Long only, biotech
Long only, biotech
Contributor since: 2010
That will give Tesla a market cap of ~15 trillion dollars. Many Tesla investors seem a bit detached from reality, but this takes the cake.
The doubts on Acadia's ability to market and manufacture Nuplazid may be justified. I'm not convinced. Small molecules are easy to manufacture, and effective/safe drugs with no good competition are easy to market.
But let's say the doubts are justified. If Acadia doesn't get Nuplazid worked out in the near future, someone else will. In that case, Acadia gets bought out somewhere around the current price, maybe higher. $4B is cheap for a drug that you suggest could do $5B a year in sales in experienced hands.
Alternately, Acadia does succeed in launching Nuplazid and the stock appreciates drastically.
Heads, we win. Tails, we don't lose. What's not to like about that?
Seriously, no one is going to read a five part thesis this long. And no robust thesis is going to take this much verbiage to describe.
The problem with this result is the following: Liver progression was dramatically reduced (12 months to 20 months), but overall progression stayed the same (~10 months).
That suggests that progression outside the liver is the more common/urgent problem, and SIRT has no effect on it. Now it may be that liver progression is the more deadly problem (I don't know) in which case SIRT would help with overall survival. But given that non-liver progression happens faster, and SIRT has no effect on that, I worry that SIRT won't help where it counts: overall survival.
Also, this study was in liver metastases of colorectal cancer, which is completely different from liver cancer. This study provides no information whatsoever on the use of SIRT in liver cancer.
I would add this: two patients (out of 13 treated) died of cardiogenic shock 4-5 days after treatment with Adaptimmune's MAGE-A3 TCR product. That doesn't seem to be a problem for the NY-ESO TCR product. Still, it looks like a significant risk for their pipeline since they don't understand why it happened with MAGE-A3, so it could happen with any of their new TCR products.
see slide 22 and later in this presentation:
Thanks, 247yak.
I have noticed those big differences in gross margins, and try to account for them in my thinking.
Thanks, Charles.
I have a nice position in SZMK I picked up between your October and November articles. Obviously very happy with that. And you're right, TRMR does look just unbelievably beaten down and inexpensive now. I'm literally blown away to be looking at these relatively promising looking companies with EV/revenues under 0.3.
My problem is that this space seems to be very competitive and I don't have an understanding of the competitive strength/weakness and market opportunities of the different companies. I don't even see how an outsider could hope to get such an understanding. MM for instance, was looking appealing to me. Again, just super cheap on EV/Rev. Their growth isn't what you might like any more, but they tell a pretty good story around the Nexage acquisition.
Anyway, thanks again for your input.
Thanks for another excellent article, Charles.
What are you thoughts on the relative investment merits of FUEL vs. SZMK vs. MM? I know they're not all directly comparable, but they are all in your field of expertise, and they've all recently become much more attractively priced.
I question the credibility of anyone who claims to know how this Greece-EU situation is going to play out.
How do you imagine Cubist shareholders are going to benefit from Zerbaxa? Cubist is being purchased by Merck for $102/share. 1.3% upside from here. What's the point of making sales estimates and EPS guesses? It's all going to Merck.
Interesting find; good write up.
Seems like a similar story to Cyren (CYRN), another internet security company. CYRN is a bit more of a "value" based on established (slow growth) products: ~$30 million in revenues vs. ~$65 million market cap fully diluted, and roughly break-even for cash flows. Looks like INTZ is already getting some growth out of their new products; CYRN's new product growth is expected to take off in 2015.
Interesting company and a nice write-up.
Any thoughts on their choice of auditor? The auditor on last year's annual report, Gregory & Associates of Salt Lake City, has one partner and zero professional staff. That's not a red flag I wouldn't think, but it does seem a little sketchy to me.
A couple of very nice articles on PNTR today. I'll admit I'm mostly sold on the idea. Reading their filings, one thing bothers me a bit compared to what's written up in these articles. Both articles mention the road side assistance (RSA) program, a legacy asset, while focusing on the growth of the telematics business.
But if you look at the filings, it looks a little messier than that. They do have the RSA service, but they also do emergency home repairs, and they own half of an Israeli car sharing service (like Zipcar). Just in 2011 they bought a chain of auto repair garages in Israel to complement the RSA service. I haven't finished reading, but I can't (yet) tell how much of their service revenue comes from these low-tech, lower growth businesses. I guess it doesn't matter so much, since the stock is cheap and the telematics business obviously is large and growing.
Nevertheless, it does give the appearance that management may not be sufficiently focused on the telematics business. That does matter. The CEO certainly seems focused on the right things in this interview. But this is the same CEO who bought the car repair garages a few years ago. It's not a show stopper, but it does reduce my comfort level a bit.
Asia as a whole makes up ~14% of GES's revenue. Of their 501 Asian stores, only ~14% of those are outside South Korea. Not all of that is China, but even if it was, that would give a reasonable estimate of China revenues of 2% of GES's total revenues.
So, why should a GES shareholder seriously worry about something so insignificant to the company? The shares are in pretty deep value territory here with a 4% dividend, lots of cash to weather any hard times... Could something go wrong? Sure, but I don't think it's likely to be China.
I use it for modern Greek, a significantly more complex/difficult language than English and most European languages. It works great for me. I have to say though, learning to read and write is different than learning to speak and understand. Rosetta is great for the latter, maybe less so for the former, and maybe weaker for Asian languages. I couldn't say. I can say that traditional language courses such as Coursera offers, wouldn't appeal to me. There will always be a lot of options in this space, but I think for ease of use and brand power, Rosetta Stone is in a very strong position.
Rosetta Stone can be run on Microsoft's Windows, Apple's Mac and iOS, and Google's Android. No limitation there.
I've used Pimsleur too. Better than some of the new apps for sure, but Rosetta Stone is still hands down the best language learning system I've tried-- for my needs.
I agree on all counts: the clear value, and the frustration of being an RST owner.
Also, I'm a long-time Rosetta Stone user, and my wife and I recently tried out Duolingo and Babbel. At least for our purposes, both of those options were vastly inferior to Rosetta Stone. In the end, I think there will end up being real value in the consumer segment, but agree that E&E is the bigger opportunity.
The other education products are growing rapidly (Fitbrains, Lexia) and E&E growth was expected to pick up in the 2nd half. Given that Q3 is the strongest quarter for E&E, those earnings could be a good catalyst.
On the topic of seriously misunderstood stocks, this recent Pro article
highlighted a similar, excellent opportunity. A 65% gross margin, modestly profitable, cash-rich software/tech company trading at EV/Sales of under 0.25. Too good to be true, much like RST, in my opinion.
Excellent find and great write up. Sorry you were a bit early on the call, but it worked out great for your readers. The downside from here is so small, and the potential upside so solid, this is just a great recommendation. I have a feeling it will be my buy of the year.
Excellent article and thoughtful commentary. Thanks for your efforts.
I've been long for about a year now. The CEO has talked for quite a while about their half billion dollar pipeline of potential sales, but it's been painfully slow to materialize. Things do seem to be picking up lately. They remind us how lumpy their bookings and revenues are (in the recent earnings call), which makes you worry that the recent pick up is an aberration. However, they did seem pretty convinced that the improvements would continue. Fingers crossed.
In making your estimates here, you have assumed $0 revenue for Kalydeco monotherapy. That's over $400 million this year and should grow substantially (double?) as additional patient populations get FDA approval.
Add that in and Vertex's value goes up, particularly for your downside scenario, which seems quite pessimistic on pricing to me.
A quote from the most recent Isis 10k:
"In recent years, our scientists have improved the screening assays for our drugs, which led to the discovery of second generation antisense drugs that have generally demonstrated enhanced tolerability profiles in numerous clinical studies. For example, our drugs ISIS-TTRRx and ISIS-FXIRx are drugs we discovered through our improved screening assays. In Phase 1 studies evaluating these drugs in healthy volunteers, subjects reported approximately 65 percent fewer injection site reactions and no flu-like symptoms compared to subjects treated with KYNAMRO, an earlier second generation drug."
Reduced injection site reactions and the absence of flu-like symptoms suggest greatly reduced immunogenicity in later generation 2 drugs from Isis.
Additional facts:
--Most (all?) lipid modifying drugs are associated with liver adverse events, including the statins (lipitor). Those issues are likely to be Kynamro specific.
--Generation 2.5 drugs from Isis are in the clinic too. With greater potency & lower doses, plus different chemistry, any generation 2 problems should be gone.
Market Doc: I assume you agree that these facts address most of your concerns and you will be closing your short position ASAP...
If I remember right, from reading one of their recent reports, their lenders are requiring them to raise $5 million by the fall. That cash should last them through to profitability, assuming things go as expected. But concerns about that dilution may be holding the stock back for now.
If Novartis wanted "the best delivery technology", they could have found enough coins under their sofa cushions to buy TKMR or ARWR. The fact that Novartis wasn't interested suggests that there's a real problem with delivery of these molecules to non-liver tissue. I'm not saying it won't get solved, but if it was solved or obviously solvable I don't believe Novartis would have given up already.
Those weight watcher's meals you see on the supermarket shelf... those are not sold by WTW. Those are sold by Heinz (WTW's former owner) and WTW gets $0 from it. The fact that the original author seems unaware of this seriously calls into question his due diligence, in my opinion.
Comments on WTW and the value of brands: Blockbuster and Kodak were taken down by major upheaval/elimination of their respective industries. (Sorry, but hotmail was never a dominant brand.) If you believe that the weight loss industry is going the way of VCR's and film cameras, then WTW would be in trouble. Personally, I don't believe that apps or activity trackers have any chance of displacing WTW in the long run. They'll take some business for a while, and ultimately end up having their own place in the market, but no way do they replace WTW's programs. Losing weight is incredibly difficult. If the only difficulty was tracking your diet and activity, we would have cured obesity long ago. Issues of lifestyle, discipline, support, and even peer pressure make weight loss one of the most difficult problems many people ever deal with. Weight watchers can deal with those issues. I don't think an app or a fitbit ever could.
If you're a trader, being early is the same as being wrong. I think that's what's happened to a lot of investors in WTW recently. They bought into the value story, but they got in too early and the stock continued to drop. Based on that, they became convinced that they were wrong. "WTW isn't a value," they've decided, "it's a value trap." But if you are a value investor, you have to get used to being early and feeling wrong. It comes with the territory, unfortunately.
As for WTW, fundamentally I think the value story is intact. I don't know if things turn up this quarter or a year from now, but I will be very surprised if WTW ends up being a value trap.
They make the tenants pay the full year's rent up front, as a rule.
Thanks for the write up. I browsed that prospectus. I do like the concept, but I was put off by what a sweet deal it was for insiders.
Just going from memory it seemed like they had bought about $17 million worth of agricultural land, accumulating roughly $17 million in debt in the process. This is the roughly $0 net value on offer in the IPO. What investors pay to buy into this IPO will provide 100% of the value of the company, yet the investors only get 70% ownership of the company.
I should really start my own agriculture REIT if there's an IPO market for deals like this.
However, since I wouldn't know where to begin in starting such an REIT, Farmland Partners may be my best bet for this sort of investment.
I am not defending AEGR or its current share price. You can put together a true, fair and balanced short case on this stock. If you do that, I won't comment except to say, "Nice write up."
That is not what this author has done. This is an exaggerated, manipulative attack piece.
"It's not often that evidence gathered in one of our investigations into a company that is not a classic pump and dump or U.S. listed China Based company would lead the GeoTeam to conclude that the subject company's shares could ultimately become essentially worthless."
This quote made me strongly suspect these guys were full of $hit. Plenty of other points in the piece confirmed my suspicions.
I have no interest in AEGR one way or the other. I just don't want uninformed readers to look at this article and think they're getting a fair, reasoned analysis. They're not.
I'm not saying this is all trivial, only that the author is seriously over-hyping these issues, in my opinion.
AEGR isn't allowed to promote off-label and I know of no evidence that they have. At least not deliberately-- just some sloppy talk from the CEO. But they can promote to every HoFH patient they can find, and I'm arguing that they'll find far more than 300.
The DOJ is investigating to see if they can find evidence of blatant off-label promotion. They'll find something or they won't. A blabbermouth CEO doesn't seem like a strong starting point for an investigation to me.
We'll see where this goes, I guess. I wouldn't buy here, but the author is suggesting there's a significant possibility of this going to zero. In my opinion, the odds of that happening in the next year or two is one in a million.
Wow! That was a lot of words. You must be really, really, really, really right.
Just kidding. Mostly you just seem to have written a very, very long article exaggerating the issues at AEGR to try and make your short position pay out better. What's the opposite of pump-and-dump? Bash-and-cover?
I don't doubt that AEGR is probably overvalued, so you'll probably be fine on your short. But you could just as well have gone short a biotech index. The whole sector has been very frothy recently.
As for AEGR, there are issues, but they are mostly minor. Your overwhelming pessimism suggests that either 1) you don't follow the biotech/pharma space and are misreading the situation, or 2) you're just trying to manipulate readers for profit.
Without going into detail, here's why. Doctors prescribe off label all the time. It is legal. The pharmaceutical companies know it and the FDA knows it and it's all fine. The company just isn't allowed to promote the drug for off label use. But again, letters like the FDA sent to AEGR are quite common. Pharma executives or advertisers will accidentally say something that the FDA feels is uncomfortably close to off-label promotions, and the FDA will ask them to stop. As long as AEGR doesn't ignore that letter, they'll be fine. (There is no indication that they haven't complied.) The patent expiration doesn't really matter because they have orphan exclusivity. Orphan drug patient populations always end up being much bigger than experts thought before the drugs were approved to treat them, so the 300 patient number is almost certainly far too low.
The one issue that does stand out is the PCSK9 drugs. That's likely to seriously hurt AEGR, but not for a couple years yet. Are you planning on maintaining your short until 2016? No? Bash-and-cover then.
Agreed. Ruthigen wouldn't have been able to raise money at all for their essentially commodity product if the biotech market wasn't so bubbly.
It's a mischaracterization of Hussman's strategy to say that it's the same as Taleb's. Taleb's strategy (to the extent that I understand it) is buying tail risk insurance all the time, Hussman only buys insurance when markets look to be at risk of a serious pull-back. Now for the last few years he's been buying those puts to protect against a pull-back which (mostly) never came. So honestly, yes, for the last few years his actions have been similar to Taleb's, even if his strategy isn't. And unfortunately (I'm a shareholder) it hasn't worked out too well. At least not yet.
"In the post-2008 world, although the downside stock protection looks historically cheap (low VIX index in general), stock protection in the form of puts is actually overpriced, and not underpriced as Mr. Hussman's and Mr. Taleb's strategies imply. The tail-risk events will happen, for sure, but with lower magnitude than Mr. Hussman's and Mr. Taleb's models anticipate. This is why betting large corrections are a loser's game since 2008. Since 2008, a large market decline is less likely than under natural market scenario."
If I remember right, plenty of people thought they had the Greenspan/Bernanke put protecting them pre-2008. They also thought betting on large corrections was a loser's game. Turns out they were very, very wrong. I'm impressed at how much faith you (and others) have in monetary authority's abilities to control markets.
"I am a great fan of Mr. Taleb's and Mr. Hussman's economic theories and findings. However, when it comes to applying their strategies in real-world investing, they have become victims of the popularity of their strategies"
Taleb's strategy, by definition, is only going to work once in a long while. Black swans come along very rarely. You think just because it hasn't worked for 5 years, the strategy is broken? If we don't have another major bear market for 5 *more* years, then we'll talk. And again, Hussman's strategy is totally different, though it's very difficult to argue that its problems are a result of its popularity.
All of that aside, I would agree with one conclusion of your article. On a contrarian basis, this probably is a very good time to invest in Hussman's funds.