5 Cord Blood Banking Companies for Investors
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We recently explored the world of stem cell transplants, during which we came across a reference to “cord blood banking“. Simply explained, when a baby is born, the umbilical cord contains blood called “cord blood” which is a rich source of powerful stem cells. You can donate your baby’s cord blood to a non-profit cord blood banking company like Be The Match, or you can do the selfish thing and go down the “private cord blood banking” path. This means that you will send the umbilical cord blood to a company that will store it for you so that in can be used to treat your precious little angel when he or she falls ill in the future – all the while hoping that they won’t throw you in a nursing home when you’re old and decrepit.
How Much Money is in Cord Blood Banking?
Now that we understand what cord blood banking is, let’s try and understand just how much money there is to be made here. We can start by looking at the U.S. market.
The number of babies born in the USA in 2016 was 3,945,875. Let’s just round that up to 4 million babies. Now, let’s assume that we can talk half of these parents into storing the cord blood for their babies. That’s 2 million babies a year. The world’s largest newborn stem cell company, Cord Blood Registry or CBR, charges a $1,500 up-front processing fee for their service, plus an annual storage fee of $150 a year.
If we just look at the up-front fees, that’s a cool $3 billion in revenues a year. When it comes to the annual fee, let’s assume that it’s paid for 18 years until the kid becomes an adult and starts paying his or her own bills borrowing money from you for university. We can’t just take 18 X $150 = $2700 and say that’s the lifetime value of these payments. That’s because all you MBAs out there know about the “time value of money“.
The reason things become more expensive over time is because of inflation. Therefore, a dollar today will buy more than the same dollar received in 10 years’ time. At any rate, that’s all boring stuff that’s best left to the MBAs among us to figure out. We put one of ours to work on this problem, and she calculated that the present value of $150 received every year for the next 18 years is not $2,700, but more like $2,124. So, we can take the $3 billion number and then add to it $4.25 billion from the annual fees which means that if half of all parents in USA choose cord blood banking, that’s worth $7.25 billion a year in revenues – and we’ve only looked at the U.S. so far. This sounds like a compelling investment thesis, so let’s look at the world’s biggest cord blood banking companies that also happen to be publicly traded stocks.
Cord Blood Banking in the United States
Founded in 1992, Cord Blood Registry or CBR is the world’s largest newborn stem cell company and is presently storing samples from more than 600,000 children. In 2015, CBR was acquired by a company called AMAG Pharmaceuticals (AMAG) which develops drugs in the areas of maternal and women’s health, anemia management and cancer supportive care. As of last quarter, CBR revenues of $29 million accounted for about 20% of AMAG’s overall revenues ($146.4 million):
If we take the numbers for Q1-2018 and extrapolate them out for the entire year, we can see that CBR is capturing about 0.38% of the potential market (15,208 babies vs. 4 million babies born). There is clearly a lot of upside to be had here, and more soon-to-be parents need to be convinced that shelling over this type of cash will be worth it in the long run. More on that later.
Founded in 1992, Cryo-Cell International (CCEL) captures the title of being the world’s first private cord blood bank to separate and preserve stem cells. It’s a pure-play stock for investing in cord blood banking, since the company’s “principal sources of revenues are service fees for cord blood processing and preservation for new customers and recurring annual storage fees.” With a market cap of just $77 million, the company’s stock trades on the OTC market and has been steadily moving upwards over the past few years to coincide with simultaneous revenue growth.
While we constantly warn investors about the dangers of the OTC market, Cryo-Cell didn’t always trade on the OTC market. The company was delisted from Nasdaq in 2003 for not satisfying the “minimum shareholders’ equity requirement.” A cursory look at their growing revenues and lengthy history would lead us to believe that our typical concerns about OTC companies may not apply here, in other words it’s most likely not a complete scam. Pricing of their kits is roughly the same as the other kits we’ve talked about so far, and the company claims to have “500,000 parents from 87 countries who selected Cryo-Cell” making us wonder if the word “parents” implies any sort of double counting. It’s best to just use the word “samples”, which is what our next company does.
With more than 300,000 samples, the third (or maybe second) largest cord blood bank in the U.S. appears to be ViaCord. In 2007, ViaCord was acquired by PerkinElmer (PKI), the world’s leading provider of newborn screening systems. With 2017 revenues of $2.26 billion, the contribution of ViaCord to the bottom line seems minimal at best. No mention is made of ViaCord in the latest PKI investor presentation, or the latest PKI financial filing, leading us to believe that cord blood banking is not a key focus for the company at the moment. Pricing for their services appears to be a bit more expensive than CBR.
Cord Blood Banking in China
According to an article by the SCMP, in 2016 there were 18.46 million Chinese babies born, about 4X as many babies that were born in the USA during the same time frame. Using the same back-of-the-napkin math and assumptions we used earlier, one can estimate the potential revenues for cord blood banking in China to be around $29 billion if 50% of Chinese parents chose cord blood banking.
The company with the largest cord blood banking network in China is China Cord Blood Corporation (CO). They’ve managed to corner almost half of the market, at least for now, because the PRC government only grants one cord blood banking license per province or municipality. There are currently seven licenses in existence, a number that won’t change until 2020. As of March 31, 2017, CO has collaborative relationships with 349 major hospitals in Beijing, Guangdong and Zhejiang, and has a direct sales force driving sales to 45% of the total addressable market until 2020:
The aggregate number of births in our operating regions including Beijing, Guangdong and Zhejiang was estimated to be over 1.9 million in 2015, accounting for approximately 45% of the total newborn population in the seven provinces and municipalities that have been authorized or issued cord blood banking licenses to date
The company’s accumulated subscriber base has grown from 23,322 in March 2007 to 575,040 in March 2017 making them the world’s second biggest cord blood banking company right behind CBR, and leading to revenues of $110 million for the year ended March 2017.
People that purchase a subscription better pay their dues or their cord banking samples will be reclassified from “private” to “donated”. During the year ended March 31, 2017, the Company reclassified 4,180 private cord blood units as donated cord blood units. This $1 billion company plans to change their name to “Global Cord Blood Corporation” to reflect their strategy of expanding overseas. If that plan involves going to Europe, they’ll want to check out this next company.
Cord Blood Banking in Europe
Founded in 2000, CryoSave Private Cord Bank is the biggest family stem cell bank in Europe with more than 268,000 samples stored. It’s owned by a company called Esperite, and the stock trades on the NYSE Euronext Amsterdam (ESP.AS). Seems like something is off though, as this company has been steadily losing value over the past nine years resulting in a present day market cap of just $13.35 million:
Investors who would have bought shares when Esperite had their IPO back in October 2009 would be down almost -94% on their position. We wanted to pull up the 2017 Annual Report and have a look around, but it’s been delayed and was supposed to have a release date confirmed last month. Maybe something is dreadfully wrong or maybe they’re scrambling to meet all the demand for their product. Either way, given their small size it seems to make sense for one of the aforementioned companies to swoop in and put them out of their misery by acquiring their 268,000 samples.
Is Cord Blood Banking Worth It?
Educating parents-to-be and convincing them that cord blood banking is something their child may need in the future will be the key to driving sales growth. Of course the big question parents will be asking is, “Is cord blood banking worth it?” The ViaCord website has some great information on why you should consider cord blood banking – because apparently cord blood stem cells can be used in the treatment of nearly 80 diseases today:
Conclusion
That number is likely to grow in the future as more pharmaceutical companies look to use stem cells for regenerative medicine. Now, retail investors have at least a few options for investing in the five biggest cord blood banking companies.
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I’ve lost a lot of money investing in this market, getting in early was a bad move.
In what respect? We’ve been on a bull market for the last decade now it seems.