Category Archives: Due Diligence

The Rise of Regeneron Pharmaceuticals

With graduation approaching faster than a Randy Johnson fastball, I’ve been doing an insane amount of networking to find some exciting opportunities for next year.  One of the analysts I spoke to wanted me to create a stock pitch in 5 pages or less.  The requirements were to choose any equity I thought could gain a double digit return with a one year time horizon using fundamental analysis.  As a result, I chose Regeneron (REGN) – a position I’ve held for over a year already.  The stock has had an incredible run over the last two years, but my thesis still remains that the company’s pipeline is greatly undervalued.  I figured I’d post my final report on the blog to spark some debate on whether or not readers agree with my price target of $249.

Click the link below to view the PDF:

Regeneron (REGN) Stock Pitch

I’d love to hear any thoughts, comments or constructive criticism you have on the analysis!

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Cytosorbents’ Unique Financing Deal

My main speculative play over the past two years has been in a company called Cytosorbents Inc ($CTSO).  The video above gives a great 3 minute overview of the company’s technology and business model.  However, the main problem for the stock throughout 2012 was a pretty hefty dilutive financing deal.  Thankfully, the CEO – Dr. Phillip Chan – has promised to avoid any dilutive deals going forward and has mainly focused on obtaining grants from DARPA and other US Defense/Medical groups.  Last week, the company announced they had obtained $400,000 in non-dilutive financing, but the stock price still dropped 8%.  While the stock is thinly traded and has a small float, I still believe this was very positive news for the company – so I did some digging.

$CTSO released a press release on Monday stating they had sold their net operating losses (NOL) in order to acquire extra cash.  In all honesty, I had never heard of selling NOL’s or what that actually meant.  Turns out, there’s more to New Jersey than Ed Hardy and beach clubs.  In an effort to further promote the technology and biotech communities in NJ, the state has allowed any unprofitable company in the biotech/tech sector with less than 225 employees to sell their net operating losses.  All it takes is a $2,500 application fee and the state of New Jersey will allocate a portion of their $60M cap to your business and purchase your NOL’s.

But to figure out how NOL’s can be bought and sold I had to turn to an expert CFO (a.k.a my dad) – so bear with me for a bit of a “bean counter” explanation.  A net operating loss is the result of losses incurred over the years – i.e cumulative losses of a business.  According to Federal and State tax laws you’re allowed to “carry back” the losses you paid in the past if you are profitable or to “store up” the losses for when you eventually start becoming profitable and can offset the profits using the net operating losses.  Therefore, you don’t need to pay taxes until you’ve obtained a cumulative profit for your business.  For businesses that have already obtained a cumulative profit, there is an incentive to “buy” an unprofitable company’s NOL and write it off as a loss.  From a federal standpoint, NOL’s are not transferrable and can’t be bought/sold.  However, in order to spark investment and performance in certain industries, New Jersey has made this legal.

As for $CTSO, this is a sweet deal and in no way, shape, or form is it dilutive.  After watching the stock trade over the last two years, especially around news events, my hunch is that it’s mainly held by doctors – not financial types.  The company has a plethora of catalysts coming in 2013 and hopefully expectations will become more reasonable going forward.

For further details on the New Jersey’s net operating loss program take a look at the official description here and FAQ here.

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