Security company says Nasdaq waited two weeks to fix XSS flaw

A Swiss security company said the Nasdaq website had a serious cross-site scripting vulnerability for two weeks before being fixed on Monday, despite earlier warnings.

Ilia Kolochenko, CEO of the Geneva-based penetration testing company High-Tech Bridge, said he repeatedly emailed Nasdaq and warned of the XSS flaw.

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"I can basically say I have spammed them," Kolochenko said in an interview.

Nasdaq.com lets users create accounts and build a profile to monitor stocks and news. Nasdaq said it did not believe the flaw was used by an attacker, and no personal data was compromised.

"We responded to his concerns immediately," Nasdaq said in an email statement. "We take all information security matters seriously. We work with leading security vendors and have a trained and professional team that evaluates all credible threats across our digital assets."

Cross-site scripting is an attack on a website in which a script drawn from another site is allowed to run that shouldn't. The attack can be used to steal information or potentially cause other malicious code to run.

Kolochenko said the flaw could have been used by an attacker in several ways, including stealing users' browser histories and their cookies. It could also have been used to inject HTML into a Web page and ask for people's personal details, a request that would appear to come from Nasdaq.

In another kind of attack, Kolochenko said the XSS flaw could be used to plant a link within the Nasdaq site to a malicious website.

Kolochenko said XSS flaws are common, and he has found ones in websites belonging to the BBC, Bloomberg and the Financial Times. Those organizations acknowledged the issues, but it was often a month or so before the websites were fixed, he said.

He found the Nasdaq flaw after noticing some suspicious URLs and conducting a harmless test. At that point, he stopped probing the website and notified Nasdaq by email on their support, abuse and security addresses.

"I didn't want to take it further," he said.

Nasdaq's trading halted on Aug. 22 after a technical problem with a core data feed that distributes market data for securities listed on its exchange. A connectivity issue degraded the ability of the Securities Industry Processor (SP) system to consolidate and disseminate quote and trade information on Nasdaq listed securities.

Send news tips and comments to jeremy_kirk@idg.com. Follow me on Twitter: @jeremy_kirk

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Security company says Nasdaq waited two weeks to fix XSS flaw

September 16, 2013 12:55 PM ETIDG News Service - A Swiss security company said the Nasdaq website had a serious cross-site scripting vulnerability for two weeks before being fixed on Monday, despite earlier warnings.

Ilia Kolochenko, CEO of the Geneva-based penetration testing company High-Tech Bridge, said he repeatedly emailed Nasdaq and warned of the XSS flaw.

"I can basically say I have spammed them," Kolochenko said in an interview.

Nasdaq.com lets users create accounts and build a profile to monitor stocks and news. Nasdaq said it did not believe the flaw was used by an attacker, and no personal data was compromised.

"We responded to his concerns immediately," Nasdaq said in an email statement. "We take all information security matters seriously. We work with leading security vendors and have a trained and professional team that evaluates all credible threats across our digital assets."

Cross-site scripting is an attack on a website in which a script drawn from another site is allowed to run that shouldn't. The attack can be used to steal information or potentially cause other malicious code to run.

Kolochenko said the flaw could have been used by an attacker in several ways, including stealing users' browser histories and their cookies. It could also have been used to inject HTML into a Web page and ask for people's personal details, a request that would appear to come from Nasdaq.

In another kind of attack, Kolochenko said the XSS flaw could be used to plant a link within the Nasdaq site to a malicious website.

Kolochenko said XSS flaws are common, and he has found ones in websites belonging to the BBC, Bloomberg and the Financial Times. Those organizations acknowledged the issues, but it was often a month or so before the websites were fixed, he said.

He found the Nasdaq flaw after noticing some suspicious URLs and conducting a harmless test. At that point, he stopped probing the website and notified Nasdaq by email on their support, abuse and security addresses.

"I didn't want to take it further," he said.

Nasdaq's trading halted on Aug. 22 after a technical problem with a core data feed that distributes market data for securities listed on its exchange. A connectivity issue degraded the ability of the Securities Industry Processor (SP) system to consolidate and disseminate quote and trade information on Nasdaq listed securities.

Send news tips and comments to jeremy_kirk@idg.com. Follow me on Twitter: @jeremy_kirk

Reprinted with permission from IDG.net. Story copyright 2012 International Data Group. All rights reserved.

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How to secure your company against NSA-inspired hacking

Credit: Reuters/Jason Lee

News that the NSA has effectively negated security on the Internet is bleak -- even dire. It should also leave you and your company concerned that the same techniques might one day be used by other individuals and organizations. If you weren't wearing a tinfoil hat yesterday, you may well consider donning new headgear today.

While it's become increasingly clear the NSA can get its eyes onto anything it likes, there's also a great deal of concern that its dirty tricks may have opened the door for other groups to snoop. The revelations that NSA-derived intelligence was (is!) being leaked to the DEA, for example, certainly can't inspire much confidence that NSA is keeping mum on "Bullrun" secrets, as originally covererd in The Guardian and the New York Times.

The Guardian's report on this latest brouhaha quotes Christopher Sohoian, senior policy analyst at the ACLU, as saying:

Backdoors expose all users of a backdoored system, not just intelligence agency targets, to heightened risk of data compromise. This is because the insertion of backdoors in a software product, particularly those that can be used to obtain unencrypted user communications or data, significantly increases the difficulty of designing a secure product.

In the same report, former U.S. Department of Justice prosecutor Stephanie Pell is quoted as saying:

[An] encrypted communications system with a lawful interception back door is far more likely to result in the catastrophic loss of communications confidentiality than a system that never has access to the unencrypted communications of its users.

So humor me for a moment, strap on your tinfoil hats, and let's take a look at simple steps your company can take to minimize the chances of getting hacked -- not just by the NSA, but by other organizations with the wherewithal to unwind NSA's Gordian knots. (I hesitate to point to Russian TV-Novosti's coverage of the Parabon Leaks, which may be woven entirely from tinfoil.)

The fundamental point, according to security guru Bruce Schneier, goes like this: "The math is good, but math has no agency. Code has agency, and the code has been subverted."

Schneier has been working with The Guardian, going through "hundreds of top-secret NSA documents provided by whistleblower Edward Snowden." In The Guardian he explains how to remain secure against NSA surveillance. His recommendations include:

Hide in the network by using Tor.Encrypt communication with TLS or IPsec.Don't use encryption software from major vendors; instead, use public-domain encryption that's compatible with other public-domain encryption packages.

Schneier specifically mentions TrueCrypt, GnuPG, Silent Circle (which recently shut down its Silent Mail email service and released a secure messaging app for Android devices), Tails, CypherPunk's OTR and BleachBit for file wiping.

We don't specifically know if NSA has figured out how to bypass SSL or AES, although Snowden's comment two months ago offers some hope:

Encryption works. Properly implemented strong crypto systems are one of the few things that you can rely on. Unfortunately, endpoint security is so terrifically weak that NSA can frequently find ways around it.

While Snowden doesn't specifically recommend any product, his statement sounds to me like an endorsement for TrueCrypt's AES-256 encryption and GPG.

Using products with "properly implemented strong crypto" tosses the hot potato to the endpoints. It would be wise to assume that some major online email providers have been compromised -- perhaps by devious means, including NSA moles in key positions. It would also be wise to assume that online storage and hosting companies are vulnerable, but we already knew that was the case with the PRISM revelations. It's also fair to assume that your company's virtual private network isn't so private after all. And the SSL "lock" you've been teaching users to check may not be as locked as it once appeared.

The warning issued by Ladar Levison, who shut down his Lavabit email service last month, still rings in my ears:

I have been forced to make a difficult decision: to become complicit in crimes against the American people or walk away from nearly ten years of hard work by shutting down Lavabit... This experience has taught me one very important lesson: without congressional action or a strong judicial precedent, I would _strongly_ recommend against anyone trusting their private data to a company with physical ties to the United States.

It's advice that every company -- inside or outside the United States -- should take to heart. The crushing corollary is that even companies without physical ties to the United States may be compromised, too.

Tip o' the hat to JustinL.

This story, "How to secure your company against NSA-inspired hacking," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.

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Voce Capital Turns Up The Heat On Solta, Demands Sale Of Company

Solta Medical Inc (SLTM): Voce Capital Turns Up The Heat On Solta, Demands Sale Of Company - Seeking Alpha (function(_,e,rr,s){_errs=[s];var c=_.onerror;_.onerror=function(){var a=arguments;_errs.push(a); c&&c.apply(this,a)};var b=function(){var c=e.createElement(rr),b=e.getElementsByTagName(rr)[0]; c.src="//beacon.errorception.com/"+s+".js";c.async=!0;b.parentNode.insertBefore(c,b)}; _.addEventListener?_.addEventListener("load",b,!1):_.attachEvent("onload",b)}) (window,document,"script","4ffae9d6f05d1da630000008"); if (SA.Data && SA.Data.Cache) { var adata = SA.Data.Cache.get('campaign_content'); }.market_currents_list li .ticker_date_left .mc_list_tickers a{font-weight: normal} var ms_slug = ''; var article_dashboards = '@investing-ideas@sectors@'; var article_sectors_themes = '@long-ideas@us@medical-appliances-equipment@healthcare@article@'; var ratings_hash={}; var ARTICLE_ID = 1636882; var ARTICLE_TYPE = "standard"; var ARTICLE_LOCK = ""; var author_slug = "stockmatusow"; var pticker_for_ads = "sltm"; var lock_comments = false; var machine_cookie = readCookie('machine_cookie'); var middle_version = ABTest.identity%10; try { window.sessionStorage.setItem("/article/"+ARTICLE_ID, '1'); } catch (error) {}var mone_article_tags = "{agn,hlf,nus,vrx,sltm};;;{healthcare};;;{long-ideas,us,medical-appliances-equipment,investing-ideas};;;{stockmatusow}"var ord = Math.floor(Math.random()*1000000000);Seeking Alpha Seeking Alpha Portfolio App for iPad Finance (1) var ipadData; SeekingAlpha.Initializer.AddAfterLoad(function(){ if (SA.Utils.Env.isIPad && !/3/.test(SA.Data.Cookies.get("user_devices"))){ Mone.event("ipad_promotion_top","top_ipad_banner_large","ipad_promotion_displayed"); ipadData = new SA.Data.iPad(); ipadData.instanceName = "ipadData"; var responseHandler = new Object(); responseHandler.handleResponse = function(data){ if (!data.averageUserRating) return; var stars = data.averageUserRating Home | Portfolio | Market Currents | Investing Ideas | Dividends & Income | ETFs | Macro View | ALERTS | PRO   This article was sent to 564 people who get email alerts on  . Which cover: new articles | breaking news | earnings results | dividend announcements Get email alerts on   » This article was sent to 331,300 people who get the Investing Ideas newsletter. Get the Investing Ideas newsletter » Comments () This article has  comments. To read them or add your own, click here. Download the Free Seeking Alpha Portfolio App Now! The #1 Portfolio App is Now on iPad! Get instant notifications & never miss a critical update on your stocks! Which Seeking Alpha App is best for you? Seeking Alpha Portfolio Tech Investor ETF investor Energy Investor Email me a link to open from my phone: Continue Voce Capital Turns Up The Heat On Solta, Demands Sale Of Company Aug 15 2013, 07:58 by: StockMatusow  |  about: SLTM (Solta Medical Inc), includes: AGN, HLF, NUS, VRX

Yesterday, Voce Capital released a letter sent to the Solta Medical (SLTM) Board of Directors (BOD) expressing its displeasure in the company's appointment of Mark M. Sieczkarek as interim CEO of the company. Last year, Voce's continual criticism of Obagi Medical eventually caused the Obagi board to relent and sell the company to Valeant (VRX) for a cash price of $24 a share, or $418. The deal closed in April of this year.

Prior to the Obagi deal, I successfully predicted the company would be acquired, favoring Allergan to take it. I was wrong on the company, as Valeant stepped in and acquired Obagi.

With Solta, I am predicting Valeant will acquire the company at a minimum acquisition price of $3.75 a share, or $300M.

Voce was successful in scheduling a special shareholder proxy meeting/vote for Obagi (Obagi was acquired before meeting ever took place), and it's likely this can happen here if the Solta BOD decides to entrench itself. Shareholders have already overwhelmingly voted down a company proposal to increase the outstanding share count to $200M, and every long time shareholder I have spoken to also wants Solta sold.

The Solta BOD needs to carefully think this situation through. As we can see, the shareholders have had enough. While the company is growing and revenues up over 15% year over year, Solta cannot maximize its product line in its current position, and especially without shareholder support.

The last thing the Solta BOD should want is a nasty proxy war, and knowing Dan Plant's Modus of Operandi, factored in with activist investor's Dave Callan's record, the BOD stands to lose a lot more than their jobs -- they stand to lose compensation if they fight Voce and Callan.

Dave believes that Solta has great assets, and in the hands of a larger operator, especially one with a strong overseas sales force, can bring in potentially $1B in sales rather quickly. Valeant has successfully levered Obagi's skin care line, and I believe they can easily do so with Solta's products.

Solta's products

The Fraxel repair system-- Designed for use in dermatological procedures requiring ablation, coagulation, and resurfacing of soft tissue, as well as for rhytides, pigmentation, dyschromia, fine lines, acne, surgical scars, deeper lines, wrinkles, and actinic keratoses. This market internationally is growing at a very fast rate.The Clear + Brilliant system -- this system is a treatment to improve skin texture and help prevent the signs of aging skin.The Thermage CPT system -- a non-invasive treatment options using radio-frequency energy for skin tightening which is also growing internationally at a very fast rate.The Liposonix system-- Liposonix® is a proven, unique and effective aesthetic device built on ultrasound technology to deliver Custom Contouring™ fat reduction. Liposonix ultrasound energy is focused in the subcutaneous fat layer beneath the skin, eliminating unwanted fat cells around the waist.

The above are all valuable assets that in the hands of a capable operator who has the money to properly lever these assets, could drive billions in future sales. Solta's asset potential has outgrown its size, much like the Obagi situation.

Potential bidders for Solta

Valeant Pharmaceuticals:

From Valeant's Quarterly Highlights:

Product sales at Valeant amounted to $1.06 billion during the second quarter of 2013, up 43% year over year.

Strong sales in the U.S. Promoted (previously U.S. Dermatology) and emerging markets segments contributed to the increase.

Total sales from developed markets jumped 37% year over year to $792 million fuelled by a 90% jump in U.S. Promoted sales to $487 million.

The aesthetics franchise, OraPharma, skin care, and topical acne portfolio drove growth along with the strong performances of Dysport and CeraVe.

Sales from emerging markets grew 26% year over year driven by continued strong growth in Poland, Russia, Brazil, Mexico, South East Asia and South Africa.

We can see from above that Valeant is really doing a great job levering and growing its assets revenue and profit stream, and especially gaining a strong presence in emerging markets. Solta recently received regulatory approval in several foreign markets where Valeant has a strong presence. From Solta's earnings call transcript we read:

The Liposonix tip production issue that affected the first quarter has been fully resolved and we did see the growth internationally in the second quarter and benefited from regulatory clearances in Singapore, Brazil and Taiwan. The pricing pressure did not affect international markets for Liposonix because sales there are primarily through distributors and we have not seen the same level of competitive presence outside of North America. Total revenue from Liposonix treatment kit in the quarter rose by 10% from the same period last year.

Large companies such as Valeant and Allergan (AGN) have focused more on international emerging markets, spurring acquisition interest in the medical device, aesthetics, skin care, and augmentation segments.

Allergan:

Allergan also recently reported a very good quarter, with growth in Asia increasing:

We're enjoying very strong in-market growth in Russia, Japan, China and most countries in East and South Asia. In the U.S., based on survey data, it seems that the market in the first half of the year grew high-single digits, and that BOTOX, at 81% market share in April, enjoyed the same share as in April 2012.

The global botox market is forecast to reach $2.9 billion by 2018, with the entire global market for facial aesthetics predicted to reach $4.7 billion. Solta recently announced a new product called the Thermage Total Tip 3.0. Thermage uses radiofrequency technology to non-invasively help smooth, and contour the skin, as well as temporarily reduce the appearance of cellulite, in a single treatment with little to no downtime. The Thermage Total Tip is effective for facial treatments because it delivers uniform, volumetric bulk heating. Targeted, uniform, bulk heating could allow dermatologists to treat patients effectively while maintaining patient comfort.

We can see from above that Solta would be a good fit for Allegan as well, and I believe they are one of the three interested companies to bid for Solta as mentioned in a letter from Voce released July 19th of this year. Skin and beauty care products are quickly gaining worldwide traction, especially in Asia.

I suspect the 3rd company Voce may be referring to could be Nu Skin Enterprises Inc. (NUS).

Nu Skin develops and distributes anti-aging personal care products and nutritional supplements under the Nu Skin and Pharmanex brands worldwide. It offers a wide range of skin-care systems and treatment products, including Spa Systems, Body Spas, Body Shaping Gels, Dermatic Effects Body Contouring Lotion, and Transformation anti-aging skin care systems.

Nu Skin also had a very good quarter, which has been a common theme among companies in the beauty and skin care segment. Nu Skin is also seeing accelerated growth in Asia as the conference call comments confirm:

Turning our attention to a few geographic markets, greater China's growth obviously continues to be very strong. Sales in the second quarter in Mainland China were $198 million. And as we announced a few weeks ago, we're pleased that China recently approved 5 additional direct-selling licenses, which will become increasingly important as our business develops throughout China. We continue to invest to sustain growth in this market and are committed to working to ensure our long-term success there. From what we're seeing, we believe that the market continues to have significant upside potential.

Our north Asia region also had a very strong quarter. South Korea generated an impressive 54% quarterly gain in local currency and continues its long run as a stellar market for us. And Japan had another solid quarter with 5% revenue growth. The weakness of the yen against the dollar is obviously hurting our reported results, but we feel good about the direction of our business in Japan and we believe that North Asia can be $1 billion market for us in the next few years.

Solta's current market cap is $172.28M, which is under 1x price to sales. With its product line, any one of the three companies above would literally be stealing the company for anything under $350M, in my strongest opinion.

There remains at least one other possible bidder for Solta that could get involved.

Herbalife Ltd. (HLF): Herbal life's main revenue stream comes from weight management, targeted nutrition, energy, sports, fitness, and outer nutrition. However, the company does offer products that include skin cleansers, toners, moisturizers, facial masks, shampoos and conditioners, body-wash items, a selection of fragrances for men and women, as well as anti-aging products.

From Herbalife's recent strong quarter's transcript, we also find the company is experiencing strong growth in Asia:

The strong performance in the second quarter was an acceleration over the record results achieved in the first quarter. Volume points grew 14% year over year with growth in each of our six regions. South and Central America grew 33%, Asia Pacific grew 1%, China grew 49%, EMEA grew 16% and Mexico grew 8%

Herbalife might consider putting in a bid for Solta to better take advantage of its strong and growing presence in Asia, and as mentioned, to establish a stronger position in the anti-aging segment. Adding more diversity in its product line while leveraging its resources in Asia would produce a strong revenue stream from Solta's assets.

Conclusion

Solta's former CEO, Stephen J. Fanning was basically ousted, and his BOD position relinquished. Under his watch, Solta shareholders have experienced serious shareholder equity losses. The company engaged in several acquisitions to acquire their very valuable asset line. However, the company is too small and not equipped to lever these assets correctly at this time. Under correct management combined with time to develop, the acquirer could grow into a significant player in its space. Shareholders are disgruntled, which is evident by their strong support in rejecting a proposal to increase the outstanding share count by 100M, with a vote tally of 39.1M against dominating the 31.5M in favor of. In addition, many shareholders do not know what they are voting for and many times casually approve all measures. So, to have a rejection like this is not typical and takes a large number of knowledgeable shareholders.

It was likely that if shareholders approved the additional 100M shares, Fanning would have likely gone on another spending spree, buying good assets, but with a weak mechanism in place to correctly monetize them.

BOD members, especially the new interim CEO Mark M. Sieczkarek, have been acquiring shares, and have actually been shelling out their own cash for some of these shares:

Insider Transactions Reported - Last Few Months

Date

Insider

Shares

Type

Transaction

Value*

Jul 23, 2013

KU MINGO Officer

13,212

Direct

Statement of Ownership

N/A

Jul 22, 2013

HEIGEL DOUGLAS W Officer

17,167

Direct

Option Exercise at $0.70 per share.

12,016

Jun 5, 2013

COVERT HAROLD L Director

31,627

Direct

Acquisition (Non Open Market) at $0 per share.

N/A

Jun 5, 2013

GRAEBNER LINDA Director

31,627

Direct

Acquisition (Non Open Market) at $0 per share.

N/A

Jun 5, 2013

STANG ERIC B Director

31,627

Direct

Acquisition (Non Open Market) at $0 per share.

N/A

Jun 5, 2013

SIECZKAREK MARK M Director

31,627

Direct

Acquisition (Non Open Market) at $0 per share.

N/A

Jun 5, 2013

MCCARTHY CATHY L Director

31,627

Direct

Acquisition (Non Open Market) at $0 per share.

N/A

May 30, 2013

GRAEBNER LINDA Director

10,000

Direct

Purchase at $2.20 - $2.23 per share.

22,0002

May 17, 2013

MCCARTHY CATHY L Director

10,000

Direct

Purchase at $2.13 per share.

21,300

May 10, 2013

GRAEBNER LINDA Director

5,000

Direct

Purchase at $1.97 per share.

9,850

May 6, 2013

SIECZKAREK MARK M Director

150,000

Direct

Purchase at $1.74 per share.

261,000

Feb 26, 2013

HOLTHE DAVID Director

96,501

Direct

Acquisition (Non Open Market) at $0 per share.

N/A

Feb 26, 2013

HOLTHE DAVID Director

5,435,993

Indirect

Acquisition (Non Open Market)

N/A

It's interesting to note that these acquisitions and buys came at the same time Voce started publicly revealing its letters written to Solta. Either way, it's bullish that these directors, especially CEO Sieczkarek, are willing to both buy and hold shares. At the very least, they appear to believe in the longer term potential fundamentals of the company, which I do as well if the company is able to properly lever its assets and penetrate Asian markets correctly, but I think ultimately everyone would be better off with an acquisitioin, and with Voce and David Callan leading the way, this is the most likely outcome.

My favorite to acquire Solta is Valeant, so that is my prediction -- Valeant will acquire Solta for a price somewhere between $3.75 and $4.50 a share, or roughly $300 to $360M, in a time period of 4 to 12 weeks.

Source: Voce Capital Turns Up The Heat On Solta, Demands Sale Of Company

Disclosure: I am long SLTM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.

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Intrexon: Successful Public Offering For A Potentially Revolutionary Company

Intrexon (XON) made its public debut on Thursday, August the 8th. Shares of the leader in the field of synthetic biology ended their first day with gains of 54.6% at $24.73 per share.

Given the sky high valuation, based on the hope of future product revenues and earnings, I remain on the sidelines. While the company's products and processes could be revolutionary, Intrexon still has a lot to prove.

The Public Offering

Intrexon focuses on synthetic biology which is an emerging discipline to apply engineering principles to biological systems. The company uses its own technologies to build and regulate gene programs, or DNA sequences which control cellular functions and systems.

As such, Intrexon hopes to develop improved product and manufacturing processes for healthcare, food, energy and environmental markets. Intrexon hopes to create more effective and less costly solutions which are also sustainable.

Intrexon sold 10.0 million shares for $16 apiece, thereby raising $160 million in gross proceeds. All shares will be sold by the company with no shares being offered by selling shareholders.

The public offering values the equity of the firm at $1.50 billion. The offering took place at the high end of the preliminary $14-$16 offer range. Given the strong demand Intrexon boosted the offer size from a planned 8.3 million shares to 10.0 million shares as well.

Some 9% of the total shares were offered in the public offering. At Friday's closing price of $29.09 per share, the firm is valued at $2.7 billion.

The major banks that brought the company public were JPMorgan (JPM), Barclays, Griffin Securities and Mizuho Securities.

Valuation

Intrexon is working with collaborators to create superior solutions which can be provided through current industry processes. The company's business model is to commercialize technologies through exclusive channel collaborations, in which partners will bring the potential processes and products to the market.

For the year of 2012, Intrexon generated annual revenues of $13.9 million, up 71% on the year before. Net losses attributable to common shareholders increased slightly to $103.9 million.

First quarter revenues were up by 145% to $4.0 million. Net losses more than doubled to $42.7 million.

Intrexon operates with $143.5 million in cash and equivalents and no outstanding debt or preferred stock investments. Including the $160 million in gross proceeds from the public offering, Intrexon will operate with a net cash position of around $285 million.

Given the lack of operating revenues, as most revenues are the result of collaborations, any valuation multiples based on past performance are meaningless.

Investment Thesis

As noted above, the offering of Intrexon has been a huge success. Shares were offered at the high end of the preliminary offering range. On top of that came opening day returns of 55%, followed by a strong session on Friday. At Friday's close, shares are trading some 94% above the midpoint of the preliminary offer range.

Intrexon is an interesting case. The company has been around for fifteen years and has been reporting large losses on the back of a lack of real product or process revenues. At the current loss rate of over $150 million per annum, the company will run out of cash within two years, despite the successful public offering. As such, dilution or bankruptcy are key risks.

To generate future product revenues, Intrexon has engaged in nine exclusive channel collaborations (ECCs), in the field of healthcare and food. The most prominent collaboration is formed with Elanco, the animal health division of Eli Lilly (LLY). Yet none of these collaborations have resulted in a revenue generating products or processes yet, and it could take a while as gene therapies need FDA approval.

Given the significant losses, the long development trajectory, and the high valuation of almost $3 billion, I am hesitant to jump on the bandwagon. On the other hand, Intrexon is trying something really new which could be the start of a revolutionary process and turn the company into an absolute global leader in the future. Yet the $3 billion price tag is quite a high valuation. In comparison, current industry leaders like Amazon.com (AMZN), Microsoft (MSFT) or Wal-Mart (WMT), had a much more modest valuation when they went public.

Therefore I stay on the sidelines. The company could become a long term success, thereby destroying all those who might initiate a short position. Yet I see few reasons to initiate a long position on the back of the high valuation and the high uncertainty for product revenues going forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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RadNet: A Tiny Company In A Huge Market Spells Profits

RadNet (RDNT) is a company that is ensconced in the diagnostic imaging, medical laboratory business segment of the healthcare industry. With the Affordable Care Act upon us, the Government is going to have a full court press to reduce costs.

The largest areas of cost savings come from prevention and early detection. This is where the diagnostic imaging, medical lab business enters. Not only will the new law focus on this segment, but the law will mandate that companies be paid less for these services than ever before.

While this could well be a double edged sword, the advantage that RDNT has is that the company offers a low cost option for patients, hospitals, doctors, as well as the new government payment structure for their national programs.

To wit: In this industry report there appears to be concern that many of the independent diagnostic centers simply might not survive due to the cost of scale.

Pam Kassing, senior economic advisor to the American College of Radiology, states that there could be a substantial shift in services offered by both private practices and hospitals.

"We're hearing from those that have their own imaging centers and provide services in-office that they're barely hanging on," she said. "A lot of sites have been sold to hospitals, and many just don't exist anymore. Of those in business, they're not making much of a profit margin. They're providing a diverse mix of services to the community, but if they're on the verge, I don't see them sustaining for the next year."

Basically, the survival of the fittest will stand to profit greatly. The business model that RadNet has employed is positioned extremely well to gain market share, revenues and profits. The focus has, and continues to be, gobbling up the most beneficial independent labs to broaden its exposure, reduce its costs, increase revenues and profits, and add shareholder value in the form of capital appreciation.

Keep in mind that an independent lab, whether by a total buyout by RDNT, or some sort of partnering agreement, will be accretive immediately to RadNet's bottom line.

In the long run, this presents an extremely strong potential for shareholder value of RDNT investors.

Let's Look At The Healthcare Business Overall Right Now

Does anyone think that the healthcare industry is not one of the largest business sectors in the US? Most folks would say that the energy sector is the largest, but in terms of rapid growth, I believe that between all of the combined segments, the healthcare industry is perhaps the most dynamic in terms of potential for rapid growth. Especially given the fact that we are an aging nation, and the "boomer" generation keeps the industry quite profitable as it stands right now.

Not to mention that our Federal (and States) Government is perhaps the single largest "customer" of the healthcare industry. Just by the fact that Medicare, Medicaid, and now the Affordable Care Act has, and will continue to pour astronomical amounts of money into the entire industry. Most specifically the areas that can actually help prevent disease from spreading to the point of even more astronomical treatment costs.

Take a look at this chart (courtesy of the CFSA):

Projections of Federal Health Care Costs (percent of GDP)

(click to enlarge)

The continued growth of federal health programs represents the single largest threat to the nation's fiscal health. By 2015, Medicare, Medicaid, exchange subsidies, and other federal health spending will reach 6 percent of GDP under the CBO's Alternative Fiscal Scenario. The revenue loss from the tax exclusion on employer-provided health care will equal another 1.3 percent of GDP. And these costs will only grow. The Congressional Budget Office projects direct federal health care costs will total 9.7 percent of GDP by 2030, and 13.7 by 2050.

Preventive care, early detection processes, and wellness approaches will all play a vital role in potentially reducing costs for everyone, including the Governments budget. For now, the largest of these areas is the early detection procedures and facilities that can find terrible diseases early enough to treat them before they become financial nightmares.

It is also one of the largest, and fastest growing segments of the healthcare industry, and the segment that might benefit more from the Affordable Care Act than almost any other.

There are several enormous players in this sector such as Laboratory Corp. of America (LH) which sells for about $98.00/share and is a global company with enterprise value of over $11 billion, and Quest Diagnostics (DGX) which sells for about $60.00/share, also a global business, with an enterprise value of over $12 billion. The estimated revenues of this business was roughly $110 billion in 2012 alone. Operating margins approach roughly 20% for both LH and DGX.

While there are some smaller players who do quite well in this business, the one that caught my attention is RadNet, Inc. (RDNT).

RadNet: The Basics

RDNT: Price: $2.96/share, Dividend Yield: N/A, ESS Rating: Bullish

Enterprise value of about $700 million.Forward P/E ratio of only 6.1.55% of all outstanding shares are held by insiders, and 19% of all outstanding shares are held by institutions.A current market cap of just $119 million, which looks very undervalued to my eyes.A price to sales ratio of just .19.A short float of only about 2.4%.Cash flow is over $75 million right now.

Let's also take a quick look at their business summary as provided by the company itself:

Founded in 1984, RadNet, , is a national leader in providing high-quality, cost-effective diagnostic imaging services through a network of 248 owned and/or operated outpatient imaging centers. With operations in six states, including California, Maryland, Delaware, New Jersey, New York, Rhode Island and Florida, we believe we are the largest owner and operator of fixed diagnostic imaging centers in the United States.

RadNet offers to its patients and referring physicians the full spectrum of diagnostic imaging exams, including PET/CT, MRI, CT, Nuclear Medicine, Mammography, Ultrasound and X-ray, as well as numerous other procedures. RadNet utilizes best of breed technology to appropriately serve the medical communities in which it operates.

Additionally, RadNet currently provides diagnostic imaging services to over 750,000 lives under exclusive capitation contracts with prominent medical groups and Independent Physician Groups (IPAS).

RadNet performs over 4 million diagnostic radiology and imaging procedures annually.

Obviously, the company is in the middle of the fastest growing segment of the healthcare industry as I explained at the beginning of this article.

In a previous company conference call, from the earnings period prior to the most recent, the CEO, Howard Berger had this to say about some recent weak performance:

As many of you are aware, our business typically feels the effects of seasonality during the first quarter. Generally, we are impacted by winter weather conditions in the northeast, which disrupt patient volumes during and after winter storms. Additionally, our industry, like that of other healthcare services sectors, in recent years, has been increasingly affected by first quarter other phenomenon related to higher patient participation in large deductible health plans. In some cases, the high deductible plans cause patients to delay big-ticket healthcare spending until later in the year when they have satisfied their deductibles. In other cases, the higher deductibles have reduced healthcare utilization in aggregate by causing insured populations to ration their healthcare spending. Over time, insurance companies have shifted increasing amounts of financial burden to patients in return for charging them lower monthly premiums.

We believe our first quarter 2013 results suffered from these two factors, particularly within our East Coast operations which today represents slightly more than half of our revenue. We experienced a general softening of procedural volumes in the east, which we believe is indicative of the general environment for and utilization of healthcare, as opposed to something that is specific to RadNet or RadNet's competitive position in our East Coast markets.

Since both DGX and LH had similarly poor quarters, it stands to reason that the little "pup" here was not spared either. Berger did state this however:

.......with the repricing and the financing that we just completed, if we are continuing to pursue M&A activity, we will have full availability of our revolver. So that is one source of cash, along with the substantial free cash flow that the company is generating which was enhanced also by the repricing. At the current time, there are no larger acquisitions in the pipeline that we are seriously considering. And while I think that there will always be smaller tuck-in acquisitions, they will not use up a substantial amount of cash.

This is the key as to why I am drawn to this company. It is not afraid to spend money to acquire independent diagnostic facilities, as well as using its resources to build its own infrastructure.

As a matter of fact, the company has forged many partnerships, as well as joint ventures with other facilities as outlined in the company press releases. Being that size does matter, as more locations are acquired, RDNT's costs will drop. As Berger states himself, quite clearly:

.......weeding out these smaller or "less state of the art" players......So at some point, the older equipment will lose its accreditation and therefore, I think, force further consolidation. I don't believe that the smarter operators are going to wait until that axe falls. They're likely to either sell or consolidate with other players in the markets, which I believe we are seeing now happening at a much brisker pace than perhaps any time that I've seen in the history of being in this business.......So I think, over the next three to five years, all of these impacts, the lack of capital spending, the probable and likely closing at some point of the in-office exemption, as well as just overall controls on utilization, are going to have substantial impacts in the industry and cause only the strong to survive, which is where RadNet has positioned itself.

By gobbling up many smaller players already (review the company press releases for the plethora of "ventures" to date), I believe that RDNT has positioned itself to begin focusing on generating cash, reducing debt, increasing revenues, and generating profits rather than losses, while still pursuing opportunistic acquisitions that will only add to growth.

With the Government alone spending more and more money of precisely the services that RDNT provides, and with a relatively "smallish" position in the business which will allow them to be "cost sensitive" to the needs of the Government, a slice of that pie could really become interesting.

To top it all off, the company announced that it will be venturing beyond just the diagnostic business as it announced a joint venture in the clinical trials of an Alzheimer's disease drug. Where this might lead is anyone's guess of course. The fact that the company is not afraid to spend and branch out into other areas of the healthcare industry, gives me the opinion that shares of RDNT might be significantly higher in the next 24-36 months.

The Good News Does Not Stop There

As of yesterday, the company reported earnings of $.07/share which beat estimates by at least $.01/share, and revenues came in at $183 million, beating estimates by almost $8 million, or a robust 5%.

During the conference call it was noted by CEO Howard Berger:

Our strategy is to continue to execute on the principal business tenants that will ensure our future success. The first is scale. In our highly-fragmented industry, which is suffering immense pressures of lower reimbursement, decreasing utilization and lower availability of capital, size matters. Our cost structure, leverage with suppliers and payors and industry relationships with powerful joint venture partners set apart RadNet from other industry players. We will continue to make strategic acquisitions in our regions, particularly tuck-in transactions, transactions of single centers and small groups. We will also continue to leverage our scale and expertise to partner with powerful local health systems and hospitals.

While these comments not only support my thesis, they also expand them by the public acknowledgement that RadNet is ready to grow bigger and faster, right now.

Berger also noted....."We expect to generate significantly more free cash flow during the second half of 2013".

How high could they go? Well, the business segment is enormous, and it looks like RadNet intends on being a "player". A two or three bagger over the course of the next 24-36 months, does not seem far fetched to me.

Disclaimer: The opinions of the author are not recommendations to either buy or sell any security, and he is NOT an expert in the medical industry. Please do your own research prior to making any investment decision.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RDNT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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