BLPA’s Rearview Mirror: Stay Away From the Yen!

November 24, 2014

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tukey
Source: Examiner.com. Creative Commons

Thanksgiving week is here, and we’re expecting a Santa Claus rally. Who knows what the New Year will bring? Hopefully, not coal. George Soros is putting his money behind Bill Gross, now that he’s moved to the Janus Funds. An interesting move.

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I enjoy writing this newsletter and one of the benefits is that it forces me to keep current on financial markets, IPOs, M&A and Private Placements. And then I share.

Is this format serving your needs, or of interest? Please feel free to suggest tweaks or wholesale changes, and emailing your suggestions me at mjohns@bluelakepartners.com

Earnings and the Market[1]

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

Source:  freevector.com Creative Commons
Source: freevector.com Creative Commons

This Friday, DJIA set a new high at 17801.06. It seems that with the cut in the Yen as well as interest rates in China, money is pouring into the dollar and the market, pushing new highs. Third quarter earnings season is about over, and as we’ve observed recently, earnings growth, at 8.1 percent is outpacing sales growth at 4 percent. Expectations for the fourth quarter are 4 percent EPS growth and 1.9 percent sales growth. This type of earnings growth is short lived, and will depend on higher sales growth in the near future.

Best Buy’s (BBBY: Nasdaq) results were better than expected with $9.4m in sales and $0.32 non-GAAP EPS. As someone who wants to see Best Buy survive, we were thrilled to see Best Buy start to price match online retailers. Apparently, that initiative, along with smart merchandising and promotion has stemmed the decline and has been reaping rewards.

On the regulatory side, according to a recently released Senate study, banks are now being seen as having an unfair in commodity markets advantage. The banks are being accused of emulating the Hunts’ Brothers silver hoarding strategies, driving up commodities prices. Also, the SEC approved new rules to address computer trading risks.

No surprise: With the stocks hitting new highs, and trading volumes up, M&A is hitting new highs, and Goldman Sachs is king. On Monday, announced deals totaled over $100 billion.

Tech News

On November 10th, President Obama came out with a position on Net Neutrality, which I applauded. One of my colleagues, John Barr, has pointed me to an article by Dan Rayburn, of Streaming Media, that indicates that some of the issues may be more nuanced. Netflix’s streaming issues may not be wholly due to the ISP’s but also depends on interconnect decisions that Netflix makes.

Finally, my favorite company, Aereo, sent me an email saying they were filing for Chapter 11 after their bid to be classified as a cable company failed. My husband and I were thrilled when Aereo came on the scene, and were totally disappointed when the Supreme Court sided with the cable company side of the argument. We think erroneously.

Finally, the EU wants to break up Google. While the EU doesn’t have the authority to order a break up, it’s an interesting thought. Would Google (GOOG: Nasdaq)  be Google without the self driving car?

IPOs (5)[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.

We think the most interesting company, and potentially the most life altering could be Second Sight Medical, which makes visual prosthetics to give some visual capability to blind people.

The Habit Restaurants (HABT: Nasdaq) sold 5m Class A shares at $18 per share, raising $90m at a valuation of $455m. The stock closed the week at $36.59 per share.

  • The Habit Burger Grill is a high-growth, fast casual restaurant concept that specializes in preparing fresh, made-to-order char-grilled burgers and sandwiches featuring USDA choice tri-tip steak, grilled chicken and sushi-grade albacore tuna cooked over an open flame. In addition, we feature freshly prepared salads and an appealing selection of sides, shakes and malts. The char-grilled preparation of our fresh burgers, topped with caramelized onions and fresh produce, has generated tremendous consumer response, resulting in our burger being named the “best tasting burger in America” in July 2014 in a comprehensive survey conducted by one of America’s leading consumer magazines. We operate in the approximately $34.5 billion fast casual restaurant segment, which we believe has created significant recent disruption in the restaurant industry and is rapidly gaining market share from adjacent restaurant segments, resulting in significant growth opportunities for restaurant concepts such as The Habit.

Medical Related

FibroGen (FGEN: Nasdaq) sold 8.1m shares at $18 per share, raising $145.8m at a valuation of $1.0b. The stock closed the week at $22.82 per share. Another company with development in China:

  • We are a research-based biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics to treat serious unmet medical needs. We have capitalized on our extensive experience in fibrosis and hypoxia-inducible factor, or HIF, biology to generate multiple programs targeting various therapeutic areas. Our most advanced product candidate, roxadustat, or FG-4592, is an oral small molecule inhibitor of HIF prolyl hydroxylases, or HIF-PHs, in Phase 3 clinical development for the treatment of anemia in chronic kidney disease, or CKD. Our second product candidate, FG-3019, is a monoclonal antibody in Phase 2 clinical development for the treatment of idiopathic pulmonary fibrosis, or IPF, pancreatic cancer and liver fibrosis. We have taken a global approach to the development and future commercialization of our product candidates, and this includes development and commercialization in the People’s Republic of China, or China.

Second Sight Medical (EYES: Nasdaq) sold 3.5m shares at $9 per share, raising $31.5m at a valuation of $312m. The stock closed the week at $36.59 per share.

  • We are a medical device company that develops, manufactures and markets implantable visual prosthetics to restore some functional vision to blind patients. Our current product, the Argus® II System, treats outer retinal degenerations, such as retinitis pigmentosa, which we refer to as RP in this prospectus. RP is a hereditary disease, affecting an estimated 1.5 million people worldwide including about 100,000 people in the United States, that causes a progressive degeneration of the light-sensitive cells of the retina, leading to significant visual impairment and ultimately blindness. The Argus II System is the only retinal prosthesis approved in the United States by the Food and Drug Administration, or FDA, and the first approved retinal prosthesis in the world.

Neothetics (NEOT: Nasdaq) sold 4.7m shares at $14 per share, raising $65.8m at a valuation of $185m. The stock closed the week at $11.25 per share. This is a product meant for the baby boomers:

  • We are a clinical-stage specialty pharmaceutical company developing therapeutics for the aesthetic market. Our initial focus is on localized fat reduction and body contouring. We are currently developing and intend to seek approval of our lead product candidate, LIPO-202, for the reduction of central abdominal bulging due to subcutaneous fat in non-obese patients. We use the term central abdominal bulging to describe subcutaneous fat in the central abdomen that is often characterized by people as love-handles, a pot-belly, a pouch or stomach rolls, among a number of other commonly used terms. There is currently no drug approved by the U.S. Food and Drug Administration, or FDA, for the treatment of this condition. If approved by the FDA, we believe LIPO-202 will be a best-in-class non-surgical procedure for localized fat reduction and body contouring. We have completed Phase 2 development of LIPO-202 showing a statistically significant reduction in central abdominal bulging due to subcutaneous fat in non-obese patients. We have tested our injectable formulations of salmeterol xinafoate in approximately 800 patients across multiple clinical trials, and these injectable formulations were consistently well tolerated with a safety profile similar to placebo. We intend to conduct two pivotal U.S. Phase 3 trials of LIPO-202 and expect top-line data at the end of 2015. If our trials are successful, we expect to file a new drug application, or NDA, in the second half of 2016 utilizing the 505(b)(2) regulatory pathway, which permits us to file an NDA where at least some of the information required for approval comes from studies that were not conducted by or for us, and to which we do not have a right of reference, and allows us to rely to some degree on the FDA’s finding of safety, and approval of, another product containing salmeterol xinafoate, the active ingredient in LIPO-202.

China

eHi Car Services (EHIC: Nasdaq) sold 10m ADS shares at $12 per share, raising $120m at a valuation of $680m. The stock closed the week at $12 per ADS share.

  • We are the No. 1 car services provider and No. 2 car rentals provider in China in terms of market share by revenues in 2013, according to Frost & Sullivan. The top three players in China’s car rental and car service industry, including us, in aggregate accounted for 10.7% of the market share by revenues in 2013, according to Frost & Sullivan. We believe such high market fragmentation presents a strong potential for our future growth and industry consolidation.

Meg’s Corner

gas pipeline
Canada’s pipeline. Creative Commons

Massachusetts has fought the natural gas pipeline, so now the companies (Kinder Morgan is constructing the pipeline) are proposing that it cross Southern New Hampshire. Which just so happens to pass about fifty feet from our property. We’ll see if they’re able to obtain the environmental permits to go through all those wetlands, lakes and rivers. Just for the record, I’m a founding member of NIMBY.

Happy Thanksgiving,

Margaret Johns

Founder, BlueLake Partners, LLC

 

Affiliates:

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Jan Robertson

SiVal Advisors, LLC

 

Bic Stevens

Stevens Capital Advisors

 

Chartworth2Chartworth

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

[2]Renaissance Capital