Global Market Comments
April 2, 2019
Fiat Lux
Featured Trade:
(WHAT’S REALLY BEHIND THE BRISTOL MYERS/CELGENE MERGER),
(BMY), (CELG),
(ON EXECUTING MY TRADE ALERTS),
The start of 2019 saw Bristol-Myers Squibb (BMY) reveal a plan that rattled a number of its investors: the 132-year-old biotech giant plans to buy Celgene (CELG) for $74 billion or approximately $102.43 per share.
While these kinds of moves happen often, Bristol’s decision has some of its major shareholders up in arms. So far, Bristol top holder Wellington with 8% of shares, Dodge & Cox with 2.61%, and Starboard Value with 0.06% have publicly expressed their opposition to the merger.
Aside from labeling this deal as “ill-advised,” Starboard suggested that Bristol should either consider selling itself or simply put an end to this plan.
Here’s a short background on the matter.
For Bristol, this deal seemed to have stemmed from the dwindling performance of its mega-blockbuster immuno-oncology drug Opdivo compared to its greatest competitor, Merck & Co’s (MRK) Keytruda.
Unfortunately for Bristol, Opdivo failed to obtain a monotherapy in first-line lung cancer result while Keytruda succeeded on this front. The whole process resulted in costly losses to Bristol and massive sales for Merck in the tune of $7.2 billion, outpacing Opdivo’s $6.7 billion in 2018 – a first for both drugs since the two had been neck to neck since their launches.
The threat of competing cancer drugs – generic and otherwise – against Opdivo didn’t help either. In effect, Bristol has been facing pressure from investors to recoup the costs either via expansion or a profitable merger. By comparison, Bristol’s annual revenue is at $22.6 billion while Merck is at $42.3 billion and fellow competitor Pfizer (PFE) is at $53.4 billion.
On the other side of the merger, Celgene (CELG) has been struggling with the looming loss of its patent protection for their major drug Revlimid, a multiple myeloma medication which accounts for 65% of the company’s $14.2 billion annual revenue. By 2022, generic alternatives are anticipated to eat away the shares of Revlimid. This puts roughly $10 billion in annual sales at risk for Celgene.
In comparison, Celgene’s competitors seem miles ahead based on their reported annual revenues alone, with Eli Lilly (LLY) at $24.6 billion and Novartis (NOVN) at $51 billion.
Celgene’s response to this impending “doom” is to come up with a promising stable of treatments and medications to offset their future losses. This is where Bristol comes in.
While it’s still up in the air if the merger would actually benefit Bristol massively, Celgene seems to be on a win-win situation here. With the money from Bristol, Celgene can relax a bit about the competitors chomping at the bit to decimate Revlimid’s status in the market. On top of that, they’ll be able to insulate themselves (and portfolios) from potential failures in their pipeline.
What about Bristol?
Well, you can look at the merger as Bristol paying for Celgene’s ideas. With a pipeline brimming at the seams, Bristol would be able to have choice picks on what could be their next blockbuster drug especially in light of the weakening performance of Opdivo in the market.
Not only that, another Bristol mega-blockbuster drug Eliquis, an atrial fibrillation medication, is expected to see a decline in sales starting 2022 due to its pending patent expiration.
So far, Bristol shares have experienced a drop by -25.29% or -$17.25, putting it at $50.97 per share in comparison with its previously recorded high of $68.22 last week. The past 52 weeks have also seen Bristol trade as low as $44.3. Meanwhile, its current earnings-per-share (EPS) is estimated to sit at around $1.04 per share.
These estimates make a number of investors bullish with regard to the near-term reports of Bristol a modest prediction of an 11.3% increase in its average price target. This is estimated to lead to a potential market cap rise to $93.04 billion.
How realistic is this promising future of overflowing pipeline for Bristol?
Details of the merger reveal that Celgene will get a contingent value right (CVR) worth a one-time $9-per-share bonus if the company’s three most promising treatments snag FDA approval on set dates: multiple sclerosis drug Ozanimod and Liso-cel by December 31, 2020, as well as bb2121 by March 31, 2021.
Is it achievable?
It looks like it since all three drugs already have available data and are set for late-stage trials necessary for regulatory approvals.
Is this a slam dunk deal then?
This depends greatly on how Celgene works out the kinks of their drugs. So far, Ozanimod was rejected by the FDA in 2018 due to doubts on the company’s capacity to execute the trials effectively. Will Bristol’s backing guarantee approval in the next round? Possibly, especially since the FDA’s rejection was reportedly due to a lack of potential funding by Celgene to support their trials.
Whether or not this deal pushes through heavily depends on the other major shareholders of Bristol. So far, the opposition raised by the three investors hasn’t really resulted in the company wavering on this plan.
However, April 12 is a long way to go when it comes to finalizing this takeover and both sides are still working on persuading their fellow shareholders to stand by their arguments.
What about Celgene? How does this takeover sound to their investors?
Celgene’s investors should be celebrating since this merger has a lot of promising upsides for them and quite frankly, offers a highly lucrative escape plan. Bristol’s buying price of $102.43 per stock is a 54% premium in comparison to the average price of per Celgene share. The CVR incentive offered by Bristol definitely adds the icing to the cake for Celgene investors as well.
Overall, the deal seems to be a reasonable move for both Celgene and Bristol. While the merger definitely has its fair share of risks, Bristol’s key takeaway here is the plethora of opportunities to grow their SKUs. Even with the threat of Celgene’s Revlimid losing patent protection in the years to come, this takeover still offers good strategic positioning shots and promising pipeline expansion for Bristol.
After all, both companies are not necessarily goldmines for investors and are poised to crash sometime soon given their recent performance trends. Perhaps joining forces would give them a fighting chance to ward off more hostile takeovers or worse, a bankruptcy.
Mad Hedge Technology Letter
April 2, 2019
Fiat Lux
Featured Trade:
(HOW TO GET CONTROL OF YOUR LIFE)
(GOOGL), (FB), (LYFT)
Don’t get caught up in the cesspool of digital ads inundating your life.
I’ll teach you how to take back control of your life and even mess with these data thieves.
No need to thank me.
One of the most frequented complaints I hear today is the overflowing number of digital ads people are faced with that make you want to pull your hair out.
If you want to play your part in taking back your internet freedom, then read on.
The internet ad business is a world that borders subterfuge.
The high stakes environment is perpetuated by none other than Silicon Valley and specifically the tech heavyweights that wield capital dominating the data sphere.
Even though it sounds remarkably cliché, data is truly the new oil.
You would be surprised how many internet operations are based on the back of you, the user, and the data you generate.
Take Lyft (LYFT).
They are forced to tap the digital marketing world to attract qualified drivers.
Not only does Lyft spend ad dollars on driver recruitment, but they must spend to grow the number of passengers.
The rider base, as a result, synthetically grows which is directly attributable to paid marketing initiatives.
Lyft lays out on a platter the ways they attempt to generate new passengers and drivers, essentially becoming market makers, and it’s a mind-boggling long list including:
“referrals, affiliate programs, free or discount trials, partnerships, display advertising, television, billboards, radio, video, content, direct mail, social media, email, hiring and classified advertisement websites, mobile “push” communications, search engine optimization and keyword search campaigns.”
Even if there is only a 20% chance of breaking even, these unicorns are incentivized to lose others' money translating into poor quality growth or initiate high-risk strategies or carry out a combination of the two.
Sales and marketing costs in the year ending Dec 2018 came in at $296.6 million, meaning that over 37% of overall costs to Lyft were attributed to this one segment.
If that wasn’t bad enough, Alphabet affiliated company CapitalG took in $41.4 million, $74.4 million, and $92.4 million of ad-related services in 2016, 2017, 2018 laughing all the way to the bank.
Not only do Alphabet have a 5% stake in Lyft, but they are incentivized to bump up Lyft’s search engine optimization ranking to the top because they’ll benefit through asset appreciation if the company flourishes.
The process is rigged so what can we do about it?
Seizing control of your life and personal data first centers on installing a different browser other than a Google-based product to diversify the data out of Alphabet’s (GOOGL) iron grip.
I have chosen to use the browser called Brave, based on the Chromium web browser, it comes preinstalled with an ad blocker and disables web trackers, and most importantly, works well.
To visit their website, click here.
Make sure to import your passwords and bookmarks from your prior browser to ensure a smooth transition.
Once you are armed with a browser with a functioning ad-blocker, notice how the ad-less experience enhances your browser experience.
Try out YouTube.com, notice that ads don’t pop up in the beginning or middle of your viewing session and they do not even prompt you to disable them.
To understand which websites are hellbent on grabbing your digital ad dollar, then you will visit the odd website such as CNBC’s live TV feed which forces the user to disable the ad blocker which can be done at the top.
As much as CEO of Facebook (FB) Mark Zuckerberg has been vilified for his ad practices, he does not force users to disable ad blockers to use his platform to his credit which indicates that most users really have no idea about this stuff.
Seeking Alpha, the internet financial new site, is one of the worst eggs in the dozen, full out blocking users from even viewing the main homepage if you are accessing it with a VPN (virtual private network).
If you do access Seeking Alpha with an ad blocker, every page you click prompts an annoying reminder to “white list” the site which is polite verbiage for don’t block us or we will prevent you from using us.
Awareness and actionable methods to take back your internet freedom and personal data are vital to the health and longevity of the internet.
Instead of enriching these few Silicon Valley bullies, change your browser to an independent service, install an ad-blocker, and lastly buy a VPN.
A VPN is a software that circumvents geographical restrictions by connecting to servers in different countries effectively masking your computer’s IP address location.
This can have many different applications such as during my summer vacations in Switzerland, I can access all the US-based internet services that would require my IP address to originate from a domestic American location.
A VPN is also important in minimizing the chances of cyber threats and offers extra layers of security.
Chinese internet users often access international websites that are habitually censored through VPN software getting access to the west’s treasure trove of professional knowledge.
In many cases, a small Chinese company wielding a VPN is the difference between success and failure.
VPN software is the Chinese communist party’s worst enemy which is why they forced Apple to remove them from Apple’s app store recently.
My go-to VPN is Astrill. To visit their website, please click here.
Knowledge is power.
The masking of a computer’s geographical location will stymy digital ad crawlers diluting ad data forcing them to revalue the digital ad tools they use to charge exorbitant amounts to analog companies to digitally advertise destroying ad revenue.
I see this as a positive development as the unintended consequences of these digital ad creatures have toxified the internet for the naive user with many digital companies resorting to perverse tactics that beget even more perverse marketing tactics.
The slew of new tech IPOs is offering us inside knowledge into how enslaved tech companies are to the likes of Alphabet and Facebook digital ad apparatus.
To shake them off our tails, users on mass need to alter how they use the internet to protect from being pickpocketed in broad daylight.
Once revenue begins to suffer, they will have to act more reasonably to the betterment of the internet which we all share as a communal good.
“Move fast and break things. Unless you are breaking stuff, you are not moving fast enough.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Mad Hedge Hot Tips
April 1, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) China Rumors Lift Markets. Is this the upside breakout we’ve been looking for? Buy (FXI). Click here.
2) Boeing 737 Max to Stay Grounded Through May, says an internal company memo. The wait is going to be longer than we thought. Still, the stock is up on the news. Sell Southwest (LUV). It will take the biggest hit. Click here.
3) Mad Hedge Hits New All-Time High, up 15.46% year to date, and beating the pants off the Dow Average. Good thing I didn’t buy the bearish argument. There’s too much cash floating around the world. I’m looking to be up 20% within ten days. Click here.
4) Retail Sales Drop 0.20%, in February in another sign of a slowing global economy. Construction spending is also down 0.3%. Try telling that to the stock market today. Click here.
5) China Factory Orders Grow, for the first time in 4 months. Is all their stimulus finally turning around the economy? Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE INMATES ARE RUNNING THE ASYLUM)
(SPY), (TLT), (FCX), (DIS), (TSLA), (IWM),
(GOOGL), (MSFT), (PYPL), (AMZN)
(THE NEXT TECH BUBBLE TOP HAS STARTED)
(LYFT), (PIN), (UBER), (AAPL), (JPM), (FB)
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more