When looking for shares to buy now, the biotech industry is not a bad place to start. This particular biotech stock has been the leading supplier of antibodies used in diagnostics for many years.
The opportunity
Bioventix (LSE:BVXP) is a biotechnology company that specialises in manufacturing antibodies for blood testing machines. Hospitals around the world use its products to help diagnose heart disease, thyroid problems, fertility issues, cancer, and a plethora of infectious diseases.
Unlike other antibody creation labs, Bioventix uses a proprietary sheep monoclonal antibody (SMA) technology that far out-performs the competition.
The business has two revenue streams.
The first is the manufacture and distribution of its SMAs to in vitro diagnostics (IVD) companies around the world – such as Roche Diagnostics, Siemens Healthineers, and Abbott Diagnostics.
Currently, the company sells around 10–20 grams of the purified antibodies each year. Needless to say, it’s an expensive material.
The second source of revenue is from royalties. Whenever a client sells a diagnostic product that uses SMAs to their downstream customers, Bioventix receives a modest royalty. As it stands, these agreements generate approximately 70% of the company’s annual revenue.
This unique approach to business results in an ongoing source of money from its clients, after the sale of the product.
It also partakes in contract antibody creation programmes. Other companies pay Bioventix to develop a new antibody for exclusive use. The process typically takes one year. Once completed, the firm once again continues to receive royalties from each sale.
The financials
The latest results from June 2020 revealed continued revenue growth of 11%. At first glance, this appears to be a slow-down from previous years. However, Covid-19 did cause disruptions to the routine of the global IVD market that resulted in a 15%–20% reduction in activity.
A diverse portfolio of antibodies drives the royalty revenue. Although, it is worth noting that the royalty agreement for NT-proBNP, which currently represents 13% of annual revenue, is set to expire in July 2021.
There are plenty of other products generating royalties ready to replace it. However, the loss of income may have a notable impact on 2022 annual revenue.
One of the best shares to buy now?
The highly regulated pharmaceutical industry is both a blessing and a curse. Regulators have already approved the SMAs, but not the products of its clients. Seeking approval is a very lengthy process that can take up to a decade of tests and trials.
This delays the royalties Bioventix is set to receive from its contract antibody creation programmes. To put this into perspective, the projects being developed today likely won’t yield royalty revenue until 2025–2035.
On the plus side, the long and expensive path to approval grants a significant competitive advantage. The process creates a large barrier to entry for competitors as they would have to pursue regulatory approval themselves.
In my opinion, this form of competitive edge is a rare to come by. Whether they are the best shares to buy now is a personal decision, but Bioventix is definitely on my list as a possible addition to my portfolio.