Mad Hedge Biotech and Healthcare Letter
July 7, 2022
Fiat Lux
Featured Trade:
(A BIOTECH WITH A QUIVER FULL OF ARROWS)
(VRTX), (UNH), (SIGA), (CRSP)
Even with the decline of the general market, several stocks have managed to buck the trend and thrive.
However, no stock is worthy of serious consideration if it isn’t at least delivering some positive returns.
In the biotechnology sector alone, there are roughly 750 biotech stocks on the major US exchanges.
Approximately 50 of these have been in the positive territory in the last 12 months. Among them, only 25 have shown a 20% or above jump.
In this very short list of promising biotechnology stocks in 2022, one name stands out as a huge winner amid a growing number of losers: Vertex Pharmaceuticals (VRTX).
Vertex shares have increased and soared near 50% over the past 12 months. In fact, the stock is up by over 30% thus far this year.
On top of stock performance, another factor to consider is the quality of the underlying business.
At the very least, the company needs to show potential to grow sales and deliver profits. Vertex once again delivers on these aspects.
The durability and dependability of revenue and earnings growth are critical.
This year, only three of the surviving biotechnology companies from the whittled-down list managed to generate positive top- and bottom-line growths over the past five years.
These are United Therapeutics (UNH), Siga Technologies (SIGA), and, of course, Vertex.
Vertex’s recent performance is a complete 180 from earlier times. The stock fell more than 30% from October 2020 until October 2021. This decline was primarily due to the investors’ anxiety over the company’s heavy reliance on its cystic fibrosis (CF) program.
Evidently, the tide has turned for Vertex. More importantly, this could only be the start.
While a biotech with an excellent track record is a good indicator, it’s not a guarantee that it can deliver the same results in the future.
However, Vertex appears to be doing an exceptional job of continuing its winning streak.
The company holds a rare advantage that only a handful of biotechs have: a rock-solid moat.
While investors may not like Vertex’s complete reliance on its CF business, it’s critical to remember that expansion is far from over for this particular therapeutic segment.
Moreover, Vertex is the market leader in this field worldwide—and it’s expected to keep this position until the late 2030s at the very least.
Four CF treatments have been approved in both the US and Europe, and Vertex makes all of them.
Sure, several companies are attempting to enter this market and compete against Vertex, but none of them have gotten past Phase 2. Actually, most of the potential rivals are still in the preclinical testing phase.
This monopoly enables Vertex to generate solid revenue and earnings growth continuously. In the first quarter of 2022, the company’s cash position reached $8.2 billion.
If that’s not enough to secure Vertex’s position in this market, then here’s another one. The biggest threat to Trikafta, one of Vertex’s CF blockbusters, is a candidate being studied and developed by none other than Vertex itself.
That’s right: Vertex’s biggest threat is another Vertex candidate.
In terms of patent exclusivity, Vertex has this concern covered as well because its best-selling CF treatment won’t expire until 2037.
Nonetheless, investors aren’t the only people hoping to expand Vertex’s portfolio. The company has been steadfastly working on that, too.
Aside from working on a potential groundbreaking mRNA-based CF treatment with Moderna (MRNA), Vertex has been developing candidates in several key segments, including diabetes, blood disorders, and pain.
Vertex and CRISPR Therapeutics (CRSP) are expected to seek regulatory approval for exa-cel (CTX001), a potential one-time cure for sickle cell disease and transfusion-dependent beta-thalassemia, within 2022.
It also moved its kidney disease candidate, VX-147, into late-stage trials last March. If this works out, the treatment can target a larger patient population than CF.
Another program expected to move into late-stage trials in the second half of 2022 is VX-548, an experimental non-opioid pain drug.
Meanwhile, its Type 1 diabetes pipeline is anticipated to grow soon. The company already has at least one cell therapy queued for early-stage testing, and the plan is to advance another program into clinical trials by the fourth quarter of this year.
Simply put, Vertex’s pipeline is akin to a quiver full of arrows. Considering the company’s track record, it would no longer be surprising if it hits all its targets.
Mad Hedge Bitcoin Letter
July 7, 2022
Fiat Lux
Featured Trade:
(ANOTHER ONE BITES THE DUST)
(BTC), (VYGVF), (FTX)
FTX cryptocurrency exchange CEO Sam Bankman-Fried said he has more than $2 billion to backstop crypto industry if needed.
That’s a scary statement to issue that most likely assumes the worst scenarios are coming true for his beloved digital gold.
By the way, $2 billion is peanuts considering this industry used to be worth over $1 trillion just a little bit ago.
Not sure if his token $2 billion would make a dent at all, however, it might save a company or 2 if that is what Bankman-Fried is aiming for.
This small sum will do nothing if systemic risk goes from bad to worse and the industry falls apart which would happen if bitcoin dropped to $2,000 per coin.
Perhaps if he could scrounge up an extra $1 trillion or so to buy out the whole crypto industry then we would be in business – literally.
We need to look at the situation with more critical thinking than wishful.
The FTX CEO also said the worst appears to be over for the liquidity crunch in the cryptocurrency industry.
That could possibly be a sneaky way to say that the worst is yet to come.
Why would Bankman-Fried think the liquidity crunch will stop on a dime?
Isn’t that odd?
Well, of course, he has skin in the game, so his words are empty. It’s like a real estate agent telling someone they should buy a house.
Last time I checked, crypto was supposed to be a great hedge to hyperinflation and that has failed miserably.
Little did he know, Central Bank Governor Jerome Powell, in the Fed minutes revealed yesterday, say that the Fed is prepared to act more aggressively to tame inflation with bold rate rises.
If there are more rate rises which the Fed forecast implies, the Fed Fund’s rate is going to 3.75% by 2023, then crypto will be worth even less than it is today if the same dynamics and price behavior hold true.
The dynamics that were working for crypto during the bull cycle and are now working against them.
No doubt Bankman-Fried’s comments had to do with the timing of the newest bankruptcy in the industry of crypto brokerage Voyager Digital (VYGVF).
The trust in crypto infrastructure sinks yet again.
Account holders at now-bankrupt Voyager Digital shouldn’t expect to get all their crypto back as the company restructures.
The crypto brokerage and lender filed for Chapter 11 bankruptcy, creating unresolved legal questions about how digital assets will interact with US insolvency law.
Voyager appears to plan to just walk away from their obligation to return capital to account users.
The company’s plan to exit bankruptcy plainly says it expects account holders to be “impaired” by the Chapter 11 process, meaning they won’t be getting back exactly what they’re owed.
This could be the straw that breaks the camel’s back.
Legally, decentralization could be a farce and if Voyager is able to walk, it means Voyager and its platform is even more centralized than crypto industry’s criticism of fiat currency.
At least fiat currency on exchanges is insured and account holders get their money back in full upon bankruptcy.
Sure, the price of bitcoin is up incrementally today, but the industries’ health couldn’t be at a lower ebb.
There is a high probability that bitcoin will touch $12,000 first before it goes back to $30,000.
“The first one gets the oyster, the second gets the shell.” – Said Industrialist Andrew Carnegie
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
July 7, 2022
Fiat Lux
Featured Trade:
(MEET THE ITALIAN LEONARDO FIBONACCI)
Mad Hedge Technology Letter
July 6, 2022
Fiat Lux
Featured Trade:
(GOOD NEWS IS BAD NEWS)
(ARKK), (TSLA), (APPL), (ASML)
As the bear market rally picked up steam Tuesday with even Cathy Wood’s growth ETF (ARKK) gaining 9%, it’s clearly a reaction to the Nasdaq repricing its biggest underlying risk.
The market is now pricing in a global recession and that has replaced inflation as the number one worry for investors.
This new development has led to the Nasdaq sniffing out the return to the bad news is good news effect.
That is why the U.S. 10-year treasury yield cratered from 3.5% to 2.8% which reflects the future expectation of a pulled-forward global recession.
This would trigger a fresh interest rate lowering cycle by global central banks.
Lowering rates is good for Nasdaq stocks and tech stocks will be a big beneficiary of lowered rates as they have overshot to the downside on this rate rise cycle.
That doesn’t mean it’s all rosy in the land of the Nasdaq, hardly so.
We are still in the fog of war and amid improving technical data like lower oil prices, worsening economic relations between the large nuclear-equipped countries are not only moving the world towards a soft technological decoupling but a hard fracturing of general relations.
My first thought was will China finally strike back against the United States in the form of destroying Tesla’s (TSLA) Gigafactory in Shanghai or blacklist Apple (AAPL) iPhones in China.
These two events would be the point of no return for the two countries’ economic cooperation and anything beyond that, relations could spiral out of control rapidly and even be the impetus for a Taiwan takeover.
Clearly, Silicon Valley does much better when the world is getting along, and everyone is paying for their stuff.
That can’t happen as smoothly with the world rapidly balkanizing which is a big reason for massive selloffs in Netflix whose international audience has soured.
On the production side of things, Chinese-produced stuff won’t be able to get sold back to Americans using Guangdong factory production as semiconductor chips and equipment have become the focal point of national security efforts.
The US has placed export controls against Chinese technology firms from purchasing chips and equipment.
Now Biden is blackmailing the Netherlands to ban one of its top chipmakers from selling semiconductor equipment to Chinese companies.
The Biden administration is pushing hard for Dutch chip equipment maker ASML Holding NV (ASML) to halt selling some of its older deep ultraviolet lithography, or DUV, systems.
Even though these machines are one generation behind cutting-edge, they offer high-tech chips for automobiles and consumer electronics.
Washington has also pressured Japan to stop shipping semiconductor machines to China.
Since the Trump tariffs, China has been the biggest buyer of chipmaking gear for the last two years.
On the European front, regulation is hitting home hard as the U.K. has initiated investigations on Amazon’s selling practice by in-house brands and is looking into Microsoft’s anti-competitive acquisition of Activision.
If American tech companies have nowhere to produce, nobody to acquire for instant growth, and nobody to sell to then it becomes a massive issue for shareholders.
Even though the equity mojo boost of good news is bad news is a nice reprieve, a global recession where many companies fire staff and can’t sell their product because lack of parts is worse.
Therefore, we are still issuing a sell the rallies in tech type of recommendation to our readers while acknowledging there has been a small wave of dip buyers entering back into the game.
“I fear the day when technology overlaps with our humanity. The world will only have a generation of idiots.” – Said German-born Theoretical Physicist Albert Einstein
