Biocartis « Terug naar discussie overzicht

quote:

Flatlander schreef op 31 januari 2020 19:05:

[...]

I still believe that the timing of several of the large hedge fund short positions (Citadel etc.) initiated in May 2019 (about the same time as the announcement of the Convertible offering) still suggests a convertible arbitrage strategy. Does anyone have a list of the larger purchasers of the convertible?
Voleon's recent short position looks a little fishy relative to the timing of the CFO resignation. I wonder if they caught wind of his departure in advance.

BL - I realize that you did not think that convertible arbitrage was the case based on the conversion price etc. However, much of the rationale for the initial position may have been to balance the risk of being long through the convertible by creating a delta neutral position rather than seeking out an immediate return on the short position. Given the September news and then the January CFO news, no one can argue that hedging the long exposure was a bad idea. Here is a description of "Convertible Arbitrage".
FL

Convertible Arbitrage
Convertibles are hybrid securities that combine a straight bond with an equity option. A convertible arbitrage hedge fund is typically long on convertible bonds and short on a proportion of the shares into which they convert. Managers try to maintain a delta-neutral position, in which the bond and stock positions offset each other as the market fluctuates. To preserve delta-neutrality, traders must increase their hedge, or sell more shares short if the price goes up and buy shares back to reduce the hedge if the price goes down. This forces them to buy low and sell high.

Convertible arbitrage thrives on volatility. The more the shares bounce around, the more opportunities arise to adjust the delta-neutral hedge and book trading profits. Funds thrive when volatility is high or declining, but struggle when volatility spikes—as it always does in times of market stress. Convertible arbitrage faces event risk as well. If an issuer becomes a takeover target, the conversion premium collapses before the manager can adjust the hedge, resulting in a significant loss.

quote:

brightlight schreef op 31 januari 2020 20:52:

[...]
FL,
I agree that the initial short positions may have had a negative impact on the share price around the time of issuance of the bond. If those short positions were still open (which they probably aren't because short positions were close to zero in November) they could still impact the share price, but only positively (through the closing of the positions). Concerning the delta neutrality strategy (as I understand it) that only leads to increasing and decreasing short positions if the share price were to bounce up and down in the vicinity of or above the conversion price (not way below, as is the case now). Then I can see short positions being increased or decreased as described in the strategy: "To preserve delta-neutrality, traders must increase their hedge, or sell more shares short if the price goes up and buy shares back to reduce the hedge if the price goes down." That should have a dampening effect on the share price, not causing a drop. What is going on here, in my opinion, is shorters toying with retail investor's fears. It is a good bet that doubt will creep into retail investors' mind after a while in the absence of news and in the absence of regular and proper analyst guidance. We see that all the time, especially in smaller stocks. Ontex is another such example. Biocartis even unexpectedly played into their hands with the poorly timed CFO exit. However shorters are not any smarter than regular investors and their strategy can backfire big time at any moment. Tesla was the most shorted stock until recently, look what happened there!

quote:

Hans90 schreef op 1 februari 2020 09:37:

Hi Flatlander,

I see you often refer to Cepheid as a succes story for MDx. I had a quick look at their early days and do see some differences with Biocartis:
- Cepheid was able to grow from 5 to 85 M$ in 6 years (2000-2005), Biocartis is currently on a slower growth trajectory
- Cepheid made an average loss of 15 M$/year (2000-2005), the average loss for Biocartis is around 50 M$/year, hence Biocartis needs more cash to grow
- Cepheid had a gross margin of 40-50% when they hit 20 M$ revenue and was able to sustain this margin, gross margin for Biocartis is currently below 20%, I see this as one of the biggest risks as it is a strong contributer to the high cash burn, I'm reluctant to belief that the new production line alone will get gross margin above 40%
- Cepheid had a major revenue growth from 18 M$ in 2003 to 53 M$ in 2004, do you know the underlying reason, something similar in the pipeline for Biocartis? I'm again a bit reluctant to belief that FDA approval alone will result in this type of stepchange for Biocartis, any thoughts on quantifying the impact of FDA approval?

I strongly belief in the MDx market and see the added value of Biocartis. I'm however still a bit skeptical about their ability to lower cash burn significantly in 2020-2021.

quote:

brightlight schreef op 1 februari 2020 16:32:

[...]
Hans90,
let me address your points one by one:

Concerning revenue growth:
Revenue at Biocartis is expected to grow in 6 years from 12M Euro (2016) to 174M Euro (2022), so 14 times 2016 revenue (Cepheid came in at 17 times, so not that much difference).

Concerning the loss making:
1. It is useless to compare loss figures of companies in different stages of their development. Cepheid’s growth acceleration has already happened, Bcart’s still has to begin.
2. You shouldn’t compare absolute loss figures, but relative loss figures.
3. Every company is different in the way they approach their business model. One company may have better metrics than the other concerning certain aspects of their business model, That does not mean they can’t both be successful and be fabulous growth stories in their own way. But as I said in point 1, Bcart and Cepheid are at a different stage of their development so it is pointless to compare the two at this moment in time.

Concerning gross margins:
Hans, you really should read the posts that are out there. I already pointed out that your gross margin figures are wrong. Flatlander did so too. Here are the correct figures: 2019: 43.96%est; 2018:44.81%; 2017: 58.62%; 2016: 52.88%; So they are perfectly in line with the Cepheid margins.

Concerning the growth drivers for the foreseeable future:
Growth drivers for Bcart are: Entry in the Japanese and Chinese markets; Full approval for the U.S. market; Continued growth in Europe and the rest of the world; 11 new tests in the pipeline; higher margins due to higher sales prices when more products are sold (supply demand balance shifting); more cost efficiencies due to better production line utilization. Probably Flatlander can add some more.

Concerning cash burn:
Nobody said cash burn would be lower in 2020-2021. Maybe it will, maybe it won’t. As I already said before, cash burn is an inherent part of investing in biotech. Bcart is no different. It is something you have to accept as a biotech investor. You get a better company in return (besides no new cash is needed in approximately the next two years, that really is a luxury as a biotech investor!). Amazon had the same business model (loss making from 1995 till 2002 and even some years after that). Nobody is complaining now after the stock went up roughly 20 times in 10 years. Sometimes you need a little bit of VISION as an investor. That is something which is distinctly missing on this forum.

It seems to me there is a concerted effort on this forum to bring the share price down. I don’t know who benefits, but frankly, I am getting a bit tired of having to address all the skepticism and correct the constant stream of misinformation. I think I'll just let the ignorance run its course.
BL
P.S. Nat, je mag dit vertalen.