Mad Hedge Biotech and Healthcare Letter
April 4, 2024
Fiat Lux
Featured Trade:
(A HIGH RISK, HIGH REWARD BIOTECH)
(VYGR), (SNY), (ABBV), (NBIX), (NVS), (AZN), (SGMO), (BIIB), (RHHBY), (IONS)
Voyager Therapeutics (VYGR) has put investors through the wringer. Since going public in 2015, their chips have swung wildly, from a high-rolling $30 down to a "you've got to be kidding me" $2.50. Why? Well, their early bet on curing neurological diseases hit some snags.
But, things seem to be turning around for them these days. Word on the street is Voyager's new Alzheimer's drug could be a total game-changer. If those clinical trials get the FDA's blessing, their stock could skyrocket from its current $9.30 to $22 a share.
Before anything else, let's take a stroll down memory lane.
Voyager started out with big dreams – using fancy gene therapies to tackle tough brain diseases like Parkinson's and Huntington's. Sadly, those early programs didn't quite deliver.
But hey, they caught the eye of some big pharma players. Sanofi (SNY) came knocking with a sweet deal – $100 million upfront and promises of up to $745 million if things worked out. Unfortunately, the science wasn't cooperating, and Sanofi bailed in 2019. Ouch.
Not to be discouraged, Voyager hooked another giant, AbbVie (ABBV), with a $1.2 billion deal for Alzheimer's and Parkinson's drugs. But then, more bad luck – their Parkinson's drug stumbled, and their Huntington's disease trials got put on hold. So, AbbVie decided to cut their losses in 2020. Double ouch.
And while the pandemic may have cured our boredom, it killed investor patience with unproven biotechs. Voyager's stock price cratered, leaving them worth about as much as a used napkin – barely more than their own $500 million cash pile.
But Voyager, bless their stubborn hearts, refused to become a biotech graveyard.
Despite having zero products actually making money, they have a secret weapon: their TRACER capsid tech. Think of it as a tiny Trojan Horse that can sneak drugs past that blood-brain barrier and deliver them directly to their target. Pretty impressive, right?
This tech, along with Voyager's brainpower, caught the eye of some pharma giants.
We're talking big names like Neurocrine Biosciences (NBIX), Novartis (NVS), AstraZeneca (AZN), and Sangamo (SGMO). If everything goes according to plan, these partnerships could be worth a whopping $8 billion. Now that's what I call a vote of confidence — or maybe just a collective case of gambling fever.
For Voyager, however, its biggest gamble is on Alzheimer's – and they're going all-in. Their star player is an antibody that tackles those nasty tau tangles that mess up brain cells.
Here’s a bit of context to understand why treatments for this are crucial.
Tau is like the scaffolding inside your neurons, keeping everything organized. But in Alzheimer's, that tau goes rogue, clumping into nasty tangles. Think of it like a giant hairball clogging up the brain's communication system. These tangles are called neurofibrillary tangles (NFTs) if you want to sound super smart.
This is something that Big Pharma like Biogen (BIIB), AbbVie, and Roche (RHHBY) are trying to target, too. But Voyager claims theirs is a precision weapon, zeroing in on just the bad stuff. If clinical trials prove that, their drug could blow the competition out of the water.
Plus, Voyager's got another trick up their sleeve: a gene therapy that hits the “off” switch on those tau tangles. They've shown it works in animals, and Biogen and Ionis (IONS) are already testing something similar in humans. But Voyager's got the edge – theirs is a one-time shot, so no more of those painful spinal taps.
That’s not all. Voyager is also tinkering with these new virus capsules that can sneak gene therapies straight into brain cells. And get this – they're even working on ways to ditch the viruses altogether and target nerves directly. Pretty cutting-edge stuff.
So, is Voyager a surefire win? Heck no.
Let's be realistic. It's going to be a while before Voyager actually makes money from these drugs. But there'll be exciting news along the way—science proving their ideas work.
Remember, the tricky thing with gene therapies is that everyone's chasing the same dream: how to get these treatments where they need to go quickly, cheaply, and safely. It's tough to predict who'll crack the code, even for the experts.
What's noteworthy about Voyager is that they keep reeling in those big pharma partners. Sure, the first two deals fizzled out, but not before Voyager pocketed a ton of cash. That kept them afloat, and now their stock's not such a dumpster fire.
But, let’s face it. Voyager's track record isn't exactly a parade of victories. Progress has been slow, and that's just the way it is in this industry.
If they pull off a miracle cure, they'll be worth billions, maybe tens of billions. Remember when Intellia Therapeutics (INTL) hit that $10 billion mark? That's the kind of payoff we're talkin' about.
Still, Voyager needs to deliver some serious wins, or those partners will vanish again. However, it’s worth considering that when a big player like Novartis, who knows this gene therapy game, partners up... that's gotta mean something, right? Even without results from human trials, it's a sign Voyager might be onto something big.
I know it's hard to justify investing in small biotechs with a losing streak, especially when they're tackling the toughest diseases out there. But after digging into Voyager, I can see its potential.
Worst case scenario? Their drugs flop. But that can happen to any biotech, even those with huge valuations and decades of trying.
As for Voyager, this biotech has been around the block. They've clearly got some promising science, and their stock is cheap. For me, that's enough to take a small position and see what happens.
Global Market Comments
April 4, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(FCX), (XOM), (OXY), (WPM), (TSLA)
Occasionally, I get a call from Concierge members asking what to do when their short position options are assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have SIX spreads that are deep in the money going into the APRIL 19 option expiration in 11 days. They include:
(FCX) 4/$37-$40 call spread
(XOM) 4/$100-$105 call spread
(OXY) 4/$59-$62 call spread
(WPM) 4/$39-$42 call spread
(TSLA) 4/$140-$150 call spread
(GLD) 4/$194-$197 call spread
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options position you have may get assigned or called away.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the Freeport McMoRan (FCX) April 2024 $37-$40 in-the-money vertical BULL CALL debit spread.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 10 trading days before the April 19 expiration date. In other words, what you bought for $2.60 on March 4 is now $3.00!
All you have to do is call your broker and instruct them to exercise your long position in your (FCX) April 37 calls to close out your short position in the (FCX) April $40 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
To say it another way, you bought the (FCX) at $37 and sold it at $40, paid $2.60 for the right to do so, so your profit is $0.40 cents, or ($0.40 X 100 shares X 40 contracts) = $1,600. Not bad for a 30-day defined limited-risk play.
Sounds like a good trade to me.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (FCX) position after the close, and exercising his long April $40 call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.
Either that, or you can just sell your shares the following Monday and take on a ton of risk over the weekend. This generates a oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they really did train 50 years ago.
Avarice could have been an explanation here but I think stupidity, poor training, and low wages are much more likely.
Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
The staid world of lending is undergoing a seismic shift. Artificial intelligence (AI) is rapidly transforming the loan process for banks and lenders, promising a future of faster approvals, more informed decisions, and a fairer playing field for borrowers.
This article delves into the impact of AI on the loan process, exploring its potential benefits for both financial institutions and loan seekers. We'll examine how AI is streamlining workflows, enhancing risk assessment, and even promoting financial inclusion. However, the ethical considerations and potential pitfalls of AI-powered lending will also be addressed.
Faster Approvals, Streamlined Workflows
One of the most significant changes brought about by AI is the dramatic reduction in loan processing times. Traditionally, loan applications underwent a rigorous manual review, involving document verification, credit score analysis, and income verification. This time-consuming process often left borrowers waiting for weeks, even months, to receive a decision.
AI-powered tools are automating these tedious tasks. Machine learning algorithms can analyze vast amounts of data, including bank statements, tax returns, and alternative data sources like social media activity (with user consent), to create a comprehensive picture of a borrower's financial health. This not only expedites the process but also frees up loan officers to focus on complex cases requiring human expertise.
Beyond the Credit Score: A More Nuanced Risk Assessment
Traditionally, credit scores have been the cornerstone of loan approvals. However, this single metric often fails to capture a borrower's full financial profile. AI offers a more nuanced approach by analyzing a broader range of data points. This includes a borrower's cash flow, employment history, and even their spending habits.
By creating a more holistic risk assessment, AI can identify creditworthy borrowers who may have been overlooked by traditional methods. This can lead to increased loan approvals, particularly for those who are new to the credit system or have limited credit history.
Democratizing Lending: Reaching the Underserved
The traditional lending system often excludes individuals and small businesses with limited access to traditional credit sources. AI has the potential to bridge this gap by facilitating alternative lending models.
For example, AI-powered platforms can assess a borrower's creditworthiness based on alternative data sources like utility bills or rental payments. This can open doors for those who have been traditionally underserved by banks, promoting greater financial inclusion.
AI and the Human Touch: A Collaborative Approach
While AI automates many aspects of the loan process, it's important to remember that human expertise will remain crucial. Loan officers will continue to play a vital role in building relationships with borrowers, understanding their specific needs, and structuring loan products that are tailored to their financial goals.
The ideal scenario involves a collaborative approach, where AI complements human judgment. AI can handle the heavy lifting of data analysis and preliminary approval, while loan officers step in to provide personalized guidance and navigate complex situations.
Ethical Considerations: Bias and Explainability
The power of AI comes with a responsibility to ensure fairness and transparency. AI models trained on historical data can inadvertently perpetuate biases that were present in the past.
For example, if a lending algorithm has been trained on a dataset where women were historically denied loans more often than men, it may continue this bias in its future decisions. It's crucial for lenders to develop and implement AI models that are rigorously tested for fairness and can explain their reasoning in a clear and understandable way.
Conclusion: The Future of Lending
The integration of AI into loan processes represents a significant leap forward for the financial services industry. The potential benefits are vast, offering faster approvals, more informed decisions, and the opportunity to reach a wider pool of borrowers. However, it's vital to navigate this transformation responsibly by addressing potential biases and ensuring transparency. As AI continues to evolve, one thing is certain: the loan process will never be the same.
Further Considerations
This article provides a foundational understanding of AI's impact on loan processes. Here are some additional areas we’ll be paying attention to in the near future:
- The rise of challenger banks and fintech startups leveraging AI to disrupt the traditional lending landscape.
- The security considerations of handling sensitive financial data within AI-powered platforms.
- The potential impact of AI on loan pricing and the evolution of risk-based interest rates.
- The regulatory landscape surrounding AI-powered lending and the need for ethical frameworks.
Mad Hedge Technology Letter
April 3, 2024
Fiat Lux
Featured Trade:
(TESLA ON THE BACK FOOT)
(TSLA)
Peak Tesla?
It sure seems like it.
I don’t want to jinx the company, but it is highly likely that it is passed its best.
The data is looking increasingly gloomy and could set the stage for an even larger drop into irrelevance.
In short, it’s definitely not looking too bright for the company that Elon Musk built.
Tesla only delivered 386,810 vehicles from January through March 2024, almost 9% below the 423,000 it sold in the same quarter of last year.
The drop in sales makes Apple's diminishing demand look like a drop in an ocean.
EV competition is catching up and demand has wavered as consumers’ cash is tangled up in other parts of the economy namely necessities.
Then there is the realization that the giant first wave of EV adoptees is a barren second wave.
The second wave might not even come at all and if it does, it could be years down the road when Tesla is forced to pour billions into developing a new “killer” EV.
Even someone like my oldest son is not interested in EVs and rather drive combustion-engine-based Ferraris or Lamborghinis.
EVs aren’t for everyone and the industry didn’t budget or scale for that scenario.
The EV industry always thought there would be a horse drinking from the bucket.
Are its EVs going stale or is the style just outdated at this point?
I know tech moves on quickly, but this would set new records.
High interest rates have also put a dent into demand as financing a Tesla isn’t what it used to be.
Just a few months ago, CEO Elon Musk posted that “most people don’t love to buy cars in the middle of winter” as he offered a $1,000 incentive. Tesla has also begun experimenting with advertising and has gone to greater lengths to educate consumers about its lineup.
Tesla never used to reach out to consumers.
Their cars used to sell themselves.
Remember when Tesla refused to sell their cars in dealerships and thought just put them online and they would fly off the shelves.
The Model Y sport utility vehicle and Model 3 sedan accounted for 96% of deliveries in the fourth quarter.
Tesla expanded its offerings late last year with the introduction of the stainless steel-clad Cybertruck in the US.
Despite the challenges, Tesla still managed to reclaim its title as the world’s largest EV seller after being surpassed by China’s BYD Co. at the end of last year.
Tesla encountered bottlenecks in its operation last quarter such as Houthi militia attacks that disrupted its component supply in the Red Sea, leading to a temporary halt in production at its German factory.
Management and service staff are keen to demonstrate the latest version of the company's premium driver assistance system, marketed as Full Self-Driving, which still requires driver supervision.
Tesla's stock has been nose-diving while the rest of big tech has pulled away from the laggards.
The EV maker has lost around a third of its value and it seems like there is no end in sight.
If any readers are interested in investing in big tech now, then I would avoid Tesla and go into something more aligned with AI.
Tesla will need to pour billions into revamping its competitive advantage and the stock should suffer in the short-term.
“I definitely fall into the camp of thinking of AI as augmenting human capability and capacity.” – Said Microsoft CEO Satya Nadella
(ANALYSTS AND INVESTORS ARE STARTING TO PAY ATTENTION TO THE ENERGY SECTOR)
April 3, 2024
Hello everyone.
The month of April is upon us, and the market environment has turned a little cloudy.
Economic data and heightened geopolitical risks appear to be fuelling the move higher in Oil prices. With the new month, investors have been greeted with escalating tensions in the Middle East with indirect Iranian involvement. OPEC member Iran has blamed Israel for a deadly air strike Monday on its consulate in the Syrian capital of Damascus that reportedly killed seven of its officers.
On Tuesday, Tehran pledged to take revenge for the attack, which was seen as a major escalation in the Israel-Hamas war. It is clear that the potential for direct Iranian involvement in the Israel-Hamas war could ignite a widespread regional conflict with a significant impact on oil supply.
Meanwhile, in Ukraine, we have seen Ukrainian strikes on one of Russia’s largest oil refineries with a drone attack on the highly industrialized Tatarstan region, some 800 miles from the front lines of the conflict. Russia has been hit by many Ukrainian drone strikes in recent months and has sought to escalate its own attacks on Ukraine’s energy infrastructure.
Robert Schein, CIO at Blanke Schein Wealth, believes energy could be the story of the summer. He goes on to comment that energy stock valuations are “really attractive” pointing to multiples that are largely in the low-teens range. Furthermore, he notes that the companies in the space have strong cash flows and balance sheets.
Schein sees this move in oil stocks as the start of a rebound. The Energy Select Sector SPDR Fund (XLE) has added more than 12% in the first quarter of 2024, outperforming the S&P500’s gain of just over 10% during the same period. The fund lost more than 4% in 2023, bucking the broader market’s uptrend. But energy has now started to break out after being “left behind” as Schein puts it.
Schein points out that a rise in crude oil into the mid-$80 price range bodes well for stocks in the sector. “If they’re making money at $70 a barrel, they’re printing money in the $80s and $90s.”
Adding further fuel to the fire of supply chain disruptions is the Port of Baltimore bridge collapse. And that event is on top of the ongoing geopolitical conflicts that have already been providing upward pressure.
Schein argues that most investors are probably underweight on energy. His team has been currently boosting its exposure to the sector. The Energy Select Sector SPDR Fund (XLE) is a diversified way to add weight.
On February 8, 2024, under the newsletter titled “Three Stocks to Buy in 2024,” I recommended Exxon Mobil (XOM) and suggested you buy the stock or buy LEAPS, or do both. The price of (XOM) at the time was $102.20. For those who trade options, I recommended one-year LEAPS out of the money and gave the following suggestions on strike prices: 105/110 or even 110/115 with an expiration of January 17, 2025. (Congrats to you if you invested!) Price of (XOM) stock now is $119.28. I also put out a trade alert to purchase two-year LEAPS in July 2023 on Chevron (CVX).
Schein notes that these large-cap picks can be advantageous during tough times, as the companies typically support their stocks by doing buybacks.
Bullish move underway in Oil.
A Global Chip Supplier that is worthy of attention
The boom in demand for artificial intelligence is rocketing many technology stocks. However, one in particular is a global chip supplier that manufactures key AI components and is presently undervalued. Taiwan Semiconductor Manufacturing Co Ltd (TSM) ($140.22) is a supplier to chip giants such as Nvidia, Advanced Micro Devices and Qualcomm. Wall Street analysts are arguing that (TSM) could rally another 27%. The stock currently trades at 21 times forward price to earnings versus 31 times for the broader Van Eck Semiconductor Index (SMH).
What’s the reason for the potential rally?
More customers will require leading-edge tools for new AI products. Wall Street analysts including JPMorgan argue that the expectation for strong wafer shipments will see second-quarter revenue up 6%-8% quarter over quarter. Furthermore, the investment bank comments that the overall 2025 demand picture (outside of AI) is also constructive following nearly two years of inventory correction.
Please note, that I am not recommending you buy the stock right now. I am merely drawing your attention to the stock and giving you information, so you can make informed decisions about whether to purchase this stock at any time in the future. Put it on your Watch List.
Cheers,
Jacquie
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