Amvona

Rev. Emmanuel Lemelson on Geospace Technologies, the pharmaceutical industry and ethical investing

To listen to the full interview click here (interview starts at 1 hr. 14 min.)

On the $100 million defamation suit against Bloomberg, L.P.

 

"It's an important complaint, and would invite anyone to read it, whether or not you're interested in legal issues or not," Lemelson said. "there is a beautiful saying from the Gospel, to quote Jesus 'The truth will set you free,' the truth is incredibly powerful. Silence is never a good thing, anytime in the world someone feels compelled to be silent, usually there is something terribly wrong going on, it's important to speak out…"

 
To read the Bloomberg release mentioned in the May 11, 2016 interview click here
 

On the performance of the firm's investment in Geospace Technologies Corp. (NASDAQ: GEOS)

 

"…If you adjust for inflation, probably the greatest decline in the price of oil, maybe in history. These small cap companies really got decimated, nobody was thinking about exploration and production. But we were very interested in the company as this whole thing was unfolding. Between November of 2015 and February of this year, the stock fell to unbelievable lows, and we were buying very aggressively… the stock went to the $7-$8 range, between November and February, I believe we acquired something like 400,000 shares, and I think the average price was around $9 per share…[1] and we are still committed, we own just under 10% of the company, like 8 or 9%... the shares have gone up tremendously, I want to say something like 44% since February 18[2]"

 
Lemelson Continued,
 

"…you can't cut hundreds of billions of dollars out of E + P and expect energy markets to be stable. Oil majors have not replaced a lot of what they've been shipping in the last two years, so at some point they'll have to continue and then you have these periodic disruptions, things like Nigeria, Libya and of course obviously now more recently what happened in Canada, in Alberta, I think the supply demand equation is very close to probably being a deficit frankly, and these disruptions, anything that takes 1 million or 2 million barrels a day out of production, is going to create a deficit, at some point people are going to start thinking about replacing reserves, and when that happens, the business cycle will normalize"

Click here to read the full Lemelson Capital's March 2016 research on Geospace Technologies

On Valeant (NYSE: VRX) and the US senate special committee hearing on Aging
 

"…People probably are more familiar with the headlines they've been reading about, Valeant Pharmaceuticals (NYSE: VRX), or before Valeant, Turing Pharmaceuticals, the pharmaceutical company run by Martin Shkreli, who was the former CEO of Retrophin (NASDAQ: RTRX)… I would encourage anybody to just Google "Senate special committee hearing on aging" and listen to the hearings on Valeant… the first 18 minutes is senator Collins, after that it's Senator McCaskill, brilliant testimony, and the bigger issue there… if you were to go back and listen to my interviews with you Joel over the last two years, I've said for really two years, that biotech has been a bubble, and it's been fueled by, as all bubbles are always fueled by poor monetary policy, and in that sense every bubble has the same hallmarks. When you inflate asset prices, you encourage bad lending practices, people can get away with almost anything, we could say, to use the colloquial expression, 'get away with murder', and literally some pharmaceutical companies do that. Insofar as Pharmaceutical companies increase prices on certain indications, which are necessary, which are life-saving, if they make them inaccessible, greed would literally be killing people. Valeant was the target of those senate hearings and Turing… and I don't think Valeant is going to recover, because the pricing model is broke, you have to understand that the Valeant model spawned other companies who tried to replicate their model, it was completely incestual, it's not like these guys are really creative and enterprising, there really a bunch of bankers copying each other, so when Senator McCaskill points out the hallmarks of what she calls these 'new age pharmaceutical companies', she points to things you can find in these smaller pharmaceutical companies, like for example, she says, the CEO of Valeant was a banker, so you look at smaller firms, and you see, 'oh my gosh' the CEO's are bankers, these aren't scientist. She says the board of directors are fund managers, and sure enough they are, so you go and look at the smaller companies and you say 'wow', this is really interesting, it's not like their board of directors are flanked with scientist, they're flanked with finance guys and fund managers, so it's pretty remarkable to see these hallmarks she points out so well. And then there is this issue of 'Orphan drug status", you find these smaller pharmaceutical companies that are targeting drugs with 'orphan drug status', you don't have to dig much deeper to find that they're blocking other pharmaceutical companies from bringing lower-priced generics to market. Why would they do that? An orphan drug, is a drug that has no real commercial viability, meaning it has a very very small subset of people who need this drug, but if you jack the price up enough, you can still make it profitable, as long as generics don't enter the market. So what Valeant was doing and what some other companies which have replicated the Valeant model have done, is they seek to get orphan drug status from the FDA or from the EU, then they're free to jack up the price, and if you dig deeper, to the companies they license these drugs to, you'll find that those companies then file lawsuits to block the generic manufacturers from coming to market with an affordable product, that's extraordinary…"

 

On the value of Apple (NASDAQ: AAPL)

 

"We reduced our position in apple between December and January by about, I don't know, 75% or something like that, it's an amazing company, it's undervalued, it's services business is growing leaps and bounds. I don't buy into the thesis, that people are not going to upgrade their iPhones in the future, I don't see that happening for a second, probably the iPhone 7 will be a smash hit, all businesses have a cycle, Apple does too, if they went up every quarter in perpetuity, you should wonder about the quality of their financial reporting, it would be fraud frankly, it's normal to hit bumps in the road, just find me a better company, they're paying a big dividend, extraordinarily cheap… very safe, passive stock, but we were more enterprising, we said in the middle of 2015 that we would probably sell our Apple stake to allocate more capital to energy. We did exactly that in December and January, we did exactly what we said we would do, that proved to be a very prescient move,"

 

On Investing Ethically

 

"You have to be ethical and socially conscious in everything you do, certainly in the way you allocate capital, my position has always been, from my faith perspective, you can have a Christian philosophy of investment, you can elevate everything you do, every work you do can be Doxological, that means it can glorify God. Don't ever forget that the talents God gives you, whatever it is, if it's allocating capital, fine, if it's being a reporter on the radio, fine, but make sure that you remind whoever it is your speaking to, that you didn't give those gifts and those talents to yourself, use them to point people to something greater than yourself, to a transcendent God, and for me as a Christian, that means Christ, and I would just say everything you do, and everything you touch, try to remember some greater good that can come from it. We don't compartmentalize our lives, well, I'm investing on Monday and I'm in church on Sunday and these are different lives, not at all, we have to be integrated, that's why the work on the pharmaceutical industry is so important… because you would not want to be sucked into that, it's not ethical very often. There are ethical drug companies out there but there's a whole lot of really shady players so stay away from that, there's plenty of honesty opportunities to invest your capital wisely and to get a better than average rate of return,"

 
 
Appendix and References:
 
Shares of Geospace Technologies are up 82.6% since the Benzinga interview on February 18, 2016 - shares of Geospace closed at $9.49 per share on that day. On May 11, 2016 the shares closed at $17.33 per share, an increase of 82.6% in less than 90 days. On February 18, 2016 Lemelson appeared on the Benzinga show to discuss the firm's commitment in the company, with the following exchange taking place:(Starting at 1 hour 3 min, 55 sec. - click here to listen)
 
Host: "What's the largest position in your portfolio?"
 
EL: "Now it's actually Geospace Technologies"
 
Host: "Reverend, I don't think I've ever seen you take heat like your taking heat in this Geospace Technologies position… are you getting nervous? because we've had this big old rally in oil and this thing is still at ten bucks reverend. When are you throwing in the towel?"
 
EL: "Never, we're committed… incredibly, I've always said on the show that even if it took two years, I've said that repeatedly, and we're about a year and half into that thesis… it was quite surprising to see it [GEOS] fall down to $7.60/$8.00 dollars per share, we were buying aggressively at those prices, and we own almost 8% of the company now"
 

Additional Resources: To listen to the US Senate Special Committee on Aging click here - Senator Collins (starts at 10 min.) and Senator McCaskill (starts at min. 18).

 
Quote from Senator McCaskill: "a new breed of pharmaceutical companies have become very good at targeting drugs whose prices can be manipulated without generic competition… and how these companies are being run by people who are not traditional pharmaceutical executives… and the investors are playing an outsized role in these companies" commenting further that, "Valeant perfected the model of strategic acquisitions and price hikes" has been a model for "certain other companies."
 

[1] In fact, the firm purchased 439,231 shares (net) of Geospace Technologies Corp. between November 2015 and early March 2016 at an average price per share of ~$9.58.
[2] This is an error, in fact the shares rose 82.6% between close of market on February 18, 2016 and close of market on May 11, 2016.

Interview begins at 1 hr. 14 min. mark

 

Amvona News

Amvona publishes critical articles and interviews at the intersection of Faith, Finance and Economics.

Don't
Hesitate To
Contact Us

 

225 Cedar Hill Street Suite #200 Marlborough MA 01752 USA

Feel free to email us. We would be happy to answer any questions you might have.