The Short, Medium and Long of it.

Just when you thought it was safe to plunge back into the Internet, here I am again. I've been quiet for a week or two - not much to say and busy with other things (painting the house).


I did warn you when I started this blog that I wouldn't guarantee regularity - hence my recommendation that you sign up to my email, RSS or twitter alerts. (over there to the right).


Anyway....


I've been thinking about Cellestis (surprise, surprise!). More specifically, I've been thinking about the future of Cellestis. When I start thinking about things like this I am only too aware that I can only provide my perspectives, based on my own situations, views and guesses. Everybody else will have different factors that impact their own perspectives and will likely therefore come to different conclusions.


I've been thinking about Cellestis in terms of the Short (near), Medium and Long Terms. It's tempting to attach some "real" timings to those classifications but such a specification may create a misleading prophesy. I guess, if pushed, I would consider short term to be 12 to 36 months, medium term to be 3 to 10 years and long term to be ten years plus. Just to put that in perspective, I have been invested in Cellestis for almost ten years now. My perspective is as somebody that considers himself a part owner of this business. As such, I am less interested in the vagaries of the Share price than I am in the progress of the actual business that is contained within the company. I have no real plan to ever sell that share in the business, though there may be a point at which I sell down some of my holding - more on that later - much later. I fully accept that others may judge the success or failure of their investment decisions on the movements of the Share Price. That's fine - it just doesn't work for me. 


The first thing that I believe is very important to understand is that Cellestis has now moved from being a purely speculative stock to a real business. It is now making increasing sales and, most importantly, profits. There is little danger now of this business "going broke". We do all have to admit that it has taken longer than any of us anticipated to reach this stage and, further, that it has not yet achieved all that we hope for the company. It is not unreasonable to continually review the current situation and our beliefs about the future. For some, such a review may well determine a decision to sell their CST holdings. For others it may well drive a decision to buy a CST holding. Whilst the facts about the company are incontrovertible, our own personal situations are likely to be wildly different and thereby drive different decisions. 


I think that looking at CST over the three future stages that I have outlined may well help us in solidifying how we feel about the company.


SHORT TERM. 



In the short term, Cellestis is essentially a one product company - QuantiFERON-TB Gold. After ten years of work this product is starting to hit its straps and will most certainly be the "Company maker". All of our profits are currently being generated by this one product. That would often be something of some concern. However, we all know that there is an absolute minimal (if any) danger of this product not continuing to enjoy it's ever growing acceptance. As researchers we know of the competitive situation and the possibility of any future competition arising. Personally, I am totally confident that this product truly will be the base on which the future of this Company is built.


The next two half year results will probably be those that confirm our faith in this one product.


Clearly, the event that we await is the release of the CDC Guidelines in the United States. Unlike many, I don't look to these as a driver of the share price but as a driver of sales. I really don't know what immediate impact the CDC Guidelines will have on the Share Price. To me it's not important. What is important to me is how the Company are able to capitalize on the guidelines to increase the uptake of QuantiFERON-TB Gold. In context of the short term this is the important job of the management of Cellestis. With the conjunction of peer reviewed papers (most importantly the Diel meta study) and the CDC Guidelines it just doesn't get any better. It is the trigger that the company must (and no doubt, will) use to make QuantiFERON-TB Gold the standard for latent TB testing. The Company has available all the resources that it can utilize in this task - a worldwide network, ample cash, dedicated staff and management will. With all this in it's favour, if it doesn't achieve an ongoing appreciable and increasing market penetration then we all have got it terribly wrong. I really don't see how it can't happen .


MEDIUM TERM.


When we look at the medium term for Cellestis it gets even more interesting. I see the driver of medium term success being the implementation of additional diagnostics based on the QuantiFERON platform. We know that there are currently some of these new diagnostics in the development and sales pipeline - CMV and Lyme Disease. Whilst these will be nice additions to the diagnostic portfolio, neither of these will generate the income that TB will. We have also been led to believe that there are other diagnostics currently in the pipeline that have the potential to generate income of the scale that TB will. At this stage the company has not revealed what these new diagnostics might be. I am personally hoping that they will have progressed enough that we will hear more about them this year.


We would hope that the business that has been built with QuantiFERON-TB will make the development and implementation of new diagnostics easier and quicker than TB. The existing network and ample cash should add to the experience that has been built and the general acceptance of the QuantiFERON platform and brand to make the uptake of any new diagnostics a little less difficult than QTF-TB has been.


When we look at what I have termed Short and Medium term above, it is likely that Cellestis is going to maintain a speculative premium in its Share Price for some time to come.


LONG TERM


This is where it gets really interesting. If the company has gotten to this point then it will be generating large amounts of free cash flow. In my opinion it is not unlikely that the Company could find itself generating several hundreds of millions of dollars cash profit each year. Coinciding with that I would expect that we would see a convergence of Share Price to Profits - that is, a move towards a PE of 10. 


Once the Company has arrived at that point it becomes no different from any other blue chip share investment. Depending upon what the Company paints as it's future from that situation, I would be making my decision as to whether I sell some of my shares in Cellestis and spread my investment portfolio wider.


So, what can the Company do with all that cash? As I have said many times before, there is no real point in the Company sitting on hundreds of millions of dollars of cash. Obviously I would want to see them paying me a huge dividend for my perseverance. However, I would also have no problem in listening to other uses of some of the cash within the company. That may be the purchasing of other similar companies or it may even be the moving into other industries. After all, there is really no reason that the Company could not succeed in other fields of endeavour. As unlikely as it may seem, I am willing to entertain any suggestions that the Company may make for the future. The important thing is that the Company must use it's assets to continue to grow. It is never too soon to think about how that growth is to be achieved.