Fluidigm Flying?

Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Fluidigm Corporation (NASDAQ: FLDM) engages in the manufacture of proprietary microfluidic systems for the life science and agri-biotech industries. The stock IPO'd in early 2011 at $13.50. Since then it has remained range bound between $12 and $16.  There was a brief foray to $20 when it announced a cross-license agreement with Life Technologies Corp (NASDAQ: LIFE) but this warm fuzzy feeling quickly faded, dropping the stock back into its range.  However, the company successfully placed $52 million of Common Stock at $14.25 with the stock pressuring the $16 ceiling. There are buyers willing to support it, the question is - what are they supporting?

Within the Scientific Instruments space it is one of the smaller companies.  It's Market Cap of $322 million is dwarfed when compared to peers like Illumina (NASDAQ: ILMN) at $5 billion and Life Technologies Corp at $8 billion.  Affymetrix (NASDAQ: AFFX) is its closest competitor in size at $274 million, but while Affymetrix is profitable it hasn't enjoyed the buying interest Fluidigm has benefited from.

Because of its smaller size the company is more vulnerable to spiraling costs that are seriously crimping net income and forcing the company to consistently miss EPS projections despite beats in revenue.  Delving into its income sheet there has been a marked increase in Selling General and Administrative over recent quarters; rising from $8 million in the September '11 quarter to $9.5 million for the most recent quarter.  In addition, these costs have risen nearly 50% over the past 2 years.  Illumina saw a similar jump in costs over the last 2 years, but Life Technologies has kept its costs relatively consistent while Affymetrix has actually managed to lower its annual costs by over 10% over the past 2 year.   Fluidigm's entire Gross Profit is effectively spent servicing its costs, excluding necessary R&D costs.  While it's understandable the company wants to expand on its sales staff to boost revenue, it needs to balance expenditure in a manner which doesn't exceed its attractiveness to investors.  On the positive front, Account Receivables are falling.

A report in May suggested sales of its BioMark system will help push annual Revenues above the $100 million by 2015, but the question is how much of that will make its way into a profit? Fluidigm reported Revenues of $43 million in 2011 and is on course to report around $47 million in 2012.  If it could stabilize its costs it may squeak a profit in the latter part of 2013. However, revenues and positive net income will need to rise sharply if it's going to pay down the $233 million accumulated deficit.

Fluidigm's revenue does appear heavily dependent on its BioMark system.  It does draw a small amount of revenue from its license agreements and Grant funding, but if it's going to make the big time it needs a bigger contribution from its other product lines.

This might be one volume player which has hit the ground a little early. 


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