Mad Hedge Biotech & Healthcare Letter
August 25, 2020
Fiat Lux
Featured Trade:
(LET THE VACCINE PRICING WARS BEGIN)
(MRNA), (MRK), (PFE), (BNTX), (AZN), (JNJ), (NVAX), (SNY)
The COVID-19 vaccine race is winding down to its final lap, with at least seven candidates already undergoing Phase 3 trials.
Now, one question inevitably arises: How much will these vaccines cost?
Moderna (MRNA), one of the frontrunners in this race, revealed that its vaccine, mRNA-1273. will be priced somewhere between $32 and $37 for each dose.
The moment this pricing was announced, health advocates were up in arms to point out the high price of the vaccine especially with the funding Moderna received from the US government.
However, the company clarified that this would only apply to “small-volume” transactions.
According to Moderna, the pricing for their coronavirus vaccine should be viewed in two phases: the pandemic and the endemic periods.
During the pandemic period, the coronavirus vaccine would be given a price “well below” its actual value. The pricing will change and eventually be more in line “with other innovative commercial vaccines” when the crucial period passes.
For reference, flu shots are typically priced somewhere between $50 to $120 depending on the clinic while a single-dose HPV vaccine from companies like Merck (MRK) can cost up to $235.
Despite the clamor to further investigate this pricing scheme, Moderna sealed another deal with the US government worth $1.525 billion if the company succeeds in meeting its promised timeline.
This will translate to roughly $100 million doses.
It also stands to gain an additional $8.125 billion in follow-up doses plus the $300 million bonus if it can score an FDA approval by January 31, 2021.
Another frontrunner in this coronavirus vaccine race is Pfizer (PFE).
Among the healthcare and biotechnology companies working on a vaccine, Pfizer and its German partner BioNTech (BNTX) are reported to have the most lucrative contract with the federal government to date.
The company recently sealed a $1.95 billion deal for 100 million doses. This puts Pfizer’s coronavirus vaccine at roughly $20 per dose.
Both vaccine candidates from Pfizer and Moderna require two doses.
In comparison, Johnson & Johnson (JNJ) has a “one-and-done” vaccine candidate. That is, the Ad26.COV2-S showed potential that it could only require a single dose.
This is definitely a competitive edge as it will eventually be a cheaper and more convenient alternative to the two-dose vaccine offered by its competitors.
In terms of pricing, JNJ recently landed a $1 billion contract with the US government to deliver 100 million doses. This translates to $10 per dose.
However, AstraZeneca (AZN) appears to be the favored candidate by the US government.
In fact, recent reports suggest that the Trump administration is considering bypassing normal regulatory standards in the UK to fast track the delivery of the vaccine candidate to the US — all before election day.
What we know so far is that AstraZeneca, which is developing its vaccine in collaboration with the University of Oxford, signed a deal with the US government worth $1.2 billion.
This will amount to 300 million doses of their vaccine candidate, which puts the cost of each dose to roughly $4. At this price point, AstraZeneca offers the cheapest option.
Meanwhile, small-cap biotechnology company Novavax (NVAX) recently signed a similar deal with the government.
The Maryland-based company agreed to manufacture 100 million doses of its vaccine for $1.6 billion. This works out to approximately $16 per dose.
Next to Moderna, Novavax’s journey this year has been considered a “Cinderella story” by a lot of investors.
The company ended 2019 all banged up, with the biotechnology stock falling by almost 90%, thanks to its failed respiratory syncytial virus (RSV) vaccine candidate.
However, Novavax rose from the ashes following the encouraging results of its late-stage study for NanoFlu, another vaccine candidate.
By March 2020, Novavax’s flu vaccine released promising data that put NanoFlu in direct competition against Sanofi’s (SNY) flu vaccine Fluzone Quadrivalent.
Riding the momentum of their success with NanoFlu, Novavax joined the COVID-19 vaccine race with NVX‑CoV2373.
While companies like Pfizer, Moderna, JNJ, and AstraZeneca have been gaining media attention, an increasing number of health experts and analysts are claiming that Novavax’s candidate might just be the best in class.
Outside the companies under Trump’s Operation Warp Speed, China’s state-owned company, Sinopharm, also announced the pricing for its COVID-19 vaccine candidates.
The pricing is quite higher than those put forward by other vaccine developers, with the Beijing company quoting $145 for two doses.
Aside from China, Russia also has a vaccine candidate expected to be out in the market soon.
Vladimir Putin claims that Russia’s coronavirus vaccine candidate is similar to the one created by AstraZeneca and Oxford University.
No information has been given on either the results of the vaccine’s late-stage trials or its pricing.
To date, the World Health Organization (WHO) has recorded 7 vaccine candidates undergoing Phase 3 clinical trials, while there are 15 more going through Phase 2 expanded safety trials.
An additional 25 candidates are currently under Phase 1 small-scale trials plus another 138 pre-clinical candidates slated for human trials soon.
The development and success of at least one coronavirus would undoubtedly reverse the economic and financial damage brought by the pandemic. Hopefully, that time will come soon.
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
August 25, 2020
Fiat Lux
SPECIAL AMAZON ISSUE
Featured Trade:
(WHY AMAZON IS BEATING ALL), (AMZN)
Mad Hedge Technology Letter
August 24, 2020
Fiat Lux
Featured Trade:
(RING IN THE PROFITS)
(RNG)
RingCentral is strategically positioned to meet exploding demand with an enterprise program, global and trusted unified Message Video Phone, or MVP, platform.
The results speak for themselves and investors should look at deploying capital in this company.
The pandemic has created unprecedented global challenges and is having a transformative impact that we all need to reckon with.
Cloud transformation of business communications platform has become a priority as companies adjust to a work-from-anywhere environment.
Businesses of all sizes now require communication solutions where employees can work productively with clients, partners, and peers from anywhere on any device and in any model.
This complexities of enabling cloud migration of business communications started over a decade ago and could never be more important today.
Ring delivered a strong second quarter as they continue to take advantage of strong contributions from mid-market, enterprise, and mid-channel partners.
First, Ring announced an expansion of strategic partnership with Atos.
Second, together with Avaya, Ring announced a further global rollout of Avaya Cloud Office by RingCentral.
Several of these large wins were in targeted verticals of healthcare, financial services, and education.
Total revenue grew to $278 million. This is a 29% increase year over year and is above the high end of the guidance range.
Approximately 60% of their on-premise installed base of 40 million users is in Europe, with a strong presence in Germany.
Other locations of strategic importance include France, Spain, Italy, Netherlands, Austria, Belgium, Ireland, U.S., U.K., and Australia.
There is a robust pipeline building and several critical large deals already on the books. An example of a large joint win was the selection of Ring’s platform by a large organization that supports the U.K. government's virus tracing program to control the spread of the virus.
In this highly urgent and critical use case, the solution-leveraged RingCentral's open API platform and was rolled out to multiple thousands of users in approximately six weeks.
To add to the growing hype, Ring saw double-digit growth in messaging and triple-digit growth in video and mobile voice minutes on Ring’s MVP platform quarter over quarter.
Speaking of video, RingCentral Video, or RCV platform, has been quickly proving itself since the April launch.
As part of the agreement, Alcatel-Lucent channel partners and customers will have full access to RNG’s mobile-voice-phone (MVP) platform capabilities, with it also including a $100 million cash payment from RingCentral and providing exclusive access, minimum seat commitment and future commissions to Alcatel-Lucent.
Both companies will also be on the hook for operating expenses related to product development.
This deal will serve as another opportunity for RingCentral to expand sales more quickly globally, especially given Alcatel-Lucent's 40 million-plus unified communications (UC) customer base.
Following this new partnership, RNG now has roughly 45% of the estimated global UCaaS market accounted for via strategic partnerships (180 million seats of a total of 400 million seats).
RingCentral will consistently grow its seat count above an expected industry growth rate of 15% - 20% over the next five years.
The partnerships mean and added $1 billion of incremental revenue opportunity.
In all, this extrapolates into potentially a 40% compounded top-line growth longer term.
With a tech company such as Ring that is locked and loaded in the middle of its sweet spot growth trajectory, it’s hard not to see the underlying stock higher in the next 1 to 2 years.
Then, when investors consider that the Federal Reserve has artificially propped up markets, with traditional valuation metrics no longer telling the whole story, one must conclude that tech growth companies targeting the cloud are prime for a doubling or tripling from current valuations.
The virus has cut off the start-up culture with a round of layoffs from unprofitable companies in Silicon Valley.
The last tech growth companies “in the door” will benefit most since the scarcity value of these firms will filter down to the bottom line.
I am very bullish on RingCentral’s prospects.
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
August 24, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or ON FIRE EVERYWHERE)
(INDU), (JPM), (GLD), (GDX), (GOLD), (FB),
(TLT), (AAPL), (AMZN), (TSLA)
I am no longer able to breathe. The pandemic demands that I wear a mask. The wildfires prevent me from going outside, as the air is so heavy from smoke.
So, I decided to flee the San Francisco Bay Area south to Big Sir for a couple of days to catch up on my writing. On the way, I passed dozens of sadly abandoned schools as the pandemic has moved all of California to online distance learning.
By the second day, I was surrounded by fire. At an afternoon wine tasting, I tipped the waiter to hurry up as my glass was filling with ash and fire trucks were passing every five minutes.
By the next morning, I was surrounded by out-of-control wildfires and there was only one open road out of town. What really lit a fire under my behind was a text message from Tesla stating they would shut down charging at the Monterey station after 3:00 PM to help head off rolling blackouts.
The Golden State was not the only place on fire last week. Stocks were en flagrante as well, led by Tesla, Amazon, and Apple. The S&P 500 hit a new high for the year. It is the most concentrated market in history, with only 12 technology names accounting for 85% of the 2020 gains. Yet, 57% of shares are showing losses for 2020.
With a 33X multiple, Apple is pricing in only a 3% annual gain in the coming years. The price of Tesla at $2,100 a share is assuming the 2040 earnings have already arrived. We are firmly in bubble territory.
Having been in many bubbles over my half-century of trading, I can tell you they all have one thing in common. They run a lot longer than anyone imagines possible. In the meantime, traders, analysts, and investors are tearing their hair out wondering why they are so underweight stocks.
So trade if you must. But understand that the risk/reward here is terrible. You are better off here buying gold and banks and selling short US Treasury bonds and the US dollar.
Much has been made about share splits, which were the primary drivers of markets last week. However, the history of these things as that share prices fade shortly after the splits are completed. That was last Friday for Tesla and this Friday for Apple.
Apple may run a little longer, as it typically sees shares peak right after new generational cell phone launches, due in October.
Weekly Jobless Claims topped 1.1 million, ending a four-month downtrend. New Jersey, New York, and Texas were worst hit. Without further stimulus, they should continue to rise from here. These are Great Depression levels, and now massive layoffs from state and local governments are starting to kick in.
Apple topped $2 trillion in market cap. It is hard for those of us to believe it who bought the stock under $1 in 1998. It looks like more gains are to come. The coming 5G iPhone is going to market the peak in the shares this year, as new generational phones always do.
Uber and Lyft received a stay of execution, for 60 days, over whether they must treat drivers as full-time employees with benefits. Looks like I won’t have to take BART until October.
The U.S. Economy is falling back into the abyss. Last week’s total for new claims was well above the pre-pandemic Great Recession high of 665,000. Over 57.4 million Americans have now filed new unemployment insurance claims.
The airline industry is about to implode. With six months of operating at 20% capacity, how can they not? At least 75,000 in layoffs are imminent. Avoid the sector at all costs. You won’t recognize what comes out the other end. The next administration won’t be so generous to shareholders.
US Corona cases are slowing, even though we’ve just seen five consecutive days above 1,000 deaths. It’s the temporary ebb in the epidemic I was expecting that would rally the “recovery” stocks and sink the bond market. It’s sad, but we are celebrating suffering another 9/11 every three days instead of two.
Warren Buffet hates gold (GLD), but loves gold miners (GDX), loading the boat on Barrick Gold (GOLD) in Q2. It’s a rare move for the Oracle of Omaha into precious metals and the only way the cash flow king can collect a dividend in the sector. Warren seems to share my own long-term view on rising inflation caused by massive government bond issuance and spending.
U.S. Housing Starts mushroomed, surging 22.6% on the month to a seasonally adjusted annual rate of 1.496 million. Building permits also came in ahead of expectations, up 18.8% to 1.495m. Migration to the suburbs may explain some of the increase in activity but record-low mortgage rates and tight existing home inventory are the primary drivers. Soaring lumber prices mean growth in single-family starts will slow over the remainder of the year, not to mention the extra 0.50% fee on refinances.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old.
My Global Trading Dispatch suffered one of the worst weeks of the year, giving up most of its substantial August performance. If you trade for 50 years, occasionally you get a week like this. The good news is that it only takes us back to unchanged on the month.
Longs in banks (JPM) and gold (GLD) and shorts in Facebook (FB) and bonds (TLT) held up fine, but we paid through the nose with shorts in Apple (AAPL), Amazon (AMZN), and Tesla (TSLA).
That takes our 2020 year to date down to 28.88%, versus -2.00% for the Dow Average. That takes my eleven-year average annualized performance back to 36.06%. My 11-year total return retreated to 384.79%.
It's a relatively low rent week on the data front. The only numbers that count for the market are the number of US Corona virus cases and deaths, which you can find here.
On Monday, August 24 at 8:30 AM EST, the Chicago Fed National Activity Index is out.
On Tuesday, August 25 at 9:00 AM EST, the S&P Case Shiller National Home Price Index for June is released.
On Wednesday, August 26, at 8:30 AM EST, Durable Goods for July are printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, August 27 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get the second estimate for Q2 GDP.
On Friday, August 28, at 8:30 AM EST, US Personal Spending is announced. At 2:00 PM, the Bakers Hughes Rig Count is released.
As for me, I am reading up on bios and generally preparing for my upcoming Mad Hedge Traders & Investors Summit, which I will be hosting for three days and starts on Monday morning at 9:00 AM EST. The attend please click here.
See you there.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“The stock market is not expensive at 0% Fed funds and 0.60% government bonds,” said my old investor and mentor Leon Cooperman of Omega Advisors.
