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
Mad Hedge Biotech & Healthcare Letter
October 29, 2020
Fiat Lux
FEATURED TRADE:
ROCHE ENTERS COVID-19 FIGHT IN STYLE
(RHHBY), (REGN), (GILD), (MRK), (ALNY), (IONS)
Roche (RHHBY) is making quite an entrance in the COVID-19 antiviral treatment race, forking out $350 million in cash to gain rest-of-the-world rights to a promising new drug created by Massachusetts-based biotech company Atea Pharmaceuticals.
This is an exciting development because the partnership between the two companies holds incredible promise in the search for a COVID-19 cure.
In May, Atea Pharmaceuticals essentially dropped all its projects and rebranded itself as a COVID-19 fighter, attracting a stunning $215 million in its venture round.
Among the marquee names that invested in this 7-year-old biotechnology company are Bain Capital and RA Capital.
Going back to its work with Roche, the $350 million cash is expected to fund the ongoing clinical trials of Atea’s very own COVID-19 antiviral treatment called AT-527.
So far, the candidate is in its Phase 2 trial and slated to start global trials or Phase 3 by early 2021.
Apart from being a potential COVID-19 treatment, AT-527 is also under development as a Hepatitis C medication.
In terms of where AT-527 stands in the COVID-19 treatment race, this drug belongs to the same class as Gilead Sciences’ (GILD) Remdesivir and Merck’s experimental candidate with Ridgeback Biotherapeutics called MK-4482.
Like Remdesivir and MK-4482, Roche’s AT-527 is designed to inhibit the replication of SARS-CoV-2, the virus that causes COVID-19.
Unlike Remdesivir though, which is only available through intravenous infusion, AT-527 is an oral drug, making it a more convenient option.
This isn’t the first time that Roche’s COVID-19 efforts came under the spotlight.
Earlier this month, its COVID-19 work with Regeneron (REGN), called REGN-COV2, has been dubbed as a leading candidate in the race because of the high-profile patient who used it: President Donald Trump.
This partnership with Regeneron is expected to ramp up the manufacturing process by at least 3 and a half times compared to their individual capacities.
Outside its COVID-19 efforts, Roche has proven to be a good long-term investment.
Admittedly, the company’s third-quarter report missed the mark by 4% due to aggressive biosimilar competition. However, Roche’s pipeline of newer products has been growing nicely.
Because of biosimilar competition, sales of cancer and immuno-oncology treatments like Avastin fell by 30%, Rituxan slipped by 33%, and Herceptin dropped by 38%.
However, the performance of Roche’s new drug lineup showed promising results, with sales of these products showing off a 32% growth in the third quarter of 2020.
For example, sales of multiple sclerosis drug Ocrevus rose by 37%, while revenue from cancer treatments like Perjeta climbed 17%, Kadycla rose by 33%, and Tecentriq jumped by 49%. Meanwhile, sales of hemophilia medication Hemlibra increased by 57% .
All in all, the hits and misses cancelled out each other this quarter.
Despite the disappointment in these results, Roche stood by its full fiscal year guidance.
This is a strong indicator that the company sees a brighter fourth quarter. Overall, Roche remains in good shape.
Tecentriq has been expanding to cater to other indications such as liver cancer and even some immuno-oncology applications.
Hemlibra continues to outperform its peers, holding on to 25% of the US market share for Hemophilia-A. Even Ocrevus has been outperforming others.
Regarding pipeline developments, Roche has been pouring resources for the trials of NASH drug candidate Crovalimab, which is now in Phase 3.
The acquisition of Inflazome in September and Enterprise Therapeutics in October indicate that Roche is looking to expand in the cystic fibrosis space as well.
Its recently inked agreement with Dyno Therapeutics also signals its plans to work on gene therapies, making itself a potential threat to the likes of biotechnology companies Alnylam (ALNY) and Ionis (IONS).
Looking at everything it has done and has yet to offer, I believe that Roche shares are undervalued at below the high $40s.
This company has a healthy lineup and promising R&D strategies combined with the capacity to buy high-potential assets.
I can see the company generating mid-single-digit cash flow growth on a long-term basis, and I even expect additional improvements to the dividend.
Given the returns you can get from Roche, I can say that this stock is very much worth consideration for any investor interested in quality growth.
Global Market Comments
October 29, 2020
Fiat Lux
Featured Trade:
(HANGING WITH LEONARDO)
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 Technology Letter
October 28, 2020
Fiat Lux
Featured Trade:
(THE CLOUD MOVEMENT IS INTACT)
(FFIV), (CRM), (CLOU)
We got another solid sign that the software-as-a-service (SaaS) phenomenon is sticky as ever. You can simply play this with cloud ETF — Global X Cloud Computing ETF Global X Cloud Computing ETF (CLOU)
One of the leading cloud barons of our time, Salesforce.com (CRM) Chief Executive Officer Marc Benioff criticized German rival SAPs business performance in explicit words, rejecting the idea that the German software giant’s challenges are a sign of things to come for his company.
Benioff said that at “SAP, you can see they’re having very significant troubles with the CEO transition they’re going through…they, as you know, moved from one CEO to two, they fired one of those two CEOs. The CEO transition is just not going well and their customers are saying that. Now you can see that their revenues are also reflecting this trouble.”
Protecting his industry makes sense as SAP have decided to blame the cloud industry on their woes and not their management.
Fair enough but Benioff is clearing the debris off the runway and offering a more accurate and rosier snapshot of the current cloud industry.
It’s certainly investor’s every right to worry over SAP’s decision to cut its full-year forecast that helped drag down other software makers, including Salesforce.
Benioff also chimed in and said, “SAP’s troubles, I think, are unique to them.”
Salesforce hasn’t felt the same weakness in guidance, and it was only just this past August, Salesforce reported quarterly sales increased 29% and jacked up its revenue forecast for the year.
The addressable market is growing, and Salesforce is making headway in that market.
Even weaker cloud companies are still showing a healthy heartbeat like Seattle-based F5 Networks (FFIV) saw shares rise after its fiscal fourth quarter earnings report beat expectations.
The company posted revenue of $615 million, up 4%, and non-GAAP earnings per share of $2.59. Wall Street expected revenue of $606 million and EPS of $2.37.
F5 Networks continues to benefit from its move into software and services, expanding beyond its traditional networking hardware business. Software revenue was up 36% from the year-ago quarter and their hardware business drags the overall growth number down to single digits.
The SaaS success is why President and CEO of F5 François Locoh-Donou has indicated that F5 is jumping headfirst into SaaS and nothing will stop this strategy apart from an apocalypse.
Locoh-Donou laid out the company’s strategy to enable “adaptive applications” that can adapt based on the environment.
F5 plans to leverage its traditional application delivery technologies along with its $1 billion acquisition of Shape Security and $670 million acquisition of web server NGINX to position itself as a key player amid a larger trend of automation and artificial intelligence driving advances in software applications and computer networks.
Cloud companies are held up so well that Locoh-Donou told employees that F5 won’t make layoffs during its fiscal year 2020.
I believe that this upcoming earnings season will offer more olive branches into why software stocks continue to be solid, but it's is not to say they aren’t expensive in the short-term.
The software-as-a-service (SaaS) business model continues to be a buckle-your-seatbelt-up growth leader, but other cloud-based services are poised to eclipse it as it matures.
SaaS applications are expected to deliver a highest-ever $105 billion in revenue this year, even as global technology spend dropped 8%, or about $300 billion.
The largest x-factor to SaaS was the broad-based pivot to cloud applications to accommodate remote working.
Even after workers return to the office, SaaS will continue growing because of the computing power and agility it could offer that otherwise couldn't afford it if they had to buy an on-premises or enterprise solution.
SaaS revenue is poised to surpass $121 billion next year and $141 billion in 2022.
For the five-year period between 2018 and 2022, SaaS will grow at a 12% annual rate.
We are now entering the consolidation phase for SaaS where companies are slowly replacing the last on-premises stalwarts in their portfolio, but the low-hanging fruit has mostly been harvested.
The applications with the strongest business case for SaaS have mostly been implemented.
SaaS companies are also facing increased competition and the numbers validate this as SaaS companies typically competed against three other companies in 2012, but by 2017, a SaaS startup could expect to face nine competitors in the same market segment.
Take for instance the digital market industry, the number of SaaS products increased from about 500 to 8,500 during that 5-year period.
The SaaS model has proven to be robust and critical to business continuity.
It will continue to be the preferred deployment mechanism for most applications and until this overarching strategy shifts, the money will be poured into SaaS software.
The first-mover advantage will take hold as the more marginal SaaS applications appear; the more customers will migrate into “brand” names.
For companies like Salesforce and F5 Networks, this means tailwinds, but it will virtually be impossible to become a new SaaS start-up in 2020 as this industry starts to mature.
“There are few companies today as entrenched in the world of technology and software as Microsoft.” – Said American investor David Einhorn
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
Global Market Comments
October 28, 2020
Fiat Lux
Featured Trade:
(PLEASE USE MY FREE DATABASE SEARCH)