I actually wrote this in reponse to somebody yesterday however wanted to share it again incase anybody appreciates it. The managemnt get an awful lot of stick on here (sometimes unfairly in my opinion - we can't all be Steve Jobs) and as we all know, faith in management is essential for investment in a company. So to all those who read about people who are convinced the management are crooks I offer a counter thought:
Yes, it was management's decision [to organise a secondary offering] but they wouldn't have had a lot of room to negotiate. When raising capital you have to go and stand in front of an investor (an institutional investor - they raised 31 million) and present your company. They will then strike a price for a percentage. Just because the shares were trading at $10 per share doesn't mean that's what that investor is going to pay. They would be putting up quite a sum and would want a decent chunk of the company in return otherwise it wouldn't be a very good investment now would it?
And before you say they shafted you they did you a favour. They raised enough money to keep the company afloat and by doing it when the share price was ten actually got a fairer price then if it was at five. So you may have lost some money but at least they didn't go bankrupt and you lost it all. If you were a real investor you wouldn't be selling the shares so soon and if you actually had faith in the company and stuck with it you wouldnt have lost any money at all.
Too many people on this board think they can identify companies in a fundamental stock picking way and then trade them on a short term basis. it's one or the other, either you're a trader and you play momentum and follow the crowd (which is a mugs game as it is a popularity contest in which hedges and the less scrupulous city folk set the fashion) or you're an investor in which case you use your brain to identify companies based on the potential of the products, market space, opportunity, management, IP balance sheets etc and get in and stay in. When the potential starts to become realised and the cash flows and revenues are there, traders can no longer manipulate the price because the real value is there for all to see. Until then have faith in your choice.
As Warren Buffett said, his ideal time to hold a stock would be forever.
Hey Steve, I've read through your posts and am impressed by your logic and methodology. Rosg has been on my radar for some time, i bought at 5 after the last offering, and at 5 again last week.
Seems i might have jumped the gun last week in light of the trend of late...gotta say I am a little concerned at this point. Just looking for some insight, if you don't mind. I've only been at this for the past year, had some highs... and lows of late....at a cross roads. Bare with me please
- what 300,000 new debt, not that its make or brake...but i couldnt find anything
- low volume, sign of losing momentum? is there something i'm not seeing or the shorts just trying bash it further?
- how does anyone know at this point that the Veterans Affairs are not interested in their tests or anyone else for that matter
- also the revised sec filing between Precision and Rosetta, does that happen often or something to be worried about
Thanks very much, your time and any info would be much appreciated
Thanks for your post - apologies for the delay in getting back to you. I wouldn't be too impressed, perhaps compared to some of the posts on here, they appear insightful but I assure you it is not a reflection of knowledge, but rather a lack thereof.
I don't think that buying at 5 is a terrible price (I am aware that with the share price at it's current level that may raise an eyebrow or two!). If for no other reason, as some other posters have mentioned, ROSG has a great deal of cash that sets a clear value per share based on the company's assets. That's not to say a share price is guaranteed (and $5 is definitely above that value) but what it does say is that the share price will have a new range after the offering and in my opinion it is very near to the bottom.
A share price is a perception of what the company is worth. If everything was valued accurately there would not be an opportunity to 'beat the market' and we all may as well hold tracker funds. In this case, the value is potential (which is quite large) + actual value. By holding a lot of cash the actual value segment becomes larger - and so less of the share price is based on unrealised forward looking projections. And that's something you can take all the way to the bank.
There have also been comments about why nobody wants to buy. Since 2007 investment houses have had to change. Alot. Institutional investors want to see risk profiles and high risk high reward isn't what sells these days. They want safe investments. In doing so, they set guidelines as to what can and cannot be invested in with regards to market cap, sector, region etc. As a result there will be a lot fewer funds (small caps) who will look at this even just to analyse. It is not a problem - retail investors get the early pops where they can make multiples from there investment and as market cap grows more and more funds will become eligible to invest. When you are managing billions you don't need to make great multiples to make a very healthy profit. But you do need to have capital, and the trust of pension funds (for example) to have those assets in the first place and, as I say, that only happens with a decent risk profile.
I personally view myself as a contrarian investor and see times when the share price has struggled as opportunities to lower my average share price. Did you purposely buy in two lots? A lot of investment professionals will allocate an amount that they wish to invest in a company but do so via several purchases. It's called building out a position. It mitigates risk and is a very sensible way to buy a holding in a company, especially micro biotechs, where share prices will always be volatile. Of course, you need to balance this against trading fees so as to not destroy your profits margins, but think of it as paying for peace of mind.
What really needs to be considered and, worryingly is hardly ever mentioned on this board, is the state of the market. It is, and has been for quite a while now, dominated by the macro environment. This week there are elections in the US and China, the two biggest economies in the world. Greece is still not able to agree a deal on its austerity measures to guarantee future payments to stave off default. There is the mess with Syria. The bond markets have become over-priced. Dividend paying stocks have become over priced. The US markets over the summer had become over priced (The S&P was at its highest level since 2007 and summer volume was minimal). Growth in the world's economies are slowing. Something has to give.
There are also seasonal cycles and typically people sell off their positions towards the end of the year due to tax and investor reporting reasons. It also frees up cash that can be reinvested when the market bottoms and those investments are more likely to be successful.
Although the healthcare sector is considered a defensive sector (i.e. people will always get sick and need treatment) and has been the most successful this year - it can not continually go upwards and we are seeing consolidation. My view is that although measures have been taken to stimulate growth, they will take time to work and until then biotechs are a good bet provided you have done your DD or are a savvy enough trader to play momentum. We hear encouraging signs from the US regularly - particularly in regards to the housing market. There is also a school of thought that says growth will, and does, come from the small caps. They are the most innovative, nimble and hungry for success.
In response to your questions, this is taken from a transcript from the recent conference call. It is available on Seeking Alpha if you wish to read it in its entirety. CFO Ron Kalfus:
"I will review our financial fund raising activity in a moment, but as you already know since June 30 we have raised an additional $31 million which provides us with sufficient cash to fund our operations for approximately the next 24 months.
On the liability side our year-end financials as of December 31, 2011 did not yet reflect the $1.75 million convertible debenture that we issued in January. But I am happy to say that by the end of the second quarter, we have paid off this debt in full. Please note that $300,000 of that debt remained on the balance sheet as of June 30. However, this amount was converted into stock in July. So currently we have zero debt on our balance sheet."
With regards to momentum I would direct you back to my previous thoughts on the market - in very simplistic terms I would say we are in a wait and see period. Even Warren Buffett is holding an exceptionally large amount of cash at the moment. Minimal volume is an encouraging sign. Whilst it is frustrating that the share price can move so much on such small volume it also means that there is no firesale. There maywell be people who bought back in August at below $4 who were still able to leave with a profit, and so took the opportunity. Although in the interests of transparency, it should be noted the markets are and always have been manipulated. It is a sad fact and many are trying to change this with views on HFT, short selling etc but until any real legisaltion is passed there are two options. Deal with it or don't deal at all. We are all free to make that choise.
As I mentioned in a response to Ra, I do question some of the so called insider knowledge on here. Quite frankly people just do not give out information on their business to every Tom, Dick and Harry who picks up the phone. Im not saying that this won't take time but as the official commercial launch of Mets2 was in October, it is completely unrealistic to think that all insurance companies would have approved it by now. Management obviously do what they can by working with the companies directly but sometimes we need a good old fashioned bit of people power. Again there have been comments about why this has taken so long but I would be inclined to say that it would take time to produce marketing materials that both sides are happy with and to get them to all members of Precision who would then need training to use them. A campaign would have needed to be devised.
Lastly, I would not be worried about the agreement, when selling medical products there is always an ethical consideration. If Precison Therapeutics had a per test commission agreement there could be a lot of scope for abuse in that sales reps could mis-sell potentially sending distressed cancer patients for unnecessary tests, all in the name of a bigger paycheck. By paying an agreed monthly fee this removes the potential for compensation claims (although there may well be milestone payments - I'm sure some incentive would be allowed). If you want an example have a look at the PPI mis-selling claims here in the UK. Billions have been claimed from the high street banks.
Whilst I have been genuine in my reponse it is important to remember these are all just my thoughts and opinions. These are you're investments and you must make decisions that you are happy with. If you do get it wrong (and EVERYONE gets it wrong sometimes) don't beat yourself up about it. Just learn from your mistakes and move on. I hope this was of some use.
Sentiment: Strong Buy
Blah blah blah. In addition to an ineffective management and a CEO who gave away the store rather than negotiating for a better price for his shareholders, the test is not selling well and insurance companies, at least most of them, are not approving payment and thus, there is nothing they can report to us and that is why the stock has done so poorly. Serious investors see no compelling reason to invest, particularly when they review the history of the company and how, for years, it has done nothing but raise money at the expense of the latest batch of shareholders. But the main problem is the insurance companies and the inability to market the product. And this is not the first company to get approval on a test or a drug and then they find out, so what, it still doesn't sell.
Ra I don't think you have a realistic perception of this company. It is a micro cap. It has 22 (possibly 26 with the recent additions) members of staff. They have only recently begun marketing and selling the product with any real intention and purpose. They do not have the resources to report every other week the slightest bit of news. For other investors, I hope you realise this is a high risk bet. Sure it is an educated one, and one I personally believe will work out, but there is a lot of risk inherent in this stock. But the potential rewards are set accordingly.
I dispute your claims in relation to the insurance companies. While I can believe that they haven't yet approved it, it would seem to be more a matter of when than if. First, the test needs to be sold to doctors who then will present it to patients, who in turn will request payment from the insurance company. After many requests, the insurance companies will take note and possibly even before, given management's efforts (I believe you yourself have said this). I was never under any illusion this would happen over night. Just raising awareness of the product will take time.
They have, however, taken a very important and clever step. The miRNA identification technique has been used in 30+ research papers within the scientific community and has been shown again and again to be a fast and incredibly effective method. This will provide the sales teams with a very powerful, credible weapon in their sales arsenal when pitching to medical professionals as well as the management's direct lobbying. We all know the benefits of the products and of the wider miRNA market, not least the implications for future products (ultimately the aim will be a test that will be able to detect any cancer and be able to provide specifics as to its classification, enabling better treatment and a better prognosis). In effect, 'a one-stop-shop'.
You say it has not been selling well - how do you know this? Do you have access to the sales figures? I agree the reluctance of the company to disclose figures at the last meeting was not exactly confidence boosting, but given the size of the company and the price of the test, a few encouraging months as the test gains traction will seem like a veritable bounty of riches.
You also negate those who would be able to pay for the test, regardless of the insurance companies' views. If I am sure of one thing, it is the human propensity for self preservation. Whilst I understand that $3500 is no small sum, in the context of one's life, or one's loved ones' lives, it is a small price to pay. In a country with over 5 million millionaires, there will be plenty who will see it as 'a bargain'.
Sentiment: Strong Buy