Weekend Update #66
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
The Federal Reserve decided to implement a 25 basis point interest rate hike on Wednesday — the first hike since 2018. FOMC participants expected around a 2% federal funds rate target in 2022, and the messaging left the door open for 25-50 basis point hikes in the future. The committee also made progress on a plan to reduce balance sheet holdings, which could be detailed at the next meeting in May. The Fed took a notably hawkish tone, prioritizing the issue of bringing down inflation. Jerome Powell firmly expressed the Federal Reserve’s confidence in raising rates to bring down inflation while preventing an economic recession and continuing to achieve maximum employment.
Markets had a volatile week with an evolving situation around peace talks between Ukraine and Russia. Even though Ukraine expressed progress on reaching a 15-point peace plan, a Russian spokesperson disagreed with the sentiment that the two countries were close to an agreement. Traders were closely monitoring both the Federal Reserve’s messaging as well as any impacts the war in Ukraine.
Looking at oil prices, the West Texas Intermediate finished the week at $104.42 (-4.5%) per barrel and Brent crude was priced at $107.47 (-4.6%). Lots of uncertainty remains as the impacts of sanctions on Russia are weighed against peace talks and the potential demand impact of rising COVID-19 cases in China. According to AAA, the national average price of regular unleaded gas was over $4.27 on Friday.
In economic news for the week, the U.S. Producer Price Index (PPI) increased 0.8% month-over-month in February, indicating high cost pressures that will be further exacerbated by the effects of Russia’s invasion of Ukraine. Retail Sales increased 0.3% in February — a slight positive surprise but with indications that rising gas prices might start to impact Americans’ overall spending. New York’s Empire State Manufacturing Survey declined in March to -11.8, the lowest reading since May 2020, revealing sustained supply constraints and a pessimistic outlook. Initial Jobless Claims declined to 214,000 for the week ended March 12, pointing to the continually tight labor market and strong demand for workers.
Despite interest rate hikes and the war in Ukraine, major indices rebounded this week, with the S&P 500 posting its biggest weekly gain since November 2020. The S&P 500 closed the week at 4,463.12 (+6.2%), the Dow Jones Industrial Average closed at 34,754.93 (+5.5%), and the Nasdaq Composite closed at 13,893.84 (+8.2%).
Thank you Blue Room Analyst JARED FENLEY
Compass Pathways
34th Annual Roth Conference
March 15, 2022
9:30 AM ET
Company Participants
George Goldsmith — Chairman & CEO
Mike Falvey — Chief Financial Officer
Conference Call Participants
Elemer Piros — Senior Biotechnology Analyst, Roth Capital Partners
Base transcription from Bloomberg / Finished by Omar Guzman
Elemer Piros
Hello, everyone. I am Elemer Piros, Senior Biotechnology Analyst here at Roth Capital Partners and it is my pleasure to introduce you to George Goldsmith, Founder, CEO and Chairman of the Board, and Mike Falvey, who was recently appointed CFO. Thank you, gentlemen.
George Goldsmith
Great to see you
— Question & Answer —
Elemer Piros:
George—I'd like to ask you a historical question, what it was like five years ago when you proposed to investors that you would like to reinvent—maybe revolutionize—mental health care. What was the reception like?
George Goldsmith:
Well it was fairly interesting because we only had one meeting with an investor and that was it. And so that was in 2017—about this time actually—we met with Christian Angermayer and Christian liked the idea, which was to really make a difference in mental health at scale using psilocybin. He loved the idea. He texted Peter Thiel while we were talking and we were all introduced to him by Mike Novogratz who…we accidentally met Mike's sister at a retreat and Mike's sister wrote to Mike and said “Hey, I think you might like this idea.” Mike said, “that sounds interesting” and “there was a guy Christian Angermeyer in my office this morning talking about magic mushrooms,” and here we are, now this idea comes to me. If Christian is in, I'm in. And then Peter Thiel came in and the rest is history, so it wasn't a long fundraising journey.
Elemer Piros:
Mike, what attracted you to Compass to join early as of January 1?
Mike Falvey:
That's right. So, I joined in December and became CFO in the beginning of January, and I'll tell you this is an opportunity that kind of ticks all the boxes and it really starts with the whole area of mental health. I am a fairly experienced biotech CFO—I've been doing it for 20 years. And this is clearly, maybe along with Alzheimer's, one of the really huge areas of unmet need that we've really struggled as an industry in trying to come up with effective treatments. And so that's the challenge and the joy of working in biotech, is to really see if we can find these breakthrough therapies (inaudible) that don't necessarily cure everybody, but if you could make significant inroads with a portion of the patient population, it really brings a lot of benefits to patients and to society as a whole, so that to me was very attractive to work in the space.
But I think also, looking across the landscape—this is a real company. It's very well-funded. We've got very intelligent investors who recognize there's tremendous potential here, but there's also a lot of work to be done and it's a lot of work that needs to be done in parallel. So we spend a lot of time talking about our clinical programs, but also thinking ahead to what does the commercial model look like; how do we very importantly work with reimbursers to make sure that once we do develop this drug, that it becomes available to all patients? and I was just very excited by that very thorough approach to the problem.
And then lastly, it's the team. It's a really experienced team and you have a lot of confidence that if anybody's going to solve this problem, it's going to be this company.
University of Michigan’s Consumer Sentiment continued its plunge to an index reading of 59.7 in the preliminary results for March, with consumers’ perceptions of current conditions and future expectations both falling as well.
From the preliminary report: “Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s.”
54% of Americans are expecting lower inflation-adjusted incomes next year. The percentage of Americans expecting good times over the next year fell to just 21% from 49% in March. Price increases, interest rate hikes, and the war in Ukraine are taking a toll on the average American’s feeling about the current economic situation and future expectations.
A parallel between inflation today and the inflationary period in the 70s and 80s is that strong consumer demand seems to be the driving force.
FEBRUARY OVERVIEW
United States Producer Price Index YoY and MoM
PPI is a family of data that gauges the cost of productions. There are three areas of PPI classification that use the same pool of data from the BLS: industry, commodity and commodity-based final and intermediate demand (FD-ID).
Finished Goods YoY~ Finished goods are goods that have completed the manufacturing process but have not yet been sold or distributed to the end user.
Final Demand ~ PPI for final demand measures the average change in prices received by domestic producers of goods, services and construction sold for personal consumption, capital, investment, government and export.
New York Fed Report (March 2022)
New York Fed Report (February 2022)
Empire State Manufacturing (survey data recorded since July 2001)
Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month.
Respondents also state the likely direction of these same indicators six months ahead.
The indicators on the survey are calculated by adding the percentage of increase responses and subtracting the percentage of decrease responses. (ex. 30% of survey respondents marked increase and 21% picked decrease, the index would show a reading of 9).
OVERVIEW
Business activity declined for the first time since early in the pandemic, according to firms responding to the Mar. 2022 ESMS.
Headline general business conditions index fell 15 points to -11.8, its lowest level since May 2020.
New orders and shipments declined mostly.
Unfilled order increased. Delivery times continued to lengthen, substantially. Inventories expanded.
Labor market indicators pointed to a modest increase in employment and a slightly longer average workweek.
Prices paid index remained very elevated, and the prices received index reached another new record high.
Plans for capital and tech spending remained solid.
Looking ahead, firms were slightly more optimistic than last month that conditions would improve over the next six months.
Precision BioSciences Q4 & FY 2021 Earnings Summary
For the fiscal year ended December 31, 2021
Filed March 15, 2022
Q4 2021 Earnings Expectations (From Bloomberg):
EPS: $(0.42) per share (compared to $(0.45) in Q4 2020)
Revenue: $5.167 million (compared to $8.846 million in Q4 2020)
Net Loss: $(25.067) million (compared to $(23.453) million in Q4 2020)
Q4 2021 Performance:
EPS: $(0.37) per share (compared to $(0.45) in Q4 2020)
Revenue: $6.339 million (compared to $8.846 million in Q4 2020)
Net Loss: $(22.290) million (compared to $(23.453) million in Q4 2020)
FY 2021 Earnings Expectations (From Bloomberg):
EPS: $(0.58) per share (compared to $(2.09) in Q4 2020)
Revenue: $116.333 million (compared to $24.285 million in Q4 2020)
Net Loss: $(36.300) million (compared to $(109.006) million in Q4 2020)
FY 2021 Performance:
EPS: $(0.52) per share (compared to $(2.09) in FY 2020)
Revenue: $115.529 million (compared to $24.285 million in FY 2020)
Increase was primarily the result of a $54.8 million increase in revenue recognized under the Servier Agreement
$21.0 million increase in revenue recognized under the Lilly Agreement as work began in 2021
$17.9 million increase in revenue recognized under the iECURE Agreement which was executed in 2021
$2.9 million increase in revenue recognized from an agricultural partnering collaboration
Cash, Cash Equivalents, and Marketable Securities: $143.7 million (compared to $89.8 million on December 31, 2020)
Existing cash and cash equivalents, expected operational receipts, and available credit will be sufficient to fund its operating expenses and capital expenditure requirements into mid-2023
Net Loss: $(30.602) million (compared to $(109.006) million in FY 2020)
Research & Development Expenses: $115.238 million (compared to $98.061 million in FY 2020)
Increase primarily due to a $11.3 million increase in expenses related to the Servier Program Purchase Agreement
General & Administrative Expenses: $39.693 million (compared to $36.052 million in FY 2020)
Increase primarily due to growing infrastructure needs, including an increase of $3.9 million in G&A employee-related costs associated with increased wages, share-based compensation, and recruiting costs for key management personnel
FY 2021 Highlights:
Advancing ARCUS platform by developing in vivo gene editing programs for genetic diseases and ex vivo CAR T therapies for hematologic malignancies
Presented allogeneic CAR T clinical data at the American Society of Hematology meeting showing high response rates to PBCAR0191 in heavily treated NHL and B-ALL patients who relapsed following prior autologous CAR T therapy
Progressing ex vivo allogeneic CAR T allogeneic CAR T programs with updates expected in mid-2022
Advancing three in vivo gene editing programs to IND or CTA in the next 3 years
Focusing investment on human therapeutics following spin-out of Elo Life Systems
Current System
Ethereum is a Layer 1 blockchain that aims to innovate upon processes related to traditional finance, the internet, commerce and other existing infrastructure within our society. While cryptocurrency has been largely considered a speculative investment, many use cases and developments are emerging that show the advantages of the crypto economy, and Ethereum is one of the main blockchains leading that movement.
Ethereum can be largely thought of as a network, similar to the internet, that supports a vast amount of applications and platforms. It generates revenue through gas fees by “selling” blocks which essentially process and validate transactions for users, providing security and immutability. In turn, the network pays for security through issuing its native currency, Ether (ETH) tokens, to miners and stakers who secure the network.
The network has attracted many users, with over 76 million addresses and counting, and the cryptocurrency ETH has grown to a market capitalization of $311 billion at the time of writing, making it second only to Bitcoin. The rapid growth has also brought growing pains including network congestion and high transaction fees, making it difficult to support the next million, or potentially billion, new users joining the network. Currently Ethereum can only process an average of 15 transactions per second (TPS) and requires a substantial amount of data storage and intense energy processes to maintain security of the network. The harder it is to participate in the network, the less advantages there are over current systems in the traditional world. The Ethereum community intends to address the challenges posed within the blockchain trilemma, with the vision of building the network to be more scalable, secure and sustainable.
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THIS WEEK’S
UPDATE
— DRY STORAGE —
The Dry Storage team made substantial progress in 2021 to position the Company for sustainable growth. The team continued to invest in the Dry Storage brand and products while gaining sales momentum in both the mill and the bakehouse. Revenues increased by 93% to $805,956 in total sales, driven by strong growth in the Bakehouse (+73%) and the Mill (+240%). The team completed R&D on the mill and built a product suite with single origin grains and flours which have now been used in over 20 premiere restaurants in the US. The Dry Storage brand development was completed in 2021, including packaging, labeling, and website for e-com sales.
Early success in the mill validated that restaurants and chefs enjoy the unique flavor and function of our flour, and are willing to pay premium pricing to take advantage of ancient grains that are grown with regenerative farming methods. We continue to leverage our core advantages in flavor and quality, and our decision to maintain the bakehouse has been essential to develop recipes and methods to support sales to restaurants, delivering on our promise to be “by chefs, for chefs”.
SALES HIGHLIGHTS
20+ restaurant customers purchased product in 2021.
Total MILL sales of $170,240 is a 240% increase in sales, driven primarily by new account activity.
The single variety flours included Yecora Rojo, White Sonoran and ROUGE de Bordeaux, Abruzzi Rye and Spelt, with Yecora Rojo currently the lead product in terms of sales.
Initiated a partnership with Central Milling to launch AN all-purpose flour which HAS excellent quality and is sourced from organic farms.
Received commitment from our first US distributor, What Chef’s Want, WHO covers a 5-state geography and focuses on premium restaurants.
Led by head miller Daniel Gray, the Dry Storage Mill met sales demand in 2021 with two stone mills in operation, which provides a combined capacity of 250,000 pounds per year of single variety flour. The Company retains a low inventory of cleaned grain on site, and works with supply-chain partners to store grain until needed for milling and distribution to minimize overhead costs.
In 2021, the Company continued to invest in people and assets to drive sustained growth. Net losses were $370k for the year, which was offset by a $89k federal PPP loan resulting in an operational cash burn of $286k for the year. Operating Expenses for 2021 increased 81% from $350k to $633k, led by increased investment in the mill to purchase a second stone burr mill, equipment and inventories to support sales growth as well as increased payroll to meet the increasing foot traffic at the bakehouse.
Fully loaded Gross Profit Margin for 2021 improved significantly compared to 2020, and the mill ended the year with margins of 39% of revenue, up from 26% GPM in 2020. The bakehouse operates at a lower margin, but was also able to improve
GPM from 6% in 2020 to 22% in 2021. Combined gross profit margin of 26% met expectation, and will improve significantly as higher margin mill sales outpace the bakehouse sales over the coming years. The resulting increased gross profit margin in 2021 provided an additional $174,000 that was re-invested into operating capital to support sales growth.
Dry Storage remains focused on delivering great tasting ancient grains that are produced with regenerative farming methods. CEO Kelly Whitaker and Mill Manager Mara King invested hundreds of hours engaging hospitality organizations to educate them on the Dry Storage mission and products, and successfully opened 19 new accounts. The Company delivered in 2021 with strong sales growth, continuously improving margins, and steady stream of positive feedback from chefs and their patrons.
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LAUGH YOUR CRAFT OFF: SWEET DREAMS!
Laugh Your Craft Off is a series of craft workshops where you can make things with artists while comedians tell jokes. MCA Denver has paired up artists and crafters with comedians to take your grandma's craft circle to a whole new level. There will be laughs, there will be crafts, so grab yourself a drink and come hangout with MCA at their Denver rooftop café!
ABOUT THE ARTIST
Old-fashioned and newfangled, Miranda Harp is a Denver-based, outside- raised crafter specializing in knitting, sewing, sculpture and spinning yarn. With years of teaching experience, she spreads the gospel of a craft-filled life to people of every age, gender, craft ability level and creed. Making makes the world better, and the world needs more makers!
ABOUT THE COMEDIAN
Originally from the Bay Area, Salma Zaky moved to Los Angeles to attend college where she was lucky enough to perform alongside comedians including Maria Bamford, Ali Wong, Nikki Glaser, and Nicole Byer. Salma has been featured in Boston’s Women in Comedy Festival in 2017, SF Sketchfest in 2019, Floodwater Comedy Festival in 2020, Aspen Laugh Festival in 2020 and High Plains Comedy Festival in 2021. She now resides in Denver, Colorado for a better quality of life and air.
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10% OF ALL BLUE ROOM REVENUES GO DIRECTLY TO FUND OUR NON PROFIT TOGETHERISM.
WE CAN ACCOMPLISH ANYTHING TOGETHER.