Headwaters Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. The Headwaters Capital portfolio declined by -10.9% for the first quarter of 2022 compared to the -5.7% decline of the Russell Mid Cap index for the same period. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Headwaters Capital mentioned Inotiv, Inc. (NASDAQ:NOTV) and explained its insights for the company. Founded in 1974, Inotiv, Inc. (NASDAQ:NOTV) is an Indiana, United States-based nonclinical and analytical drug discovery and development services provider with a $362.7 million market capitalization. Inotiv, Inc. (NASDAQ:NOTV) delivered a -66.13% return since the beginning of the year, while its 12-month returns are down by -44.16%. The stock closed at $14.25 per share on April 29, 2022.
Here is what Headwaters Capital has to say about Inotiv, Inc. (NASDAQ:NOTV) in its Q1 2022 investor letter:
“Inotiv (“NOTV”) – Transformation into a Critical Full-Service Contract Research Organization Summary Thesis
1) Vertically integrated, full-service provider of non-clinical contract research services to biotech and pharma positions the company well to gain market share in a fragmented industry of single service
providers.2) Dual secular revenue tailwinds from:
a. Increased role of biotech companies in the drug discovery pipeline.
b. Increased outsourcing of pre-clinical and clinical CRO services by both biotech and large pharma.3) Margin expansion from increased scale and improved operational performance at acquired assets.
4) Fragmented industry of smaller competitors operating at low utilization levels provides ample opportunities for highly accretive M&A.
5) Discounted valuation relative to larger peers will narrow as the company demonstrates that it has evolved into a more critical partner for both biotech and pharma clients.
Company History
Inotiv was founded in 1974 and is headquartered in Lafayette, IN. Originally named Bioanalytical Systems (“BASi”) the company has been a non-clinical (not running clinical trials) contract research organization (“CRO”) serving the biotech and pharmaceutical industries. The company has largely focused on pre-clinical services, which includes discovery and safety work that typically involves toxicology, pathology and other scientific work that is performed prior to the initiation of any clinical trials in humans. An overview of the process and services provided by Inotiv is shown below.
Prior to 2017, BASi was a subscale provider of pre-clinical services and had excessive customer concentration to a few large pharma customers that created highly variable revenue year to year. From a competitive standpoint, BASi was poorly positioned as their pharma customers increasingly consolidated their pre-clinical and clinical work with larger CRO’s who could serve as one-stop providers for all of their outsourced needs. As a result, NOTV’s revenue declined by 38% from 2011-2016 and EBITDA turned negative in 2016. This revenue decline combined with an excessive debt burden placed the company in deep financial trouble in 2016…” (Click here to see the full text)
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Our calculations show that Inotiv, Inc. (NASDAQ:NOTV) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Inotiv, Inc. (NASDAQ:NOTV) was in 21 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 14 funds in the previous quarter. Inotiv, Inc. (NASDAQ:NOTV) delivered a -55.45% return in the past 3 months.
In February 2022, we published an article that includes Inotiv, Inc. (NASDAQ:NOTV) in 5 Undervalued Stocks Hedge Funds Are Talking About. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
