Why is Berkeley Lights Stock Falling?
Some interesting things happen when you start telling people what stocks you’re invested in. They’ll start making assumptions. For example, one reader commented that we were “bearish on Palantir” when we opted to invest in C3 (AI) instead. That made us think. Maybe we ought to do a proper comparison between these two companies so people can see why we chose the way we did – thus, yesterday’s piece on An Enterprise AI Showdown – C3 Stock vs. Palantir Stock.
Our premium subscribers know we’ve been nibbling on shares of Berkeley Lights (BLI) lately. “I’m nibbling too because you guys are so bullish,” one premium subscriber told us. We were taken back a bit. Sure, we think that the company has great long-term prospects, but that doesn’t mean we would bet the farm on it. “So bullish” sounds a bit strong. From memory, we’re long BLI because:
- They’ve built a consumables-heavy platform that can be used to sort cells.
- They have loads of reference clients and they’ve demonstrated traction with growing revenues
- They can cut the time it takes to do something important from weeks to days
- Their ticker – BLI – is easy to remember
And that’s about all we can recall.
Now that the stock is dropping like a rock, it’s natural to question the original thesis we wrote about in last summer’s piece, All About the Berkeley Lights Stock IPO, but we should do exactly the opposite. When everyone becomes fearful, that’s exactly when we should be buying. Today, we want to remind ourselves why we bought the stock in the first place, and make sure that thesis hasn’t changed.
Berkeley Lights – The Bigger Picture
What Berkeley Lights does is impossible for most investors to understand at a technical level, though we gave it a good go in our piece on How Berkeley Lights Enables Synthetic Biology. The company uses lights to sort cells using semiconductor technology, and that’s about the extent to which we understand their technology. The three main use cases for the Berkeley Lights Platform are Cell Therapies, Antibody Therapeutics, and Synthetic Biology where they’ve gotten in bed with Ginkgo Bioworks. It all adds up to a $23 billion total addressable market (TAM), so why is the stock dropping faster than a prostitute’s knickers during Fleet Week?
Why is Berkeley Lights Stock Falling?
Why do racoons wash their food before they eat? Why do tweakers always drive cars with broken doors? Why do stocks fall for no reason? It’s tough to find answers to these questions, but for stocks, you can check the usual suspects. Any 8-K filings with the SEC? Any banter over at Seeking Alpha? Was there a crappy earnings call and it’s taking time to sink in?
We checked all of these avenues and found a few things worth noting.
First, the BLI 4Q-2020 call had some interesting tidbits. The company gave guidance for 2021 in the range of $90 million to $100 million representing growth between 40% and 56% over the prior year. In 2020, growth stumbled for BLI with $64.3 million in revenues growing just 13.4% over the previous year. A key metric to watch – the number of machines installed – was 75 platforms at the end of 2020, up 56% from the end of 2019. So, things at BLI appear to be business as usual.
Second, there’s a legal battle brewing. Three different lawsuits were kicked off last summer by a company called AbCellera (ABCL) that’s also accompanied by The University of British Columbia. About a dozen patents are being pointed to by the plaintiffs who demand the usual suspects – lost profits, a reasonable royalty, reasonable costs and attorney’s fees, and treble damages for willful infringement. The lawsuits and the stock price movement seem unrelated, but it’s something to keep a close eye on.
We’ve always viewed lawsuits as a bad thing, but maybe they’re telling us something we didn’t consider.
In a market where there’s money to be made, litigation is often rampant.Credit: DeciBio
That’s something we didn’t think of when we wrote about a company called 10X Genomics which dabbles in the same space as Berkeley Lights doing something absolutely remarkable. They’re sequencing cells, and they’re one of a dozen or so companies that are forging ahead in the single-cell landscape.
Recent advances in the techniques for isolating single cells, together with methods for amplifying their genetic material, now make it possible to explore the genomes of single cells.Credit: The Jackson Laboratory
The Single-Cell Landscape
Single Cell Genomics (SCG) is about isolating a single cell from a group of cells to study it, measure it, and sequence it. It’s an emerging field that’s only taken off in the past three years. That’s according to a piece by a consulting firm called DeciBio titled “10X Genomics Dominates the Single-Cell Landscape While Competitors Look for a Niche.” In that piece, DeciBio lists 11 companies that “offer SCG products.”
As Illumina shareholders (our second-largest position,) we’re stoked to see that they launched a single-cell sequencing system back in 2017 with Bio-Rad, though we’re not sure how that’s been going. (It was a legal battle with Bio-Rad – which Bio-Rad won last summer – that had us avoiding 10X Genomics (TXG) when we first considered investing in the stock.) Aside from 10X Genomics and Berkeley Lights, the only other publicly traded companies in the list are medical device maker and dividend champion Becton, Dickinson and Company (BDX), and Fluidigm (FLDM), a company that doesn’t meet our market cap cutoff of $1 billion. AbCellera, the company that’s suing Berkeley Lights, is suspiciously absent from the above list. We can only assume that’s because they’re not currently “offering SCG products.”
The man who wrote that DeciBio piece, Miguel Edwards, has interviewed more than 100 subject matter experts to arrive at his conclusions. Such due diligence would take us months to complete, so we’re glad this gentleman spent a good chunk of his career getting to the point where he can properly articulate what’s happening so we don’t have to. If you’re an institutional investor who is serious about investing in SCG, that’s your guy. If you’re a retail investor who uses multiple browsers to get past paywalls, this is probably the end of the line when it comes to free research. Here are some of the conclusions we reached today.
- We probably should have climbed on board 10X Genomics when we first covered them. We didn’t, because we are risk-averse and disliked the legal turmoil we saw. Turns out that legal turmoil can also be good sign, and the real story is played out in revenue growth numbers.
- We’re going to move 10X Genomics from an “Avoid” to a “Like” which means it’s now on our watch list.
- Berkeley Lights seems to be one vendor of many that’s benefiting from “the single cell revolution.”
- DeciBio says Illumina is “the biggest indirect beneficiary of single-cell genomics as the field continues to conduct sequencing downstream of most single-cell experiments.”
A piece published in Nature last summer about the you know what noted a use case where 10X Genomics was being used alongside the Berkeley Lights device. The researcher remarked that BLI could do something 10X couldn’t, noting “….the Berkeley Lights system offered a valuable shortcut in terms of assessing antibody properties. Their pipeline operates with breakneck speed.” We’d conclude that while 10X Genomics and BLI may seemingly coexist at the moment, we’re really interested in understanding a bit more about AbCellera, given they’re suing one of the companies we’re currently accumulating.
Having some skin in the SCG game means we’re keeping an eye on things. Our BLI thesis hasn’t changed, but 10X Genomics is emerging as a leader in this space, and we like to stick with leaders. In the single-cell space, we’ll be watching TXG and BLI going forward. With BLI’s shares selling at $22 in their July 2020 IPO, the last thing we’ll do here is try and call a bottom.
Calling a Bottom
Another thing we’ve seen readers doing is trying to pick a bottom. Don’t. You’ll never successfully time the market, and there’s no reason to try when there are no transaction fees anymore for retail investors. Enter and exit positions slowly. Buy one share a day if you want. There’s no reason to try and call a bottom here. Maybe BLI has just been extremely overvalued, something we can check with the new “market cap / annualized revenues” ratio we used in yesterday’s article on enterprise AI stocks. Here’s that ratio calculated for BLI, 10X Genomics, and Illumina, three companies frequenting similar places (the lower the ratio number, the better the valuation).
|Company||Market Cap||Revenue Data||Revs Billions||Ratio|
Again, this tells us nothing except that BLI could continue to fall and it’s probably not ridiculously overpriced right now. Our original reasons for investing in BLI have not changed, so we’re seeing the falling stock price as an opportunity to purchase shares of a quality tech stock cheaper than what we were willing to buying them at before.
Making investment decisions for yourself won’t work unless you can act with conviction. Letting human emotion get in the way of investment decisions – like second-guessing yourself – means you will lose money and you won’t sleep well at night. We’re risk-averse investors who sleep well at night – and that’s not just because we’re all a bunch of borderline alcoholics. It’s because we publicly document why we make our decisions so we can always go back and review the inevitable mistakes we’ll make along the way so we can learn from them.
Not investing in 10X Genomics may have been a mistake, but we’re not losing any sleep over it. We now need to assess the extent to which AbCellera appears to threaten Berkelely Lights, so we’ll kill two birds with one stone by writing a thorough piece on AbCellera next.
Are we going to continue buying shares of Berkeley Lights? Become a Nanalyze Premium annual member and we’ll let you know what and when we’re buying or selling.