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  • mkirkvan mkirkvan Dec 19, 2008 11:35 AM Flag

    My Thoughts

    I could write a book, but I will try to be brief.

    Yesterday was the first time I've had reservations about my investment in CMED. Sure the recent convertible offering wasn't a high point, but I didn't really perceive it as that big a deal...more of a perception problem and a short term opportunity for rumor mongers to hurt the share price; nothing that did much fundamental damage to the company. The sale of the HIFU unit to the CEO is another matter. It hurts the integrity of the company. I would love to see the projected cash flows from the HIFU business line. $53.5M seems much too cheap. Didn't CMED's board consider how this would be perceived? Much better to keep the business line. Investors could have handled negative growth in HIFU. Management is too concerned with margin and too concerned with growth; profits are what matter, along with a good balance sheet.

    So here we are, $21/share and the question is what to do now. Even with the loss of HIFU the company will still make well over $2/sh next year, and it will do it with a better balance sheet and a higher growth rate. So much of this news already seems to be in the stock price -- we are down $35/sh from the summer high. In my mind, CMED is a stock that should have been worth $50/sh before recent news and now should be worth $42/sh, but the stock price is what it is. I have sold 20% of my holdings and may sell more, but no more than a total of 50% of my holdings. Management needs to regain the trust of their shareholders.

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    • In less than two years this company has raised funds thru low interest Convertible Notes two times amounting to over $M400. All this was done without stockholders votes. Every time they issued the Convertibles it caused turmoil in stock price i.e., they did so at the expense of stockholders of record as the short sellers (may be the Note buyers) drove the price down.

      As if this was not enough of a jolt, when the stock price was getting stabilized the management decided to sell a major part of the business, again without shareholders votes. This new too caused the stock price to plummet. And the irony is it was not via a competitive bidding process and was not the right time to sell at such a meager price of $53.5M and IT WAS SOLD TO THE CEO OF CMED HIMSELF.

      Summarizing, it seems like the company has gone public to raise low interest capital in the US market to grow the business and take part of the business at a time private.
      May be we need a Class Action Lawsuit against this company? ANY DIEAS?

      • 1 Reply to mkt_stdnt
      • CMED could be a big fraud. It recently paid big $ to buy a so called HPV DNA chip company which is a BVI company with operations in China. Interestingly, CMED bought its current FISH business from the same company in two years ago with big money. How come CMED keep buying new business from a company that nobody knows.

        Secondly, if you know the HPV business, Qiagen's HC2 test is doing well in China. CMED's HPV DNA chip technology is not even heard in the market. It's not even approved by Chinese Food & Drug Administration for sales.

        It's so clearly suspicious.

    • Volume and price action says it all. Stock acts like it wants to go back down and test lows. I Look for continued weakness into Jan. 16 target.

    • I have not been a fan of the HIFU business for quite some time. It has had slow growth for a while and growth has been largely through price increases. I do support the idea of CMED selling off this business unit. However, the price is too low and they are selling the business at a very poor time. Even with negative growth the segment will still generate earnings. They are not strapped for cash either. We are well aware of the expense of R&D in the U.S. and Europe but this is an investment in the future growth of HIFU. Considering the profitability of the business and the future potential $53 million is not enough. I would have liked to see an additional $25-$30 million for the sale. I also agree with Theeseer that the potential for HIFU is quite limited but there is still a decent market for the equipment.

      I do like the focus on molecular diagnostics because this business is young and has a very attractive potential for growth. The more I look at the acquisition of this technology the better I feel about the price paid.

    • I don't trust their take on the sale. Still lowballing it. 4-7x forward earnings for a huge chunk of their earnings and using a current depressed market price to justify it .

    • thanks for the br report flop

    • Although I share the suspecion, there are few area probably worth debating.

      1) Wu still owns north of 26%. Why he bites off his toe to feed his mouth?

      2) HIFU's forwarding P/E runs about same in line with the rest of business. It is a fair price. Even it is a bit over-priced, Wu gains $10 millions on HIFU, lost $10 millions in stock holding, what's the sense? He should not be stupid.

      3) HIFU's gross margin is 70% vs. ECLIA 75%, FISH 80% and HPV 80%. HIFU will incur lots of R&D expense as it enters clinical trial in US and Europe.

      4) There is some promising prospect on Cancer probing just approved.

      I called Winnie (IR) and almost blasted her. After she calmly explained each questions, I feel better though somewhat alarming yet. By the way, HPV-test will be government-subsidized.

    • So far I'm the only one on this board who knows this business. I consulted to the USA competitor in the HIfU field and know the technology. The bottom line is that HIFU is a good but limited technology for solid tumors. It is still not approved in the USA and has not had the best results long term for patients from the USA who have had the procedure in Canada or Mexico for prostate cancer. China's version is not even considered to be as good the USA model. I personally think its a good procedure but only in very limited circumstances. So selling it is no big deal. There are three competitors worldwide and none are setting the world on fire.

      In addition the fish and reagent field is where the real money is and is a big deal. CMED is doing exactly the right thing to grow with recurring revenue and cutting edge products. I am a volunteer cancer worker, former clinic manager and currently I am a trader and investor and expect to build a position and trade this stock over the years. This stock is 50% undervalued and has a China government mandate. Go against this stock and you will lose.

    • Mkirkvan,

      Thanks for meaningful musings on this company. My sentiments mirror yours. Just sold 50% my CMED shares at 30% loss. Having lost money in several crooked Chinese stocks, especially XING (down 95%), I am having real misgivings about CMED. Up to now, I thought CMED was not just another typical corrupt Chinese company. Their business decisions seemed sound and seemed to reflect shareholder interests.

      But selling the HIFU unit to the CEO is bizarre. The sale price could not be a fair market value without some kind of open market tests or bidding. Looks like just another dirty deal.

      Despite apparent good long-term prospects for this company, I'm not going to make the same mistake of letting my greed keep me in a company where honest dealings is just a laughable concept.