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3 Feb

SIEN: A Setup That Tops All Setups

by

To those subscribers who’ve been working with me since as far back as the beginning have come to know through my work what constitutes as a bona fide setup to a massive bull move.  And once in a while a setup that tops all setups comes along—a setup that fulfills all aspects of our checklist in the areas of financial metrics, market potential, product position, and the all-important catalyst for an abrupt change in sentiment.  That setup can be found in Sientra, Inc. (ticker:SIEN), an unusual play with an immediate two-bagger potential—as a start—then much higher after a panic decision by the Brazilian regulatory agency is promptly reversed.

On Sept. 24, SIEN crashed 53% to $9.70, following the announcement by the UK Medicines and Healthcare Products Regulatory Agency (MHRA) that it had suspended Sientra’s Brazilian supplier, Silimed Indústria de Implantes (Silimed), of the company’s CE certificate to market its implants in the UK (and by legal extension, the EU) following Brazil’s regulatory agency (ANVISA) order to Silimed to halt shipments of all Silimed products, including Sientra’s.  Though the Food and Drug Administration (FDA), which oversees U.S. sales of Sientra’s implants, has not followed the MHRA, ANVISA is the stumbling block to Sientra’s sales restart in the U.S.

Confused yet?

In other words, even though the FDA has found no fault with Sientra’s products, Brazil’s ANVISA has decided to unilaterally (which it can do) halt Silimed’s entire manufacturing operation of a product that has not been deemed hazardous to the U.S. market.  That’s the entire story in a nutshell.

The reason for another confusion among investors can be found in the details of the regulatory decisions in this fiasco, as is usually the case.  Right?  And that is: Sientra’s manufacturing process is unique to Sientra due to FDA protocols.  In fact, Sientra’s product runs aren’t the problem at all, implied by to the FDA’s silence on the matter, but the company has decided to “voluntarily” discontinue sales in the U.S. as a precaution, not because of a problem with its product.

According to statements made by those close to the quagmire in Brazil, there is no problem at Silimed (and especially with Sientra’s product runs) and that ANVISA has overreacted to a situation that it feels may be akin to another altogether separate silicone implant case involving a French company in 2012.  If the situation in Brazil didn’t involve billions of dollars of lost equity to the industry, the bizarre knee-jerk reaction by Brazilian bureaucrats in this case would be comical.  Bu then again, many times the public’s response to any hint of a product defect of a medical nature can be comical.

So you know, too, the FDA has inspected Sientra’s product runs at the Silimed plant throughout the past 10 years with no incident.  Therefore, I can only conclude that the issue will soon clear and that SIEN should soar back to its $20 handle quickly, maybe within 24 hours of a favorable announcement from ANIVISA.  I wouldn’t be surprised at that kind of move, especially when you read the punchline in the last paragraph of my alert.

Sientra markets the fastest-growing breast implants to the U.S. market, quintupling (5x) the rate of sales compared with the growth rate of the global market.  Sientra has gone from no market share to 8% with three years.  All financial metrics, including only $24 million of debt, $149 million of cash and enough inventory to last more than a year, point to a smooth restart to Sientra’s profitable growth path and financially secure position.  The company’s enterprise value compared with its market cap is a joke, with Sientra’s war chest of cash ($8.28 per share) accounting for the entire difference.  Wow.

And you’re going to love the punchline: after uncovering the details of this alleged regulatory disaster (a farce?), one would think sentiment surrounding SIEN would have morphed by now into a sell-on-the-news trading strategy.

And you would be dead wrong.

To my surprise, approximately 36% of the SIEN’s float is held short.  You’ve read that right: more than a third of the stock’s float is held by traders who think the company is done.  So, instead of wondering whether there’s more to this story than what I’ve just outlined in this alert, don’t look at a Gift Horse in the mouth, because situations like the one in Brazil happen more often than logic dictates.  How many traders of SIEN do you think have actually done any due diligence work about the arcane regulatory details involved in this case?  Apparently, not many.  And I do that for you.

Disclosure: I am long SIEN

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8 Comments

  1. NumeroUnoYo (@NumeroUnoYo)

    The favorable announcement from ANIVISA has already happened (see link). Waiting for positive PRs from the European agencies now. I suspect that’s coming any day. ANIVISA wouldn’t have released a positive PR if the Europeans were about to do the opposite.

    http://portal.anvisa.gov.br/wps/content/anvisa+portal/anvisa/sala+de+imprensa/menu+-+noticias+anos/201616/anvisa+autoriza+silimed+a+retomar+comercializacao+de+implantes+mamarios

    Reply
  2. Gregg M

    Good read and very informative thanks for this information

    Reply
  3. Wayne

    Thanks Jason for the stock tip, I just only discovered you on YouTube and have devoured everything I can find. The oversold pattern and bounce is my style of swing trading so keep up the great work of keeping us all informed with what you are doing.

    Reply
  4. Bud

    I do thank you for the information. I have got to the point I believe what you say and recommend. Yourr Goood……

    Reply
  5. charles peterson

    just getting started, like ur insight – ckp

    Reply
  6. Gail Balcaen

    I guess this is after the fact, but if the implants are saline solution, then it’s a very good thing, but if the implants are silicone, that could be a huge problem. Weren’t silicones recently outlawed? (Sorry, LoL, just going through some old Emails from the past in order of Date, will see how this turns out as I go along. Spending the Weekend catching up on what I have been missing so I can get more serious about current trading, and hoping the overview of the past 6 weeks will help my perspective & give me a handle on what’s been happening & learning from your most excellent trading style !) Thx.

    Reply
  7. Rob

    Two months later SIEN is below the price of your initial post. How long are you going to wait on this one?

    Reply
    • Jason Bond

      It went from $7.57 the next day to $10.45, what % return is that in 4 days?

      Reply

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