Wednesday, November 7, 2012

Update




An update on a stock I’ve praised.

Instem’s Provantis suite is the de facto standard in preclinical software. In the last 20 years, half the world’s pre-clinical software data has been collected using it. 80% of the top 20 pharmaceutical companies use it. Its user base is twice that of its nearest competitor.

So, today's news should come as no surprise:

“National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), has selected Instem's integrated Provantis® preclinical software suite to help advance research programs against infectious, immunologic, and allergic diseases.”

NIAID funds $30 billion in research at hundreds of organizations. That Provantis is now the preferred preclinical software suite for NIAID-funded preclinical research means future market share gains. Market share gains in a business model dependent on a loyal installed base and on its status as de facto standard means a wider and deeper moat. And a wider moat will mean more market share gains. That’s the logic of sustainable competitive advantage. 

Remember, this is a software business, so incremental revenue will fall unmolested to the profit line.

Of course, the market for small capitalization companies is often perverse in the short term, and Instem’s stock price fell modestly on the announcement of this contract win.

Disclosure: No position

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