July 2020

The Billions in Cross-Prescribing for Covid-19

Although there is no obvious connection between cancer and viral infections, Delaware-based biotechnology and pharmaceutical company Incyte (INCY) is optimistic that its blood cancer treatment Jakafi can offer a solution to the COVID-19 pandemic.

The research on Jakafi’s efficacy against the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) started in April. It’s rooted in the premise that since the drug works by inhibiting the immune cells, then it can be effective in suppressing the body’s response to the coronavirus attack.

This is promising considering that the immune system bears the brunt of the most deleterious effects of the virus, with the patients’ own cells attacking their bodies that subsequently leads to death.

Jakafi received its first approval back in 2011. While it was discovered and marketed by Incyte in the US, this drug is sold by Novartis (NVS) outside the country under the name Jakavi.

Apart from Incyte, other companies working on a similar strategy of using an autoimmune disease drug to treat COVID-19 complications include Regeneron (REGN), Sanofi (SNY), and Roche Holding’s (RHHBY).

Outside its COVID-19 efforts, Incyte is also looking into expanding the market for Jakafi.

In 2019, Jakafi sales grew by 21% to reach $1.7 billion. Revenues were derived from the drug’s three approved uses, namely, myelofibrosis, polycythemia vera, and acute graft-versus-host disease.

For 2020, Incyte estimates sales to grow to hit $1.8 billion to $1.95 billion, paving the way for Jakafi to become a $3 billion brand.

So far, Incyte is hoping to achieve this by expanding Jakafi’s indications to include atopic dermatitis. The goal is to submit this for approval by the fourth quarter of the year.

Another COVID-19-related effort linked to the company is testing rheumatoid arthritis drug Olumiant, which Eli Lilly (LLY) licensed from Incyte.

Eli Lilly is investigating this drug in partnership with the National Institute of Allergy and Infectious Diseases (NIAID) hoping Olumiant can be used to treat critically ill COVID-19 patients.

Other companies looking into the same plan are Roche with Actemra and AstraZeneca (AZN) via Calquence.

Aside from that, NIAID is also looking into the efficacy of Olumiant when combined with Gilead Sciences’ (GILD) lead COVID-19 candidate Remdesivir.

Looking into Incyte’s earnings history, it’s safe to say that the company is on its way to a brighter financial future.

Last year, Incyte’s total global revenue reached $2.16 billion, showing a 15% increase from 2018.

Aside from its best-selling drug Jakafi, Incyte has another potential blockbuster in its portfolio in the form of blood cancer treatment Iclusig. This drug, which the company licensed from Ariad Pharmaceuticals, added $90 million in sales last year.

In addition, Incyte earned $226 million in royalties from Novartis’ sales of Jakafi outside the US and $80 million from Eli Lilly’s Olumiant sales last year.

As for Incyte’s pipeline for 2020, the company kicked off the second quarter with an early FDA approval of bile duct cancer treatment Pemazyre.

This new medication is also anticipated to be another bestseller for Incyte, with a $17,000 price tag for every treatment cycle.

On average, each patient requires eight to nine cycles in a span of six months. This puts the cost for every patient somewhere between $136,000 and $153,000.

At this rate, Pemazyre can rake in $50 million for 2020 alone.

Given that the world is still struggling with the pandemic, the company reported a modest peak sales estimate for Pemazyre at $140 million.

While this may not be enough to move the needle, Incyte is optimistic that the number will rise once the crisis is behind us.

More importantly, Incyte offers a fast-growing portfolio along with promising pipeline candidates that could give bigger biotechnology companies a run for their money.

July 7, 2020 - MDT Pro Tips

MDT Alert

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

July 7, 2020

Diary, Newsletter, Summary

Mad Hedge Technology Letter
July 7, 2020
Fiat Lux

Featured Trade:

(JULY 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (VIX), (TLT), (GLD), (IBB), (QQQ), (SPY), (NEM)
(TESTIMONIAL)

July 1 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Uncategorized

Below please find subscribers’ Q&A for the July 1 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: You obviously do well with deep-in-the-money call and put spreads, but I struggle to get your prices.

A: Raise the strike prices or raise the price that you’re bidding for them closer to my limit. It’s really hard to keep current prices in this market with such extreme volatility (VIX), especially when you’re having melt-ups going on in Tesla (TSLA) and so on. Our trade alerts are just a starting point to get you going in the right direction in the right stock. The people who make the most money with the trade alert service are those who use my market timing to buy futures, either at the money risk reversals on stocks (long the call and short the put), or outright futures in gold (GLD), currencies (FXE), and bonds (TLT).

Q: How high can Tesla go?

A: My immediate target is $1200 (which has already been hit), and the rumors I'm hearing is that they will be good if you factor in the two months that the Fremont factory was closed. And after that, it’s $2,500 and then there's Ron Baron’s target of $5,000, who’s been in the stock himself since it was at $100 a share. Ron was a little late in finding my research on the company. I first got in at $16.50 after I toured the Fremont factory.

Q: Is it possible there will be a national mandate to wear masks, which could boost stocks?

A: Not under this president. Do not expect help from this administration on this pandemic. They've figured out they can’t beat it so they are just walking away and leaving the states to figure out what they can. You’ll have to wait for another president to get a national mask mandate if we’re still alive by that time. I am getting a lot of emails from Europe complaining that the United States is extending the pandemic by having so many people refusing to wear masks here or admit that the disease even exists. They are horrified.

Q: What do you think about the biotech ETF (IBB)?

A: I’d be buying it with both hands. Even without the pandemic, a new bull market started last September in biotech because the fundamentals long term were fantastic. But you had to be a scientist to see it back then. They really had the highest earnings growth with the lowest price earnings multiples in the entire stock market. The pandemic just gave it a supercharger. That’s why I started the Mad Hedge Biotech & Healthcare Letter (click here).

Q: Which ETF should I use for biotech?

A: The iShares NASDAQ Biotechnology ETF (IBB). It's a basket of the top 20 global biotech firms but will underperform single biotech stock picks by half, as any basket does.

Q: What about the long-term portfolio?

A: I will get to it. It seems like our long-term portfolio is changing every week, so it’s difficult to really look at anything in the long term. These days, long term is a week with all the volatility we’re getting. I imagine I’d be getting rid of any energy stocks on this rally though. I see oil going back to zero.

Q: You say stay long NASDAQ (QQQ) and short S&P 500 (SPY) for the rest of the year, but you project new highs for the S&P 500?

A: Yes, both can go up, but NASDAQ will go up faster, and that’s what hedge funds are doing. That gives you a market neutral position, sucks a lot of the risk out of that position, and it’s even crash-proof as we saw in the winter when the markets were melting down. And like hedge funds, you can leverage that up 5 or 10 times. So yes, that trade will work all day long, even if both indexes go to new highs. I imagine NASDAQ will outperform on the upside relative to SPY by a factor of two or three to one.

Q: Is there a good substitute to use versus your deep-in-the-money alerts if you have a smaller account?

A: You can just buy the stocks. Or, you can just buy the stocks on margin, which is 2 to 1—50% margin requirement there. There are many ways to skin a cat. The call spreads actually give you the most bang per buck because you get a lot of leverage with a small dollar amount upfront and limited risk.

Q: I heard that hedge funds have huge shorts. Is this setting up another short squeeze? Will they eventually be right?

A: Yes, that may have been what happened on Monday and Tuesday, a squeeze on the shorts driving prices much higher. They will eventually be right a little bit, but you’re certainly not going to get the major declines we saw in February/March because of all the QE and government support. The pandemic is no longer a surprise.

Q: Will COVID-19 fears keep volatility elevated until there is a vaccine?

A: Absolutely, yes. That’s great news for our options strategy, which is why we’re 100% invested almost all the time these days because higher volatility doubles the premiums you get for options. My current strategy is that once a position hits 90% of its maximum profit, I dump it and put on another position to take in an extra $1,500-$2,000. I did that with Tesla and gold (GLD) last week. This is the golden age of the in-the-money put and call spread strategy and we are better at executing it than anyone else.

Q: What do you have to say about the jobs report?

A: The entire US economic data system is breaking down because we’re seeing such immense swings month to month. Reporting lags are getting amplified one hundredfold. The June Nonfarm Payroll Report showed an increase of 4.8 million jobs and an unemployment rate of only 11.1% (I never thought I’d ever say “only 11.1%”). However, the state jobless claims are indicating an unemployment rate of at least 22%. Go walk down the Main Street of any town and you’ll see that the state figures are right. All the forecasting is relatively pointless. How can we get a fall in unemployment when nothing is open?

Q: Are you recording this webinar?

A: Yes, we usually post the recorded webinar on the site 2 hours after we finish so our many international subscribers don’t have to stay up until the middle of the night to watch it. That’s how long it takes to convert the webinar into a video format we can post online.

Q: When setting up LEAPS (Long Term Equity Participation Securities), do you buy straight calls at-the-money or in-the-money?

A: You buy deep, out-of-the-money spreads. Let's say you bought a (TSLA) $1,500/$1,550 deep-in-the-money call spread, and it expires at the maximum profit point with the stock over $1,550. You’ll make about a 500% return on that because it’s so far out of the money; the leverage is enormous. Will Tesla close over $1,550 in two years? Probably.

Q: How do I get into Tesla?

A: Close your eyes and buy at market, and hope we get $1,200 tomorrow on great Q2 sales numbers. Or, wait for another one of these huge selloffs—Tesla does have a history of selling off 50% at any given time, and then you go into a LEAPS there and get a 500% return. Most investors prefer the latter if they know about LEAPS. Remember, our last “BUY” into Tesla was a year ago when the stock was at $180. By the way, a lot of the shorts in Tesla stock were financed by big oil money and when oil crashed, they lost the ability to post more margin. So, they were forced to cover their shorts at gigantic losses, creating this super spike in the share price. Elon Musk, who owns 20% of the company, is laughing all the way to the bank.

Q: How do we pick the best strike prices for long-term LEAPS?

A: Go 30% out-of-the-money. There you get your 500% return. If you really want to be aggressive and you think the stock has 50% of upside, then go 50% out-of-the-money. There your return will be about a 1,000% profit over 2 years.

Q: How long are these trades for? I haven’t received any trade alerts.

A: Please contact customer support and we’ll find out if they are being filtered out by your spam folder. Global Trading Dispatch is sending out trade alerts virtually every day for all asset classes, so you should have received several of them by now. The Mad Hedge Technology Letter sends out fewer because they are confined to a narrow part of the market.

Q: What is your favorite stock in the gold space?

A: Newmont Mining (NEM). They have the strongest balance sheet of the major gold companies because they engage in fewer takeovers than the other big gold companies.

Good Luck and Stay Healthy

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Testimonial

Diary, Newsletter, Testimonials

Good Morning John,

All of your subscribers should have hit it out of the park today with Tesla (TSLA). Your trade alert has paid for many years of subscriptions. May the booze continue to show up at your estate.

Frank
Dallas, Texas

Trade Alert - (AMZN) July 6, 2020 - SELL-TAKE PROFITS

Trade Alert

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

July 6, 2020

Tech Letter

Mad Hedge Technology Letter
July 6, 2020
Fiat Lux

Featured Trade:

(WHY AN OFFICE IN BELGRADE MAKES SO MUCH SENSE)
(OKTA), (SPLK), (CRM), (WKDAY), (TWLO), (NOW)

Technology and the Minimalist Millennial

Tech Letter

My nephew paid nothing for phone, transport, internet, utilities during the coronavirus. I’ll tell you how he did it and no, he did not live with his parents or anyone else footing the bills. The future and a massive deflationary wave of technology can be found in how my nephew lives his life.

This is a story about James.

His life is the reason why the U.S. economy will never be the same and highlights the level of metamorphosis going on in our newfound home offices.

The usual culprit of the element inciting change is tech with the aftermath a catalyst for another wave of gigantic deflation.

The statisticians need to check what they are doing because nothing adds up in the deflationary world anymore.

This downward pressure on inflation is likely to be relentless, not just transitory offering central banks more flexibility with corporate accommodative policies without threatening to invoke the specter of inflation.

This is part of the reason why the bull market in tech stocks will be infinite.

Many economists and officials are befuddled, and such worries have never been far from the surface in the period after the financial crisis, the Great Recession, and now Covid-19.

The only thing constant right now is uncertainty.

Technologies are spawning “supply side shocks” in many areas of the global economy by permitting a more intense and efficient utilization of resources.

Also, replacement often leads to the betterment of people’s lives as software disrupts and cannibalizes many established goods and services.

One recent example that couldn’t illustrate this better for the “have nots” is car rental company Hertz, who woke up one day and found their business model shattered into oblivion and obsolete.

James has a modest U.S. income of $4,000 per month, which does not get you anywhere in megacities like New York or San Francisco.

After taking into account car maintenance, gas bills, car insurance, utilities, and rent, there might be $1,000 left over if luck is on the right side.

This type of income just doesn’t cut it in many American cities.

James faced a daunting challenge to acquire the quality of life he desired in most American megacities.

James works for a small start-up tech company, and after he proved to management that he was a legitimate contributor, he quickly asserted his leverage by requesting his manager to sanction a move to a full-time remote position.

Management didn’t want to lose him and reluctantly agreed contingent on a rolling 6-month review.

But James didn’t settle on Bakersfield, California, or even Klamath Falls, Oregon where he could significantly cut his bills.

He chose to take his talents to Belgrade, Serbia.

Deflationary impulse is pervasively spread across economic sectors where its presence has been difficult to note and with James’ housing budget now abroad, his dollars are partially taken out of the U.S. financial picture.

How can such “supply-side shock” manifest itself so quickly? Surely, the supply of land is largely fixed, particularly in areas that have already been urbanized.

The answer lies with technology that created additional capacity of the second industrial revolution, such as increasingly taller high-rise buildings.

Fast forward to today.

A company like Airbnb showcases how digital technologies are allowing more intensive resource utilization. There was abundant accommodation capacity hidden in the world’s cities — but it was not accessible until the internet, smartphone adoption, and Airbnb’s founders’ ingenuity unlocked it.

James is taking advantage of these wrinkles cutting his housing and office bill and crashing his monthly budget to the bare minimum.

James didn’t even feel the need to pay a deposit on a 1-year rental lease choosing to forego rental stability for the optionality of movement.

His Belgrade Airbnb space doubled as his home office.

Airbnb usually offers a 28-day discounted price which is classified as a “long stay.”

Many of these discounts are 30% or more, meaning James only paid $350 per 28 days to live in the Belgrade city center and would move around to different neighborhoods he felt were palatable.

He especially liked the Austrian-Hungarian historical district Zemun and the hipster vibe in Dorchol near the Belgrade City Center.

After the coronavirus hit, these “long term” rentals went from $350 to $200 per 28 days as tourists fled the city centers of Europe, and Airbnb prices crashed with cratering demand.

Why doesn’t James pay for internet, phone, and utilities?

Utilities and Wi-Fi are included in the price of the Airbnb covered by the host along with the furniture and amenities like air conditioning, fully equipped kitchen, microwave, dishwasher, iron, and washing machine.

James has substituted his phone bill opting for chat apps WhatsApp, Skype, FaceTime, Signal, and calls over Wi-Fi.

He keeps a Google Fi phone account to maintain a U.S. number, but keeps it permanently “paused” and only uses it to receive security and verification codes from his U.S. bank, IRS to pay taxes, and mortgage service provider to pay his mortgage online.

He manages to log on to these important portals via a virtual private network (VPN) that routes through a U.S.-based server.

He leases his U.S. house, which he owns, out to a tenant who covers 100% of James’ monthly mortgage costs and handed over his property to a local property manager to be managed.

James doesn’t pay for any transport fees because his city center apartment is walking distance to every main artery in Belgrade giving him access to Turkish-style coffee houses, to Cevapi grilled barbecue shops, to designer Hookah lounges all within a 15-minute walk.

The 2 to 3 times he needs to jump on the tram network to attend a party or night event, he borrows his friend’s yearly transit pass or just skips the fare completely. If he needs to pay, it is 75 cents for a 1-way ticket anywhere in Belgrade.

James has been living out of 2 suitcases for as long as I can remember and has never owned a car, despite growing up in the U.S. and graduating high school and university here.

Although many in the family think he is overly extreme, his intensely minimalistic lifestyle is food for thought; even though he was the first I had ever seen live in such a simplistic, draconian way.

The fallout from the coronavirus and the trends of deflationary technology show that James was ahead of his times when nobody knew it and recently accelerating trends validate his life choices.

James has effectively been planning for a pandemic his whole life which is why he has successfully navigated it, while many Millennials his age have been wiped out, drowned into debt they can never get out of.

If the U.S. suddenly gets tens of millions of James living a variation of his life, many services and products just wouldn't sell in the U.S. anymore. And if they are as extreme as James, housing will crash in all American megacities.

The reality is somewhere in between.

Reinvention is the U.S.’s strong point, but now young people are arbitraging literally everything in their lives, applying a global perspective with a good dose of software to support ultimate goals.

I will assume that most goals end up with obtaining a higher life quality.

Moving forward, investors will need to reprogram their technology compasses around firms that support a “James” type of lifestyle simply because there will be more people like this every day.

Software companies that mesh with this overarching thesis are Okta (OKTA), Splunk (SPLK), Salesforce (CRM), Workday (WKDAY), Twilio (TWLO), and ServiceNow (NOW).

The broader conclusion is that high-quality software stocks will outperform any other sub-sector or sector from now until forever.

As for James, I heard he finally decided to cough up money for local phone data which comes in at a mind-boggling $1 per 1 GB in Belgrade only 10% the cost of the same GB in inexpensive western countries.