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Story: Luna Innovations filed for an IPO on 10 Feb 2006 and the descriptive tagline I saw was "molecular technology and sensing solutions." That caught my attention, given my background, in particular for how nebulous a description it is. They deserve some snarky comment here about how every business plan uses molecules, etc. I think what they mean is they've hired a bunch of chemists.

Ok, based on the unfocussed nature of their research and specialties, I'm guessing that they are a materials science combinatorix company, similar to Symyx, that is doing random chemistry and hoping to find a useful property to exploit. Did I guess correctly? No? So they need to rethink their blurb. They are doing some nanotech, which may be combinatorix based but more likely is not. They also build tools for characterizing optical properties, and build sensors that use optics to measure other physical properties. So they have a focus on optics, and a subdivision in nanotechnology.

Nanotech gets a lot of hype, and optics is very competitive (Newport, NewFocus, and many, many others). On the one hand, there is a huge difference between science and a business. On the other hand, there is nothing like good science to establish competitive moats for a business. As always, without a vast market direction at their heels, the question here is performance.

Company:
Luna filed their initial prospectus on 10 Feb 2006. I can't help myself - here comes a snark:

We research, develop and commercialize innovative technologies in two primary areas: molecular technology solutions and sensing solutions. We have a disciplined and integrated business model that is designed to accelerate the process of bringing new and innovative products to market. We identify disruptive technology that can fulfill identified market needs and then take this technology from the applied research stage through commercialization in our two areas of focus

What in the hell does that say? We invent stuff? Maybe it will become as famous as the Razorfish statements to 60 Minutes. I think what the statement really says is that their Ph.D.'s can't write, and their marketing people have no clue what they really do. I just find it funny. It goes on like that:

* Focus on developing and commercializing a growing portfolio of innovative products.
* Transition our mix of revenues to a higher percentage of product sales and license revenues
* Continue to strengthen our Contract Research Group.
* Expand our intellectual property portfolio in our areas of focus.

Uhh, we wish we had some products and could sell them? To belabor it just a bit more, except for the "molecular technology...solutions" part of those two sets of statements, every word of it is true for almost every business ever created.

Maybe the numbers won't be so funny. We'll use the 9 month numbers ending 30 Sep 2005. Uhh, they had $6.2M in product revenue in the 2004 period and none in 2005? Contract research revenue increased 10% Y/Y ($11.1M/10.1M), but overall revenue decreased 32% Y/Y ($11.1M/$16.4M), since they have no products. Gross profits on contract research increased 4% Y/Y ($2.572M/$2.477M), slower than the revenue increase from that segment, so on the only business they have remaining, they aren't even controlling expenses. They were profitable in the 2004 period ($2.5M), but have a loss for the 2005 period (-$0.27M)

What are they thinking trying to come public? Dog. And a funny one at that.

Stock:
I bet this offer gets pulled before ever making it to market. I would like nothing better than to invest in a Ph.D. heavy, optics research outfit, but wow have these guys not made the case.

[Disclosure: As of this writing, Long SMMX and NEWP. BTW, I've built low-femtosecond lasers in a past life.]

Source: Luna Innovations Doesn't Make the Case (LUNA)