[...] Insmed INSM Net Net Stock Analysis Valuation via oldschoolvalue.com Stock analysis and valuation of INSM based on benjamin graham net net formula and epv. Detailed financial statement analysis provided as well. Submitted by jjun0366 on Mon, 2009-11-09 05:20. [...]

If they don’t do anything about the warrants, it could also mean that management ins’t concerned with short term greed and is really focused on long term shareholder wealth.

6. I wish there was more information on the IFLEX supply commitment that the company has to their 60 Italian Phase II patients. The words “court-ordered” are a bit ominous to me. Need to find out what exactly the court order states, and the implications to the company. Need to eliminate the possibility of litigation (i.e. increase in cash burn rate) if the company has been ordered to do something that that they cannot currently fulfill, having sold their ‘FOB’ mfg facilities.

In their own words:
“At present there are approximately 60 patients who currently receive IPLEX(™), 12 in the U.S. and the remainder around the rest of the world.
Most of the patients receive IPLEX™ pursuant to a court-ordered Expanded Access Program (EAP) for Amyotrophic Lateral Sclerosis (ALS) in
Italy. The 12 U.S. patients are being treated for ALS under single patient Investigational New Drug applications approved by the U.S. Food and
Drug Administration. We believe that we have sufficient IPLEX™ inventory to supply these patients through 2010.”

d

a)The 5.5% notes become due on March 1, 2010. Not a big issue since the company is flush with cash, and they have redeemed most of the notes allready. Only $461K outstanding at Sept 31, 2009. (It’s too bad that there isn’t a transparent and liquid market for the notes, as some value could be obtained there, if the notes are underpriced.)

b)The outstanding warrants issued in 2005 expire. In their words: “In connection with our May 2007 public stock offering, the exercise price of the 2005 Warrants was reduced to $1.21 per share and the
2005 Warrants are currently exercisable into the aggregate of 3,615,320 shares of common stock. The 2005 Warrants will expire on March 15,
2010.”

IMO, I believe that the management/directors are hoping that the share price increases to > 1.21 such that the warrants are in the money. A bit of speculation. There is a 2 fold hidden positive here. One one hand, by having the warrants, there is some hope that the share price will go higher in order to excercise them. On the other hand, come March 2010, and the share price is below 1.21, the warrants expire, and they can be taken off the books from the liabilities section of the balance sheet.

c)The iminent issue of being listed on the NASDAQ, creates pressure on management to act by March 15, 2010. Therefore, a long wait will likely not be needed to see the outcome of their recent, and yet undisclosed M&A efforts. Tho there is also a possible reverse-split if they can’t find any suitable option in time (This could actually create more value). In their own words:
“By letter dated September 15, 2009, we were notified by the NASDAQ Listing Qualification Staff (the
“Staff”) that the bid price for our common stock had closed below $1.00 per share for the previous 30 consecutive business days and that in
accordance with NASDAQ marketplace rules, we have been granted a 180-calendar day period, or through March 15, 2010, to regain
compliance with the Minimum Bid Price Requirement. If we fail to meet the Minimum Bid Price Requirement by March 15, 2010, our common
stock may be delisted from the NASDAQ Capital Market. If a delisting from the NASDAQ Capital Market were to occur, our Common Stock
would be eligible, upon the application of a market maker, to trade on the OTC Bulletin Board or in the “pink sheets.””

d

1. I agree. The accumulated deficit seems to be a running total of profits/losses over the years. But from the losses there did seem to be deferred tax assets that they used to write off the ~130M (which I assume is classified as a capital gain. Actually maybe only a portion of this is a true capital gain – i.e. what they sold at minus what they paid initially roughly.)

From the latest 10-Q, Section 6.
“At December 31, 2008, the Company had net operating loss (“NOL”) carryforwards for income tax purposes of approximately $288 million,
expiring in various years beginning in 2009. The deferred tax assets of approximately $119 million at December 31, 2008, arise primarily due to
NOL carryforwards for income tax purposes. The Company projects that it will be able to utilize a portion of these NOL carryforwards and
deferred tax assets in 2009 and has projected income tax expense for the year of $2.8 million, consisting primarily of Alternative Minimum
Taxes (“AMT”) to be paid.”

It seems that a part or all of the $119M was used. I was only wondering if they had anything left which would be regarded as deferred tax assets, after the gain on the 130M and the last 2 quarters had been accounted for.

I suppose we will see in the 2009 annual report shortly, if the same information is provided in section 6.

Great questions.

1. I didn’t look too much into “Accumulated Deficit” because I always knew they were losing money to begin with but the difference is that I found INSM after they had sold their assets with low cash burn. But I dont believe they are writing off assets. I don’t believe you can under the title accumulated deficit. It’s just a carryover from previous losses.

2. I think you are right about the company selling itself. I don’t believe they will as well.

3. I’m not too sure how VC’s work but since they have the cash, if they can find something cheap and of good value, INSM will definitely go up. I’m just glad that INSM is below it’s net net value. Huge inefficiency at the moment.

4. I didn’t think about going into management background. Something to try and find out but is management even famous enough that we can search him up?

I read thru a number of the quarterly/annual filings for INSM as well as the latest webcast.

Some questions/comments:

1. The references to ‘operating cash neutral’ during the past 2 quarters is interesting. It seems that the ~$130M sale of assets as well as ongoing operating income are being writen off by the “Accumulated Deficit” line item in the Balance sheet (or at least the future deferred income tax portion of that).[Item 6 in the latest 10-Q discusses income tax.]
The latest quarter still indicates a ~$230M accumulated deficit. Do you think that there is any remaining deferred income tax portion after the ~130M? (If any remains it could be considered a non-cash company asset. Tho none may be left)

2. From the webcast, the possibility of the company being sold in the short term is zero(imo). They mentioned something to the effect of building long-term shareholder value, along with Mergers, reverse-mergers, etc. All of this seems to indicate the the managers and directors are not ready to cash out yet.

3. Chanceum’s Nov 23 analogy to VC, really strikes a cord with me also.

4. A follow on from 2. and 3. It would be prudent to assess if the current management team has a track record of *proven* success with M&A. (i.e. who in the past 5 years was the driver behind the company success? It could be one or more people. Are those people still at the company? The comment in the webcast about not currently looking for a replacement CEO started this train of thought. More investigation seems a must here, I will dig a bit more to form an oppinion.)

d

[...] reviewing the quarterly report and financial statements for the 3rd quarter, things look to be going pretty good at the company. They’ve been paying back debt and cash [...]