Mad Hedge Technology Letter
November 25, 2020
Fiat Lux
Featured Trade:
(A COMPANY AT THE CROSSROADS OF HEALTH CARE AND TECH)
(SDGR)
For those speculative tech investors, I have an early-stage tech company that could be of interest to you.
This one is a big loss-maker just like in the mold of most growth companies, but they have the stereotypical revenue growth trajectory that is prevalent in strong tech stocks.
It might be a while before this one turns a meaningful profit but this company also sits at the intersection of healthcare and software cloud computing which is an ideal place to be in the 2020s.
Investors who can absorb higher risk and volatile price action should take a flyer on Schrödinger, Inc. (SDGR) who provides a computational platform to accelerate drug discovery and materials design for biopharmaceutical and industrial companies, academic institutions, and government laboratories worldwide.
Their most recent earnings reports offer us a brief snapshot of this burgeoning software company with software revenue underpinning top line of $22.9 million, an increase of 42% compared to the third quarter last year.
Schrödinger continues to see deeper engagement within the platform by customers, leading to robust year-over-year growth in software revenue.
They also have a talented team of scientists and software developers that continue to make significant progress in advancing the science that undergirds the computational platform.
Schrödinger recently published several papers describing advances in FEP+, including improved methods for accurately modeling binding affinities in metalloenzyme inhibitors, improved support of macrocycle design and optimization, and improved approaches to optimizing binding selectivity, which is a major way of reducing potential toxicity of drug molecules.
Schrödinger also adopted active learning workflow for structure-based hit discovery, which can screen massive libraries of compounds with greatly improved computational efficiency.
The firm has seen new drug candidates discovered in their collaborative programs progress into IND-enabling and first-in-human studies.
I believe these advancing programs represent examples of the impact of Schrödinger’s physics-based methods, not just in achieving broad exploration of chemical space, but more importantly, on the optimization of high quality development candidates, with balanced properties for clinical testing.
As an example, Morphic's MORF-057 for inflammatory bowel disease, which initiated a clinical trial in the third quarter, is one of several examples where Schrodinger Technology-enabled solutions to their health partner's preclinical design challenges.
In this case, the design of selective compounds for the integrin alpha 4 beta 7 was enabled by an important advancement to properly treat the receptor's metal centers.
Schrödinger recently reported a significant increase in the number of collaborative programs that had reached the latest stages of drug discovery.
I expect to see many of the collaboration programs and lead optimization into preclinical development over the next year.
What about the internal pipeline?
Schrödinger launched five oncology programs targeting solid tumors and hematological malignancies.
The preclinical data packages assembled to date include mechanistic validation and anti-tumor activity data.
I believe, based on the data generated to date, that each of these assets could have monotherapy activity in specific populations, as well as utility, in combination with other approved and late-stage oncology products.
Looking forward, Schrödinger has also prioritized several new program opportunities, with genetic support in human cohorts and emerging pharmacology data, in oncology and immunology.
In addition to strategic hires in preclinical and early clinical development, they have also expanded the drug discovery team, adding key seasoned immunology expertise.
All of this translates into a meaningful rise in software revenue because of the increased adoption of solutions by large customers, as well as the addition of new customers.
Schrödinger continues to experience strong uptake in live design, and their enterprise solution for drug discovery.
Live design integrates discovery workflows and can be especially powerful in fully remote work environments that many of us are still experiencing.
Software gross margin was 81% this quarter, unchanged from the third quarter of 2019.
Schrödinger’s business model has not been impacted by the health pandemic, and neither is its future runway of potential revenue.
The only drag from the pandemic is on the drug discovery side, it could cause temporary delays in some programs. In any case, I do not envision a long-term impact from the public health situation on Schrödinger’s ability to execute and deliver on its strategy.
In summary, Schrödinger’s outperformance stems from its brilliant execution across its array of businesses, resulting in strong revenue growth, increasing collaboration equity value, progress in internal and collaboration programs, continued scientific advancement of in-house technology, and the successful IPO and follow-on financings that strengthen their balance sheet and provide strategic optionality.
Annual revenue still is under an annual run-rate of $100 million and as software revenue growth still displays robust plus-40% growth rates and a juicy gross margin of 81%, it’s only a matter of time before institutional investors start deploying capital in this up-and-coming tech name.
“AI will not replace physicians. However, physicians who use AI will replace those who do not.” – Said The Mad Hedge Fund Trader John Thomas
Today, I would like to make a recommendation on a stock purchase.
The stock is eGain Communications Corp. (EGAN).
EGAN is trading around $11.36 as I write this.
It does have monthly options, but I am not going to suggest you sell calls at this time.
I am going to suggest you buy the stock because this will be swing trade. The idea is that EGAN will follow through on the reversal it is putting in today.
Buy EGAN at the market, which is $11.36.
Based on the nominal portfolio, limit the buy in to 400 shares or 4.5% of the portfolio.
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
Global Market Comments
November 25, 2020
Fiat Lux
FEATURED TRADE:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT DECEMBER 1-3),
(TESTIMONIAL)
I’ve spent the last 50 years looking for the best traders & investors in the world. I wanted to learn from them and to hire them as well. Now you can meet some of the people I’ve found, the cream of the crop at the top of their games.
You can learn more listening to them in an hour than reading a dozen books or attending a hundred webinars.
To see what they have to say right now, all you have to do is attend the Mad Hedge Traders & Investors Summit from December 1, 2, and 3 from Tuesday to Thursday.
In it I will cover:
Dow 40,000 Here We Come!
*2021 could be the best year of the decade for stocks, with Dow 40,000 within reach, up 35%
*A Perfect Storm of positive economic conditions will trigger a massive increase in stock earnings multiples and prices
*2020 was only a short-term dip in a 20-year bull market that may have another decade to run
*Most pandemic business activities weren’t lost but deferred, leading to an explosion in spending in 2021
*Many domestic recovery stocks have barely moved in a decade and now have explosive upside potential
*”Reopening” stocks like (DIS), (BA), airlines, hotels, and cruise lines have already had huge moves but still have much to run
*2021 will be a year to be fully invested and 100% “RISK ON”
To join, just click here. It will be the best investment of time you’ve ever made. I’ll see you there. This is John Thomas signing off for now. Good luck and good trading.
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 Biotech & Healthcare Letter
November 24, 2020
Fiat Lux
FEATURED TRADE:
(WATCH OUT FOR BIONTECH’S HOCKEY STICK GROWTH)
(BNTX), (PFE), (AZN), (MRNA), (JNJ), (REGN), (DNA)
BioNTech (BNTX) is the perfect example of an old saying, “Timing is everything.”
Coming from its humble IPO in 2019, this biotechnology company now sports a $25 billion market capitalization—a number that could still go up once its COVID-19 vaccine candidate with Pfizer (PFE) receives US and EU nods.
What we know so far is that their COVID-19 vaccine candidate could secure an emergency approval as early as December and start delivery before Christmas.
Although it’s still not available in the market, the effect of its COVID-19 vaccine candidate, called BNT162, has made itself known in BioNTech’s earnings report.
The company reported roughly $80 million in revenue in the third quarter of 2020 alone—an impressive 135% jump from its previous performance in the same period last year.
To date, BioNTech and Pfizer are estimated to supply roughly 1.3 billion doses by the end of 2021.
Additional orders could still come in though, which is why the two companies have been busy scaling their manufacturing capacities.
If all goes according to plan, then the expected returns from their COVID-19 vaccine sales could come sooner than initially thought.
Recent reports reveal that Moderna’s (MRNA) COVID-19 vaccine candidate also showed over 90% efficacy. Even AstraZeneca’s (AZN) candidate with Oxford University disclosed promising results.
However, BioNTech and Pfizer’s candidate has a couple of competitive advantages.
The first would be its 95% efficacy, which gives the two companies the commanding position and effectively relegates the rest as second grade options.
Their candidate showed no safety concerns—a major issue for AstraZeneca and Johnson & Johnson’s (JNJ) candidates.
Third, the partners have been able to reassure their capability to manufacture at scale—an issue that would pose problems for other developers like Moderna.
In fact, BioNTech acquired a vaccine manufacturing plan in Germany just last September to meet the demand for 250 million doses by mid-2021 and another 80 million doses monthly thereafter.
In terms of manufacturing capacities, the two potential competitors of BioNTech and Pfizer here are AstraZeneca and JNJ. Both have already paused their trials and are now falling behind in terms of the rigid schedule.
As for the other COVID-19 vaccine leader, Moderna has yet to prove that it can manufacture at scale.
BioNTech and Pfizer even shut down the red herring about the cooling and storage of their COVID-19 vaccine candidate. The two companies released their plans for distribution and detailed a strategy that’s not only feasible but also cheap.
Since the vaccine requires extremely low temperatures to maintain its efficacy, Pfizer and BioNTech will ship them from centralized warehouses via a thermal shipper.
This will ensure that the temperature is maintained for 10 days without the need to re-ice and up to 15 days with re-icing. A GPS will be used to monitor and track the integrity of the vaccine in real-time.
The impact of its sales from the COVID-19 vaccine would dwarf practically everything else in BioNTech’s financial statements.
However, this does not mean the biotechnology company will revert to its 2019 status once the peak of its COVID-19 vaccinations is over.
Instead, BioNTech will be in possession of an extremely valuable IP of an effective and working mRNA vaccine platform.
This will allow the company to apply the technology to other infectious diseases.
If it continues with its partnership with Pfizer, it can even develop vaccines for farm animals and domestic pets and market those under the bigger company’s animal healthcare spinoff, Zoetis (ZTS).
Here’s a bit of background on BioNTech.
Founded in 2008, BioNTech was created to develop hyper-personalized medicine and treatments.
At the center of its mission, the company’s basic idea is that the tumor found in each cancer patient is one of a kind.
To help find a cure or treatment, the company analyzes the tumor for its genetic signature.
Once they identify this unique element, they would develop gene-based therapies to limit the spread or even put an end to that particular occurrence of cancer.
If you think this is a lofty goal for a small biotechnology company, then you’d be surprised to find out that BioNTech proved their theories in 2017.
At the time, all 13 patients who underwent the analysis and received injections for genetically personalized therapies for their advanced-stage cancers.
Essentially, the cancer patients developed immunity from their own cancer.
Apart from COVID-19 and cancer treatments, BioNTech is also working on treatments for tuberculosis, HIV, and several rare diseases.
Outside its partnership with Pfizer, it has been partnering with Regeneron (REGN) and Genentech (DNA).
Biotechnology stocks have the tendency to move when the companies release updates about their treatments under development.
For momentum investors, it’s crucial to be prepared for whatever happens in the aftermath.
Looking at the developments and other updates, BioNTech’s COVID-19 vaccine work could send this stock to the moon.
After all, its partnership with Pfizer resulted in what could be the most effective and efficient candidate to battle the pandemic.
This means that the demand for the vaccine would exponentially exceed the supply in the near future, with the majority of what can be manufactured getting pre-sold or call option reserved.
To date, BioNTech stock is trading at roughly $104 per share. However, I estimate that it could reach a target price of $600 by the first quarter of 2021.
