Mad Hedge Biotech and Healthcare Letter
September 22, 2022
Fiat Lux
Featured Trade:
(GOOD THINGS COME TO THOSE WHO WAIT)
(NTLA), (IONS), (TAK), (CRSP), (EDIT), (CRBU), (BEAM), (ALNY), (PFE), (REGN)
CRISPR technology has been receiving so much hype over the past years. However, the promise of this gene editing platform has yet to be realized.
Crispr gene-editing therapies can apply permanent modifications to our DNA by zeroing in on specific genes and then incapacitating them or reworking harmful segments of their genetic instructions.
While this could change in the coming years, investors have become impatient with the progress and lack of any major breakthrough in genomics. Some are losing confidence that this sector could experience explosive growth.
This is what happened with Intellia Therapeutics (NTLA).
Earlier this week, the company showed data that patients who received a one-time gene-editing infusion exhibited sustained improvement in a genetic condition that can result in fatal swelling when left untreated.
To be more specific, Intellia’s update means it could deliver a potentially permanent solution for hereditary angioedema. In this condition, a patient has a miswritten gene in their liver cells that produces a specific protein that triggers a dangerous swelling throughout the body.
Applying the treatment to 6 patients, Intellia’s one-time treatment lowered blood levels of the harmful proteins by more than 90% and decreased the swelling.
This is a more notable effect than the results from existing drugs like Takhzyro from Ionis Pharmaceuticals (IONS) and Takeda Pharmaceutical (TAK).
Despite the encouraging update, Wall Street still spurned the stock, and its price fell.
It looks like investors have lost patience with the slow progress of clinical studies in genetic treatments, pushing some to take advantage of the positive news from Intellia to abandon their positions.
Actually, it’s not only Intellia that suffered from this mistreatment by the market. Investors have also been dumping other stocks utilizing the Nobel-prize-winning technology, Crispr-Cas9, including CRISPR Therapeutics (CRSP), Editas Medicine (EDIT), Caribou Biosciences (CRBU), and Beam Therapeutics (BEAM).
Intellia was hailed the top CRISPR stock in 2021 when the company and its co-collaborator, Regeneron (REGN), shared their promising interim results from a Phase 1 study assessing NTLA-2001, a treatment for a rare genetic disease called transthyretin (ATTR) amyloidosis.
This Crispr infusion candidate managed to knock out rogue genes in the liver cells of 12 patients, halting ATTR’s poisonous effects on their hearts or nerves. Based on clinical data, Intellia’s therapy caused an over 90% drop in the fatal protein triggered by the genetic condition.
If successful, this one-and-done ATTR treatment from Intellia would go head-to-head against other chronic drug therapies like Onpattro by Alnylam Pharmaceuticals (ALNY) or Pfizer’s (PFE) Vyndagel, which generates $2 billion in sales every year.
Many companies use Crispr technology to edit human genomes in an effort to treat and possibly even cure rare genetic diseases. Their treatments typically utilize either an ex vivo or an in vivo approach. With ex vivo therapies, the genes are altered outside the patient’s body.
However, Crispr’s use is not only limited to targeting genetic conditions. There are also gene-editing companies that are working on leveraging the technology to come up with treatments for various kinds of cancer.
In particular, Crispr technology has been a biotech favorite in the development of chimeric antigen receptor T-cell or CAR-T therapies. There are used to genetically engineer immune cells to target specific tumors.
Apart from these, some biotech companies are using Crispr technology to conduct screening. This is different from genetic testing, though.
When using Crispr for screening, the genes are modified in a manner that makes them nonfunctional or inoperative. Crispr screening allows biotechs to explore which genes take on particular functions, which can be critical in the development of drugs and treatments.
Intellia’s recent updates are clear indications that Crispr technology works. Since this will be applied to humans, we should expect the timeline and adaptation to take longer.
I have become more and more thrilled with developments in the gene editing space. Moreover, I believe it’s no longer about “if” but when it will happen.
Overall, the gene editing sector is not for fast-paced investors. This is for those willing to wait for a very long time, particularly for stocks like Intellia Therapeutics.
Mad Hedge Bitcoin Letter
September 22, 2022
Fiat Lux
Featured Trade:
(THE UPGRADE THAT WASN’T AN UPGRADE)
(ETH), (BTC)
The Ethereum (ETH) merge was hyped up as some grand event, but its impact has been anti-climactic and anemic.
Originally referred to as Ethereum 2.0, the merge is an upgraded version of the Ethereum blockchain that uses a proof-of-stake consensus mechanism to verify transactions via staking.
I have been asked many questions about this Ethereum merge and the hoopla surrounding it.
I’ve been asked whether the price of Ether would surge on this or not and I’ll give you my hot take.
It would have to take something quite miraculously to change the negative sentiment around the broader crypto narrative and a shift in staking method is not enough.
It’ll most likely be a footnote in the story of Ethereum and it’s done nothing to entice traders to pour money in the asset.
I would say the opposite has occurred and I’ll explain why.
The way it will manufacture Ether coins will change, but that doesn’t mean that solid value is found just because of the change.
If McDonald’s suddenly switches the shredded cabbage it uses to produce a BigMac, most consumers aren’t going to rush out to buy 1000s of BigMacs for friends and family just because the cabbage is sourced differently.
There’s not much value added unless one is a climate change supporter who will highlight that energy use will decrease by 99.5% in this new form of staking Ether.
Basically, I am saying I would not even call this an “upgrade.”
How about the issues that real Ether buyers and sellers care about?
The merge didn’t fix Ethereum’s high fees or congestion.
Seriously, the developers need to fix this. It shouldn’t cost a fee between $50-$200 to buy into this coin and until something is improved on this front, it will remain less competitive than Bitcoin (BTC).
Laying the groundwork for the future is something that buyers and sellers of Ether simply don’t care about in the short-term and the price action reflects this sentiment.
In fact, I would strongly argue there are more outright negatives than positives that came out of this staking switch.
For example, the change spurred a hard fork, splitting the blockchain in two and giving rise to an offshoot chain called Ethereum PoW.
Some exchanges and platforms have shown support for the forked version, which still uses proof-of-work (PoW) verification, and at least 19 former ether mining pools are active on it.
Another Ether variant, Ethereum Classic has been another main beneficiary of the Merge, as its hash rate has doubled, with other graphics-processing-unit (GPU) compatible PoW blockchains such as Ravencoin and Ergo also witnessing big increases.
Like most products, it’s not smart to cut buyer capacity in half and then ditch the infrastructure behind for others to use.
Ethereum has now divided its product by leaving the old miners nowhere to go which gave way to a fork that now produces multiple types of variant Ether.
These miners followed the other side of the fork because the investment in mining equipment could be easily onboarded onto the forked Ether coins.
The move was idiotic, to say the least.
Another massive concern is Ether has become less decentralized because now just a few parties control the mining.
Wasn’t crypto supposed to nix the centralization aspect of currency which is why crypto enthusiasts hate fiat money?
The Merge is the first of five upgrades planned for the blockchain.
Therefore, dropping proof of work has uplifted the competition around them which is another terrible strategic decision.
This is survival of the fittest and turning your back on critical infrastructure that now is servicing infrastructure for another rival coin is outrageous.
All told, the Ethereum merge created more problems than solutions and at the end of the day, traders could care less that there is less energy used to mine Ethereum.
In fact, Ethereum miners are just using their equipment to mine other coins leading me to say that no energy savings were accrued in crypto whatsoever.
Either way, macro forces are still the leading driver of crypto prices as we lurch from one crisis to the next and we are still in the middle of crypto winter.
I am bearish Ether in the short term.
“Study hard so that you can master technology, which allows us to master nature.” – Said Argentine Revolutionary Che Guevara
Global Market Comments
September 22, 2022
Fiat Lux
Featured Trade:
(THE MAD HEDGE SEPTEMBER 13-15 SUMMIT REPLAYS ARE UP),
(TESTIMONIAL)
Dear John Thomas,
I want to thank you for getting me and my portfolio through this stressful year. Through the use of breathing techniques, listening (and relistening) to your biweekly webinars, and reading your letters, I managed to have a monster year - up 600% YTD.
I look forward to your thoughtful insights and money printing trade alerts in the years ahead.
Sincerely,
Justin in Santa Rosa
“Don’t ever hire an optimistic money manager,” said Scott Minerd, fund manager at Guggenheim Partners.
Mad Hedge Technology Letter
September 22, 2022
Fiat Lux
Featured Trade:
(POTENTIAL TECH REVERSAL PUSHED BACK)
(FED), (META), (AAPL)
Tech investors want nothing to do with an aggressive Federal Reserve, but that’s what we have.
I don’t choose this and neither do many others out there.
We have been spoilt in a world with low inflation, global peace, low energy, and high liquidity which was the perfect scenario for tech stocks.
The reverse has happened almost overnight and now it’s that much harder to earn your crust of bread in the tech world.
Gone are the days of buying Facebook for peanuts then going for a sauna and a nap. It’s not that easy right now.
Tech stocks don’t go up in a straight line anymore – there will be many zigs and zags along the way moving forward.
Tech stocks aren’t immune to these exogenous stocks and as anointed growth companies, they inherently need to borrow capital and grow more than the cost of it.
That endeavor is stretched to the limit as bond yield explodes to the upside with this latest rate rise.
Raising interest rates by 0.75% for the third consecutive time this afternoon was the consensus, but in fact, there was a 25% chance of a full 1% rate rise. We avoided that bullet.
Tech stock doves were hoping US Federal Reserve Governor Jerome Powell would save them, by initiating a pivot to save the stock market, but no do this time around.
It underscores that Powell is adamant about continuing this inflation battle even if I do believe it’s too little too late.
The central bank’s new benchmark borrowing rate is now between 3.0% to 3.25%, up from the current range of 2.25% to 2.5%. This would bring the fed funds rate to its highest level since 2008.
Tech stock reacts most sensitively to the change in Fed Funds rates which is why we have seen CEO and Founder of Meta (META) or Facebook Mark Zuckerberg lose $71 billion of his net wealth this year.
Not only is the macroenvironment squarely against him, but his flagship product Facebook is losing steam, and his new product the Metaverse has garnered tepid reviews from outsiders.
How long does the Fed intend to increase rates?
The updated consensus for the Fed Funds Rate shows it at 4-4.25% by the end of 2022, another hike to 4.25-4.5% at end of 2023, and one more cut in 2024 and two more in 2025.
The answer is quite a while longer.
In the meantime, this will initiate a “reverse wealth effect” and tech stocks are the biggest losers, and the US dollar is an unmitigated winner.
Delaying lower Fed Funds rates means delaying the reversal in tech stocks which need lower rates to explode higher and without it, they are quite ordinary.
Signaling higher rates for longer is designed to tame inflation, but there are so many unintended consequences for US tech stocks.
The most important themes to be concerned about are revenue and financing.
The .75% increase in rates will mean that tech stocks will produce lower annual revenue because financing costs will be higher.
This is already at a time when general costs have exploded higher such as an uncontrollable wage spiral, supply chain bottlenecks, health care costs, transportation costs, and energy costs.
It’s a great deal harder to keep the numbers down enough to profit which basically means gross margins will compress further from today.
Tech stocks will come back because they always do. They are the profit engine of corporate America, and that will never change.
I see great tech companies like Apple (AAPL) installing the framework so they can maximize on the next move up when the bull market reignites.
They are doing this by moving iPhone production to India and other tablet production to Vietnam to get out of lockdown China.
Now is the time to reset before tech bounces back and it’s painful to see tech get slaughtered, but this is a necessary evil after a wonderful bull run from 2012 to November 2021.
US FED GOVERNOR GIVES NO LOVE TO TECH STOCKS