Biotech Values

[DewDiligence]

Re: MON’s fall and rise

I notice MON had been on a steady decline from January 2010 ($86) to early July ($45) where it turned around and has been on a tear lately, the general market notwithstanding. Was there a reason for it to perform so poorly during those 7 months?

The sell-off was caused by MON’s lowering financial guidance twice within the span of two months (#msg-48718520, #msg-48718520). What was particularly damning was that the second of these two resets affected not just fiscal year 2010 but future fiscal years as well.

There are manifold reasons for the lowered guidance, which you can glean from chasing the above links; the most consequential was that MON acknowledged it will never again make a lot of money from the Roundup herbicide business. For all practical purposes, MON is now a “pure play” in ag biotech.

And why the sudden turn around. I also read that insiders have made big purchases just recently.

Indeed they did—the insider purchases were not token amounts: #msg-52326283. You would be hard pressed to find a recent instance of larger open-market purchases at any company by the top two executive officers.

Other reasons for the recent snapback in the share price (+25% since Jul 6) are:

• pipeline progress (#msg-52340806, #msg-52201215);

• a possibly favorable regulatory change in Europe (#msg-52340585);

• surprising strength in the spot price of US corn (#msg-52124103); and

• the fact that the stock was way oversold in the mid 40’s.

The long-term premise for owning MON remains rock solid, IMO. I think it should be a core LT holding in any diversified biotech portfolio. Regards, Dew