Biotech Values

[apljack]

NGNM: Investment Thesis

Lab testing is largely controlled by a duopoly: Quest Diagnostics and Lab Corp (both with market caps of about $8 billion). There are few midtier companies in this business space and my comp, until recently, had been GXDX. At the time of the announced purchase of GXDX, they were at about $150 million/year in revenues and had a market cap of about $600 million, if memory serves. Another similar co. might be BRLI, although they do more basic lab work (high volume, low margin) and less of the complex testing (traditionally higher margin, but this is becoming less of a sure thing.)

The sector of genetics testing is growing at an organic rate of about 25%/year, riding the wave of our aging population. NGNM has grown steadily (see link below) but has overpromised/underperformed in the last year with regard to their growth. About one year ago, they stated at a quarterly CC that they should be ready to open/acquire another CLIA lab by the end of this year, but not a word yet. The good news is that the last quarter was another record (breaking $10 million in revenue) and they had to use a record number of "contract" pathologists to handle the volume. This may be the indication that they are ready for that new lab.

This is a sector that has seen many of these small co.'s acquired, and NGNM will likely be one of those acquired co.'s within the next 2-4 years. ABT owns 10%

Hope this was helpful,

aj

http://finance.yahoo.com/q/is?s=NGNM.OB&annual