Random Ramblings April 2025

Episode Summary

Executive Summary: Andrew Walker’s April 2025 ramblings center on deep value opportunities in beaten-down pre-commercial biotechs, especially KROS and SAGE, and his push for shareholders to pressure boards to realize value. He also argues stock compensation becomes more dilutive in falling markets, urges investors to keep researching through volatility, and sees AI as a major process advantage for research and diligence.

Main Topics: KROS strategic alternatives and cash-value discount (Priority: 5/5): Walker highlights KROS’s move to review strategic alternatives after his prior activism-style podcast, arguing the stock still trades far below net cash and the market remains skeptical the board will maximize shareholder value. Broken biotech / pre-commercial biotech value dislocation (Priority: 5/5): He describes the sector as being in 'nuclear winter,' with many pre-revenue biotech names trading at huge discounts to net cash, creating potential governance and liquidation opportunities. Why investors avoid activism and why he disagrees (Priority: 4/5): Walker criticizes institutional holders who privately agree with him but avoid public pressure on boards to preserve future deal flow or avoid the activist label. Stock compensation as a volatility amplifier (Priority: 4/5): He argues stock comp is a real expense and may become more dilutive when share prices collapse, making companies effectively more anti-fragile to the downside but worse for long-term shareholders. Staying disciplined during volatile markets (Priority: 5/5): He urges investors to keep a consistent research process even during extreme market swings, so they can spot mispricings and avoid stale portfolios. AI as a research edge (Priority: 4/5): Walker says AI, especially ChatGPT deep research, can materially improve investment diligence and workflow efficiency, and warns that investors who ignore it will fall behind. Tariffs creating localized winners and losers (Priority: 3/5): He uses a cement-border example to show how tariffs could shift local market economics and create new winners based on geography, pricing power, and utilization.

Key Arguments: KROS remains a corporate governance play because its market cap still implies the market values cash and other assets at a steep discount, despite the strategic review. The market’s reaction to KROS’s strategic alternatives announcement shows deep investor mistrust; a move from roughly $10 to $12 does not reflect full value. Pre-commercial biotech is broadly mispriced, with many companies trading for far below net cash, suggesting liquidation or rationalization could unlock value. Institutional investors should be more public and aggressive in pushing boards when valuations are existentially disconnected from intrinsic value. Stock-based compensation should be treated as a real expense and may become more punishing in down markets because dilution rises as prices fall. A stale portfolio is a red flag; investors should continuously reevaluate opportunity cost and rotate into better risk-reward situations. AI is not optional for long-term research competitiveness; early adopters gain cumulative advantages in workflow and analysis quality. Market volatility should be used as a cue to research more, not less, because it can reveal both mispricings and structural winners from policy changes like tariffs.

Data Points: KROS net cash per share: $16 to $18 per share - Walker says KROS has substantial net cash and still trades below it. KROS share price after strategic review: about $12 per share - He notes the stock rose from around $10 to $12 after the company announced strategic alternatives. KROS share price before announcement: $10 per share - Referenced as the pre-announcement level before the strategic alternatives update. KROS review timeline: 60 days - Company said it would provide an update on the strategic alternatives process in the next 60 days. KROS ownership threshold mentioned: over 11% of the stock - Walker references a shareholder accumulating more than 11% as part of the catalyst for review. Example biotech market cap vs cash: $300 million cash trading for under $100 million market cap - Used to illustrate extreme discounts in pre-commercial biotech. Another example market cap vs cash: $750 million of cash trading for $500 million market cap - Used as another illustration of cash-rich companies trading below intrinsic value. Stock comp example: $10 million per year - Used for a $400 million market cap company to illustrate dilution impact. Stock comp dilution example: 2.5% dilution per year - Derived from $10 million annual stock comp on a $400 million market cap company. Downside market cap example: $400 million to $200 million - Example showing how a stock cut in half increases dilution pressure. Higher dilution example: 5% dilution - Illustrative dilution after a market-cap halving while stock comp stays constant. Biotech extreme dilution example: $30 million per year - Example of a larger biotech’s annual stock comp spend. Biotech extreme dilution rate: 15% per year - Illustrative dilution when a company falls from $1 billion to $200 million market cap. Market decline sentiment: 5% down every day - He describes the market as experiencing severe day-to-day drops during the tariff turmoil. Tariff example transportation radius: 10, 20, 50 mile radius - He uses these distances to describe localized markets like cement. Canadian border example: 6 minutes away vs 19 minutes away - Illustrative travel-time comparison for tariff-driven competitive advantage. Podcast timing: April 11th, Friday - He records just before market close on April 11, 2025. Vacay/work trip: next two weeks - He says he is going on a poorly timed vacation and work trip. Webinar date/time: April 15th at 1 p.m. Eastern - Sponsored Delupa webinar on AI and finance.

Pivotal Quotes: "This is still a corporate governance play." — Andrew Walker: He says KROS remains deeply undervalued and the board must maximize shareholder value despite the strategic review. "I think every pre-revenue biotech company is trading for 50% of net cash." — Andrew Walker: He summarizes the severity of the biotech cash-discount dislocation. "If you're just sitting there saying, I refuse to use AI, I think it's so clear AI is such a useful tool. You're just going to be falling behind your investor friends." — Andrew Walker: He warns that investors who ignore AI will lose their competitive edge over time.

Implications: Listeners should expect continued activist-style pressure in beaten-down biotechs, higher downside dilution from stock comp in volatile markets, and growing performance gaps between investors who adopt AI-driven research tools and those who do not.