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No. of Recommendations: 2
I've noticed that Biosyent's share price has pulled back a good bit. A bit more in USD terms than CAD.

Seems pretty straightforward. The growth has stalled, and the multiple has pulled back to reflect the stall. I don't know the company that well, but don't have any particular insight on whether the growth will kick back in.

They have listed a few products in the "regulatory" stage. I have to look back to see if those are new. SA hasn't posted a call transcript yet, so I am not sure if management expanded on their potential.

I do really like the balance sheet of the company. $0 debt. $22 million CAD in cash/short term investments. That's nearly 20% of the market cap. If you back out the cash, it takes the multiple from about 20x earnings to 15-16 times earnings.

Note that this quarter's sales included a major drop off in the legacy business from last year, apparently due to the variability of the agricultural market. Headline sales numbers would have looked a bit better without that.
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No. of Recommendations: 2
if it matters, my last evaluation

I spent a little bit of time cause this is looking my this year version of mystifying error, as I sold the stock higher being of year and somehow got comfortable with the story without making some obvious connections mentioned in the previous quarter. That's the charitable explanation - the other one is I was a dummy.

--

11-23-18, $7.15 (.76 or $5.43), 104-81, 18.9-14.8, 18.2-14.2, fcy-6.7%. gcy-7.0%, ni-5.5, cf-5.7 (6.8), cex-0.3

52: 10.50 to 6.93
Pos: I own 0.8%. Model at similar with most Plus above this

Plan of Attack – Category – Trading History
Goal is to continue with sales of existing product lines while developing new ones, supplemented via acquisition with an asset-lite model. Fast Grower until now but issues with international shipments and legacy products have knocked down the growth rate with CAD at double digits but also slowing. Trading history is a problem – I subtracted based on valuation but then added back at the same price with solid quarters when I should have been looking for a catalyst for a lower price as there was a slowdown last quarter.

Short-Term
Sales down 3% with up 5% ytd, with CAD sales up 11% but International down 51% and legacy down 56%. The international problems are expected to persist for a couple quarters with the legacy business entirely variable. This will create easier compares next year if both are resolved, though it is hard to forecast double digit growth in the other product lines domestically in Canada. M*A is not expected to be an option over the next year and three drugs with Health Canada have not been approved and won’t be adding to earnings any time soon.

Key Factors
• Balance sheet and use of cash flow – continues to be solid with growing cash balances but little prospect for near term use of funds
• Feramax sales – per reports, these represent 60 to 80% of sales and continue solidly in the latest quarter (+9% and +5%) though it is impossible to forecast continued growth at this level
• Other sales – seem to be progressing albeit at mostly a slow pace
• Future Growth – could come from international and new products but there is a clear slowdown in expectations for the past couple quarters

Conclusion
All in all, the story is now stuck in neutral for the near term, but these issues could be temporary a year from now. The valuation has reset to very reasonable levels, and while I don’t see any near term catalysts and dependence on FeraMax makes it hard to add there are growing cash balances and some positive signs. I do think your previous evaluations missed the mark, as you got far too complacent with the growth rates without asking what might interrupt them.



Q3 Sep 18
Sales down 3% with 5% ytd
CAD sales up 11% but Intl down 51% and Legacy down 56%

Notes
Intl – problems with import permits in a Middle East country causing a backlog issues – could last as long as 1 to 2 quarters
Legacy – weather issues not competition but inherently lumpy
Q3 sales intl were 6% vs 12% ly
Don’t expect approval sales of women’s or cardio product in 2019
Business requires 2 to 3m to run
Nothing on acquisitions – pricing too high – not optimistic on 6 to 12 month view

Cysview
2 starting; 8 now; taking a while; up 220% but they are downgrading their view of growth in this product

Mix Units, Q3 and ytd
Fermax +9 +8
Powder +5% +8
RP +29% +24%
Cat +32% +17%
Agg +216% +107%

Research
- BB estimates that Fermax and Powder make up 60-80% of sales

Questions
1 – did you get complacent? - you sold and bot – issue is no complete evaluation here

Trading
In Jun 2018 I added 35,850 x $7.46 or $267,751 so I essentially added it back
From Nov 2017 to Mar 2018 Sold 33,690 shares at $256,193 or 7.60
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reprint

I spent a little bit of time on this evaluation
cause this is looking a lot like this year's version of my annual "mystifying error",
as I sold the stock down at higher prices earlier this year
but then inexplicably added back for no obvious reason (no written justification)
despite real concerns coming up the previous quarter.
Course, that's the 'charitable' explanation - the other one is I (am) was a dummy.

--

I have a work item to make a list on what makes a stock buyable
one is 'undergoing obvious temporary item'
but only buy AFTER it occurs
seems obvious but at times I make sophomoric mistakes
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No. of Recommendations: 1
Any thoughts on liquidity?

I had thought about noting that Biosyent has decent liquidity, at least for my purposes.

As noted here, I have been listening to the Focused Compounding podcast (Geoff Gannon). Geoff is big on illiquidity. That is, he prefers illiquid micros to more liquid ones. I also started to listen to NoNameStocks on the Planet Microcap podcast. Similar references to illiquidity, though more generally;


However, I am not sure what guys like Geoff or other micro-cap investors consider illiquid.
I don't recall any particular rule-of-thumb being mentioned (e.g., less than $10K/day; $50K;
$100K). Biosyent certainly does not trade the volume that would allow big investors or capital to take a position. But, as alluded to above, is enough that I should be able to establish a position roughly inline with quoted prices in a reasonable amount of time.

GnV
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No. of Recommendations: 1
GnV,

"As noted here, I have been listening to the Focused Compounding podcast (Geoff Gannon). Geoff is big on illiquidity. That is, he prefers illiquid micros to more liquid ones. I also started to listen to NoNameStocks on the Planet Microcap podcast. Similar references to illiquidity, though more generally;


However, I am not sure what guys like Geoff or other micro-cap investors consider illiquid.
I don't recall any particular rule-of-thumb being mentioned (e.g., less than $10K/day; $50K;
$100K). Biosyent certainly does not trade the volume that would allow big investors or capital to take a position. But, as alluded to above, is enough that I should be able to establish a position roughly inline with quoted prices in a reasonable amount of time.
"

I think it's always interesting when folks talk "illiquidity" because you learn a lot about how they trade, and the implications.

In terms of folks who focus on illiquidity, I see a couple of things that weave their thoughts together:
1) Illiquid in volume relative to market cap or float -- this is a pretty standard way folks think about it.
2) Benefit #1 of illiquidity: Higher returns for lower price (aka, the liquidity discount)
3) Benefit #2 of illiquidity: Belief that "sharpys" aren't the ones you are trading with... but more likely someone who's grandma gifted them 2000 shares of Bob's Burgers, and they are blowing it out through Scottrade.

I think #2 is dangerous, because it's not always true (but usually it is... liquidity excess return is real), and #3 doesn't absolve you of DD, but does perhaps give some comfort to many... but you can always be trading against a smaller set of insiders/employees of course.

My 2 cents. I tend to notice liquidity in the sense of "immediate" liquidity... aka, can i get $20k done *now* at a reasonable price close to last. I think in micro names, you just have to dribble in either limit or marketable limit orders over days/weeks/months and not care about *now* as much. I do note managing separate accounts, this is somewhat of a pain, but not insurmountable.

My two cents.
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I have not had any trouble trading $250k to $300k over short periods, but i use limits only. There is usually more volume in these things than it looks like (I once sold 1m in Enghouse with no issue even though a pittance had been traded in the previous few days), but liquidity gets worse when the results do. :-)

Keep in mind with RX that when FeraMax slows down (perhaps overdue), it will be stuck in no man's land until these other things accelerate so you are looking at several quarters. in other words, if you want to own this, you better be prepared for a 3 to 5 year hold on it for happy news to come again, though it can spike too but it is best to be aware what you are getting in. I would feel no pressure in adding here either, but that is just my read. Also remember that you are in effect making a bet on the CAD too, so there is that to consider
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I think it's always interesting when folks talk "illiquidity" because you learn a lot about how they trade, and the implications.

In terms of folks who focus on illiquidity, I see a couple of things that weave their thoughts together:
1) Illiquid in volume relative to market cap or float -- this is a pretty standard way folks think about it.
2) Benefit #1 of illiquidity: Higher returns for lower price (aka, the liquidity discount)


I concur with BenHacker's thoughts on illiquidity.

Some investors use illiquidity as a proxy for microcap, for undervalued, or for undiscovered and although there may be modestly positive correlations, it is a dangerous association to make.

There are plenty of illiquid dog stocks out there.

Its funny but "liquid" microcaps may be the worst investment. Ibbotson found that a combination of liquidity and small capitalization meant for poor returns relative to illiquid small caps or even larger, liquid stocks.

https://www.fa-mag.com/news/ibbotson-finds-liquidity-rules-5...

My 2 cents. I tend to notice liquidity in the sense of "immediate" liquidity... aka, can i get $20k done *now* at a reasonable price close to last. I think in micro names, you just have to dribble in either limit or marketable limit orders over days/weeks/months and not care about *now* as much. I do note managing separate accounts, this is somewhat of a pain, but not insurmountable.

Many illiquid microcaps also have large insider ownership which shrinks the tradable float to an even smaller figure.

As Ben noted, it's a hassle but hopefully one for which you are suitably compensated.

ET
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No. of Recommendations: 1
one other very minor thought

I've always related liquidity of buying and selling to how much cash is on the subject BS (and FCF of course). If a lot of cash, the former usually worries me far less. Just a little view. Course, RX can change the BS in a heartbeat with M*A.

ever look at CTRN? liquidity there pretty much guarantees you get 50% swings - can kill you of course but is a highly desirable thing as long as they keep a big fat $$ on the BS, and of course it is only appropriate for trading
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I don't think much has changed with BioSyent; it has faced the same problems last quarter (and the current quarter) as it has faced over the past few years. The difference is that these shortcomings affected results negatively the past few quarters.

1) Legacy business - the insecticide business had a strong 2017 and a weak 2018. There is no investment being made in this business at all; indeed, no investment or effort has been put into this business for more than six years at least.

It isn't worth very much although it provides some decent cash flow.

2) FeraMax sales in Canada continue to grow modestly. It's less susceptible to swings than Feramax International sales but there still noisy quarters due to inventory de-stocking or re-stocking actions by distributors.

3) FeraMax International has been the growth engine for the past few years. There is a strong business in the Middle East which is now facing some import regulation disruption. To me the question is not "Why now?" but rather "Why has it taken so long for something like this to happen?"

Hey, BioSyent is selling expensive iron deficiency pills in the freaking MIDDLE EAST.

The good news is that businesses in that neck of the woods are experts at dealing with disruptions, government red tape, and even violent conflicts.

4) Cysview is challenged but honestly if you were surprised that BioSyent downgraded Cysview then that's the real issue. Photocure's product has underperformed in many markets. It requires upgrades to machinery; it requires adding another step to prepping patients (which nurses hate); it requires additional reimbursement from insurance companies or government health care agencies.

Not the easiest sell into over-worked hospitals with stressed budgets. I believe management wrongly assumed that Canada's supposedly holistic approach to budgeting would see the advantages in Cysview. This may have been a naive assumption and in-hospital resistance was stronger than imagined.

5) As I see it BioSyent was once priced as having two moats: a legacy moat surrounding FeraMax and a reinvestment moat (putting new capital to work through in-licensing deals). This combination made for a high priced stock.

The legacy FeraMax moat has outperformed expectations. The re-investment moat hypothesis has disappointed terribly. Finding new deals at a reasonable price has been a problem for not only BioSyent but also Knight. The players in Canada who have made deals (Cipher, Pediapharm, Nuvo) have paid a significant price and have not seen their stock respond in a positive manner. "Winners Curse."

It is possible that the conditions that propelled Paladin to success no longer exist and will never exist again. Capitalism, after all, does not give certain companies or industries "Freebies" forever. Why should in-licensing firms in Canada earn outrageous returns without taking on the risk of product development? It's an open question, I think.

All the while cash has piled up, lowering the ROE at BioSyent. Management is not inclined to pay a dividend or buy back stocks at these prices; management would rather keep cash for an opportunity that may or may not come.

That being said, the multiple has compressed so the future being priced into the stock is not as rosy.

ET
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to be fair, Knight has also made some coin on their loan portfolio (and the occasional oddball thing that RX doesn't do), but even that has been shrinking lately, and they are now facing some tax assessments and of course raised a gazillion dollars with no obvious destination ("this is a position for your grandchildren, and it will take another 40 years for us to get all this cash invested"); I finally threw the towel as far as meaningful position is concerned
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Management is not inclined to pay a dividend or buy back stocks at these prices; management would rather keep cash for an opportunity that may or may not come.

Well, someone gave me the old mis-direct :P

ET
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i really, really, really hope they don't do anything with that authorization though - unless it trades for single digit PEs or something
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