OLK - Olink Holding Guides To Reduced Growth In 2023

2023-04-13 12:00:45 ET

Summary

• Olink Holding AB went public in March 2021, pricing its ADSs at $20.00 per share.
• The firm provides biopharma research organizations with proteomics research tools.
• OLK performed well in 2022, growing revenue and achieving operating profitability.
• However, the firm now faces a credit drop in progress, which may affect its customers' budgets.
• I'm Neutral (Hold) on OLK for the near term until we learn the extent and effects of the bank lending pullback.

A Quick Take On Olink Holding

Olink Holding AB ( OLK ) went public in March 2021, raising approximately $353 million in gross proceeds for the company and selling shareholders in an IPO.

The firm sells a platform of products and services that assists biopharmaceutical companies and academic institutions in studying proteomics approaches to drug treatments.

Given uncertain macroeconomic and credit availability environments, I'm Neutral (Hold) on OLK in the near term.

Olink Overview

Uppsala, Sweden-based Olink was founded to develop its Proximity Extension Assay technology enabling researchers 'to use one platform from discovery to clinical trials to diagnostic applications utilizing a significant, established infrastructure of labs and installed instrumentation.'

Management is headed by Chief Executive Officer, Jon Heimer, who has been with the firm since 2014 and was previously a partner at Nexttobe AB, a family office and investment company focused on Swedish biopharma firm investment.

The company's primary offering solutions include:

• Explore

• Target

• Focus

The firm pursues clients in the research and biopharmaceutical industries via a direct sales model across all of its regions, which it divides between the Americas, EMEA, and JAPAC.

Olink's Market & Competition

According to a 2018 market research report by BCC Research, the global proteomics market was an estimated $7.9 billion in 2017 and is forecast to reach $16.8 billion by 2022.

This represents a forecast CAGR of 16.2% from 2017 to 2022.

The main drivers for this expected growth are increasing demand from biopharmaceutical companies for personalized medicine approaches to developing treatments for a variety of diseases.

Also, greater progress in proteomics tool development will also increase the throughput of research efforts, likely leading to additional investment in the sector.

Major competitive or other industry participants include:

• Quanterix ( QTRX )

• Meso Scale Diagnostics

• Luminex ( LMNX )

• SomaLogic ( SLGC )

• Elisa ( ELMUF )

• Seer ( SEER )

• Nautilus Biotechnology ( NAUT )

Olink's Recent Financial Trends

• Total revenue by quarter has grown markedly in recent quarters:

• Gross profit margin by quarter has trended higher more recently:

• Selling, G&A expenses as a percentage of total revenue by quarter have been dropping in recent quarters, a positive signal:

• Operating income by quarter has moved into positive territory in Q4 2022:

• Earnings per share (Diluted) have also turned positive in Q4 2022:

(All data in the above charts is GAAP)

In the past 12 months, OLK's stock price has risen 38.8%, as the chart indicates below:

For the balance sheet, the company ended the quarter with cash and equivalents of $75.1 million and no long-term debt.

Over the trailing twelve months, free cash used was ($37.3 million), of which capital expenditures accounted for $7.2 million. The company paid $7.9 million in stock-based compensation in the last four quarters, the highest since its public debut.

Valuation And Other Metrics For Olink

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

Future Prospects For Olink

In its last earnings call (Source - Seeking Alpha), covering Q4 2022's results, management highlighted the 33% year-over-year revenue growth performance and full-year revenue growth of 47%.

Notably, the firm is seeing 'an expansion of proteomic workflows within customer accounts throughout the entire Olink portfolio.'

However, at the end of 2022, management saw that the 'end-of-year budget flush environment was not quite as robust as we had seen in previous years,' the firm is seeing the beginning of some spending headwinds, likely as customers subject spending to greater scrutiny.

Looking ahead, management is evaluating bolt-on M&A opportunities for its antibody antigen development and supply chain efforts.

Leadership guided full-year 2023 revenue growth to be 40% at the midpoint of the range, which, if achieved, would represent a drop of seven percentage points growth rate versus 2022's results.

The company's financial position is moderately strong, with approximately two years of cash runway at its trailing twelve-month free cash flow burn rate.

Regarding valuation, the market is valuing the stock at an EV/Revenue multiple of around 18.5x, even as growth will be moderating.

The firm is operating in a high-growth area of the life science tools market and has crossed into positive operating profitability, two bullish signs for the company going forward.

The primary risk to the company's outlook is how customers will react to the potential of reduced credit availability due to the recent banking failure crisis (SVB, Signature, and Credit Suisse).

The chart below shows a sharp dropoff in business loans since the onset of the crisis:

This credit 'crumble' may turn into a 'crunch', as banks look closely at their loan portfolios and reduce lending to the riskier sectors.

A potential upside catalyst to the stock could include a pause in U.S. Federal Reserve interest rate hikes, resulting in a higher valuation multiple for higher-risk technology company stocks like Olink.

While OLK has performed well in the past year, my negative outlook for credit would affect many of the firm's customers.

Given the uncertain macro and credit environments, I'm therefore Neutral (Hold) on OLK in the near term.

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