Jim,
I admire most of Anthony's work (with y'all on HOMS, for instance, many thanks), but frankly this is one of his shallower reports. A few financial figures not fleshed out, an extended rant about the fired analyst and the rest of his ilk. GENE may well be an excellent short, but we need to look more deeply into revenues (royalties (someday maybe), milestones, contract work) and burn rate. Forecast the need to dilute.
At the moment GENE has $58 million in cash and is burning $11 million per annum. Revenue from royalties is likely at a small (I'd guess five per cent max) % rate because all GENE delivers is a target. In at least one case they licensed from a University and will owe said university a chunk. Contract revenue comes from industrial sequencing, which is falling out of favor. We have more targets than we know what to do with. Most biopharmas are transitioning to carefully sequencing individual genes/small gene clusters involved. This involves a different, cheaper, sequencer (listen to ABI's guidance here people). So GENE's sequencing center is going to be a drag, IMO. Thus I think their burn rate might increase, unless offset by declining collaborative work. Nevertheless, they probably won't need to dilute for a couple of years. The viability of the sequncing center will be apparent long before then.
I started looking at GENE in a very casual way a couple of weeks ago when I saw BVF picking up shares. They've had a hot hand for the last year. They have a position trading mentality these days, and have made a nice gain since the beginning of the the year. The above is off the top off my head (my head knows something about the market for sequencers), and I'm starting to dig deeper.
The SGP alliances have produced a few targets, but nothing has gotten beyond the assay stage, as I understand it. Those alliances end in September of this year. Only one gene affecting asthma susceptibility?
So far, I'm inclined to short this one too, as INCY is 10 times the company (same royalty rates, way more customers, few royalties owed, I could go on), and this analyst is also recognized in the SI biotech community as an idiot.
Would like to hear some audio Q&A. If I can find it, I'll listen and report. Meanwhile, digesting the text of the 10-K. Y'all should, too.
sec.gov
Cheers, Tuck |
