I disagree here, you see a lot of goofy stuff in those sections of 10-K’s but rarely is it so specific: “we expect to lose money for the next few years”… and I think with the stage the company is in right now, its history and the nature of biotech that’s a perfectly reasonable expectation. Even with the sale to Merck the company has lost over $200M in its lifetime.

IPLEX is extremely speculative…. it’s difficult to make- they can’t manufacture it and the 10-K says to be able to manufacture it will take 12-18 months to find someone to do this since they sold their manufacturing facility to Merck. Only 50 people in the world are getting it now and they aren’t giving it out to anyone new and only have a year of supply left for these guys. More trials will be needed to bring it to market (right?) but they apparently can’t do those for quite awhile longer.

So when I look at this I look at the 3 quarters since the sale and they have earned $555k, without the $2.3m tax benefit they’d be -$1.7m in those 3 quarters. I can’t tell if they’re going to get that again, I only skimmed their 10-k and I couldn’t figure out where that came from, I know they have a lot of NOL carryforwards, was that it? Will they get another one next year? How much interest do you expect them to earn on the $ from the FOB sale? They didn’t book any interest income since the sale that I’ve seen, which I don’t really get, maybe next quarter I dunno how they account for this stuff.

Absolutely everything hinges on what they do with this cash. With the history of the company as a money sink and the nature of the biotech game I just don’t see the value here. They have an EV of $33M, one product that isn’t doing a whole heck of a lot and no prospects for earnings that aren’t interest-related beyond a year from today, since they will run out of IPLEX (and they won’t make much $ on IPLEX in the next year either since only 50 people in the whole world are taking it.)

I disagree on your remark about KO as well, we know 20 years from now KO is going to be selling more flavored water and their earnings should be reasonably predictable. We have here a company that’s lost money over the life of the company, it has a bunch of money in the bank and a very experimental drug that only a few people are taking, and it can’t even manufacture that drug. It’s hard to value the upside here, if IPLEX catches on in a couple years or they make some great acquisition or the market just keeps pushing everything up it can do OK.

So, yeah, that’s my “bear/neutral” case, no offense or anything, and that’s the last I have to say about it. Good luck!

I may not know much about the drug but if you also dig into the remaining management backgrounds as well as the new hire, then you will see that these people have plenty of experience and knowledge on the matter.

If investors had to know every detail about a product, I guess even KO would be an impossibility since no one knows what goes in it. Of course, that is a gross example but the point is the same.

Lots of cash, no debt. Not much in terms of operations, but potential is what I’m looking at and not growth.

Many scenarios can come out of INSM but the important thing is that the all important question of “what can go wrong for me to lose money” has been taken care of.

My initial concern when investing in INSM was the cash burn but since 2 quarters ago, they have been cash flow positive due to high interest earnings and other non recurring income. I know that these types of income isn’t what you want from a company, but every case is different and INSM is an exception. With all the interest they are earning on lowered expenses, they can just sit and do nothing and still be in business for 20 more years. Plenty of MOS.

With $122m in cash and no debt the EV of this thing is only $30m, if they invested their cash wisely it’ll be a good deal, but it sounds like that’s not really the case, they are gonna continue betting on this drug. Who knows how that will end up? I can’t even guess probabilities. Guessing on the success of some ALS drug is outside most of our circles of competence.

EPV is misleading as well with the change in the nature of the company. The company said in their last 10-K that “We will continue to incur losses to the extent we expand our research and development and do not expect material revenues for at least the next several years.”… so we can’t even guess at how much they will earn if things go well, they will have no earnings power for quite awhile (if ever.) So yeah I think $2 is really pushing it here. We’re in a crazy bull market lately and it might go up with the tide but I don’t think it’s worth a whole lot more than the price it is at today.

Right now, INSM is still making about $10m each year and the company is being priced at its base case i.e. no operations, no future, just a blank shell. PE is at 1.

Truth is, INSM is doing something, there is interest in IPLEX, a strategic review could yield excellent alternatives. This will increase that PE. I just upped it to 2.

You can also do an EPV and you should get something like $1.50 based on zero operations. So $2-2.50 is a very conservative number.

I’ve seen a couple of net nets where management deservedly should be called snakes. Their only interest is to fatten their wallets which is why it’s important to view the cash burn.

Cash is everything with net nets and if the business just keeps using it all up, your MOS will continue to shrink.

PDII is an exception. They were, still are, using up plenty of cash, but they are doing it for growth and to get things back on track. Sold that one too early… doh..

But if a company has plenty of cash, I’m perfectly fine with the company doing nothing. Nothing is better than doing something stupid.

In the event where plans fail, that is why I like NNWC so much because the market will usually price the stock at it’s liquidation value. No can force the company to liquidate, but sooner or later, the price will reflect at least the assets.

Thanks,
Zehua

I’m interested in your opinion on net-net opportunities. When they go wrong or the catalyst never happens, what is the reasonable expectation for the company’s use of the cash? It doesn’t seem like a given that they just distribute it, wind down the company, and go home. It seems more likely that they make a desperate stab at using it in other investments (R&D, new business models, etc.). So in a binary bet like this one (it works or it doesn’t), what’s the reasonable expectation for management behavior if the drug gets FDA rejection and never makes it to market?

There is nothing that forces them to liquidate assets to investors. Can we really anticipate rational management that gives investors their money back?