With shrinking revenues, unprofitable operations, and only $45.4 million in cash against trailing-12-month operating expenses of $115.4 million, the cell analysis hardware company Fluidigm (FLDM -1.41%) might not seem like an obvious candidate for investment. After taking a beating in the recent market correction amid the release of its new high-throughput coronavirus diagnostic tests in late August, the stock is nowhere near this year's peak.
With its innovative portfolio of cutting-edge cell analysis products, Fluidigm's poor stock performance is only a blip that investors shouldn't read too much into, especially because the stock has nearly doubled this year. Despite being weakly received by the market, Fluidigm's new coronavirus diagnostics might be the opportunity that the company needs to survive the pandemic's economic doldrums and get some breathing room to work on profitability and shareholder returns in the long term. To understand how this might be the case, we'll need to dive into a few details about Fluidigm's entry into the coronavirus market.
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Fluidigm's entry into the coronavirus market isn't going exactly as planned for shareholders
When Fluidigm announced in late August that its Advanta coronavirus diagnostic test had received emergency use authorization from the Food and Drug Administration, its stock briefly soared to reach its highest point of the year so far. In keeping with the company's core competency in designing microfluidic devices, the Advanta test uses integrated fluidic circuits that allow a single test cassette to process 192 different samples at once. When paired with Fluidigm's Juno and Biomark high-throughput PCR machines, clinics using the Advanta test can process as many as 6,000 different saliva samples per day.
Unfortunately for Fluidigm, each Advanta test cassette takes around three hours to process. So when Abbott Laboratories (ABT 0.67%) reported that its brand new 15-minute coronavirus test had also received emergency authorization, the Advanta diagnostic didn't look as appealing, and the company's stock dropped. Then, as Fluidigm's stock was still limping downward, the market entered several days of sharp correction earlier this month, dragging the company even further downward.
Nonetheless, the market may have overreacted to the company getting one-upped by Abbott by missing the larger context of Fluidigm's coronavirus business. On July 31, Fluidigm announced that the National Institutes of Health (NIH) had agreed to provide it with up to $37 million to develop high-capacity COVID-19 diagnostic tests. While the details of the contract are being finalized, the NIH provisioned $12 million for the company to use immediately, contingent on its Advanta assay receiving third-party validation. On Sept. 8, Fluidigm received this payment after meeting the validation milestone, suggesting that its collaboration with the NIH will proceed in full. Given that its entire research and development budget was $31.6 million in 2019, this amounts to a massive subsidy.
Could Fluidigm's price level be a blessing in disguise for potential investors?
Even if the market judged Advanta to be a flop right out of the gate, Fluidigm has already secured a package of cash to spend on product development as well as commercialization. Importantly, the Advanta assay isn't the first time that Fluidigm has deftly leveraged government support. Last year, the Defense Advanced Research Projects Agency agreed to pay the company up to $3.9 million through 2024 to refine its microfluidics technologies and produce a single-cell analysis device for diagnostic use in the context of biological weapons of mass destruction. While the coronavirus isn't a weapon of mass destruction, it's likely that the company has already benefited from having its critical research and development projects subsidized.
Right now, it's difficult to assess how much Fluidigm is making from Advanta. Though it claimed in its second-quarter earnings report that more than 100,000 assays had been run using the Advanta test, this figure is quite small because it is from before the diagnostic was given emergency use authorization. Keep an eye on the company's next earnings report in early November to get a sense for how rapidly the company is deploying its tests.
In the meantime, consider that the stock's recently bumpy ride may be a byproduct of speculation and over-reaction rather than genuinely changing fundamentals. After all, since its price collapsed in late August, the company's position has only improved -- and many of Fluidigm's competitors don't have government help with product development.
