28 January 2023
By Maynard Paton
I have recorded a podcast with my good friend Roland Head. This time we talked about Bioventix, the antibody specialist that at the start of 2023 represented my largest shareholding. We discussed the wonderful economics of antibodies, information gleaned from the AGM and the research into testing for Alzheimer’s Disease:
- My 2016 purchase of Bioventix at £11 and the shares now representing 12% of my portfolio.
- Roland buying Bioventix at £36 during 2021.
- What antibodies are, how they work within blood tests and Bioventix’s range of diagnostic antibodies.
- Bioventix’s financial track record and how antibody royalties support incredible margins.
- Bioventix’s laboratory, customers and industry competition.
- How successful diagnostic antibodies can earn royalties for more than 20 years.
- An example of a new diagnostic antibody dislodging an established diagnostic antibody.
- Bioventix’s lack of visibility on what hospitals pay for blood tests, the volumes of antibodies being used and what customers use antibodies for.
- Bioventix’s superb dividend record.
- AGM protest votes and boardroom diversity.
- Industrial pollution R&D, barbecued sausages and a low spreadsheet value.
- Alzheimer’s R&D and a new treatment for the disease.
- The academic publication covering antibody test results at the University of Gothenburg.
- The potential income from Alzheimer’s testing being a “2030s thing“.
- Bioventix’s investments, further Alzheimer’s research and future growth rates.
- The dependence on vitamin D testing and other shareholder risks.
- How the £40 shares appear on a dividend basis and possible future returns.
- Reasons to sell Bioventix and concluding thoughts.
PS: The AGM was held on 8th December 2022 and the podcast was recorded on 26th January 2023.
Disclosure: Maynard owns shares in Bioventix.
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AGM attendance notes
I attended BVXP’s AGM on 08th December 2022 at Farnham Castle, just outside the town where the group’s head office is located. The full board (chief exec, finance director plus the two non-execs) were all in attendance.
At the other side of the table were myself and four other private shareholders. Format of this AGM was voting results, a 10-minute opening talk from the chief exec and then a Q&A. Registrars wanted proof of identification as well as a letter of representation for a voting card — never been asked for ID before at an AGM.
I asked a number of questions, and some very knowledgable shareholders asked useful questions as well. Q&A lasted for approximately 45 minutes. Credit to the board here; the directors answered all the questions at some length.
Below are my best notes of what was said. Listen to the podcast above for further thoughts!
* Present: 4 board members, 1 company secretary, 5 shareholders, 2 registrars
* Past AGMs have witnessed between 2-20 attendees
* Resolutions all read out, questions invited on each, proxy votes declared for each.
* Then 45m informal Q&A.
Resolutions (%s votes received)
* Reappoint Auditor: for 2.9m = 80%, against 748k = 20%
* Reappoint Ian Nicholson: for 2.7m = 77%, against 826K = 23%
* Reappoint Peter Harrison: for 3.5m = 95%, against 165k = 5%
* Reappoint Nick Cook: for 2.89m 78%, against 800k, 22%
* Reappoint Bruce Hiscox: for 3.4m 93%, against 258k = 7%
Comments on ‘standard’ resolutions:
* “we don’t intend to undertake any major mergers or acquisitions during the year”
* “could be an occasion for small fund raise, or part fund acquisitions, just to let you know neither of those are on our horizons for the coming year”
market purchase of shares “not something we intend to do”
[MP note: No direct comment on 20%+ ‘protest’ votes against non-execs, but see CEO presentation on diversity.]
[MP note: change of auditor not RNSed, but announced only in annual report small-print.]
CEO Peter Harrison presentation (c10 minutes)
* Feedback from major shareholders about composition of board
* Pressure to apply “modern principals of diversity”
* Board all male, all white, all 60s
* Increasing numbers of shareholders voting against
* Seeking to increase diversity “as best we can”
* IVD sector not like marketing agencies in central London with ready pool of diverse people
* IVD sector “just not that diverse“. But hoping to improve situation.
* Nothing very insightful — pandemic subsided, stronger USD, troponin rollout etc.
Research [AD=Alzheimer’s Disease]
* Most exciting thing = “change in the understanding of AD and possible therapeutics“.
* People have said: “what is the point of an AD test if there is nothing you can really do about it?”
* Now become clear that AD therapies could appear after Eisai/Biogen clinical results.
* “There are people in the biopharmaceutical industry who are quite excited about the way things are going in AD therapies”
* Will create lot more interest in AD and treatments
* Possible future AD patients identified presently through brain scans/lumber punctures
* Cheap blood test would screen far more of the population, then brain scan if needed and then therapy if needed
* Early detector of AD has become “much more exciting” with the Biogen news.
* “Something we are really excited for the future”
* “Something over the next few years I hope that we will have some news for you all”
Q: Royalty/licence revenue gone up, product/contract gone down in the last few years. Explain dynamics there?
* Some drug-testing antibodies, which are sold physically, declined over last few years.
* Product used for testing ‘agricultural’ products, demand dropped suddenly due to problems at the customer.
* Another tests for alcohol, was going up, but now going down, not sure why.
Q: How do you choose to make an antibody physically or collect a royalty from it?
* Based on volume of antibody in test. Some use 100x or 1000x more antibodies than another test.
* Drug tests use huge volumes of antibody, so sold physically with small royalty.
* But oestrogen testing has tiny volume of antibodies, so physical sales small compared to royalty.
* Customers can make their own antibody based on BVXP’s, so BVXP collects just a royalty.
* Royalties are pure royalties. 100% gross profit.
* BVXP clarified: can sell a physical antibody, can collect a royalty from an antibody, and can sell physical and collect royalty from same antibody.
Q: Royalty rates?
* Vary from 0% for some antibodies to 2%
* 2% is a typical royalty
* Got some at 4-5% as well.
* Rates for specific products/customers are confidential
* BVXP dependent on customer pricing of end-user blood-test diagnosis kit.
[MP note: Percentage royalty seems fixed, so if end-user price goes down, BVXP royalty payment goes down]
* No visibility on Roche etc changing prices. No insight into volumes either.
“The royalty is based on net sales after deductions and that is all they are required to declare” — “limited visibility” to analyse what’s going on
* BVXP not privy to what hospitals etc pay for blood tests.
* Suppliers such as Roche etc offer 5/10/15 year contracts to hospitals, so perhaps some inflation/price change measures included.
* No insight into contracts offered by customers to end customers.
Q: Vitamin D H1 ‘price erosion’. What causes price erosion?
* Vitamin D dollar price per test under pressure over the years. Will continue. Big companies introducing new tests triggered competition.
* Choice of vitamin D test is determined by manufacturer of equipment (Roche etc). Vitamin D can be part of a package sold by Roche etc to the hospital.
* Contracts last for 5/10/15 years, and at the end of term, Roche etc can re-tender and may “sharpen their prices” based on pricing elsewhere.
* Expectation of 5-10% per annum growth as per wider IVD market.
Q: Biotin blockers? Suddenly come alive with revenue of £900k
* Blockers not driving sales. Sales of blockers are “minimal“.
* Existing biotin product driving sales. Developed in 1999, used now sometimes as a replacement for streptavidin, “Sales of that have gone up quite a lot”. “Good fortune“. “Sales mean now eligible for slide 6“.
* No insight into which product streptavidin-lookalike is going into.
* Confidentiality clause prevents more disclosure.
Q: Core antibodies prospects, now described as “core historic“?
* Reading too much into the wording change to ‘historic’ (“the antibodies are unchanged“)
* Core does have the same prospects as vitamin D.
Q: Removal of ‘troponin potential’ sentence from pipeline commentary?
* Nothing to be read into that. Still nothing in pipeline with troponin-type potential.
Q: Prospects for Tau?
* Quite likely to be an important diagnostic in the 2030s, when AD therapies become more commonplace
* Tau — leading candidate for such an early biomarker.
* University of Gothenburg knows a lot more about Tau than BVXP, BVXP knows a lot about antibodies = “why our relationship works so well“
* Lab results good but not quite good enough — too many false positives and false negatives. Need to improve test to reduce false positives and false negatives.
* “A lot of resource in the lab being fixed on achieving that goal“
* University of Gothenburg is world renowned. But BVXP are not the only ones supplying antibodies to that lab. And many other labs are looking into similar tests.
* BVXP’s Tau research to continue until solution found or other people have succeeded.
Q: Difference between Tau and Pre-Diagnostics R&D?
* Pre-Diagnostics = amyloid beta is their biomarker for AD, a “perfectly rational biomarker”
* Data is not quite as powerful as the Tau data. Tau “looks like a better biomarker“, but “things change in science”
Q: Genetic engineering, four-fold increase in yield?
* In 2016 BVXP converted an antibody (T3) from sheep cell production to hamster cell production, and productivity has gone up 5x.
* i.e. BVXP can make 5x times as much with the same materials in the same time.
* Downside: blood tests are regulated, and the quality implications of changing an antibody can be significant,
* Big customers don’t want to retest changes, ever though data says everything is identical.
* So only a few customers have since converted.
[MP note: new engineering is nothing groundbreaking in terms of future finances of existing products]
* But when developing a new antibody best to use hamsters upfront if you can
* Tried it with THC marijuana test to get price down for customers.
Q: Upcoming Tau publication in journal?
* Gothenburg “excited” by upcoming publication on one of the Tau systems.
* “Genuinely excited by some of the things we have done and ideas we have got for antibodies in the future, but it will come out in Brain, which is due out now.”
* “Tau will keep us busy for a while“
* Developing new biomarkers (e.g. AD Tau biomarker] is a “rare event” for human diseases, e.g.heart disease, dementia, cancer etc.
* “Got to respond to something you think will be of value that fits with your skills“.
* Next one difficult to predict.
Q: Competitor securing exclusive Tau contracts that exclude BVXP even with inferior product?
* Communicate with interested parties when new info arises.
* Publications from Gothenburg are “really influential” — anything that includes BVXP will be “very helpful“.
* Ultimately driven by data. But keep talking to Gothenburg and downstream users.
* Publication from Gothenburg would trigger interest and demand for research samples.
Q: Competition from in-house at Roche etc?
* “You never know quite what they are up to“.
* “No obligation to tell you“
* “All you can do is make the best antibodies you can, generate some data via Gothenburg so people believe in it and try and get the antibodies into peoples’ matrices and hope it then stands out as their lead partner, and they you have done your job.”
Q: Bio monitoring?
* “Going to be small I think. I would not bother putting that on the spreadsheet”
* People seem happy with air monitoring rather than urine tests
Test results complicated by non ‘pollution’ factors — barbecued sausage can create high levels of the product tested for.
Q: Pipeline beyond Tau and biomonitoring.
* Nothing of consequence.
* AD/Tau, “but that is a 2030 thing.” Timeline based on something new in diagnostic will take 5 or 10 years to happen downstream.
[MP note: Shareholders may have to wait until 2030+ for Tau revenue]
Q £5m buffer?
* Committed to keeping £5m for opportunities, tech or IP etc.
* Gives comfort, no real visibility on royalties, will cover costs.
* Not looking for anything to buy
Q: Backdated royalties.
* Customers are big multinationals with internal audit depts and will unearth odd mistake.
* Customers “not motivated to keep money” — how would it be recognised in the accounts?
* “Clarity of accounting exists at our customers“, Don’t lose sleep about the issue.
* “Troponin sales chart looks great, and makes Mark Brewer’s [Finncap] 3-3.5m[sales projection] look quite plausible.”