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Biotech / Medical : Catalytica Energy Systems, Inc. (CESI) -- Ignore unavailable to you. Want to Upgrade?

To: WTMHouston who wrote (1462)	2/3/2000 11:22:00 AM
From: WTMHouston	Read Replies (1) \| Respond to of 1514

And to top it all off, GE was on CNBC this a.m. They talked about the new big order they got: no mention of XONON. They talked about fuel cells: GE pumped fuel cells, but no mention of XONON. If there was a real commitment by GE -- of the kind needed to move CTAL stock price -- this was a perfect opportunity to at least mention it. But, nada, nothing, no mention. Troy

To: WTMHouston who wrote (1462)	2/3/2000 3:08:00 PM
From: Erik T	Respond to of 1514

Troy, I can certainly understand your frustration. I know you have been following the CTAL story for quite a while, and it certainly has underperformed the averages for years. Xonon has taken longer than any of us could have ever imagined. I can understand your selling, and figure you could probably get back in later if some really good news comes out. I don't foresee any amazing one-day pops. I will continue to hold, as I certainly do not agree entirely with your analysis. As far as valuation, compare Cambrex with Catalytica. CBM made about $6.5 million last quarter while Catalytica made about $9.8 million. Cambrex had increased revenues (about 15%), but lower net (down 30%), yet has a market cap higher than CTAL. If the market can accept valuation of CBM, it can certainly accept current valuation of CTAL. For anyone who understands the numbers, CTAL's $9.8 million net also includes losses on CCSI, so I think the current valuation is certainly not overvalued. So, what about CCSI? I continue to be underwhelmed by the public acceptance of Xonon by the turbine manufacturers. Having seen the prices for other control technologies, assuming that Xonon really does work, and everything I have seen suggests it does, there really is a big market for it. I suspect the problem was in getting someone, anyone, to make the first step forward and agree to implement the technology. Enron was the ideal candidate for this. Let's face it, if a GE turbine customer wants to buy turbines and doesn't need to reach lower than 9ppm NOx, they will not likely employ Xonon. This is evidenced by Duke Energy using GE's dry low NOx solution. Xonon's entire value, for now, is in non-attainment areas like California where SCR must now be used. Xonon is cheaper and cleaner than SCR. Unfortunately, this segment of the market is not huge. Xonon took its biggest blow when the California legislature said two years ago that any new IPP must help cover stranded costs to the utilities for four years. This stopped Enron's plans to move forward as an IPP in that state until 2002. It just was not economical. So, we got delayed, not just at the large turbine level, but the distributed power level, as well. Xonon has been ready and is still ready today. It needs to be economical before it can be a success, and that means several elements must come together: 1) Xonon must be cheaper than any other control technology to achieve the level of emissions required for permitting a turbine, 2) must be economical for the turbine operator to even want to put in a new turbine, and 3) the turbine purchaser must believe Xonon will work reliably. I think number 3) has now been answered to my satisfaction, but perhaps not to the satisfaction of utility operators. Number 1) will differ from one region to the next (Xonon will be a good choice in California, but possibly not in Wyoming). Number 2) will happen when deregulation is underway in a significant manner. In California, I believe that will be in 2002. So, Xonon was delayed for a few years (which have now passed). The technology works and has been refined. It awaits a market that needs what it offers. In California, that is not until 2002 and beyond. (I am not up on other state's efforts on deregulation and permitting requirements). But as for California, Xonon is the only non-exhaust clean-up system that can meet permitting laws. So, we await the market to develop. Assuming no changes in environmental laws between now and then, I expect to see Xonon move full-force into the commercial space starting in 2002, and probably only a couple small projects before then. In the final analysis I think current valuation is very justified by the pharm business alone, even with CCSI losses. I disagree with you, in that I am comfortable with the growth in this side of the business. As for CCSI, I trust the managers of the company, and if they see fit to continue aggressively pursuing Xonon, then I support them fully, as they certainly know a lot more about specific developments than we can. Best wishes, Erik