Thesis - If there is one thing you can count on in many recent TRIB calls, it is that what management tells you isn't going to come true. Whether this is just a cascade of unfortunate unlucky events or a sign of managerial aggressiveness I don't know, but clearly high expenses are obscuring the company's base business and there is always a chance that many promises might come true - especially with the company's heart attack marker test. As such, this is far more complicated and fuzzy-wuzzy than my usual ideas (at least those from 3 years ago and before) but TRIB is in my opinion a low cost option and things finally working out right.
Description - Company is a multi-product diagnostic company based in Ireland. In 2014, revenue breakdown was 32m diabetes, 43 Infectious diseases, 20m HIV, and 10 Life science supply. No sales are from Cardiac, but product development costs have eaten out free cash flow and yield nothing so far, but the signature test - Troponin, which is supposed to detect markers for heart attacks better than any current product - has been beset by delays but finally seems to be nearing its way to FDA submission and hopefully eventual approval. To be blunt, I don't understand the science behind this product but the company claims it is clearly superior (none of the current tests meet FDA guidance; Tropinin does) and multiple trials have shown the product's efficacy. The profit potential for this is drug is unknown but the theoretical market is more than 350m. The company has said in numerous calls that their sales force is ready to sell the product and up-front costs suggests that if the product is as they suggest it ought to be very high gross margin.
Company had forecasted 400 this year with maybe 460 next year. With more than 90 were placed previous quarter, only 70 were done the latest as currency effectively made the business unprofitable in Brazil, an important market. Plus, reagent sales have not currently meet expectations, which is bad because reagents are the profit center, with very high margins, but China has been ramping up slower than expected.
*wrong on syphilis revenue. A test for Syphilis was seen generating 10m in 3 years with 60% margins but sales have been at 100-100-300k in the past three quarters, though management remains optimistic and says it is just paperwork delaying the increases
*Lower CapEx coming and free cash set to expand. When first written up TRIB was running 10m in CapEx for 20m in cash flow, with prospects for higher margins at little incremental capital investment. That was before Troponin, as RD and SGA due to that product have turned the company free cash flow negative. Management guided to positive free cash flow in recent quarters but they’ve been wrong so far.
*Troponin timeline. Management's timeline on this product has been delayed and delayed - adjudication issues, sample problems, etc. All are plausible issues, but you learn quickly to add 12 months to anything management tells you, though again maybe it is just bad luck.
Course, all these are plausible excuses: currency is hard to forecast, the syphilis test is just taking a while to ramp up, Premiers are being placed so reagents ought to follow, and if Trop. is approved expenses go down, profits go up.
If you go back a few years ago before the Trop product development began, TRIB was doing 20m in cash flow with revenue approaching 100m. At the current cap of about 300m, either the success of Trop. or the normalization of expenses ought to rerate the shares. When Trop mania was more present, not that long ago the stock was double the current price which gives you an idea of what investors thought before the misses kept coming.
I realize this writeup is inprecise. I'd tackle a Sum-of-parts valuation but I no longer believe any of that is relevant. You can also pretend this would be a logical takeout for somebody but people were saying that many years ago. I've owned this stock at various prices for several years and you can wish yourself into a lot higher valuation, but in the end the only thing I now pay attention to is TTM CFFO, Capex, and hope. Hope is high right now. Maybe the plane will land successfully.
In the meantime, the company also does far too many options and a recent convertible adds to the mystery here cause there is no way to know how they will allocate the money (even though the interest expenses are real enough).
But I don't need precision - if Trop is as they say it is, if it gets approved, if the potential is 350m at very high margins, this stock will go up significantly. We will know soon enough.
For further information: several profiles from Barron’s