Mad Hedge Biotech and Healthcare Letter
June 28, 2022
Fiat Lux
Featured Trade:
(A RESILIENT BUY-AND-HOLD STOCK)
(AZN), (MRK)
We officially entered a bear market when the S&P 500 continued to decline in value.
Falling by 23% since January, the index has battled constant pressure in 2022 as multiple issues like interest rate hikes and the war in Ukraine continue to make investors anxious over the future of the economy.
While the near-term prospects look gloomy for most businesses, there are several stocks that could be great buy-and-hold investments for the long term.
One of them is AstraZeneca (AZN), which has been in good shape to weather the turbulent conditions and still managed to generate solid results for its shareholders.
A critical factor in making AstraZeneca a top-performing growth stock is the broad range of drugs contributing to its top line.
The company has several blockbusters that generate over $1 billion in yearly revenue to fund its operations.
Needless to say, diversification is critical to appease investors to assure them that they’re not heavily relying on a single product.
Among the products under development for AstraZeneca, one of the most exciting prospects for this year is Enhertu.
Enhertu was just recommended in the European Union as a form of treatment for high-risk breast cancer patients.
This drug, developed with Japan’s Daiichi Sankyo, is anticipated to become another significant growth driver for AstraZeneca.
Breast cancer is the most widely reported type of cancer in the US. It takes over 40,000 lives annually.
Given the latest development and approval for Enhertu, this drug could potentially cover three times as many patients as the existing standard of care.
With the latest endorsement from the EU, Enhertu is estimated to reach $6.6 billion in peak sales. This is $2.5 billion more than the initial projection for this breast cancer treatment.
Aside from Enhertu, the European Union also endorsed Lynparza. This is another AstraZeneca treatment for breast cancer, which it developed jointly with Merck (MRK).
The expansion of its oncology business bodes well for AstraZeneca since it demonstrates a more diverse pipeline.
In 2021, the company acquired a highly sought-after rare disease biotechnology company, Alexion Pharmaceuticals, in an effort to expand its portfolio.
So far, this bet has paid off, with rare disease revenue from Alexion’s programs reaching a total of $1.7 billion in the first quarter of 2022.
To date, this particular segment comprises more than 15% of the total product revenue of AstraZeneca.
Another key strength of AstraZeneca is its strong pipeline and impressive innovation engine, with the company listing over 180 programs queued for development.
The latest developments in its promising programs involve potential breast and liver cancer treatments. In addition to its oncology lineup, the company is also developing new therapies for asthma.
Recently, the company disclosed the creation of a new R&D center in Massachusetts.
The plan is to establish a site for both AstraZeneca and Alexion’s workforces to integrate and work together. That could mean an expanded program for its rare disease portfolio.
In the first quarter of 2022, AstraZeneca’s renal, metabolism, and cardiovascular segments contributed $2.2 billion in sales, showing off a 14% increase from last year’s performance.
Meanwhile, oncology is still the top business of the company, making up 30% of its revenue of roughly $3.4 billion in the first quarter of the year.
Considering that Enhertu is still in its early phase, this number is expected to climb higher in the coming months.
Clearly, AstraZeneca has multiple growth opportunities within reach this year, making it an exciting stock to own.
Moreover, cancer care represents a continuous demand and will not be suspended for reasons like a recession or inflation.
As a leading oncology company, AstraZeneca is a relatively resilient investment despite the uncertainties.
Mad Hedge Bitcoin Letter
June 28, 2022
Fiat Lux
Featured Trade:
(COINBASE LICKS ITS WOUNDS)
(BTC), (COIN)
The crypto exchange Coinbase (COIN) which is one of the biggest in the market offers us a glimpse into the crypto world by default because of the earnings reports they deliver via the public markets.
Its stock price is down 75% since it came public mirroring the plight of its bellwether coin Bitcoin (BTC).
Many people I talk to get peeved at how stocks usually perform once they go public.
Going public for COIN has meant going ex-growth and a nasty drop in valuation for investors.
To say COIN has underperformed the market is an understatement.
They went public around the euphoria of the Bitcoin rise to $65,000 and the aftermath has been brutal.
COIN continues to be hit with rafts of analyst downgrades even after being down 75% and that’s how bad the analyst community views the stock.
No dead cat bounce or no reversion to the mean for COIN!
Not only are crypto prices down across every coin that is relevant, but crypto traders have thrown in the towel.
COIN doesn’t charge trading fees, but they do sell the customer order flow to high-frequency trading firms that profits from retail orders.
The spiral downwards is like a self-fulfilling prophecy with orders drying up resulting in staff layoffs and rescinding already agreed upon new hires resulting in low morale grappling with negative revenue growth.
Cost will need to come down fast because the market won’t be favorable to the guidance of next quarters’ earnings report.
COIN quickly became the equities market poster child for the boom in digital currency prices last year with the largest US cryptocurrency exchange seeing its value surge above $75 billion as Bitcoin hit a record high, but I do believe upcoming regulation will force their business model down the drain.
Also, when a company’s customers become impoverished by losing boatloads of money in the very market the company makes a market for, the future doesn’t sound too appealing to investors.
The once $75 billion company is most likely worth $5 billion today and if customer order flow is made illegal, which the SEC is trying to achieve, then the company is worth $100 million at best maybe not even that.
Heightened competition from other firms has also undermined the stock.
Earlier this month, Binance revealed that it would be offering zero-fee trading for Bitcoin and said it had plans to also eliminate fees on other tokens in the future.
COIN still has an expense outlay of $1.7 billion to shave down.
As Bitcoin hangs on for dear life at $20,000, it could be a death blow once Bitcoin sells off to $12,000.
Much of the synergies that triggered its meteoric rise are gone and the dip buyers have vanished.
I do believe that selling rallies is most likely the best strategy right now in Bitcoin.
The public reports from the exchanges couldn’t be worse and then one must question will COIN also institute a withdrawal freeze like others have if capital bleeds uncontrollably?
A withdrawal freeze is the antithesis of decentralized money and I do believe there are a lot of alienated folks out there who believe in crypto but were highly disappointed by the first 6 months in 2022.
$12,000 appears as the natural reversion point as $20,000 has gone from support to resistance on a technical level.
Global Market Comments
June 28, 2022
Fiat Lux
Featured Trade:
(WELCOME TO THE WONDERFUL WORLD OF OPTIONS),
(WHAT IS AN OPTION? - THE BASICS)
Note to Readers: Over the next ten trading days, you will be receiving my options trading boot camp. That's because this week, I’ll be knocking off from my daily routine to dive into some deep research pieces.
Mad Hedge Technology Letter
June 27, 2022
Fiat Lux
Featured Trade:
(NOTHING ZEN ABOUT ZENDESK)
(ZEN)
Zendesk (ZEN) bought out for $10.2 billion is good business.
This is after ZEN declined a $17 billion offer just 4 months ago which in hindsight looks highly illogical.
This event crystallizes the souring mood in growth technology that has seen a colossal re-rating of its assets during a cringe-worthy stock market sell-off.
These micro-events bode poorly for growth tech and expect desperation from the illiquid.
Remember that the quickest way to go out of business is to not have any money.
Interest rates skyrocketing has really harmed the ability of growth tech to pay interest on their corporate bonds or to even issue reasonable debt.
The attack on balance sheets is what everybody is scared of and rightly so.
The investor consortium buying the company includes Hellman & Friedman, Permira, a subsidiary of the Abu Dhabi Investment Authority, and Singapore’s GIC sovereign wealth fund. Subject to shareholder approval, the deal is likely to close in Q4 this year, after which time ZEN will operate as a private company.
ZEN isn’t all that bad of a company based on pre-pandemic metrics.
However, fast forward to today and the goalposts have switched
, and investors will look at the last 4 years of unprofitable growth as a liability even if gross revenue has been gaining at a nice clip.
Investors need standalone businesses now, not later, and the zombie company of old are receiving the cold shoulder.
Mikkel Svane, Founder and CEO of Zendesk, had hoped to persuade shareholders to buy into a planned $4.1 billion takeover of Momentive Global Inc, owners of the SurveyMonkey platform.
But this was rejected by shareholders following lobbying by a number of activist investors. Around the same time, the firm rejected an unsolicited takeover bid from an unnamed private equity firm, reportedly offering $17 billion.
Svane clearly needs to be offloaded for such a rookie move.
The reading of the tea leaves in the short term is positive for ZEN as a business model with 30% growth rates year-over-year still in play.
My synopsis is that the next solution will be what private equity usually does, gut the company of high costs including expensive workers and spin it out into a profitable enterprise.
Outsource to poor countries like Moldova, and cancel all in-person office facilities.
Then go back to the public markets to fetch a premium before it goes ex-growth and collects a nice profit.
ZEN’s customers with more than $250,000 Annual Recurring Revenue (ARR) make up 39% of the total, up from 34% last year, while customers with more than $1 million ARR were up 65% year-on-year.
The management and shareholder kerfuffle highlights the sensitive times we are in for unprotected tech companies which are essentially the non-Apple, Microsoft, and Google tech firms.
It’s been a whole economic cycle since public tech companies really had any type of stress, and the stress in 2022 is disguised from all directions.
Just look at Founder of Tesla Elon Musk whose Tesla shares are down almost by half from its 2021 peak and most people will understand that it will be harder to buy Twitter when Tesla shares are crashing.
Existing on public tech markets is just harder when the Nasdaq is in a bear market.
Unfortunately for some, the bear market doesn’t treat everybody the same, and now the goal is survival.
Sure, management wants to fight workers on working remotely too much, but in a tight labor market, they understand it’s a battle to fight another day or just outsource abroad.
Egos must be put aside and when a firm fails to accept an offer $7 billion higher than what they settle on, it’s embarrassing.
This must be characterized and recorded as an unmitigated failure.
For a tech firm that only has revenue of $350 million per year, $17 billion is a ridiculous sum to pay.
I value this software company at half of that - $8.5 billion and paying $10 billion for it in this climate is plausible.
The financing for the deal will be provided by Blackstone, almost guaranteeing this will be a thorough gut job and spin back to the public arena.
Gone is the day of overpaying for mediocre tech.
“I don't want to fight old battles. I want to fight new ones.” – Said CEO of Microsoft Satya Nadella
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
June 27, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE RECESSION TRADE IS ON)
(MSFT), (NVDA), (TSLA), (BRKB), (TLT), (SPY)
