Brett Korsgaard

Long only, deep value
Brett Korsgaard
Long only, deep value
Contributor since: 2011
Company: Koa Capital Management LLC
Well, I did some research and also asked a few questions. I had no interest in writing about a "mining" company. I think those comments are misplaced.
The old SeekingAlpha article was a clever and effective tool for the short-sellers, and thankfully warned investors about a promotional newsletter that had been released by an off-shore entity. But, it also was very aggressive and an obvious smear campaign against the company and management.
They deceptively used out-dated Google Streetview pictures to convince people that the Stevia First operated "out of two sheds". The short-seller made tremendous innuendo about "executive stock sales" and a "highly suspicious" related-party lease, making it seem like management was fleecing investors... It would probably surprise people to learn the company's chairman made about ~$2K profits on the stock transactions described and the CEO has sold no shares whatsoever. It's all in the company's Form 3 and 4 filings, anyone can see that. And is a lease of about 10 acres and an entire two-story building for $1,500 per month (it's since been increased to $2,300 per month, disclosed in our 10-K and 10-Q) really an awful deal for the company or "highly suspicious"? Seems like a very reasonable lease rate, or even a bargain rate. At the time of the SeekingAlpha article, about $10K had been paid on that lease. So, the company's chairman and his wife made a grand total of ~$12K on these two transactions...not exactly a "shearing of the sheep".
(A similar issue that others have asked about, is that after the SeekingAlpha article the company entered into a related-party lease and paid $250,000 to a company owned by the company's chairman and his wife. The lease was for two years for ~1,000 acres, so that's $125 an acre per year, again a pretty cheap rate, especially when you consider that the site is already zoned correctly for both growing stevia and for building a stevia refinery. Also, the company is only obligated to be there for two years, so the chairman and his wife are actually the ones taking most of the financial risk (i.e. seems very reasonable that the price was a lot more than $250,000 for that kind of property).)
The SeekingAlpha article also writes that the biotech company founded by the chairman had "an almost total lack of assets", failing to mention that, before the article was written, it actually had raised over $7 million in cash on pretty favorable terms. Again, it's in the public filings, anyone can see this is true, but the article either missed it or decided to leave that seemingly important fact out.
The only reason why I could understand the not planting yet, would be that they are still trying to develop a maximum yield strain and be able to post formulate it to reduce the aftertaste associated with current stevia applications, which I believe is the company's end goal.
A successful phase II or III trial can create significant value for either of these companies. These companies could be worth 5-10x what they are today with successful data, so for investors looking for significant alpha these stocks should be part of their portfolio allocation. DNDN already went through this as the stock was trading around $3 in 2009 and even at these depressed levels has is 5 times higher in three years.

ONTY data from the prior phase II looks very promising and a lot of smart money is riding on a successful phase III trial. If the interim data is positive, expect the tide in immunotherapy companies to rise significantly.

It might come as a surprise but what moves the needle on market cap expansion is not phase 3 results. Of all the value creating events, it is phase 2 trial data that is the biggest catalyst for performance. I have a proprietary research model that shows that this is BY FAR the biggest driver (not FDA filings or earnings guidance either).
Example: The below compounds created a market cap expansion of $500M or more (in the underlying company stock) after announcement of successful phase 2 data over a 3 month period. This is what created the value.
Carfilzomib (ONXX) Onyx Pharm
INCB18424 (INCY) Incyte
INCB7839 (INCY) Incyte
XL184 (EXEL) Exelixis
NKTR-102 (NKTR) Nektar Therap.
Phase 3 data didn't create the value. That's what has been shown historically. In fact many of the companies you mention did not generate significant market cap expansion after phase 3 data released. Just looking at the markets and the history. Still, your thesis might hold for those looking for long term success on proven treatements- but markets would have probably recognized that prior to this data.
The word immunotherapy as used here is a very broad definition and includes antibodies such as Avastin which targets VEGF and Rituximab which targets CD20.
BVTI is an interesting lymphoma vaccine but has been around for a long time. What makes IMUC exciting is its ability to target cancer stem cells and a potential ability to delay or prevent recurrence of tumors.
This is true and valid. Very insightful and could only come from someone with domain expertise in the products and technology that drives all three firms. Needless to say, the opportunity is there if the market coalesces around the ecosystem.
I'm going to have to weigh on on this. The author is absolutely right in this regard. The gov't has had a hand in many areas that markets aren't well equipped to handle. The free market often misses the mark when the collective benefit of the population are at stake. The highway system, railroads, etc all are a construct of gov't industrial policy. This is not to say that gov't always gets it right with the choices it makes. To wit: look at the huge drain on resources many of the our past wars have cost our nation. The military industrial complex is a towering lie when it comes to the interests of our citizens who have been badly hurt by mis-allocation of resources. You can probably blame the many lobbyists and the politicians who are beholden to them for many of these errors. As for the solar industry- does the US want to be a leader in this all important area or a laggard? The gov't needs to be involved in setting proper policy decisions that will foster growth and creativity in these nascent clean tech market segments. It's a choice our country makes: do we want to aid the incumbent (Big Oil) or do we want to create a fairer playing field for new market entrants that will benefit the many stakeholders that stand to benefit from a cleaner future.
True...but you are getting to get a healthy debate on participants. But I'm confident that is coming. The industry needs a string of wins to get investors and institutions to create the demand part of the equation. Wall Street will fall in line once this occurs.
All good comments. Yes, owning property outright might be the best, but it sure is convenient to hold a REIT which kicks out a yield and doesn't call in the middle of the night with a plumbing issue!
Yes, I know AMGN is a little further north...but right in the mix and lot's of talent spins off nearby to San Diego. These are good points you make and I'm confident that Big Pharma is coming. They need to source and grow pipeline from somewhere and it will be from the most promising biotechs. I'm confident the wallet will start to open up...
True, but the onus is on management to set proper expectations vis-a-vis the product roadmap and delivery dates. Something that hasn't always happened with some of these issues. When expectations aren't met, you can't expect smooth sailing with the investment community. "Under promise, over deliver" is a maxim that will carry execs, their companies (and all of us) further.
This is a very good idea. For something so critical to the US (last time I checked we are not energy independant) we should set up something similar to the NIH (National Institute of Health) but for renewable energy. A model whereby such an institute would collect on the royalties and licenses would be very pragmatic. Also, funds would not have the pressure of the rigors of quarterly reporting. There should be a market component to such an institute: it would need to be self sufficient after a period of years(lest it become yet another lumbering, inefficient gov't agency). This could be orchestrated by making sure certain benchmarks are in place.
This is an important insight. Sometimes a "nudge" and path to incrementally higher rates might get consumers and businesses off the fences so to speak. This might create predictability and more than anything might instill an awakening of "animal spirits" to create an incentive for enterprise. It's paradoxical that when rates might rise...people to jump to buy houses, cars, etc.
Stay the course. It could be a very interesting ride over the next 5 or so years but the end result is probably much higher share prices for the larger producers.
Not true. In many markets the service providers are providing Solar with no money out of pocket commensurate with a deep reduction in electricity bills. They can do this because the price for PV panels has dropped so far. It is a "no brainer" to sign up if you live in markets where the cost of electricity is relatively high.
Let's talk about the next five years. In fact, let's talk about right now. The EV market is choc full of options from mainstream players (GM, Nissan, Toyota) and high end niche providers (Tesla, Fisker Automotive). Both the Chevy Volt and the Nissan Leaf are selling as much as they can produce with additional capacity due to come on line this year. Your comment about two wheels and less than 100 pounds is telling because it absolutely misses what is taking place NOW. Granted, early adopters don't always win...but Toyota with the Prius cracked the code of being in front of the curve and continuing to improve with that very successful product. EV's are absolutely the opposite of preserving the status quo. I don't know where that came from...but nuggets of truth in a flawed vision are generally a recipe for eating crow. Let's see what happens however. My sense is Honda, Ford, BMW, Mercedes, et al...will continue to make space for the EV segment as later adopters.
It is early innings for EV market. Writer makes some good points about getting to scale by selling to masses, but the core philosophy of "doubt" is off. He is missing the fact that this is a paradigm shift and that EV's represent the most evolutionary advanced stage of the market. Consumers have always doubted at first...but then they start scrambling onto the new "island" or paradigm when benefits become broadly accepted. Happened when the horse and buggy was supplanted with rudimentary versions of the auto. This author would probably be on the wrong side of many of these historical advancements...and his articles are illuminating but only in this context. In twenty years he will probably be driving some iteration of an EV vehicle- or maybe he will be one of the few who don't but just to make a point. Regardless, advancement in this domain will carry on unabated.
Fair points, but let's see where these are trading in two years. I see opportunity as a contrarian.
The house of cards won't crash. Electric cars are the future. Tesla and Fisker Automotive along with Chevy Volt and Nissan Leaf are the precursor to a paradigm shift that is just getting started. It is time. A carbon based economy is killing the US at this juncture. We can't drill our way out of it, nor can we ignore the true cost of a carbon based economy.
It's true- not a bad proposition all things considered.
Gents...this is what makes a market. I welcome the comments but stand my ground that this is not 2008. None of these banks will fail - in part because our government won't let them. You can buy BofA and be pretty much rest assured that it can't go BK. It is not going to happen.
I'm not going to quibble with that. The list provides a broad spectrum of risk profiles. The larger the risk the bigger the "bang" either way. WFC, USB are among the least risky of the bunch.
Actually, I agree with the analyst who penned that. You are right in that there is a fair degree of "murkiness" with respect to true asset base. Still, the liquidity ratios are very healthy and franchise values are not being accounted for.
Suffice it to say that pharma, tobacco, telecom, electric utlilities all provide a healthy dividend yield. I still would rather own Pharma for what I perceive as superior potential growth.
For the record, I exited my long positions in gold over the past several months (the physical asset).
Gold is overvalued. I just wrote a piece on this for Seeking Alpha published at the same time. If you must own gold...own the producers. Or sell gold and use producers as a hedge.
I talk to so many people that continue to invest in gold however. At the end of the day it is supply/demand and there seems to be more demand...hence higher prices.
The masses are clamoring and the masses are getting "ripped off", what else is new? Your points are salient regarding development stage companies. Still, seems to me the proper hedge is to sell the asset and buy the producers.
This is true. A business can grow and increase profits. It is dynamic in a way that gold can never be. As Warren Buffett says "Gold just sits there and stares right back". Fine in a Depression, but eventually you want your assets working for you.
"right for 10 years" seems to me they might want to change their tune. Hubris takes over and eventually right invariably becomes wrong. It happens every time...
I respectfully disagree about LinkedIn's prospects. But this is what makes a market! LinkedIn is amost certain to find other ways to monetize this data. If it can find incremental subscription revenue off its USER base...well...this becomes a very unique proposition. I appreciate the comments however...