BLPA’s Rearview Mirror: Elections and $78 per Barrel Crude

BLPA’s Rearview Mirror

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November 9, 2014Thefalloftheberlinwall1989Lots and lots of news this week: elections, unemployment report, earnings, oil prices and the Berlin Wall. First, it is the 25th anniversary of the fall of the Berlin Wall. A momentous occasion for those of us with a heritage in Eastern Europe, and even if you don’t. Oil prices have fallen below $80 per barrel such that gas is below $3.00 per gallon—great for the consumer, less good for the oil companies and those companies that supply them. And the unemployment rate eked down to 5.8 percent,. though lots of grumbling about the quality of that employment and the lack of wage growth. You can’t have a robust economy if the workers aren’t seeing wage gains. Finally, the stock market hit new highs. After dipping 7.8 percent between September 18th and October 15th, the market has been on a tear.

Regarding elections results,. what’s up is down and what’s down is up. The Republicans won in Massachusetts and the Democrats won in New Hampshire, which is a bit of a turnaround. I had a swim team member bemoaning the situation after practice on Wednesday morning. Though he can take solace that his home state, Massachusetts, went his way.

ballot 2The Republican’s now have a majority in the Senate and Mitch McConnell is the new Senate Majority Leader, pairing up with John Boehner. Could be a contentious two years ahead of us. Although, statistically, the market has done well when the President and the Congress are on opposite sides of the table.

The most interesting fact about the unemployment is who is doing well and who is doing less well. Unemployment in education is at 3.9 percent, and 3.5 percent in financial services and 3 percent with government workers. Construction is at 7 percent, hospitality at 8.3 percent and retail at 6.1 percent. Which means we should all aspire to be teachers or work for the IRS.

Just one more factoid: we all know mobile is where it’s at, but did you know that the Hispanic population was the fastest growing mobile segment?

Earnings and the Market[1]

[Click on the company name of the story and on the stock symbol for the stock chart]

Gotta love that market. Positive earnings announcements, higher labor enrollment and lower oil prices make a nice elixir for the market.

The mobile game companies are shuffling the deck, with Zynga (ZNGA: Nasdaq) maker of Farmville and King Digital Entertainment, PLC (KING: NYSE), maker of Candy Crush, suffering.   Alternatively, Activision’s (ATVI: Nasdaq) revenue jumped 78 percent with it’s sci-fi ‘Destiny game,’ and mobile sales. Live by the product cycle, die by the product cycle. Investors in games and entertainment products need hearty constitutions.

Alibaba (BABA: NYSE) grew revenues 54 percent to $2.7bYoY, with earnings up 16 percent to $1.1b. The stock is up approximately 50 percent since the IPO, and the valuation is now greater than that of Facebook.

Meanwhile, my personal favorite, Home Away (AWAY: Nasdaq): Not so great. Business is doing well with revenue up almost 30 percent to $117m YoY to , but costs increased, so earnings fell to $4.9m or $0.05 per share, from $8.5m or $0.10 per share. It takes a lot of IT to run that business. Buying opportunity?

IPOs[2]

Click on Company Name for the S-1 filing and the Company Symbol for the stock chart. The Company descriptions is from the S-1 filing.

Midterm election week was kind to the IPO market:

Software

Upland Software (UPLD: Nasdaq) sold 3.8m shares at $12 per share, raising $45.6m at a valuation of $172m. The stock closed the week at $10.62 per share.

  • Upland is a leading provider of cloud-based enterprise work management software. We define enterprise work management software as software applications that enable organizations to plan, manage and execute projects and work. Our software applications help organizations better optimize the allocation and utilization of their people, time and money. We provide a family of cloud-based enterprise work management software applications for the information technology, marketing, finance, professional services and process excellence functions within organizations. Our software applications address a broad range of enterprise work management needs, from strategic planning to task execution.

Petfood

Freshpet (FRPT: Nasdaq) sold 10.4m shares at $15 per share, raising $156m at a valuation of $477m. The stock closed the week at $19 per share.

  • We started Freshpet with a single-minded mission—to bring the power of real, fresh food to our dogs and cats. We were inspired by the rapidly growing view among pet owners that their dogs and cats are a part of their family, leading them to demand healthier pet food choices. Over the last eight years, we have created a comprehensive business model to deliver wholesome pet food that “pet parents” can trust, and in the process we believe we have become one of the fastest growing pet food companies in North America.

Freshpet started the refrigerated pet food category. Sorry pugz,no Freshpet for you—only your “natural” Eagle Pack kibble, supplemented with brown rice, kosher chicken, green beans and Wholistic Pet Digest All and Joint Mobility.

Pharmaceuticals

Nevro (NVRO: NYSE) sold 7m shares at $18 per share, raising $126m at a valuation of $7.1b. The stock closed the week at $25.3 per share.

  • We are a medical device company that has developed and commercialized an innovative neuromodulation platform for the treatment of chronic pain. Our Senza® system is the only spinal cord stimulation, or SCS, system that delivers our proprietary HF10™ therapy. Our SENZA-RCT U.S. pivotal study met its primary and secondary endpoints, and our post-hoc statistical analysis supports the superiority of HF10 therapy over traditional SCS therapies for treating both leg and back pain. While SCS therapy is indicated and reimbursed for treating back and leg pain, it has limited efficacy in treating back pain and is used primarily for treating leg pain, limiting its market adoption. In our pivotal study, HF10 therapy was demonstrated to provide significant and sustained back pain relief in addition to leg pain relief. Additionally, HF10 therapy was demonstrated to provide pain relief without paresthesia, a constant tingling sensation that is the basis of traditional SCS therapy. HF10 therapy is also designed to reduce variability in the operating procedure, providing meaningful benefits to both patients and physicians. We believe we are positioned to transform and grow the approximately $1.5 billion existing global SCS market under current reimbursement by treating back pain in addition to leg pain and by eliminating paresthesia.

INC Research (INCR: ) sold 8.1m shares at $18.50 per share, raising almost $150m at a valuation of $1.1b. The stock closed the week at $20.4 per share.

  • We are a leading global Contract Research Organization, or CRO, based on revenues, and are exclusively focused on Phase I to Phase IV clinical development services for the biopharmaceutical and medical device industries. We provide our customers highly differentiated therapeutic alignment and expertise, with a particular strength in Central Nervous System, or CNS, oncology and other complex diseases.

Watch out for INC Research’s two classes of voting stock.

Coherus BioSciences (CHRS: Nasdaq) sold 6.3m shares at $15 per share, raising $94.5m at a valuation of $480m. The stock closed the week at $14.79 per share.

  • We are a late-stage clinical biologics platform company focused on the global biosimilar market. Biosimilars are an emerging class of protein-based therapeutics with high similarity to approved originator products on the basis of various physicochemical and structural properties, as well as in terms of safety, purity and potency. Our goal is to become a global leader in the biosimilar market by leveraging our team’s collective expertise in key areas such as process science, analytical characterization, protein production and clinical-regulatory development. Since our founding in 2010, we have advanced one product candidate into Phase 3 clinical development, two others into or through Phase 1 clinical development and entered into partnerships with two global pharmaceutical companies.

Xenon Pharmaceuticals (XENE: Nasdaq) sold 4m shares at $9 per share, raising $36m at a valuation of $122m. The stock closed the week at $13.27 per share.

  1. We are a clinical-stage biopharmaceutical company discovering and developing a pipeline of differentiated therapeutics for orphan indications that we intend to commercialize on our own, and for larger market indications that we intend to partner with global pharmaceutical companies. We have built a core enabling discovery platform for the discovery of validated drug targets by studying rare human diseases with extreme traits, including diseases caused by mutations in ion channels, known as channelopathies. We have an integrated platform that includes in-house capabilities for human genetics, small molecule drug discovery and preclinical and clinical development.

Margaret’s Corner

We like to think that these newsletters contain something for everyone. This week, to my delight, we have Nevro for my husband, who has a spinal cord injury, and Freshpet for the pugz. Who woulda’ thought?

The days are getting shorter—it’s now dark by five o’clock, and the pugz and I wear our reflector vests out on our walks. No street lights in the “Live free or die” state. The temperatures are also declining. I thought I saw frost on the grass last week, though the temperatures have not gotten below freezing—only down to 33 degrees.

Thanksgiving is approaching. It’s going to be a minimalist Thanksgiving, as the kids will be other places, as will the relatives. Make that a tiny organic turkey for us this year.

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All the best,

Margaret Johns

Founder, BlueLake Partners, LLC

 

Affiliates:

SiVal_Logo

 

 

 

Jan Robertson

SiVal Advisors, LLC

 

Bic Stevens

Stevens Capital Advisors

 

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Susan Woods and Vlad Harris

Margaret Johns is the Founder and Chairman of BlueLake Partners, a boutique M&A investment bank based in the Greater Boston Area.  Prior to founding BlueLake she was an employee founder and Managing Director at Needham & Company where she worked in Corporate Finance in New York City and headed up its Boston office.  She now lives in Londonderry, New Hampshire with her husband, 16 year old step-daughter and three pugs.  When she’s not working with clients, FINRA or writing blogs she competes on the Granite State Penguins Masters Swim Team, skis, rides her bike or is out walking her pugs.

Content researched, edited and reviewed on a best efforts basis.

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We make no claim to being comprehensive in our review, as the contents are companies and topics we, ourselves, find of interest.

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This newsletter is currently being proofed by Dave Henshaw, which is much appreciated. Dave is my USMS swimming lane mate, and Granite State Penguin team-mate. He is retired from MIT, where he used to produce and proof their annual financial report. Exactly what we need.

[1] WSJ Morning Moneybeat July 21 – August 1, 2014

[2] Source: Renaissance Capital, SEC documents, Yahoo Finance. Nasdaq website

[3] Company S-1

 

[1] WSJ Morning Moneybeat

[2]Renaissance Capital