Claude Lorrain – Seaport at Sunset

I’ve always liked this picture.

http://www.art.com/products/p17389995503-sa-i7043798/claude-lorrain-port-de-mer-au-soleil-couchant-sea-port-with-setting-sun-1639.htm

On Dunking

GigaOm Roadmap

I went to GigaOm’s Roadmap conference last week on the 10th, and I was very impressed. Great crowd (lots of visitors from Finland), the speakers were very open and available, and I was one of the lucky winners that got a new Jawbone Up.

The talks were interesting, and one of the things that stuck with me is a discussion with Matt MacInnisand Richard Nash about the publishing industry. Obviously both of these guys have a vested interest in seeing the publishing industry change, and almost everyone knows that the publishing industry is going to change.

One of the things they said was that the publishing industry is a US$40 billion industry — their point being that the industry may change and profits may go down, but there’s a long way to go, if it happens that way. Normal retail book sales are changing thanks to e-books (although there are claims that people who use e-book readers buy more books — definitely my experience), but the college textbook publishing industry is definitely going to see some major changes ahead.

I worked at the UCF Barnes & Noble while in school, and it happened to be B&N’s most profitable college store. Seeing the cost breakdowns on textbooks is remarkable, but the used textbook industry is the most interesting.

Textbooks are bought and resold over and over. Ebooks don’t have the same resale market, so the used textbook market is going to dry up. The thing is, it is actually an advantage for publishers, even though the price per book is going down. Since used textbooks tend to be resold 2-3x, it turns out that the price of a new book can be cut 60% and still allow publishers the same profit (ignoring the fact that printing, shipping, and other costs will be removed).

Personally I’m most interested in the all-you-can-read type of thing. Yes, I know what a library is. I want an ebook library. It’s coming.

I also loved the talk from Tony Fadell about the Nest thermostat — literally the iPhone of thermostats. he was very open about a lot of the design issues involved, and I especially liked a side comment that Tony made. He joked about the manufacturing side of things, and how he got used to premium treatment at Apple, where the factories would bend over backwards to accomodate their needs. With his new gig, they started talking to him with the same “oh yeah, anything you need!” attitude, until they realized how small of a production run he was going to get — then they apparently backed off slightly. To me, there’s something there about the experience that entrepreneurs have when they have been in big companies and then make a move to the startup world — if you want it done, it’s often on you.

Investing: Unilife ($UNIS)

Unilife 2010 Annual Report - http://files.shareholder.com/downloads/ABEA-474G59/1302920316x0x411720/98bf624d-f736-4c45-9857-60c261e25a1a/UNILIFE_AR-View_Final.pdf

http://ir.unilife.com/

Competitors Include:

http://www.accessscientific.com/

http://www.revolutionsmedical.com/

also BD (major), Gerresheimer Bunde GmbH, MGlas AG, SCHOTT forma vitrum AG, and Nuova Ompi

They’ve actually got a great market opportunity since it seems that insulin is a big deal for them. with the number of fat people and diet issues in the US (and eventually around the world), people aren’t going to want to have to leave exposed needles lying around for kids in the house to get hurt with. This is actually an investment that benefits from the fattening of the world.

?? what is pricing? how does it compare to the alternative syringes, factoring in shipping costs due to bigger needles & extra risk.

“The options will vest as follows: 250,000 options will vest upon our share price reaching $9.45 or more for a minimum of 20 out of any 30 consecutive trading days, 250,000 options will vest upon our share price reaching $12.15 or more for a minimum of 20 out of any 30 consecutive trading days and 334,000 options will vest upon our share price reaching $17.82 or more for a minimum of 20 out of any 30 consecutive trading days”

^^^ the stock is currently 4.46/share. Their FIRST share price goal is 9.45/share. Why do they think that their share price is going to be up around there?

There’s only one analyst covering Unilife right now.

http://www.safetysyringes.com/products/passiveng/index.html - competitor? what’s the difference?

what about http://www.google.com/finance?client=ob&q=AMEX:RVP – Retractable Technologies (they make Vanishing Point) syringes. 2011 annual report says they’re having problems getting into markets because BD is blocking them with long-term distribution contracts.

2011 Annual Report - http://b2i.api.edgar-online.com/EFX_dll/EdgarPro.dll?FetchFilingConvPDF1?SessionID=BXxnH3xvkgaMo-9&ID=7833010

Retractable Technologies seems like a bunch of bitches. I thought Texans were supposed to be tough. In their Annual Report, they whine about BD being bigger and having access to markets, they’re suing in order to make money and fight their way in, and they’ve only got one supplier for their international sales — Double Dove. ?? This seems weird. Why are they buying the different types of syringes on page 8? Why aren’t they just buying glass tubes like Unilife? Why do they only have a single supplier lined up?

Esp given that they’ve been going around suing people, Unilife might be a better candidate for acquisition than Double Dove. If they have an incrementally better product, and they’re not assholes, it’s easier to justify a purchase.

* I did notice they seem to have a 30% profit margin, even though they’re all down about having a shitty position. If they can get 30% gross margins (with apparently a less desirable product than Unilife),

The Unilife people also seem committed enough to move their biz to the US (presumably taking time and being a pain in their asses). They’re obv committed (and are apparently putting decent amounts of their own money into the company). CEO put $500k in recently.

The real issues seem to be the costs in licensing the tech from the inventor, the ability to produce them, and the ability to sell & distribute it. Also highly relevant is the cost of production, etc.

Unilife has a clever strategy for getting around licensing issues. They’re going to prefill the syringes and get them distributed by the companies making the meds (and this also has the effect of making those drugs more valuable longer, even if those drugs come off-patent).

??? How much medication is lost due to the overhead of having to fill needles manually, does it drip out or evaporate, where prefilled syringes are widely known to be better? That seems to be more relevant when it comes to non-prefilled syringes

Prefilled syringes are probably valuable when it comes to the insulin & use at home.

BD might buy these guys, yes?

How big of a market is the prefilled syringe market?

http://www.youtube.com/watch?v=6NxhEj0fCFI - damn the unilife syringe looks easy to use

it gives me hope that they have the sense to make a youtube account http://www.youtube.com/user/UnilifeCorp

also gives hope that their meeting room wasn’t ostentatious, unlike the CEO’s gold watch.

I really like their comp plans, which are spelled out very clearly in their annual report. They have aggressive and specific goals for comp.

OK, what’s the company worth?

pricing on syringes is hard to pin down. Plastic syringes are commodity, figure $.25 per standard syringe is a fair ballpark for a fair-quality product. I saw 19 cents, 40 cents, etc.

BD safety syringe at 69 cents/syringe http://syringesupplies.com/?mainURL=%2Fstore%2Fitem%2F1k059%2F1cc_Syringe_with_Needle%2F10_1cc_x_25g_x_5_8_Eclipes_Safetey_Syringe.html%3Fitem_id%3D1k059

This single data point suggests a more than 100% premium is fair for a quality name and safety feature

I’m getting the idea that glass syringes are $1.50/piece. !!! Can’t prove this yet, should make a few calls on a weekday and see what prices I can get quoted.

OK, assuming that glass syringes are typically $1.50 each. Assume a 25% price premium, to be very conservative and allow for volume discounts and all that sort of such. 37.5 cents premium, so we’re talking 1.875 dollars income per unit.

Assume Unilife can get the same gross margins as the bitch-ass Texan company, and we’re talking $.5625 gross profit per syringe

Unilife is prepping to manufacture 400 million in their current factory, and have the ability to upgrade the factory to a billion.

per hundred million..

100,000,000 * $.5625 = $56.25 million dollars gross profit

Even if they only sell 100 million syringes per year, they’re at 50 million gross profit.

current factory with no mods can get them 200 million gross profit/year.

current market cap is slightly under 300 million.

assume a rough p/e of 10 is fair, they’re a 2 billion dollar company in their current factory, and at least a 500 million company (assuming only 100 million sold/year; 25% factory utilization; implicitly, their own estimates on capacity were roughly validated by the implementers and others, including their close relationship with sanofi-aventis, and they only need to be around 25% capacity on average for them to be worthwhile).

So they’re worth a lot and they are a good business. How likely are they to be able to sell hundreds of millions…what’s the market?

They’re looking internationally, so we’re talking global market.

Assume there’s 2 billion people in wealthy parts of the world, and 30% of them are at a stage where they’re roughly getting stuck by a needle once per year. that’s 600 million people getting stuck once per year for something like vaccine (flu?), or something else. If they get 1/6th of this market, they’re over a 500 million company.

their launch partner…check their site for stats on rough market numbers

Sanofi says 500 million people are immunized with their vaccines every year. 500 million injections. 20% of those going through unilife syringes equals the 500 million company threshold. That sounds reasonable.

Unilife’s COO used to be VP & GM of BD, one of the biggest competitors, until 2010. He knows all about their shit, and might be a conduit for acquisition.

http://www.who.int/injection_safety/about/resources/en/QuestionAndAnswersInjectionSafety.pdf

16 billion preventative & curative injections in *developing & transitional* countries. Not even first world.

http://www.ncbi.nlm.nih.gov/pubmed/14769164

in 2000, persons received an average of 3.4 injections per year,

Call their distributors: http://www.unitract.com/distributors.html

? Do they sell a lot of these things?

? Do they get any complaints about them?

? What’s the best-selling syringe?

More risk:

the “going concern” note. But, that was issued a year ago, and they still seem to be chugging alone fine.

On Risk

“I’m not a risk-taker, and that might come as a surprise. I’m not a daredevil,” he says. “I manage risk, and I treat the things that I do very, very seriously.”

Dr. Scott Parazynski  (NASA Biography)

Touchy Feely Champions. Do hippies have a point?

Based on a review of ABC’s broadcasts of the first three games of these Finals, The Wall Street Journal logged every moment when two teammates could be seen touching each other on camera, whether it was a high-five, a hug, a chest pat or a butt slap. The results couldn’t be more definitive.

The Mavericks, with 250 slaps, hugs, taps or bumps, are almost twice as touchy-feely as the Heat, who had only 134 instances of televised contact. In those three games, the Mavericks were 82% more likely to high five.

The concept of “chemistry” on a sports team has become the stuff of cliché over the years. Nobody seems to have the same definition for what it is, or what produces it. But last fall, three researchers at the University of California, Berkeley, took a serious look at one of the most obvious signs of camaraderie on a team—touching.

Original article: http://online.wsj.com/article/SB10001424052702304392704576373641168929846.html

Original study: http://socrates.berkeley.edu/~keltner/publications/kraus.huang.keltner.2010.pdf

On Hidden Assumptions

I’ve been playing Angry Birds lately. I’m good at it, in the sense that I’m able to beat a game that was designed to be beaten by children. I get past every level, with one, two, or three stars. After I finish a group of levels this way, I go back and try and get 3 stars on all the levels where I didn’t the first time.

One thing I do to help with this is to pay attention to my points-per-bird average (good old PPB). If I need 100,000 points to pass a level, and I have 3 birds, I need 34,000 PPB. This matters, because if I only get 6,000 on the first bird, it is probably not worth my time to keep going on that level — I should hit restart. This is a good strategy, and gets me 3 stars often.

There’s a hidden assumption here: that throws are independent. This is not always true. Sometimes I need to take a lower PPB on the first bird to set me up for the next throw. If I get 6,000 on the first throw, but that exposes a box of TNT and I can get 90,000 on the second, then my standard of “6,000 PPB is too low” is flawed for that level (even though it’s a good idea for a starting point). If I don’t get 3 stars on a level with my PPB strategy within 15 minutes, I start looking for other openings.

Question hidden assumptions. It’s what Richard Feynman did, with his belief that all problems should be solved from first principles. He’d take even the most basic and widely accepted answers, strip them down, and re-derive the answers himself. I think it’s one of the things that led to him being so effective (a lot of people consider him a modern day Einstein, except his discoveries aren’t as consumer-friendly as e=mc^2, so he doesn’t have the same pop culture awareness). In doing this, he’d run into all sorts of assumptions that people were making (without realizing it), sometimes leading them away from a useful piece of information.

The best actor in the world.

Donald Pleasence. He was Blofeld in “You Only Live Twice”. Watch how coolly he handles his character’s cat during this scene.

Movie Trailers, a style guide, 1960s – 2000s

I was watching movie trailers on YouTube, and was noticing style differences between the decades.

The 1995 movie Virtuosity has a narrator. To us as modern movie audiences, narrators feel very cheesy.

But how do directors communicate to the audience without them? Look at the preview for Transformers: Dark of the Moon, an equivalenty action movie. There’s no narrator, and not even any dialogue. This probably comes from the fact that it is a sequel, so we already know what to expect, and they can get by with more tease and less content (although the same could be said of the whole movie).

Inception trailer has some narration at the beginning. This is fairly uncommon among modern (2000-2010s) movie trailers. One thing about it — he’s not talking TO you, he’s just talking (but not with dialogue from the movie), and letting you figure it out. It’s less narration, and more monologue.

I think the Inception trailer is representative of what we’re seeing in modern times. The audience has to figure out what’s going on, which means they’re thinking and more engaged.

The trailer for Source Code (2011) uses a few title screens to fill in a few details.

To be fair, Inception and Source Code are more in the JJ Abrams-mystery box genre of movies. But here’s Forgetting Sarah Marshall, which again has no narrator, and uses on-screen text more heavily. If you read the on-screen text in your head with a cheesy 80s-narrator voice, it seems almost the same. It guides people through the “what’s going to happen next?”

80s movies have the same vibe as the 90s, although this seems like they tell you a bit more about how you’ll feel when you watch the movie (“with a touch of romance”), rather than the 90s one which is more narrative and descriptive. Check out the trailer from The Wizard, 1989.

Going farther back is A Clockwork Orange, 1971. There’s no narrator. This actually feels surprisingly modern, although the pacing seems older.

The Godfather, 1872 1972. No narrator, and only some dialogue. Again, this feels modern, but the pacing gives it away.

Doctor Zhivago, 1965, has a narrator. Also, notice the length of the trailer. This isn’t a movie trailer so much as an academic report.

Again, a long trailer for Lawrence of Arabia, 1962, also has a narrator. Near the end, the narrator discusses more about the actors themselves, and not just focusing on the plot. Obviously a sign of the times.

Thoughts?

Cash in companies; not always available.

http://online.wsj.com/article/SB10001424052748703803904576152492475125636.html

Earlier this month, Microsoft borrowed $2.25 billion in unsecured debt. What in the world possesses a company with $40 billion in cash and short-term securities to go out and borrow money?

Rock-bottom interest rates are one reason. But the bizarre, byzantine U.S. tax code seems to be another.

The U.S. is the only major country that taxes foreign earnings of its own companies this way. American investors may not come out ahead either.

Microsoft declined to comment on whether its recent borrowing was partly driven by tax considerations. But, like many purportedly cash-rich companies, Microsoft can’t bring home much of its cash without writing a fat check to the Internal Revenue Service.

Politicians have been carping about the more than $2 trillion in cash sitting idle in corporate coffers even as unemployment remains high. But much of that cash isn’t in the U.S.; it is abroad. And it isn’t likely to come back home unless U.S. tax laws change.

David Zion, a tax and accounting analyst at Credit Suisse, estimates that the companies in the Standard & Poor’s 500-stock index have “north of $1 trillion” in undistributed foreign earnings, or profits that have been parked overseas to avoid U.S. tax. Not all of that is cash; some is in the form of inventories or other assets.

U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries. They get a credit for any taxes paid to foreign governments—but, since the corporate-tax rate in the U.S. is one of the world’s highest, most companies are in no rush to bring the money back onshore. By keeping those earnings abroad, U.S. companies can indefinitely defer their day of reckoning with the IRS.

That can put firms in the peculiar position of having tons of cash offshore that they might need but can’t use at home without taking a tax hit.

The U.S. is the only major country that taxes foreign earnings of its own companies this way. American investors may not come out ahead either. In a 2007 survey of executives at more than 400 companies, Massachusetts Institute of Technology economist Michelle Hanlon found that the desire to avoid the repatriation tax led to a variety of distortions, most of which end up making companies less efficient.

For example, among the companies that had brought some profits home to the U.S., 30% had invested in lower-returning foreign assets rather than pay additional taxes to bring overseas profits back onshore. Another 56% had borrowed money in the U.S. rather than bring cash home. And 6% said they had declined to invest in a profitable project in the U.S. when funding it with foreign earnings would have triggered a tax hit.

These perverse effects can extend even to smaller companies. Consider Waters Corp., a laboratory-instrument manufacturer based in Milford, Mass. At last count, Waters had approximately $1.4 billion in earnings locked up at foreign subsidiaries. Of the company’s $830 million in cash and short-term securities, around 80% sits abroad.

Waters borrowed $200 million last year to pay down higher-cost debt and “for general corporate purposes.” Like many U.S. companies, Waters is “building up cash outside the U.S. while borrowing in the U.S.,” says Eugene Cassis, its investor-relations director.

“We’d certainly like to be able to bring some of that money back,” he says. “We would have a greater ability to invest here if we didn’t have to pay a ‘tollgate tax’ to bring the cash home. Current tax policy creates a slight bias towards acquiring technology or assets outside the United States.”

As the great financial analyst Benjamin Graham long argued, shareholders are usually better off when companies hold less cash, rather than more. Too much cash can lead to reckless acquisitions and a fat-and-happy culture of waste.

But, in this case, it isn’t just management that is making companies sit on too much cash. It is tax policy, too. Congress and the White House are discussing whether the U.S. should follow the rest of the world and stop taxing repatriated offshore earnings from companies that already have paid taxes to foreign governments. Some gnarly technical details will have to be worked out if the repatriation tax is to be reduced or eliminated.

Meanwhile, investors should remember that a big chunk of cash on the balance sheet may look tempting but isn’t necessarily there for the taking.