Recent sale of largest division
Market cap less than liquidation value (pending tax)
Remaining company has “game-changing” technology
Sale of the company (or the new unit) in the next 1-3 years could be extremely profitable to shareholders.
Astrotech as a company changed dramatically in August when the completed the sale of their largest unit to Lockeed Martin for $61mm. Following the sale, the company retained two divisions: 1st Detect and Astrogenetix. The current market cap of $47mm represents a discount to the cash value of the company (pending information about the tax consequences of the sale), which means the two divisions are essentially free options available in the marketplace. One of them, 1st Detect, has significant value as a standalone entity or as an acquisition target.
1st Detect owns potentially game changing mass spectrometry technology. A Mass Spectrometer is a device used to analyze pretty much any substance and determine the unique chemical compounds that comprise it. These devices are used in many different industrial and academic fields. Traditionally, these devices are slow, heavy, and expensive. 1st Detect’s technology is fast (3.5 seconds as opposed to hours), portable (17lbs as opposed to 100+lbs), and cost effective ($50k as opposed to $100k+). This means analysis can be done on-site and practically real-time as opposed to sending results to a lab to get results several hours to days later. The company compares their technology to the change from mainframe to PC in computing. This opens the market to potential applications from pharmaceutical manufacturing to military and TSA, to archeology. The company estimates the market for just the devices is in the billions of dollars over a 10 year period.
In addition to their game changing devices, 1st Detect has partnered with Spark Cognition to provide analysis and predictive analytics. Using Spark’s analytical software allows 1st Detect to offer customers a full-service product.
1st Detect is currently working with pharmaceutical manufacturers to test the mass spec product. If the tests are successful, this industry appears to offer a huge market for the product. Testing output regularly can mean spotting potential issues very early, before downstream processing and customer shipments. This means cost savings but also reduction in product liability. So the benefits are huge and obvious.
If commercial pilot testing is successful, 1st Detect technology can be sold to a larger industrial technology company. Management seems focused on testing the concept and then selling the technology rather than building out the infrastructure necessary to distribute the product on an international basis. We see potential upside in this scenario as well as a near-term exit plan that could mean 2-3x the current market cap in a few years. Typically we look for larger upside potential however in this case we view the downside risk as small. The company received cash proceeds of $61mm from the asset sale over the summer. We expect some clarity about the net amount during the next earnings release. NOLs will reduce the liability somewhat. At current cash burn rates, $60mm is more than 6 years of operations before they have to raise capital. We believe that gives the company ample time to prove the concept and sell the technology. So while the upside is a little below our typical goals, the downside risk is dramatically minimized.
Astrotech also owns a much smaller operating segment called Astrogenetix. Astrogenetix is a biopharmaceutical company that develops vaccines. While there is no current revenue, we view this as a free option.
We are accumulating a position and will add to it as we receive feedback regarding the industry testing.