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Author: SFWind Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3179  
Subject: now 'n later Date: 7/3/2007 9:20 PM
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Hi Fools,

I'm relatively new to ACUS and just read the last 500 or so posts. My eyes are a bit bleary, but I have a few points that I've distilled out and would like to make sure I have right.

1- product appears to work
2- need to figure out if it adds benefit
3- catalyst would be FDA approval
4- step 3 requires NDA files which is scheduled for Q4 '07
5- step 3 also requires approval of NDA which is scheduled for Q1 '08
6- VP and CFO have recently left the company
7- Unclear if the company has the financial resources to step 3

It seems like the catalyst for "the big bounce" won't come until after the next round of financing/dilution. Who knows who else might leave the company between now and then further depressing the stock price.

Can anyone provide a reason why a new investor wouldn't wait until at least the NDA is filed, if not wait into Q1 '08 before putting cash into this opportunity?

Appreciate any feedback,

SF Wind
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Author: TMFBigFrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1890 of 3179
Subject: Re: now 'n later Date: 7/4/2007 1:34 AM
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Can anyone provide a reason why a new investor wouldn't wait until at least the NDA is filed, if not wait into Q1 '08 before putting cash into this opportunity?

The market is faster than we are. News is generally priced so quickly into a company's stock that we mere mortal individual investors will rarely (if ever) be able to achieve excess profits from investing in line with the headlines. As a result, an investor's primary options are:

#1) Anticipate the likely headlines and invest before they break.
#2) Determine where the market overreacted one way or the other in response to a headline, and invest to take advantage of that overreaction.
#3) Ignore the news all together and either index or invest based on pure fundamental and business analysis.

Clearly Acusphere does not qualify as a decent investment under #3 at the present time. The company is hemorrhaging cash, is trading above what its book value would be if it just threw in the towel and gave up, and has essentially no real revenue.

That would mean that the argument for investing is largely based on #1 and #2.

Let's address #2 first. Short term, the expensive financing, executive defections, and failure of Imagify to be a "brainless slam-dunk" approvable compound by the FDA have been a trifecta of bad news. No sane CFO would have voluntarily left this close to the Big Pay Day of Imagify's approval. Which likely means one of two things is true:
a) The ex-CFO was pushed out the door for something like either poor cash management or poor management of the company's most recent round of financing. The code phrase "pursue other interests" in the press release ( http://biz.yahoo.com/bw/070625/20070625005431.html?.v=1 ) is often, but not always, code for "we don't want you around any more, please leave."
b) The ex-CFO had enough information from being plugged into the company and its approval efforts to believe that Imagify would not be approved and wanted to be the first rat to flee the sinking ship.

I don't have enough data to know which (if either) of the two scenarios is true. Given Acusphere's stock market performance since the CFO resignation announcement, you could conceiveably make a case that the market is starting to anticipate "b". Which means that if "a" is the truth, the news isn't as bad as the market projected. That would give investors who bought subsequent to the resignation news the potential opportunity to profit from a relief rally.

Of course, that relief rally is really only does anyone any good if there's a positive headline (#1 from the list above) out there waiting to be written. The headline that says "Imagify Approved." From what I've seen, it has the potential to be a blockbuster compound, if it's approved for use in the U.S. The wild card, aside from any testing results that may come up surprisingly bad, is the FDA -- which has been hyper-cautious about approving new treatments in a post Vioxx world.

Unlike a Pfizer or a Merck, which have stong revenues from existing products and can survive something like the loss of Vioxx or the failure of a clinical trial, Acusphere has almost no revenue to fall back on, should Imagify bite the dust. About the only rational reasons I can see to own shares in the company is a belief that either:
I) Imagify will be approved, or
II) The company's intellectual capital is worth at least the premium over its book value less anticipated burn that the market is valuing it at today if Imagify not approved.

Frankly, as an investor in Acusphere, I'm very much hoping for Imagify to be approved -- but I certainly can't predict the FDA. If it is approved, then that's wonderful. If it's not approved, I very much doubt the market would react favorably, and I wouldn't count on anything near the current price in a salvage sale. While I am an Acusphere shareholder, it's really only a small fraction of our overall portfolio -- somewhere in the magnitude of 0.5%-1%. I'm willing to take a calculated speculation -- especially when there's at least some positive data to back it up -- but I'm not willing bet the farm on one.

And that, my friend, is exactly what an investment in Acusphere is right now -- a calculated speculation that there will be a headline that reads "Imagify Approved." If that headline gets written, the market will very likely react to it far more quickly than you can. Of course, if that headline never does get written, or if the opposite headline is written, it could go all the way to $0. Such is the nature of investing in small companies with little more than research to their names.

Best regards,
-Chuck

Disclosure: At the time I wrote this, I owned shares of Acusphere and Merck.

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Author: SFWind Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1898 of 3179
Subject: Re: now 'n later Date: 7/5/2007 5:23 PM
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Thanks for your response, Chuck.
All this makes sense to me.

I guess my real question is that the stock is going to float one way or another (mostly the other since I first started looking at it at $2.60) until big news, why play now rather than wait. Not until the news, but until the decision is closer at hand. Already waiting has saved me from a 20% drop...

I have an interest in small speculative play. But the catalyst (or in Chuck's case, the headline) won't show up until 1Q08. There doesn't seem to be fear of ACUS moving from $2 to $4 without news of such headline. And while I agree that if that headline comes, I won't be able to react fast enough to profit, it seems like waiting until the Fall or early Winter to see if it continues to settle closer to $1 might make some sense.

thoughts?

SF Wind


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Author: joseph714 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1899 of 3179
Subject: Re: now 'n later Date: 7/5/2007 6:40 PM
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thoughts?

SF Wind
------------

Now these are only my own musings, but @ this price it is in the sweet spot for those wanting to take the chance.

A significantly lower cost basis would very much surprise me. But then again, I might not be too opposed to yet again lower my cost basis.

It certainly seems @ this level to be worth at the least a deep look.

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Author: Papacooop One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1900 of 3179
Subject: Re: now 'n later Date: 7/5/2007 8:29 PM
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SF Wind,
I sincerely doubt that the company will fall below cash on hand. $1 will be 75% of cash. $2 almost seems like a floor if you count up intellectual property (remember they spent millions on buying patents from GE), cash, and a little bit of hope. I know cash will continue to diminish, and they may go through another round of dilution, but I just don't see the price dropping below 1.75 until the NDA does not get approved (if that happens). That accounts for 20% more dilution. Granted, that is 80% of the current price, but at around $2 I think you are pressing your luck if you really believe in the story and are just waiting for further price declines.

Coop

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Author: TMFBigFrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1901 of 3179
Subject: Re: now 'n later Date: 7/6/2007 12:58 PM
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Hi SF Wind,

I guess my real question is that the stock is going to float one way or another (mostly the other since I first started looking at it at $2.60) until big news, why play now rather than wait. Not until the news, but until the decision is closer at hand. Already waiting has saved me from a 20% drop...

There are two key factors at play: price & time.

Price
It's tough to figure out what the right price to pay is for a company. That holds especially true for one such as Acusphere that has no real revenues, a substantial cash burn rate, and essentially one big shot at making it independently. In my case, $2.24 was the price I was willing to pay to make this calculated speculation, so I set my Good 'Til Cancelled limit order there and waited for it to either hit or expire. It hit, so I bought.

As for why I set my price there, it was part financial projection, part probability analysis, and part gut feel based on asking myself what price I'd be willing to pay to own and wait for the outcome of the FDA approval process. I wish I could give you a specific formula to follow, but in truth I can't. The company's long term value looks basically like an either feast or famine type projection, depending on whether or not Imagify gets approved by the US FDA. Your guess is as good as mine as to if that will happen or not.

Time
While it's tough enough to figure out what price I'm willing to pay, it's an order of magnitude tougher to also try to project what time the price will be available. My Crystal Ball is completely worthless (see http://www.fool.com/news/commentary/2004/commentary04102206.htm ).

As a result, I've more or less stopped trying to look for the right time to buy. Instead, I have focused my efforts on finding the right price and learning the patience to both:
1) wait for the right price and
2) wait for the news to be written, the end-state data to be available, and the market to adjust accordingly.


Some time in the future, a current investment in Acusphere is either going to look like a brilliant bit of foresight or a stupid waste of money. The problem is, we don't know for sure which it'll be or precisely when it'll happen. Like I said, I'm not willing to bet the farm on an either-or proposition like this. But at $2.24 a share, for well below 1% of our investments, the potential looked good enough so that it was a calculated speculation I was willing to make.

If you're not at that point with regards to your decision to either invest or not invest in Acusphere, that's perfectly fine, too. Above all else, you need to be able to sleep at night. If your investments are keeping you up with worry, then you either own the wrong company or companies or you have too much invested in at least one company that you might be willing to own as a small part of a better diversified portfolio. You're absolutely right to pause and consider the downside of investing in Acusphere. If that downside risk is more than you're willing to stomach, stay away.

Best regards,
-Chuck

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Author: TMFMillerTime Big red star, 1000 posts Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1902 of 3179
Subject: Re: now 'n later Date: 7/6/2007 1:56 PM
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Chuck, glad to have your company... those are some good thoughts on both the posts.

Do you know what my biggest problem with ACUS has become? It's the fact that, and your imply this, you just can't really afford to take a really meaningful position in this stock. When MRK tanked, I could comfortably put 25% of my money in it. With ACUS, no matter how much I study and no matter how much I know... it still boils down to an FDA decision that I cannot predict with certainty (very frustrating).

I do disagree with one of your "bullet points".

On the issue of an efficient market responding so fast to news...
I've said all along that the smart investor should just wait on the sidelines until and if Imagnify is approved. Indeed the stock may double or triple on the day of approval... but there will still be loads of far safer upside to come.

I'm reminded of a recent discussion I had on the Berk board about W Buffett and his incredible move of putting a third of his partnership assets in AXP... and my impression that he made that move straight into the teeth of the salad oil crisis and how ballsy a move that was. I may have slightly misinterpreted that story.

It is likely that the crisis served to focus Buffett on AXP and that he certainly did take his initial position straight into the teeth of the storm... but he did not put 1/3 of his assets in on the first day. The inital bets were likely far less. Then as the liability issues clarified.... then he really dove in. He got the majority of the position before the market at large appreciated the fact that liability was drastically less than it had appeared at first blush.

The same sort of manuver might well apply to ACUS. If Imagnify is approved... after that first big bump in the equity price.. that'll be the time to triple up. There will be loads of upside left as it becomes clear to a skeptical market what the real potential for a perfusion contrast agent is.

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Author: TMFBreakerTinker Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1905 of 3179
Subject: Re: now 'n later Date: 7/6/2007 5:08 PM
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That about sums it up for me. I have often, repeatedly, time and tiem again, made some incredible trades buying in at bottoms and seeing the stock jump 30% or more in just a few days, but in all those trades, I could never commit more than 10-15% of my portfolio. Nice to have, but the real money is in investments you can commit a large portion of your portfolio to and just sit and wait. For example, Elan since Black Monday or QCOM, that sort of thing, buying when there is extreme crisis, but having sufficient faith and knowledge to just buy it, hold it, and not worry about it, with a large portion of one's portfolio because quite frankly you know what you have just because the market has gone utterly insane over irrelevant issues all of a sudden.

One just cannot do that with ACUS. One can indeed take a 2-5% position and say, what the heck. Lets see what it does. But try a 25 or 30% position here, I don't think anyone would be comfortable with that.

To me the primary weakness is not if Imagify works, it does, but whether or not sufficient clinical trials have been done to satisfy the messianic and out of control FDA who have taken it upon themselves to elevate themselves above and beyond there statutory mandates.

The clinical trials here involved, what 3 readers here? Readers specially trained to read Imagify images. Are three readers going to be enough to get over this FDA's hurdles? I honestly don't know.

So like say with telaprevir from Vertex, or Tysabri from Elan I cannot tell you that without doubt the drug works. Yes it works, but with only 3 specially trained readers one may still have some doubt.

The second hurdle is of course some of the issues raised here post-approval. Will the drug provide material benefit post-approval so as to be rapidly adopted. No one has clearly answered that question yet, which at this point in time is really a weakness. An irrelevant one I think at this point as approval or non-approval is the immediate game, but for the long-term very relevant. Since I invest for the long-term, although I might sell shorter term, that also makes it more suspect.

I don't like to dabble, but for those with 2-5% of their portfolio to say what the heck with, it could be a worthwhile 18 months to wait. The price may indeed go down but it seems to me that from this point, even if it does, approval will still be a triple or quadruple from here. But as TMFMiller states, one cannot devote a large portion of one's portfolio here, wich rules it out for me.

Tinker

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