MBII Lockup Shorting Opportunity
Marrone Bio Innovations, Inc. (MBII), a provider of bio-based pest management and plant health products, is nearing the end of the 180-day lockup period, following its August 1 IPO. On Tuesday, January 28, substantial shares held by venture capital firms, as well as MBII's directors and executives, will become unlocked and available for sale-likely leading to at least a brief decline in the price of MBII shares and presenting aggressive investors with a short opportunity.
Venture Capital Share Unlocking
Approximately 12.6 million shares of MBII stock will be unlocked on January 28, which is a significantly larger amount than the 4.75 million unrestricted shares the firm offered in its IPO. These 12.6 million shares, if owners decide to sell some or all of their holdings, could effect a supply shock, bringing about a corresponding decrease in the price of MBII shares that day.
It is likely that venture capital firms will sell some of their MBII shares as many continue to feel pressure to return capital to investors in the wake of the recession. These firms include CGI Opportunity Fund II LP, which holds 1,265,385 shares; One Earth Capital LLC, which holds 1,415,563 shares; Saffron Hill Ventures, which holds 1,273,910 shares; Stuart Mill Ventures Pte LTD, which holds 1,331,340 shares; and Syngenta Ventures Pte LTD, which holds 2,166,234 shares.
MBII executives and directors collectively hold 1,234,088 shares, and while these insiders aren't under the same pressure to sell as VC firms, many may choose to sell in the interest of diversification, raising capital, and buying that yellow Ferrari since they haven't had an opportunity to sell for at least six months, during which time the stock's price has increased approximately 50%.
MBII is a producer of bio-based pest management and plant health products-products composed of naturally occurring microorganisms, such as bacteria and fungi, used as replacements for chemical pesticides. The firm targets markets currently using conventional pesticides, as well as markets not using any pesticides, which may benefit from pest control products but lack legal or practical access to them. MBII has commercialized a pair of crop protection product lines: Regalia, for plant disease control, and Grandevo, for insect and mite control.
The firm also markets a water treatment product line, Zequanox, which is designed to selectively kill invasive mussels that cause infrastructure and ecological damage. MBII's proprietary technology allows it to isolate and examine naturally occurring microorganisms and plant extracts to efficiently identify those that may have novel, effective, and safe pest management and plant health-related properties. The technology has been used to screen over 18,000 microorganisms and 350 plant extracts and has identified numerous product candidates.
Risks in Being Long MBII After Huge Run Up
MBII is still relatively early in its development and is likely to incur net losses for the foreseeable future. Though it has commercialized a trio of product lines, none have yet generated revenue at a level sufficient to sustain the firm. MBII plans to continue to invest "substantial resources" into research and development, manufacturing expansion, and sales and marketing expansion.
As stated in MBII's S-1 Filing: "We have a limited operating history and number of commercialized products, have incurred significant losses to date and anticipate continuing to incur losses in the future, and we may not achieve or maintain profitability."
MBII faces formidable competition in the pest management market, including major multinational agrichemical companies such as BASF, Bayer, Dow Chemical (DOW), Dupont (DD), Monsanto (MON), Sumitomo Chemical, and Syngenta (SYT), as well as specialized biopesticide firms like Arysta, Agraquest, and Certis USA.
Finally, there is the risk that any MBII product candidate may be found unsafe, ineffective, or not pass regulation.
What Investors Should Consider
The risks to MBII's product pipeline, huge increase in the stock price since the IPO, and its stiff competition could be additional reasons for VC firms and insiders to sell their sales at the end of the lockup period-and further incentive for aggressive investors to consider MBII as a shorting opportunity leading up to January 28.