Lofty sounding title, however I am not trying to put on airs.  As I sat down to write my blog, the title just “popped” into my head.  I think it fits.

Insmed Incorporated (INSM) is a study in contrasts.

On one hand, it is a company going the wrong way.  The stock is a penny stock that is trading for around 70 cents and has been on a steady price decline from its high of $1.32 in mid-March.   Any attempt to rally the stock has met with defeat due to persistent selling.  This “bloodletting” has resulted in INSM receiving a NASDAQ delisting letter.  They have until December to cure so I wouldn’t abandon the INSM ship on the account of that just yet.

The drug portfolio is another negative with INSM.  Their major remaining drug program (Iplex) has been put on hold for several reasons…indifferent results on several studies and the lack of proper production facilities.  They sold their manufacturing plant to Merck in 2009 as part of the sale of their follow-on biologics program.  Although the $125MM they netted in that sale has helped cushion the blow.

The stock could also take a hit when the Russell 2000 rebalances its portfolio…..INSM is due to be dropped and that could have further negative impact on the share price.

On the other hand, INSM is a company that has a great deal going for it.  As a recovering CPA, I love strong balance sheets and this company has one of the strongest ones I have seen for a small pharma company.  Thanks to Merck and the Biologics deal, INSM has a war chest of over $120MM in cash (and no debt). In fact, the stock is selling for less than cash. There is over 93 cents/share in cash when the stock is trading for only 70 cents!

INSM has got options…ones that most companies would kill for.  INSM has stopped their active drug programs, is conserving cash, but is shopping for replacement technologies and therapeutic drug candidates.  With the capital markets still recovering, who is to say that INSM can’t pick up some promising company with drug candidates that are in Phase III trials. Let’s dream, shall we?

Management could decide to sell the company and retire to a beach in Fiji.  That is not likely given the low insider ownership percentage.

There are still risks with INSM.  They could make a bad purchase, but chances are the stock (and the company) will get a huge near term lift from the announcement of any acquisition.  Since my crystal ball is in the shop, I have no idea when that might be.   However,  INSM possesses a huge safety net with their balance sheet and the fact that they can use shares as cash in any acquisition.  It might be dilutive for stockholders, but could make great long-term sense for the company.

INSM is a company that bears watching.

Good luck and great trading,

Jeffrey Dean

Editor

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