture and deliver, has world-wide application, has very little competition in the new technology area.
3. The QFT tests can't do any damage, can't hurt anybody, very little chance of damaging litigation.
4. There is a substantial profit margin, low overheads.
5. The CST management is conservative, and determined to pay substantial dividends
6. The technology may well have further applications, and may be refined further ( drop of blood analysis).
7. Sales are pitched at professionals, not internet users
8. Management acknowledges mistakes (honest), and acts promptly to rectify problems. ( test tubes, US promotion before Europe, Japanese interpretation)
Areas of concern .........
1. Slower acceptance than expected ....... management is obviously working very hard on promotion, in a professionally acceptable manner
2. Competition ........ not much from OI ( but never ignore the opposition, just because you have a better product - remember Beta vs VHS ). The longer it takes for QFT to get traction, the more chance for competition. Main competition still the TST ..... cheap and nasty.
3. QFT is not 100% accurate, so there's always ammo for detractors. It is also a test which must be done carefully and accurately. It's expensive to have to repeat tests.
4. Cost ......... a major problem for some, although more and more studies show that QFT is cost-effective.
5. The downturn in world economic situation ...... not as much money available.
6. Major areas of TB ( latent TB ) are in under-developed countries, so cost is a significant factor.
The future ......
1. The world wants an accurate test ....... is QFT accurate enough ? Can it be refined ( drop of blood ).
2. Where and when is the "tipping point " ? Will we ever get there ?
3. Are there other major applications of the technology ?
Cheers
henrietta
Thank you for all the comments so far. It's great to know that I am amongst a group who think about things.
ReplyDeleteKeep 'em coming.
Hi Forrest
ReplyDeleteI first acquired shares early in 2002. My holding has increased substantially since then. Why?
The potential market for the product is huge, growing and international.
The international market allows for diversification of income source without changing the product. It also means that new markets can be tapped when resources permit without running the risk that a competitor will get in first.
The main competing product lacks the ability to innovate and is inferior.
The barriers to entry in this market are gigantic. Therefore, the medium to long term risk of an over-the-horizon-competitor having an adverse impact on sales is slight.
The only new competitor is inferior.
The management is excellent, who, because of their personal investments and history, are unquestionably committed to making the company a success.
Relative expenditure requirements for large returns is small - this company runs on the smell of the proverbial oily rag.
Potential returns in the now short to medium period are high. In the long term the returns look to be astronomical.
I have learnt a great deal over the past 8 years, about myself and as investor, and my experience with Cellestis has been a very positive element in that learning.
I continue to build the holding.
Cheers
Puzzled
Thanks Forrest, it's a really good question. Interesting to see so many here are invested for many of the same reasons. One of the things I like about Cellestis is that it seems to mostly be owned by investors - people who value the business rather than speculate on the share price.
ReplyDeleteI think Skorpian hit the nail on the head - Cellestis has a wide moat and that makes it a very attractive investment. I would go even further and suggest that it fits the profile that Munger would have described as one of the "great businesses". Cellestis has a leading product in a niche market that offers tremendous growth and likely high market penetration. The operating margin is spectacular. Increasingly, branding is also becoming a valuable asset.
Management is astute and have sensibly pursued a long-term objective when it comes to sales and marketing, rather than focus on short term sales targets. This will pay dividends in the long run. Despite the fact that we all would have liked sales to grow faster, the current sales growth is actually rather exceptional. This growth has been managed very well, with operating costs and inventory effectively contained.
If, as seems likely in the years to come, Cellestis acquires the vast majority share of the LTB testing market then the EPS will likely resemble or even exceed the current share price. Any other products the company releases will be cream on top for us owners.
Here are some reasons I think no one else has said.
ReplyDeleteThe weighty body of evidence in peer-reviewed journals supporting its product is by far the strength of the company for me. Science and medicine are evidence-based and the medical profession cannot avoid moving to a product demonstrated to be superior in the journals, particularly when government authorities are involved in administering it and cost advantages are also present. That said, when a ‘paradigm shift’ is involved there is typically resistance at first, followed by widespread acceptance (Thomas Kuhn, 1962 The Structure of Scientific Revolutions).
Another reason, it is the type of business to remain relatively unaffected by wider economic conditions (stress on 'relatively').
Lab rat
Excellent point "Lab rat".
ReplyDeleteBetween us all we are winkling out some good understanding of this investment. I'm impressed with the level of thought that everybody has put and is putting into this.
The last few days have been very shattering of my belief in the sharemarket. Just one king hit after another.
ReplyDeleteAnyway...............thye reason I beieve and invest in CST
(1) I undertand the massive devastation caused by TB. Because of ease of transit, TB is a problem everywhere.
(2) TST alone for 118 yrs has been the diagnostic tool for LTBI. We are familiar with its many inadequacies. Its market is gradually falling to QFT. ATM TST is the most used diagnostic tool in use.
(3) The balance sheet of CST is very stable, and divs have begun to flow
(4) Recent meta analysis of over 400 studies have concluded that QFT has higher sensitivity and specificity than any other TSPOT or TST
(5) NOT one patient who was diagnosed positive by TST and rediagnosed negaitive by QFT HAS GONE ON TO DEVELOP full blown TB.............to me the GAME CHANGER
(6) ADvertising by PEER REVIEW. THE BEST FORM