Mad Hedge Biotech & Healthcare Letter
July 15, 2021
Fiat Lux
FEATURED TRADE:
(A SAFE STOCK TO BUOY UP YOUR PORTFOLIO)
(LLY), (NVO), (BIIB), (RHHBY)
More than halfway into 2021, and so much has transpired in the investing world.
We witnessed a historical short squeeze, the unprecedented rise of cryptocurrencies, and even the battle among billionaires on who would get to explore outer space first.
The stock market has been quite volatile over the past months, and the fears that we’re barreling towards another downturn, as fueled partly by concerns on inflation, continue to haunt us.
Amid the noise and the chaos, it’s critical to bear in mind one of the most important rules of investing: Buying and holding shares of stable companies for a long period usually reaps great returns.
While no one knows what the rest of 2021 holds, there are still remarkable companies that are worth buying and holding through the course of the next few months.
One such company is Eli Lilly (LLY).
The greatest strength of Eli Lilly is the way it handles its diverse pipeline. While it continues to expand its reach to cover more and more markets, the company also ensures that it doesn’t neglect its well-established niches.
For instance, Eli Lilly continues to boost its diabetes and obesity sector. One of the company’s most promising projects is a new drug called Tirzepatide, which targets these health conditions.
This is now undergoing Phase 3 clinical trials, and if successful, could rake in $7.8 billion in sales for Eli Lilly.
It’s also developing a once-a-week insulin, called Basal Insulin Fc, which would be administered to patients with Type 2 diabetes.
If approved, this would be a massive breakthrough considering that the patients typically need to take insulin daily.
Another effort to shore up its diabetes franchise is Eli Lilly’s decision to buy a next-generation biotechnology company called Protomer for a whopping $1 billion.
Although Protomer has only been in operations for six years, the private company has already developed incredible technology in the diabetes sector.
The most remarkable achievement it has so far is a platform that can create glucose-response insulins, which can sense the body’s sugar levels and then get activated automatically throughout the day.
Although this is still in its early stages, this technology could drastically reduce the risk of hypo- and hyperglycemia among diabetes patients.
Eli Lilly’s deal with Protomer follows in the footsteps of the leading diabetes company worldwide, Novo Nordisk (NVO), which also struck a similar agreement worth $800 million with another biotech startup in 2018.
Aside from diabetes and obesity, Eli Lilly has also been working on dominating in the Alzheimer’s disease space.
When the FDA granted Biogen’s (BIIB) Alzheimer candidate Aduhelm with accelerated approval, it also opened a door for Eli Lilly.
Even prior to this approval, Eli Lilly has already been working on its own candidates, Donanemab. What the Biogen approval provides is a higher chance of positive review for Eli Lilly’s candidate.
In fact, mere weeks after Aduhelm’s accelerated approval, Eli Lilly announced that it would submit an application for the same authorization by the end of 2021.
At this point, the treatment holds a Breakthrough Therapy designation from the FDA.
Given this, it’s presumably a shoo-in for approval soon, thereby adding a new growth driver to the company’s extensive arsenal.
Other than the two, Roche (RHHBY) is also expected to throw its hat in the ring with its Alzheimer’s candidate Gantenerumab.
Eli Lilly’s current lineup of products is definitely worth mentioning as well.
In the first quarter of 2021, the company’s revenue climbed by 16% year over year to hit $6.9 billion.
One of its top performers is its diabetes drug Trulicity, which recorded an 18% jump in sales to reach $1.5 billion.
In terms of its bottom line, Eli Lilly projects its adjusted earnings to increase between 15% and 18% year over year in 2021.
Looking at its financials, it’s clear that Eli Lilly’s current portfolio and pipeline are favorably positioned to deliver strong financial results year after year.
Although the company hasn’t exactly catapulted to unprecedented heights, it has shown stable and consistent growth as well as notable gross margins of over 70%.
It has consistently outperformed the markets in the past five years, climbing close to 200%.
This is the reason why regardless of the ups and downs of the market, investors can easily count on this stock to climb continuously in the long run.
Global Market Comments
July 15, 2021
Fiat Lux
Featured Trade:
(THE BULL CASE FOR BANKS)
(JPM), (BAC), (C), (WFC), (GS), (MS)
Mad Hedge Technology Letter
July 14, 2021
Fiat Lux
Featured Trade:
(WHAT’S THE DEAL WITH MEME MANIA?)
(GME), (AMC), (WISH), (CLOV), (BB)
Although poor long-term investments, meme mania captured the imaginations of short-term traders with its wicked price action.
The counterculture drumbeat of taking down the institutions was then usurped by the meme management who issued shares after any sort of short squeeze.
Onlookers had to know the energy would not last and it is finally dying down.
Euphoric moments minted traders who benefited from unusual price spikes when institutions were caught off guard and had to buy the stock back at outrageous prices.
It appears as if this stage of meme mania is at the dying embers, and a sell the rally pattern has emerged in the past month just as big tech has accelerated its lead over everyone else.
For short-term traders, executing directional bearish bets is still on the table and for long-term buyers, you never should hold any of these following companies.
This type of smash and grab philosophy was just too risky for the Mad Hedge Technology portfolio and we avoided it like the plague.
I saw this more as a byproduct of too much liquidity in the system than anything else.
The stocks which skyrocketed were, in most cases, failed business models and only specific anomalies helped price action spin their way.
Since the volume has fallen off a cliff, the sell the rally would be the logical way to go for all the risk-takers who missed out on the meme mania phenomenon on the way up.
Here are the stocks involved.
Clover Health Investments, Corp. (CLOV) operates as a health insurer. It recently said it would be expanding insurance plans across nine states and more than 200 new counties in a bid to focus on underserved communities. The share price of the firm soared 8% after the announcement.
BlackBerry Limited (BB) provides intelligent security software and services to enterprises and governments worldwide. The company leverages artificial intelligence and machine learning to deliver solutions in the areas of cybersecurity, safety, and data privacy.
It is placed fourth a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
The company’s shares have returned 145% to investors in the past twelve months.
The company announced that the QNX software marketed by the firm was now installed in close to 200 million vehicles worldwide. This is an increase of 20 million compared to last year.
ContextLogic Inc. (WISH) is a California-based mobile ecommerce firm.
It is ranked third on a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
On July 6, the company announced that ContextLogic B.V, the Dutch arm of the business, had been granted a payment license for the European Union region. The share price of the firm jumped more than 5% after the announcement, which a company official said was the first step towards becoming a payment service provider in Europe.
GameStop (GME) rose from $4 to $325 and currently sits at $180.
The stock has continued to trend down from $320 after the latest short-squeeze and momentum is strongly biased towards the downside.
The retail company sells video games and has a terrible business model.
The last one is AMC Entertainment Holdings, Inc. (AMC) whose stock went from $2 to $60 and now is back down to $40.
AMC was a headliner disaster during the pandemic because movie theatres were closed and consumers were substituting their services for Netflix or other streaming services.
The Chinese property tycoon Wang Jianlian who bought into AMC before the pandemic was able to exit from his investment with a $675 million gain.
He acquired the company applying $1.9 billion of debt in 2012.
The Wanda Conglomerate was bailed out by the Reddit trading army after his vision of making AMC a “true global cinema operator” fizzled out big time.
The cinema chain reported a net loss of $4.6 billion for 2020, thus it’s stunning that Wang was able to spin such a disastrous investment for a tidy profit.
The AMC stake sale is the latest instance of Wanda offloading assets under pressure from Beijing, which wants Chinese to pare back its overseas holdings and debt.
The company was placed on a watch list by regulators in 2017 along with Anbang Group, Fosun Group, and HNA Group. These privately controlled Chinese conglomerates had accumulated some of the world’s largest debts after snapping up overseas trophy assets, often at premium prices, and were facing significant debt maturities.
Wang got lucky but the annual 2020 losses highlight the extent to how bad these business models are and how fortunate they were to have received a bailout from retail traders.
I believe these stocks are good for a short-term directional bearish bet with a controlled stop-loss strategy if things go sour fast.
None of these are worth owning, there are just too many other items on the menu that are tastier in a roaring U.S. economy.
From a wider-angle lens, the stock frenzy has fueled a record flow of money into the market from retail investors.
Only just last month, traders bought almost $28 billion of stocks and exchange-traded funds on a net basis, the largest amount in a single month since at least 2014.
This surely means that this new source of investment flows has gone into big tech with its huge surges higher.
At some point, capital will find itself in a different part of the equity market again and the Reddit army will be resuscitated basically because too many of them took profits and will be able to roll those profits into new positions.
Don’t get dragged into the mud looking for an easy buck.
Global Market Comments
July 14, 2021
Fiat Lux
Featured Trade:
(TEN TECH TRENDS DEFINING YOUR FUTURE, or THE BEST TECH PIECE I HAVE EVER WRITTEN)
(TSLA), (GOOG), (AMZN), (AAPL), (CRSP)
Not a day goes by without a reader asking me what is the next stock ten, hundred, or thousand bagger. After all, I nailed the 295X move in Tesla (TSLA) starting in 2010.
Can’t I do better?
Well actually, I can, which is the purpose of the Diary of a Mad Hedge Fund Trader. There are many potentially Google (GOOG), Amazon (AMZN), and Apple (AAPL)-sized opportunities out there today. It’s just a matter of time before they become public and investable.
One thing I will tell you today is that they will have some or all of the following gale-force tailwinds below. These will turbocharge the value of everything you own now, as well as anything new you might pick up going forward.
The future is happening fast!
1) People are Getting Richer, as the middle-income population continues to rise worldwide. That means more customers for everything and astronomically greater earnings for the companies inventing and selling them. Everyday goods and services (finance, insurance, education, and entertainment) are being digitized and becoming fully demonetized, available to the rising billion on mobile devices. Thank the convergence of high-bandwidth and low-cost communication, ubiquitous AI on the cloud, growing access to AI-aided education, and AI-driven healthcare.
2) And they are Communicating with Each Other More. The deployment of both licensed and unlicensed 5G, plus the launch of a multitude of global satellite networks (Starlink, OneWeb, Viasat, etc.), allow for ubiquitous, low-cost communications for everyone, everywhere, all the time––not to mention the connection of trillions of devices. And today’s skyrocketing connectivity is bringing online an additional 3 billion individuals, driving tens of trillions of dollars into the global economy and into the pockets of shareholders. Thank the convergence of low-cost space launches (Space-X), hardware advancements, 5G networks, artificial intelligence, a new generation of materials science, and exponentially surging computing power.
3) Your Lifespan Will Increase by at Least Ten Years. A dozen game-changing biotech and pharmaceutical solutions (currently in Phase 1, 2, or 3 clinical trials) will reach consumers this decade as covered by the Mad Hedge Biotech & Healthcare Letter (click here for the link). Technologies include stem cell supply restoration, senolytic or age-related medicines, a new generation of Endo-Vaccines, GDF-11, and supplementation of NMD/NAD+, among several others. And as machine learning continues to mature, AI is set to unleash countless new drug candidates, ready for clinical trials. Thank the convergence of genome sequencing, CRISPR technologies (CRSP), AI, quantum computing, and cellular medicine.
4) More Capital for Everything Will Become Abundant. Over the past few years, humanity hit all-time highs in the global flow of seed capital, venture capital, and sovereign wealth fund investments. It is expected to continue its overall upward trajectory. Capital abundance leads to the funding and testing of "crazy" entrepreneurial ideas, which in turn accelerate innovation. Already, $300B in crowdfunding is anticipated by 2025, democratizing capital access for entrepreneurs worldwide. And even during a pandemic (2020), the world deployed more venture capital than ever before, handily beating out the last high-water mark in 2019. Thank global connectivity, dematerialization, demonetization, and democratization.
5) Distribution is Becoming Vastly Easier. The combination of Augmented Reality (yielding Web 3.0, or the Spatial Web) and 5G networks (offering lighting fast 100Mb/s - 10Gb/s connection speeds) will transform how we live our everyday lives, impacting every industry from retail and advertising, to education and entertainment. Consumers will play, learn and shop throughout the day in a new intelligent, virtually overlaid world. This is where technologies like SpatialWeb.net, Vatoms (new digital connections between products and customers), and Apple’s (AAPL) next generation AR & VR headsets will shine. Thank hardware advancements, 5G networks, artificial intelligence, materials science, and surging computing power.
(6) Everything is Getting Smarter: The price of specialized machine learning chips is dropping rapidly with a rise in global demand. Imagine a specialized $5 chip that enables AI for a toy, a shoe, a kitchen cabinet? Combined with the explosion of low-cost microscopic sensors and the deployment of high-bandwidth networks, we’re heading into a decade wherein every device becomes intelligent. Your child’s toy remembers her face and name. Your kid's drone safely and diligently follows and videos all the children at the birthday party. Appliances respond to voice commands and anticipate your needs. Thank AI, 5G networks, and more advanced sensors.
(7) Artificial Intelligence is Getting Smarter than We are. Artificial intelligence will reach human-level performance this decade (by 2030). Through the 2020s, AI algorithms and machine learning tools will be increasingly made open source, available on the cloud, allowing any individual with an internet connection to supplement their cognitive ability, augment their problem-solving capacity, and build new ventures at a fraction of the current cost. Thank global high-bandwidth connectivity, neural networks, and cloud computing. Every industry, spanning industrial design, healthcare, education, and entertainment, will be impacted.
(8) AI is Becoming a Service: The rise of “AI as a Service” (AIaaS) platforms will enable humans to partner with AI in every aspect of their work, at every level, in every industry. AI will become entrenched in everyday business operations, serving as cognitive collaborators to employees—supporting creative tasks, generating new ideas, and tackling previously unattainable innovations. In some fields, partnership with AI will even become a requirement. For example: in the future, making certain diagnoses without the consultation of AI may be deemed malpractice. And try trading stocks today without AI behind you. Thank increasingly intelligent AI, global high-bandwidth connectivity, neural networks, and cloud computing.
(9) Software Will Become an Integrated Part of Our Lives. As services like Alexa, Google Home, and Apple Homepod expand in functionality, such services will eventually travel beyond the home and become your cognitive prosthetic 24/7. Imagine a secure software shell that you give permission to listen to all your conversations, read your email, monitor your blood chemistry, etc. With access to such data, these AI-enabled software shells will learn your preferences, anticipate your needs and behavior, shop for you, monitor your health, and help you problem-solve in support of your mid- and long-term goals. Thank increasingly intelligent AI, neural networks, and cloud computing.
(10) Energy Will Become Effectively Free when compared to today’s all-in costs. Continued advancements in solar, wind, geothermal, hydroelectric, small nuclear, and localized grids will drive humanity towards cheap, abundant, and ubiquitous renewable energy. The price per kilowatt-hour will drop below 1 cent for renewables, just as storage drops below a mere 3 cents per kilowatt-hour, resulting in the elimination of fossil fuels globally. And as the world’s poorest countries are also the world’s sunniest, the democratization of both new and traditional storage technologies will grant energy abundance to those already bathed in sunlight. We are also on the cusp of many breakthroughs in fusion power at nearby Lawrence Livermore Labs as capital, new materials, and entrepreneurs pour in this arena. Thank materials science, hardware advancements, AI/algorithms, and improved battery technologies.
I just thought you’d like to know.
Mad Hedge Biotech & Healthcare Letter
July 13, 2021
Fiat Lux
FEATURED TRADE:
(SPINOFF STOCKS POISED FOR LONG-TERM GROWTH)
(VTRS), (OGN), (PFE), (MRK), (JNJ), (LLY), (ABBV),
(AZN), (GSK), (BMY), (GILD), (REGN), (PYPL), (EBAY), (CARR), (UTC)
Spinoffs have historically been known to deliver healthy returns for their investors.
A good example is PayPal (PYPL), which grew sevenfold since 2015 following its spinoff from eBay (EBAY).
A more recent example is Carrier Global (CARR), which tripled its shares amid the pandemic after its spinoff from United Technologies (UTC) last year.
Basically, spinoffs allow smaller segments of companies to thrive on their own or push high-growth divisions to expand faster.
Over the past months, the cheapest stocks found in the S&P 500 have recently spun off pharmaceutical companies: Viatris (VTRS) and Organon (OGN).
Viatris is a spinoff of Pfizer (PFE), which merged with Mylan, while Merck (MRK) jettisoned Organon (OGN) just last month.
Both are brand new and still under the radar, particularly among investors who don’t follow healthcare updates.
While these two have yet to impress the market, both exhibit potential that could make them promising long-term prospects.
Viatris holds an extensive portfolio of drugs courtesy of Pfizer’s Upjohn unit and Mylan’s pipeline.
The list includes the previously top-selling Lipitor, Viagra, Lyrica, and even Norvasc from Pfizer. It also has Mylan’s income-generating EpiPen along with the company’s HIV/AIDS therapies and 7,500 marketed products across the globe.
To date, Viatris has fallen roughly 30% from its average price target. It’s not for the subpar performance of its products though. This is mostly attributed to the lack of attention from investors and possibly a bit of skepticism from some analysts.
However, Viatris has a really good value proposition.
The main goal of the biggest names in the biopharmaceutical sector, such as Johnson & Johnson (JNJ), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca (AZN), GlaxoSmithKline (GSK), Bristol-Myers Squibb (BMY), and Gilead Sciences (GILD), is to develop and launch the best-in-class treatments to market.
To achieve that, these industry giants are granted a set period to exclusively sell and market each new drug that gains approval.
This would allow them to command a premium price, which in turn would give them the money to fund the next round of research and development needed to come with the next generation of newer and improved versions of the treatment.
However, not everyone can afford those premium prices.
So when the periods of exclusivity end, there are companies like Mylan—now Viatris—that are allowed to manufacture generic versions of those branded drugs and sell them at lower prices.
The list of drugs with soon-to-expire patents for which Viatris has been working on creating biosimilars or generic versions include Humira from AbbVie, which recorded peak sales at $20 billion; Eylea from Regeneron (REGN), which peaked at $7.5 billion; and even Allergan’s Botox, which peaked at $5 billion.
Viatris is also working on biosimilars for Roche’s (RHHBY) cancer treatments Avastin, which had peak sales of $7 billion, and Perjeta, which peaked at $5 billion.
Obviously, Viatris will not reach the same height of success as the companies that created those branded drugs.
But, if it manages to achieve even only 10% of those numbers, then it can generate roughly $4 to $5 billion in sales—and that’s just the tip of the iceberg.
So far, Viatris owns at least 1,400 approved molecules applicable in roughly 10 therapeutic segments.
It has roughly 350 products in its pipeline at the moment, with each item estimated to generate approximately $100 million to $500 million in sales.
With its current performance and access to 165 countries and territories, Viatris is expected to generate roughly $224 billion in global sales annually.
With all these in mind, Viatris’ value proposition looks impressively strong to me.
More importantly, this Pfizer spinoff has the capacity to become the world’s first dominant generic and biosimilar drug manufacturer, with its revenues potentially becoming comparable to major pharmaceutical companies at some point.
The same value proposition could be behind Organon, as this newly spun-off company markets Merck’s off-patent drugs.
While the move to separate from its parent company has yet to show tangible results, Organon is projected to rake $6.1 billion to $6.4 billion in revenue for 2021, with annual sales expected to rise in mid-single digits and dividends anticipated to be about 3%.
The biosimilars market is still relatively young, with only 60 biosimilars approved in the EU and 29 in the US thus far. In total, those represent a market worth approximately $17 billion.
Conservative estimates project that the global biosimilars market will be worth $692 billion by 2027, considerably outpacing the mainstream pharmaceutical sector.
Given their potential and prospect for future gains, the low prices for companies like Viatris and Organon present rare opportunities to grab long-term investments.
Global Market Comments
July 13, 2021
Fiat Lux
Featured Trade:
(WHY SOLID-STATE BATTERIES ARE THE “NEXT BIG THING”)
(TSLA), (QS)