Published Last Week

Upcoming Research

We've listed a few of the companies we're planning to publish research on over the coming weeks:

  1. CVNA underwriting process vs competitors
  2. Danaher Life Sciences: Aldevron, IDT
  3. Danaher Business System: how DHR deploys DBS tools throughout sales, manufacturing, and leadership
  4. Hermès and LVMH
  5. Westinghouse & Rolls-Royce Nuclear SMRs
  6. Tesla
  7. Interpump
  8. AWS Inferentia & hyperscaler LLM inferencing capabilities
  9. GXO
  10. Moltiply
  11. Repligen
  12. Applovin and more

Danaher Biotechnology: Cytiva & Downstream Bioprocessing

We're always on the hunt for high-quality, mission-critical products with high switching costs and prices that reflect a small percentage of a customer's end product. There is little doubt this is what attracted Danaher to bioprocessing.

Cytiva, Danaher’s Biotechnology franchise, was created from the combination of two of the company’s largest historical acquisitions: GE Biopharma (2019) for $21bn, and Pall (2015) for $13.6bn.

Cytiva sells filtration and purification products for the antibody manufacturing process. Each product is specified into the process which has to abide strict FDA rules. Products are typically single-sourced with high switching costs. This creates ~40% EBIT margins for DHRs Biotech division. In over 30 years of this Former GE Executive's career selling chromatography systems, he has only seen one company dual source resins.

Ideally, companies are expected not to do single sourcing. They should have at least two suppliers of raw material. That means if you have two suppliers, you have to keep them alive. You have to use them in production scale. In my almost 30 years of experience, I know one company in the world that uses two Protein As. The rest don't. Because it's so difficult. You have to keep two production lines, so you stick to one and don't change. - Former Head of Sales, GE Life Sciences

We’ve spent the last 6 months digging through old Pall and Amersham filings to understand how bioprocessing works, Cytiva's underlying asset quality, and the potential synergies from merging Pall and Amersham Pharmacia (GE) products.

A brief history of Danaher Biotechnology: in 2015, Pall generated $2.78bn in revenue, with ~$1bn from bioprocessing and the rest from industrial and medical end markets which Danaher spun post-acquisition. Pall’s portfolio touches most parts of upstream and downstream filtration with a focus on buffer and depth filtration:

Pre-acquisiton, Pall earned over 50% gross margins and 20%+ ROE sustainably. Of the ~$1bn of Biopharma revenue, ~90% was consumable filters. 

The 2019 GE Biopharma Healthcare acquisition brought ~$3.2bn in estimated revenue, $1.7bn downstream and $1.1bn upstream. This portfolio includes purification systems and resins, upstream consumables, and other SUT technologies and services. Danaher acquired the business at an estimated 17x forward EBITDA, implying these assets earn ~37.5% EBITDA margin. 

We have curated 6 months of research into a Company Learning Journey on Danaher's Downstream Processing business. We explore how the downstream process works, Cytiva's product portfolio, and how customers purchase products. We also compare Pall and Amersham Pharmacia stickiness and product risk to other mission-critical assets such as TransDigm. The full contents of the research is below:

Over the next 2 quarters, we plan to follow the same process for Danaher's upstream bioprocessing portfolio before moving onto its Life Sciences division.

AWS & Hyperscalers vs Lambda, CoreWeave & Mid Tier GPU Cloud Providers

In this interview, a Former Senior Executive at Lambda Labs sheds light on the moat of hyperscalers and the threat of mid-tier GPU cloud providers.

"With AWS, I don't think they really consider it because they seem somewhat niche. AWS offers much more than what the GPU mid-tier providers do. There's accounting, various software packages, ease of use, and many other factors that come into play when you look at the hyperscalers. They have a robust infrastructure and understand what customers are looking for. If you look at the Fortune 500 companies, many use the hyperscalers because they aren't just looking for GPU compute. They want a range of hardware options that mid-tier providers don't offer. A lot of discussions are driven at the accounting level, where companies have to justify going outside of AWS if AWS offers the same product. For example, a Fortune 50 company we worked with at Lambda had to go through many hoops just to do a proof of concept. Our proof of concept with this company was $8 million. To them, it was nothing, but the paperwork required to not use one of the hyperscalers was very demoralizing. However, the executive sponsor stuck it through. - Former Director at Lambda Labs

Ecolab: Exclusive McDonald's Customer Relationship

This interview with a 30-year franchise manager veteran at McDonald's explores how store owners use Ecolab and why McDonald's has an exclusive relationship with Ecolab:

That's probably the most important question you can ask. As you talk to other people, they may give you different perspectives. The lifeblood of McDonald's is functioning equipment. As a user, you went to the local store in Worthington. I'm sure you go to the stores in Cincinnati. If you're heading into a peak period where you might be doing $2,000 or more, $3,000 in sales, your equipment has to be working. The game in McDonald's is to spend as little as possible to keep the equipment functioning. It's like when you get notices from your car dealer that you need to do your PM or oil change. Most operators are inclined to delay that until something breaks. Once something breaks, you're in trouble because you might have a massive Saturday breakfast coming up. If your toaster or fryer is not working, you have a major problem. - Former Franchise Manager at McDonald's

Atlas Engineered Products: Manufacturing Automation & Plant Economics

Atlas Engineered Products is a Canadian acquirer and operator of truss and engineered wood products manufacturing facilities. The stock has compounded at 12% per year since listing in 2017. A Former Senior Executive at the company describes the economics of plants and the incremental returns from upgrading the acquired plants.

Again, it depends on the capital investment. For example, if I think about Pacer, they were doing about $15 million and delivering about 20 points, they would have done about $2.5 million to $3 million worth of EBITDA. The capital on that plant at the time was about $1.9 million or $2 million worth of capital. So you could do the calculation - Former Senior Executive at AEP

Vitrolife: Customer Perspective & Custom Embryo Development Algorithms

The IVF market is large and growing:

The US is responsible for ~10% of the global IVF cycles and a much larger part of global value due to the higher cost per cycle. Over 50% of cycles in the US are completed within clinics within a larger network like PE-owned CCRM, IVIRMA or Inception Fertility. These clinic groups individually do upwards of 10.000 cycles per year, with some even reaching 20.000 per year. This potentially provides them with enough scale to in-house some services & technologies like embryo scoring or genetic testing.

Last week we published an interview focusing on the EmbryoScope, one of Vitrolife's flagship products. This interview with a CSO for a IVF Clinic Network discusses the potential for large clinic groups to develop their own AI embryo scoring algorithms using the EmbryoScope.

"We've used the EmbryoScope for many years, and I'd say 90% of our time-lapse devices are EmbryoScope. We've acquired some clinics that have different systems, like the Geri time-lapse incubator. We try to apply our knowledge and learnings from the EmbryoScope to the images and systems from the Geri. It's a challenging exercise, but I believe the human embryo follows a predetermined pathway of development. It doesn't make biological sense that an algorithm built on one image system would be different from another. Technically, there are some challenges in translating, but overall, I think they should be completely compatible. - Chief Scientific Officer at IVF Clinic Network

The executive highlights the potential interchangeability of hardware which could drive lower priced timelapse alternatives. Using EmbryoScope images and annotations, this clinic has collected the data at each stage and potentially has a more complete dataset than Vitrolife:

We've built our own algorithms to predict birth outcomes because we were first movers in the UK and accumulated a lot of data. In the UK, we are obliged to collect birth outcome data, so our dataset is very complete. We've built and validated these algorithms properly with training and validation datasets and prospectively validated them. We know that it is identifying and ranking the best embryos for us better than we could otherwise. - - Chief Scientific Officer at IVF Clinic Network

This is an example of how scaled fertility clinics could in-source services offered by suppliers like Vitrolife and CooperSurgical. We will explore this trend in particular as it relates to genetic testing services and Vitrolife's acquisition of Igenomix.

Veeva Systems: Customer Perception & Salesforce Relationship

In this interview, a Former VP of Global Accounts at Veeva Systems sheds light on the evolution of the relationship with Salesforce and how customers perceive the product relative to IQVIA. The interview also explores compensation:

"Initially, it was pretty straightforward, structured as a 50/50 split. So, if your comp is $100K, your variable would be an additional $100K if you hit your target earnings. As you go more senior, comp is based on expansion and renewals. They changed the compensation structure while I was there to a team compensation model. They had a pooled number for all the enterprise account executives. Instead of an individual number to achieve, there was a team number across all the enterprise reps. The number was always plus or minus 10% of the forecast, so it was steady. - Former VP of Global Accounts at Veeva Systems

VEEVs multi-tenant platform seems more agile than IQVIA:

"Veeva has done well by maintaining a single workflow platform or a multi-tenant platform that isn't customized for every customer. They are slow to make changes because any change impacts all their customers. This has stifled innovation but allowed them to scale effectively. IQVIA quickly went down the path of promising everything to customers, ending up with bespoke solutions that couldn't scale to other customers. Essentially, they were building custom solutions for individual customers. - Former VP of Global Accounts at Veeva Systems

Royal Caribbean: Cruise Ship and Private Destination Economics

In this interview, a former VP at Royal Caribbean Group explains the economics of the cruise ship and private destination markets.

"Let's say Royal Caribbean did not do that project and went to Nassau. Most of the time, they go to Nassau. Those customers have a couple of choices. One, they stay on the ship. The casino is not open, so there is no revenue from that. Most of the retail outlets are closed, so there's no money being spent there either. Guests are either at the pool, in their rooms, or doing something else. That "something else" often involves paid products, like shore excursions. We looked at comparable beach resorts and different areas in Nassau, and they're not cheap. I don't know the exact dollar amount now, but let's say it's $50 or $75 per person for a trip. That's purely incremental to what you would be losing if you didn't have this beach resort. You're just losing your audience to other activities. So to me, it's all upside. There will be some sort of per diem or ticket price to get in. Perhaps it will be packaged as a Perfect Day experience or a private destination experience when booking the cruise. It might not be like, "Hey, give me your $75 when you enter." It could be a bundled ticket pricing type offering. - VP at Royal Caribbean Group

Ashtead Technology: Subsea Equipment Rental

Ashtead Technology is a UK smallcap subsea and offshore energy equipment rental company. The company was bought out by management and a PE firm in 2009 before listing in 2021. A Procurement Director for a major subsea services company describes the value chain and how contracts in the industry are negotiated.

The reality is that this supplier will be on board your vessel. Their productivity, problem-solving and troubleshooting capabilities, reliability of equipment, and flexibility in changing the scope are crucial. These factors are directly linked to your vessel time. - Procurement Director as Major Subsea Services Provider

Builders FirstSource: US Homebuilding Cyclicality, Pricing, & Vertical Integration

In this interview, a Senior Executive at a US regional homebuilder explains the cyclicality of the US homebuilding market and how large players like Builders FirstSource benefit from being vertically integrated:

"It's a changing and consolidating market. We used to have half a dozen different people you could buy lumber from, but that number continues to dwindle as bigger players take a larger market share. The same thing is happening with home builders; bigger builders are taking a larger market share. There's consolidation in many markets into big companies. I see builders more and more interested in having some kind of controlling interest. For example, Ryan Homes has always manufactured their own trusses, floor trusses, and wall panels. They have a plant near us where they do their own manufacturing. So, you see some builders controlling that space as well. - Senior Executive at a US regional homebuilder

Lifecore Biomedical: Customer Mix, Switching Cost & Power in the CDMO Value Chain

In this interview, a Former Senior VP at Lifecore Biomedical sheds light on the switching costs and regulatory hurdles enabling CDMOs to build defensibility in their respective markets.

"Lifecore has an amazing technology footprint. No one that I'm aware of is building new regulated aseptic pharmaceutical or biological facilities domestically today. They are too expensive and too high-risk for many products, which are being manufactured offshore. The cost, risk, and environmental compliance issues are significant hurdles. Lifecore is a gem in terms of its facility, assets, capabilities, and FDA and EU registrations. They have capabilities that many do not, which gives them a big reason to exist today - Former Senior VP at Lifecore Biomedical

Croda: Vaccine Adjuvants Business

Croda's Life Sciences chemicals is becoming an increasingly important part of its business. A Former Brenntag Executive explores the acquisition of Croda's vaccine adjuvant business, previously owned by Brenntag.

The second point is in the UK market. I think the Minister of Health in the UK is providing some financial support for adjuvant development, specifically the next generation of adjuvant development. I can find the data on that. I don't have it with me now, but I can find the real data to support your research. Croda is not the number one player in the adjuvant market in terms of volume and value. However, they are positioned in the specialty adjuvant market, and they are developing significant knowledge in biotech. - Former Senior Executive at Croda

FTAI Aviation & the CFM56 Maintenance Process

This interview with an engine maintenance engineer with over 20 years experience at MTU Aero and SR Technics explores the CFM56 shop visit and maintenance process:

You can swap the module on all of them. But what is the problem with the swap? This is what most companies do for economic reasons. For example, some modules have LLP parts that work for 15,000 or 20,000 cycles. You want to remove this old module because you want to put another module with LLP parts from 1,000 or 2,000 cycles. This is for economic reasons, and we engineers understand very well why companies do that. But there is a very big problem. When you put in another module and want to assemble it with all other parts of the engine, you need to have the correct interference in the sealing, perseverance. - Former Maintenance Engineer at MTU Aero