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Mad Hedge Biotech and Healthcare Letter
January 11, 2022
Fiat Lux
Featured Trade:
(A GOOD STOCK TAINTED WITH CYNICISM)
(BIIB), (LLY), (RHHBY), (SAVA), (PRTA), (SAGE)
Last year, talks that Samsung was in the process of making a $42 billion buyout bid for Biogen (BIIB) brought about a mixture of cynicism, hope, intrigue, and excitement over a potential agreement.
It was especially intriguing since the reported offer was roughly 20% more than Biogen's expected $35 billion projected value.
Eventually, this report was proven to be false.
But the mere fact that it garnered such traction and interest only highlighted Biogen’s seemingly debilitated state following their failure to deliver on a promised unprecedented motherlode following the controversial Alzheimer’s drug approval and lukewarm reception.
If you recall, experts expected Biogen’s Alzheimer’s drug, Aduhelm, to generate double-digit billions in sales considering its list price of approximately $50,000 annually and the roughly 5.8 million individuals diagnosed with the condition in the US alone.
Theoretically, Aduhelm’s addressable market was projected at $325 billion.
At that time, Aduhelm was anticipated to rake in at least $50 billion per annum—a projection that was reflected in the 55% increase in the company’s share price.
However, things didn’t go according to plan. Aduhelm’s accelerated FDA approval caused so much uproar that it eventually affected the drug’s marketability as well.
In an attempt to temper the protests, Biogen cut the cost of Aduhelm to almost half, with the drug priced at $28,000 annually instead of its original $50,000.
Despite this, the projected mega-blockbuster’s sales continued to disappoint, with its third-quarter earnings in 2021 only reaching a measly $300,000.
This January, though, Aduhelm might have a shot at saving redemption courtesy of a potential Medicare reimbursement scheme.
Ultimately, however, the decision to offer any form of reimbursement scheme will not only affect Biogen but all the Alzheimer’s disease treatments in the future.
This is actually one of the critical points that many people missed when Aduhelm gained approval.
In focusing too much on the share price of Biogen, they appeared to have misinterpreted the true purpose of the FDA’s decision.
Granting an accelerated approval for Aduhelm did not mean that the FDA was handing the company a chance to generate double-digit billions in sales.
What the agency intended was to demonstrate support for Biogen's thesis regarding a potential Alzheimer’s therapy.
That is, you can slow down the patients’ cognitive decline by aiming to reduce the amyloid-beta levels in their brains.
The FDA’s decision has, in effect, opened the floodgates not only for Biogen’s Aduhelm, but for all the other biotechnology companies working on the same idea.
To date, the companies developing their own Alzheimer’s disease treatment include Eli Lilly (LLY) with Donanemab and Roche (RHHBY) with Gantenerumab.
Both are expected to release results within the year or early 2023.
Other names are Anavex Life Sciences (SAVA) and Prothena (PRTA).
Outside its Aduhelm efforts, Biogen has also been developing new treatments, as demonstrated by the $4 billion investment it made on its R&D last year.
One promising candidate that can deliver blockbuster sales is its major depressive disorder treatment Zuranolone, which is a collaboration with Sage Therapeutics (SAGE).
Meanwhile, Biogen is also working with Ionis (IONS) to develop a successor for its spinal muscular atrophy treatment Spinraza.
Since this top-selling drug is expected to lose patent protection in 2023, the company has spent $60 million to come up with a new and more potent version: BIIB115.
For context, Spinraza recorded more than $2 billion in sales in 2021.
At this point, investor sentiment on the company has stooped at an incredibly low level. Unfortunately, the weak rollout of its Alzheimer’s treatment has planted suspicions regarding Biogen’s entire pipeline.
However, I think this kind of pessimism is quite misguided.
While the reality is that Aduhelm may never achieve the mega-blockbuster status it was once believed to reach, the situation shouldn’t necessarily diminish the truth that Biogen is actually performing quite well—and it will continue to do just fine.
Global Market Comments
January 11, 2022
Fiat Lux
Featured Trades:
(THE BARBELL PLAY WITH BERKSHIRE HATHAWAY),
(BRKA), (BRKA), (BAC), (KO), (AXP), (VZ), (BK) (USB), (TLT), (AAPL), (MRK), (ABBV), (CVX), (GM), (PCC), (BNSF)
Mad Hedge Bitcoin Letter
January 11, 2022
Fiat Lux
Featured Trade:
(ANOTHER TECH COMPANY BETS THE RANCH ON BLOCKCHAIN)
(GME), (NFT)
GameStop Corp is getting into the nonfungible tokens industry and eyes the crypto industry to launch its new growth strategy.
What are Non-Fungible Tokens (NFT)?
NFTs are coded on the Ethereum blockchain. Ethereum is a cryptocurrency, but its blockchain also supports these NFTs. NFTs store extra information that programs a piece of code uniquely tying it to a specific item.
This unique and non-interchangeable unit of data is stored on a blockchain, a form of digital ledger. NFTs are usually associated with reproducible digital files such as photos, videos, and audio.
NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files.
GME intends to create a division in which a marketplace facilitates the buying, selling, and trading NFTs of virtual videogame goods such as avatar outfits and weapons.
They are also likely to sign partnerships with two crypto companies to share technology and co-invest in the development of games that use blockchain and NFT technology, as well as other NFT-related projects.
This could trigger another avalanche of capital into this new industry that has commanded hundreds of billions of new investments in just a few years.
Crypto is the predictable landing stop for GME as their retail gaming business has failed in the face of the pandemic and their stock was only saved by a Reddit Army bidding up the price of the stock in order to dissuade hedge fund managers to profit off its decline.
The truth is that GME’s business model has been crushed as the gaming industries have been uploaded to the cloud and consumers are opting to directly download titles they want straight from their Wi-Fi connection.
Waiting around malls for people to come and pay in-person is an outdated model and instead of joining the cloud and copying the rest of the industry, this drastic change signals they are ready for something vastly different.
They tried executing a few technical changes in order to stage a turnaround, but its loss widened compared with the same period a year earlier. The revenue growth came from sales of hardware and accessories, while revenue from game software slipped 2%.
GME is involving itself in blockchain and NFT technologies as a last-ditch effort to be relevant again.
Luckily for GME, blockchain and NFT is where all the action is and new venture capital is stacking its chips in the fledgling industry as well.
That doesn’t mean they are going to turn the ship around in one day but of course, you want to be where the pie is growing.
GME shares had plunged by more than 45% over the past six weeks signaling that internally, they are desperate for wholesale changes.
The meme mania has largely worn off and to rejuvenate the mediocre business model they are looking for the magic bullet.
It’s not just GME getting in early, a marketplace called OpenSea said it raised $300 million in venture capital and is now valued at $13.3 billion, greater than GMEs valuation of close to $10 billion.
The videogame industry is more than likely to be first mover in the adoption of cryptocurrency, NFTs, and blockchain technology.
Gamers are poised to be among the first to embrace the technologies because this environment feels like something they could make the next jump to conceptually.
In recent weeks, some of the industry’s biggest publicly traded videogame companies have launched or announced plans to sell NFTs, including Ubisoft Entertainment, Zynga, and Square Enix.
GME is among many that are hoping to front-run other investors before this industry explodes 10X which could easily happen.
They don’t want to miss the big thing and they clearly made errors by avoiding the cloud.
NFT is just one technology that has exploded from blockchain and there will be many iterations of useful software that will need to be decentralized in nature.
NFTs have caught on quite well with famous athletes, actors, and musicians who are looking to secure proof of ownership of a digital good representing their image and likeness.
The idea is genius, but some might question if a stash of code is really proof of ownership.
Naturally, there will be non-believers and believers, but if the stars of the world are convinced, which many have already sold items as NFTs, then I believe it will legitimize an industry moving forward and it will grow 100X in the next 10 years.
Or it could easily evolve into something more secure and complex with the next iteration of NFTs.
To grow a tech company, firms are starting to bet the ranch of decentralized apps and crypto.
This is only positive for the long-term sustainability of crypto as we inch towards the metaverse.
“It has become appallingly obvious that our technology has exceeded our humanity.” — Said Scientist Albert Einstein
Mad Hedge Technology Letter
January 10, 2022
Fiat Lux
Featured Trade:
(THE EV DARKHORSE)
(LCID), (TSLA), (NKLA)
2022 could be the year that Lucid Motors (LCID) put a dent in the universe as one of the many EV upstarts hoping to eventually challenge Tesla (TSLA) one day on top of their lofty perch.
Realistically, many EV companies never get to the point of delivering cars, like fraudulent company Nikola (NKLA), but Lucid has started to roll out new cars to US customers.
Things move fast in the EV industry and Lucid has announced they are planning to start shipping cars in Europe sometime this year.
The stock exploded to the upside on the announcement.
Conceptually, the idea that Lucid is expanding fast, creating and looking to take advantage of the total addressable market in Europe only signals to investors they are doing all the right things in all the right places.
I believe there is loads of momentum in EV cars today, and their trajectory this year is impressive as we are seeing it in our news feeds.
I am not just talking about Tesla, but the mainstreaming of the product will help the next in line to build something competitive to Tesla and Tesla blazing an early trail has helped really legitimize the industry.
Sure, at the micro level, there are still teething pains with EVs, like waiting an hour for your Tesla X to charge at a supercharger.
The science behind it still needs to catch up to the point where someone can just get behind a wheel and drive coast to coast without crunching the logistics designed for the trip.
Germany will probably be the most important European market for Lucid, being a car-first society while the citizens harness high purchasing power.
Lucid also wants an expansive taste of Europe by expanding all over and that means places like Sweden and Switzerland.
The company is currently building its only model, the Air sedan, at its Arizona plant, yet the volume of cars is kept from the public view.
The firm pumped out a few hundred cars in 2021 but wants to ramp up to 20,000 by the end of 2022.
The vehicles it has delivered so far don’t have a full variety of active safety aids online, but they will be enabled via an over-the-air updated by the end of January.
Just like Tesla, Lucid will probably try to push its direct sales model in Europe as well. The manufacturer has already announced plans to set up nine Lucid Studios in the United States and major European cities are in the mix as well.
Lucid CEO Peter Rawlinson has already stated that the company also plans to roll out in the Middle East in 2022, with China following in 2023 so there’s a lot in the pipeline here, but it could be biting off more than they can chew.
If the “EV trade” catches fire this year which is certainly in the realm of possibilities, I see the stock doubling from $42 to over $80 per share.
Let’s not forget that the used car market is so hot that it costs almost as much as buying a new car.
Energy is higher across the board, so why not slap on some solar panels on the roof and drive an EV for free instead of indulging in expensive fossil fuels?
The Saudi Arabia's Public Investment Fund has previously stated that they will not be selling any of their Lucid Motors shares until beyond 2030, which is why they are planning to sell these EVs in the Middle East.
When the PIF gave Lucid Motors an investment of $1 billion in 2018, that deal was contingent on Lucid Motors building a plant in Saudi Arabia.
Lucid is projecting themselves to be a leader in solar, and by 2026 they estimate that they will make over $22 billion a year from their Renewable Energy division.
This EV company has a solid foundation, and if the cars stack up nicely against the Teslas of the world, then they really have the potential to uplift the stock price in 2022.
Reviews of its car have been generally good, with highlights like world-class efficiency, miraculous packaging, and amazing performance and comfort.
This could be the dark horse of EV’s in 2022 and I am looking out for a splashier Lucid EV model in the years ahead. I am bullish on Lucid Motors.
Global Market Comments
January 10, 2022
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHY I FEEL SO MUCH BETTER)
(TSLA), (AAPL)
