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Author: STARpower1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5  
Subject: (repost from IV) Thoughts about EBS, about Michi Date: 9/28/2007 12:18 PM
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(repost from IV) Thoughts about EBS, about Michigan firm (big EBS seller in Sept)

I posted this on Investor Village (the most active EBS board) before open today, but am re-posting on this and a few other message boards in the hopes of getting additional peoples’ feedback on my thoughts.    Thanks for reading and responding!  STARpower1  http://www.investorvillage.com/smbd.asp?mb=11265&clear=1&pt=m   Disclosure: I just came across this board for the first time, just created an account in order to join the conversation (most active EBS conversation right now), I bought 8-10k shares of EBS in September ($8.7x all the way down to $7.7x), still hold them, hope to sell a good chunk ~$12-14 in 4Q07. I came across EBS for the first time over the summer, so I dug deeper since then.

EBS has had a lot of insider sellers the past six months, both from true insiders (board members, sr. mgmt) and from 5%+ holders, such as the Michigan firm mentioned. There was a lot of sr. mgmt selling in the May/June time frame, which pushed down the price. Sr. mgmt mentioned the 2Q stock price pressure in its 2Q07 call in August.

My guess is that there was a ~6 month lock-up provision, post the 11/06 IPO, that insiders could not sell until 5-6 months post-IPO. The Michigan firm started to sell in September. I’m still learning the investing game, but Forms 144/4 (? forms that tell possible intent to sell during a given time period and tell what was actually sold a day or two prior) are likely in play with the 5% holders, of which there are a few (can’t find the link right now). I calculate that the Michigan firm’s selling for the first few weeks of September singlehandedly pushed the stock price down 10-15%. In one day, the Michigan firm’s selling was 29% of all of the shares traded. My guess is that the firm’s original ‘price’ several years ago for these shares was just a couple of dollars, so $7/8/9/10 is a good profit.

The 54k shares traded on Wednesday, post announcement, by MI firm at $10.00 (74k total shares) really stunted this stock’s appreciation, maybe by 20% more. Some people don’t want to stick around with this stock until the MI firm stops flooding the market with shares. I’m guessing that the daytraders would have pushed this to the $12 range on Wednesday, but got annoyed at the very large $10.00 order (from the MI firm…the stock hit $12 in pre-market trading, maybe higher, only saw $12) and decided to leave the stock. I would guess that the MI firm traded another 50k shares yesterday (maybe at $9/share, the reason the stock didn’t break $9 for too long?).

My unanswered questions to the board:
1) When will the MI firm stop selling? By my count, it has sold ~200k of its 1.9mm shares. Another 100k shares and it will no longer be a 5% holder and will no longer have to report its trading activity.
2) Will other 5% firms start selling?
3) Does anybody know the rules for small cap mutual funds (>$250mm market cap)? EBS was over $250mm for a while, dipped under, and is now back over. Can these funds buy only when a stock is in the small cap ($250mm - $1B) range?
My guesses:
1) Maybe this is just a September 2007/3Q07 off-loading deal for the MI firm. If so, today is the last trading day of September, so there may be additional MI firm unloading pressure on the stock. Maybe the firm wanted to raise $2mm for something during 3Q07 and is done. Maybe it plans to dump its entire 1.9mm shares on the market in the coming months, keeping this stock’s price depressed. My bet is that it’s a September play and that it stops, meaning that things will rise next week b/c of the overall demand for the stock (Note that the last period (mid-Aug to early Sept) that didn’t have any insider selling, the stock price went up 10% (8.0x to 8.9), showing some ongoing demand for this stock.). Also note that I have a very significant position in this firm, so my hope may be interfering with my objectivity.
2) Not sure, don’t think so.
3) This might create additional strong demand for EBS in the coming months, soaking up a lot of the Michigan firm’s supply.

In summary, I think that the MI firm has dinged the price by 1/3+ in Sept through its substantial selling (10-15% prior to Wed’s announcement, 20-30% since).

There are a few potential good news announcements I can see coming in 4Q07:
1) Milestone payment ($8.8mm?), I forget for what
2) 3Q07 earnings announcement in Nov, possible good guidance from management
3) DoD contract (maybe 5-20% the size of the HHS contract)
4) Potential additional analyst coverage due to locked in $400mm contract. I believe that 4/5 analysts covering the company has done business with/for EBS, so they may not be fully objective.

These are opportunities for more focus to come to this stock, soaking up Michigan’s extra supply.

I like the company’s focus on its core competency, manufacturing/operations, and also how it buys potential therapeutic solutions when they are farther along in development (similar to Microsoft’s model) and was encouraged that the company spent 1/3 of its 2006 revenues (50/150mm) on R&D. I can see BioThrax as a cash cow going forward, funding the development of the 10 other things in its pipeline.

The company’s supply is currently constrained by its manufacturing capacity. It can make 9mm/yr if the plant runs 24/7/365, but 7-8mm is a more reasonable number (plant shut-down for regular quality checks, breaks for workers, etc). The new plant, recently constructed, will produce up to 40mm doses when it comes online in 2009/2010, after FDA approval that what it produces is the same as what the 7-8mm dose plant produces. It could produce up to 80mm doses total if the company adds a 2nd <something or other>. This removes the capacity constraint for BioThrax and the 10 potential things (vaccines?) in its pipeline. The US gov’t has purchased every single does EBS has been able to produce since 1998. My guess is that the US gov’t (logically) has ‘dibs’ on the supply for U.S. citizens. The additional capacity will allow the company to start to sell to ‘friendlies’, as well as commercialize its other pipeline products.

Just my general thoughts that I’m trying to work though, would love your thoughts back.
STARpower1
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