Mad Hedge Biotech and Healthcare Letter
July 16, 2024
Fiat Lux
Featured Trade:
(SMALL GIANTS RISING)
(GMAB), (OPHLY), (VRTX), (INCY), (BIIB), (AHKSY), (ALNY), (ARGX), (BGNE), (MRNA), (NBIX), (BNTX), (IPSEY), (CTLT), (NVO), (LLY), (JNJ), (GILD), (ABBV), (MRK), (SNY), (BMY), (GSK)
Remember when David took down Goliath? Well, history's repeating itself in the biotech arena, and this time, David's got deep pockets and a Ph.D.
Since April, I've been watching a trend on the so-called "next-generation" players in biotech and healthcare world. It reminds me of the massive changes I witnessed in Asian markets back in the '70s.
Over the past months, companies like Genmab (GMAB), Ono Pharmaceutical (OPHLY), Vertex (VRTX), Incyte (INCY), Biogen (BIIB), and Asahi Kasei (AHKSY) have been making waves that would impress even the most seasoned surfer. And these next-gen dealmakers aren't just dipping their toes in the M&A pool - they're doing cannonballs.
With cash reserves that would make Scrooge McDuck blush, these companies are overturning industry norms, already joining the prestigious $100 billion market cap club. At this celebration, the champagne flows freely.
So, what’s the play here?
With IPOs cooling down like day-old coffee, companies eyeing public debuts are now ripe targets for acquisition, more tempting than a juicy peach.
This fresh class of biotechs, unphased by the FTC's scrutiny that acts like kryptonite to pharma giants, are acting more like rocket fuel for these agile consolidators.
They slide through regulatory gaps faster than a greased pig at a county fair, grabbing six out of ten biopharma M&A deals in the second quarter alone. They’re not just taking a slice of the pie—they’re rewriting the recipe.
And if we're talking about firepower? These newcomers boast an average of $3.8 billion in pro forma adjusted cash, which isn't just walking-around money — that's "buy a small country" money.
But don't think for a second that this cash is just sitting pretty in their coffers. These upstarts are putting their money where their mouth is.
Take Incyte, for instance. They flexed their financial muscle with a $2 billion buyback in May 2024, sending a clear message to the market: "We're here to play, and we're playing to win."
And that's just the tip of the iceberg. The industry as a whole is lounging on a cool $1.5 trillion. That's enough liquidity to stretch the imagination — perhaps even to purchase a small planet. Mars, anyone? Elon might give us a discount.
But this financial might isn't just about buying power – it's about survival. As I said before, Big Pharma is teetering on a patent cliff that threatens to erode their revenue streams. To stay competitive, they're scrambling to replenish their pipelines, acquiring promising assets and gobbling up innovative technologies with the voracity of Pac-Man on steroids. And it's not just the usual suspects making moves.
This sense of urgency has created a fertile ground for an emerging cohort of aggressive dealmakers. Companies like Alnylam (ALNY), argenx (ARGX), BeiGene (BGNE), Moderna (MRNA), Neurocrine Biosciences (NBIX), BioNTech (BNTX), and Ipsen (IPSEY) are biting off more than the market expected them to chew, and they're coming to the table hungry.
And these companies aren't just nibbling around the edges. They're making bold moves, acquiring cutting-edge biotech firms with promising pipelines. We're talking oncology, epilepsy, kidney diseases, cardiovascular plays – it's like someone turned a medical textbook into a shopping catalog.
In fact, even the big boys are flexing their muscles.
Novo Holdings (NVO) dropped a jaw-dropping $16.5 billion on Catalent (CTLT). That's not even for a drug - it's for manufacturing. Talk about betting on the picks and shovels in this biotech gold rush.
Eli Lilly (LLY) just plunked down $3.2 billion on Morphic Therapeutic (MORF), betting big on inflammation, immunity, and oncology.
Johnson & Johnson's (JNJ) been on a shopping spree, too, snagging Numab's Yellow Jersey for $1.25 billion and Proteologix for $850 million. Both plays in inflammation and immunity - clearly, they've found their sweet spot.
Biogen's not twiddling its thumbs either, striking a deal with HI-Bio worth up to $1.8 billion.
Not to be outdone, Gilead (GILD) shook hands with CymaBay Therapeutics to the tune of $4.3 billion. Even AbbVie (ABBV), playing it cooler, still dropped a cool $250 million on Celsius.
Meanwhile, Merck's (MRK) set its sights on EyeBio for up to $3 billion, focusing on ophthalmology.
Sanofi (SNY), Bristol Myers Squibb (BMY), GSK (GSK) - they're all in, placing their chips on everything from rare diseases to generics to asthma. Clearly, the Big Pharma giants are also trying to keep up with this shift.
As the biotech field evolves, watching these underdogs will be like watching history in the making — where today's Davids become tomorrow's Goliaths. I suggest you keep a close eye on the names above. Adding them to your portfolio would mean you’re not just watching the giants rise — you’ll be a part of the story.
Global Market Comments
July 16, 2024
Fiat Lux
Featured Trade:
(FRIDAY, JULY 26, 2024 ZERMATT, SWITZERLAND STRATEGY LUNCHEON)
(THE KINDLE EDITION OF THE JOHN THOMAS BIO IS OUT)
Come join me for the Mad Hedge Fund Trader’s Global Strategy Luncheon, which I will be conducting high in the Alps in Zermatt, Switzerland. The event begins at 12:00 noon on Friday, July 26, 2024.
A three-course meal will be provided and there will be an open discussion on the crucial issues facing investors today. You are welcome to attend in your mountain climbing gear, if necessary. One year, a guest descended from the Matterhorn summit to attend.
I’ll be giving you my up-to-date view on stocks, bonds, foreign currencies, commodities, precious metals, energy, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Tickets are available for $277.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The event will be held at a central Zermatt hotel, the details of which will be emailed directly to you with your confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here.
Lucinity, a leading provider of financial crime prevention solutions, today announced the launch of a groundbreaking generative AI copilot plugin that is poised to transform the way financial institutions (FIs) combat financial crime. Unveiled at Money2020 Europe, this innovative plugin offers an immediate return on investment (ROI) by seamlessly integrating with existing enterprise systems, consolidating data from disparate sources, and empowering analysts with intelligent insights.
The Challenge of Siloed Systems
FIs have long grappled with the challenge of managing data scattered across various platforms, including customer relationship management (CRM) systems, case management systems, third-party vendor platforms, and even Excel documents. This fragmentation hinders efficient investigation and decision-making, as analysts are forced to navigate between multiple applications, manually collate information, and rely on intuition rather than data-driven insights.
Introducing Lucinity's System-Agnostic AI Copilot
Lucinity's new AI copilot plugin addresses this challenge head-on by acting as a central hub that sits on top of all web-based enterprise applications. By breaking down data silos and consolidating information from diverse sources, the plugin empowers analysts with a holistic view of customer profiles, transaction histories, and potential risks. This streamlined access to critical data enables faster, more accurate investigations and informed decision-making.
Enhanced Productivity and Efficiency
One of the most significant advantages of Lucinity's AI copilot plugin is its ability to boost productivity by up to 90%. By automating repetitive tasks, such as data collection and analysis, the plugin frees up analysts to focus on higher-value activities, such as identifying complex patterns and uncovering hidden risks. This not only improves efficiency but also enhances job satisfaction by allowing analysts to utilize their expertise in more meaningful ways.
Seamless Integration and Cost Savings
Unlike traditional AI solutions that often require complex integrations and extensive customization, Lucinity's plugin is designed to be system-agnostic. This means that it can be easily deployed on top of any existing web-based enterprise application, regardless of the underlying technology stack. This plug-and-play approach eliminates the need for costly and time-consuming integrations, allowing FIs to realize immediate value from their investment.
Furthermore, the plugin's ability to leverage existing systems and data sources translates to significant cost savings. FIs can avoid the expense of replacing legacy systems or investing in new data warehouses, as the plugin seamlessly integrates with their current infrastructure. This not only reduces upfront costs but also minimizes ongoing maintenance and support expenses.
Empowering Analysts with Intelligent Insights
At the heart of Lucinity's AI copilot plugin is a powerful generative AI engine that leverages advanced machine learning algorithms to analyze vast amounts of data and generate actionable insights. The plugin's intuitive interface provides analysts with a user-friendly platform to interact with the AI engine, ask questions, and receive relevant information in real time.
For example, an analyst investigating a suspicious transaction can simply ask the plugin to summarize the customer's transaction history, identify any unusual patterns, or provide a list of potential red flags. The plugin's AI engine will then analyze the relevant data and present the analyst with a concise summary, highlighting any anomalies or areas of concern.
In addition to generating insights, the plugin can also automate routine tasks, such as creating case reports, drafting emails, or summarizing lengthy documents. This not only saves time but also ensures consistency and accuracy in communication and documentation.
The Future of Financial Crime Prevention
Lucinity's system-agnostic AI copilot plugin represents a major leap forward in the fight against financial crime. By breaking down data silos, empowering analysts with intelligent insights, and automating routine tasks, the plugin enables FIs to detect and prevent financial crime more effectively than ever before.
As the financial landscape continues to evolve, the need for innovative solutions that can adapt to changing threats and regulations will only become more critical. Lucinity's AI copilot plugin is well-positioned to meet this challenge, providing FIs with a flexible and scalable platform to stay ahead of the curve.
About Lucinity
Lucinity is a leading provider of financial crime prevention solutions that empower financial institutions to detect and prevent financial crime more effectively. The company's innovative platform leverages advanced machine learning algorithms to analyze vast amounts of data and generate actionable insights, enabling analysts to make faster, more informed decisions. Lucinity is committed to helping its customers protect their businesses and reputations by providing them with the tools they need to stay ahead of the curve in the fight against financial crime.
In Conclusion
Lucinity's launch of a system-agnostic AI copilot plugin marks a significant milestone in the evolution of financial crime prevention. By bridging the gap between disparate systems, empowering analysts with intelligent insights, and automating routine tasks, the plugin offers a comprehensive solution that can transform the way FIs combat financial crime. As the industry continues to embrace AI and machine learning, Lucinity's innovative approach is poised to set a new standard for efficiency, accuracy, and effectiveness in the fight against financial crime.
Mad Hedge Technology Letter
July 15, 2024
Fiat Lux
Featured Trade:
(AI AND IMPROVED WORKFORCE EFFICIENCY IS HERE TO STAY)
(TSLA)
Students hoping to become bankers shouldn’t study finance, they should dive into AI programming.
This is the big takeaway from how investment banks are run these days.
Gone are the moments when finance degrees were the hottest commodity, now it is all about generative AI.
Artificial intelligence (AI) could replace the equivalent of 300 million full-time jobs, a report by investment bank Goldman Sachs says.
It could replace a quarter of work tasks in the US and Europe but may also mean new jobs and a productivity boom.
And it could eventually increase the total annual value of goods and services produced globally by 7%.
Generative AI, able to create content indistinguishable from human work, is "a major advancement", the report says.
Silicon Valley is keen to promote investment in AI not only in the United States but in a way that will ultimately drive productivity gains across the global economy.
The report notes AI's impact will vary across different sectors - 46% of tasks in administrative and 44% in legal professions could be automated but only 6% in construction and 4% in maintenance, it says.
Journalists will therefore face more competition, which would drive down wages unless we see a very significant increase in the demand for such work.
Consider the introduction of GPS technology and platforms like Uber (UBER). Suddenly, knowing all the streets in London had much less value - and so incumbent drivers experienced large wage cuts in response, of around 10% according to our research.
The result was lower wages, not fewer drivers.
Over the next few years, generative AI is likely to have similar effects on a broader set of creative tasks.
According to research cited by the report, 60% of workers are in occupations that did not exist in 1940.
However, other research suggests technological change since the 1980s has displaced workers faster than it has created jobs.
Nobody understands how the technology will evolve or how firms will integrate it into how they work.
Lower wages and higher output are a perfect recipe for higher technology share prices and that is exactly what we will get.
Currently, we are experiencing a mild pullback from the AI mania, but that is simply because it got too far ahead of its skis.
I am quite impressed by the price action in a stock like Tesla (TSLA) which executed a major cut to their global workforce to trim costs.
The staff cut of 10% could result in exactly what I mentioned in more output for less pay, but in terms of hiring more workers, they have decided to force less workers to do more.
This type of management decision increases efficiency because it forces workers to work smarter.
It’s certain they will be a major investor in AI chips to outfit their EV cars, and much of this corporate tech business is a feedback loops involving synergies with businesses overlapping.
Tech as a whole is not in trouble, but individual companies will find an imbalanced treatment of their stock.
The AI pixie dust is still strong as many readers bought the shallow dip in Nvidia.
I do believe in the AI hype, and a lot of the price action is skewed toward just a handful of AI stocks.
My advice is to buy AI stocks on the dip and this increased efficiency will certainly filter down into the top and bottom lines.
(RESHUFFLING THE SECTOR LANDSCAPE IN READINESS FOR A RATE CUT)
July 15, 2024
Hello everyone,
Week ahead calendar
Monday, July 15
8:30 a.m. Empire State Index (July)
12:30 p.m. US Fed Powell Speech
Earnings: Goldman Sachs, BlackRock
Tuesday, July 16
8:30 a.m. Export Price Index (June)
8:30 a.m. Import Price Index (June)
8:30 a.m. Retail Sales (June)
10 a.m. Business Inventories (May)
10 a.m. NAHB Housing Market Index (July)
8:30 a.m. Canada Inflation Rate
Previous: 2.9%
Forecast: 2.9%
Earnings: J.B. June Transport Services, State Street, Morgan Stanley, Bank of America, PNC Financial Services Group, United Health Group.
Wednesday, July 17
8:30 a.m. Building Permits (Preliminary)
8:30 a.m. Housing Starts
9:15 a.m. Industrial Production
9:15 a.m. Manufacturing Production
2:00 p.m. Fed Beige Book
2:00 a.m. UK Inflation Rate
Previous: 2.0%
Forecast: 2.0%
Earnings: United Airlines, Discover Financial Services, U.S. Bancorp, Johnson & Johnson, Citizens Financial Group, ASML
Thursday, July 18
8:30 a.m. Continuing Jobless Claims (07/06)
8:30 a.m. Initial Claims (07/13)
8:30 a.m. Philadelphia Fed Index (July)
10:00 a.m. Leading Indicators (June)
8:15 a.m. Euro Area Rate Decision
Previous: 4.25%
Forecast: 4.25%
Earnings: Netflix, M&T Bank, KeyCorp, Domino’s Pizza, D.R. Horton, Blackstone, Taiwan Semiconductor.
Friday, July 19
2:00 a.m. UK Retail Sales
Previous: 2.9%
Forecast: -0.4%
Earnings: SLB, American Express, Halliburton, Fifth Third Bancorp, Regions Financial, Huntington Bancshares
PREPARING FOR THE INEVITABLE RATE CUT
With interest rates predicted to fall, the bond Universe is looking increasingly attractive.
Falling interest rates tend to be a good thing for the bond market because interest rates and bond prices historically share a strong, inverse correlation.
Three niches of the bond market – government bonds, investment-grade corporate bonds, and high-yield bonds – look more attractive due to the ongoing shift in interest rate expectations for the second half of 2024.
Morningstar recently published its 2024 outlook on interest rates and projected that the federal funds rate could drop as low as 3.75-4.00% by the end of 2024. Morningstar expects that downward trend to persist into the next year, forecasting that interest rates could drop to a range of 2.25-2.50% by the end of 2025. (I have been forecasting this for some time in my Zoom monthly meetings).
Like Morningstar, PIMCO also expects rate cuts this year. It sees 75 basis points of net cuts in 2024, which implies that the federal funds rate will drop to roughly 4.50% by the end of 2024.
So, now we understand that it is almost a done deal that the Fed will cut this year, and maybe more than once, what should we be looking at to capitalize on this landscape?
Bond products to consider in 2024
One that immediately comes to mind is the iShares 20 Plus Year Treasury Bond ET (TLT).
You should be buying the TLT and/or buying LEAPS one or two years out. If you want to be conservative, buy in the money LEAPS, if you want to be more aggressive, buy out of the money LEAPS.
As shown here in this chart, the expected returns for government bonds, aggregate bond funds, corporate bond funds, corporate bonds, and high-yield bonds have trended above their long-term averages.
Source: Morningstar
The current yield-to-worst (YTW) for each of the above-listed bond categories has climbed well above its respective long-term average.
Yield-to-worst is a projection for future returns and represents an estimate of the lowest possible yield for a bond by averaging returns across a wide range of different scenarios. Investors use yield-to-worst as a risk management tool to evaluate the potential downside risk associated with a particular bond investment.
But we always must remember, that no investment is without risk. If you are very risk-averse, look at investment-grade bonds, which are typically issued by financially stable and reputable organizations with access to considerable financial resources.
Two well-known ETFs that focus on high-quality corporate debt include the iShares iBoxx Investment Grade Corporate Bond ETF (LQD), and the iShares 5-10 Year Investment Grade Corporate Bond ETF (IGIB). Investors and traders looking for exposure to international corporate bonds can also consider the Invesco International Corporate Bond ETF (PICB).
In addition to high-grade corporate bonds, investors and traders may also consider high-yield bonds. These bonds, often referred to as junk bonds, are a category of corporate bonds that have credit ratings below investment grade. And this means that the companies issuing these bonds have a higher probability of defaulting on their interest rates or failing to repay their principal at maturity.
The potential returns are higher for this category of bonds due to their elevated credit risk. If you are risk-averse, this category might not be your cup of tea.
Two well-known high-yield ETFs include the iShares iBoxx High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg High Yield Bond ETF (JNK). Investors and traders who are interested in internationally focused high-yield bonds can also consider the iShares International High Yield Bond ETF (HYXU).
Returns for bond ETFs since rate expectations started to shift. (returns from Oct. 19, 2023, through Jan. 3, 2024):
Considering the above returns, TLT’s performance outshines all bond categories. It is theoretically less risky than corporate bonds and high-yield bonds, and arguably the best bet for investors and traders who want exposure to the bond market but also want to minimize risk.
TLT tracks the performance of U.S. Treasury bonds with maturities of 20 years or more. As such, TLT provides investors with exposure to long-term U.S. government debt, which is generally considered one of the safest assets in the fixed-income universe.
Of course, I am not saying that significant rallies in corporate and high-yield niches will not occur. But they carry more risk than TLT. Ultimately, it is up to each investor and trader to choose the product that matches their risk appetite and outlook.
The usual narrative we hear all the time is that you should be weighted 60% in equities and 40% in fixed income. I believe it is a personal choice dependent on many factors, as every person’s situation is unique. Ultimately, as investors, we want capital preservation, but we also have to embrace risk as part of the investing process. Your risk appetite and your goals, as well as many other factors, will determine your weighting of equities and fixed income. Diversification amongst sectors is key.
iShares 20 Plus Year Treasury Bond ETF (TLT) Weekly chart
iShares iBoxx Investment Grade Corporate Bond ETF (LQD) Weekly Chart
iShares iBoxx High-Yield Corporate Bond ETF (HYG) Weekly Chart
MARKET UPDATE
S&P 500
Uptrend closing in on targets. Support lies at 5, 525/5,4440. Only a break of these levels would signal that a correction has started.
GOLD
Uptrend in progress. Support lies around $2,400. Initial target is the mid-400s and then onto upside targets around $2,550.
BITCOIN
It is too soon to say that Bitcoin has completed an irregular corrective structure. At the present time, support lies around $58,000/$57,000. If Bitcoin can hold this level, we should see it continue its upside rally.
US DOLLAR
The dollar may be on the verge of starting its journey south. You want to be scaling into Pound Sterling (FXB), Euro (FXE), and Aussie Dollar (FXA). If you trade FOREX and are experienced, look for a good entry point to go long the Euro and Pound Sterling, either by reading the candlesticks or bar chart price action. The charts tell the story.
RECORDING OF JUNE 2024 JACQUIE’S POST ZOOM MEETING
https://www.madhedgefundtrader.com/jacquie-munro-meeting-replay-june-2024/
PSYCHOLOGY CORNER
ACCEPT THE RISK
How many times have you sold your position before the stock hit your stop loss level? If so, why did you place your stop-loss order to begin with?
I could also ask the question; how many times have you sold a position before your TP (Take Profit level)?
Did you think the stock was not acting as you anticipated? Your wise decision to cut the trade often happens right before the market takes off. If this has happened to you, it is one of the most frustrating events that can occur in the market.
Your analysis was correct. In the end, the market gave you what you expected. Why did you second guess it? It seems likely that you were not willing to accept the randomness of the market and the fact you could lose money.
Until you truly learn to accept the risk, you will interpret the noise of the market as a potential threat and will find some way of rationalizing to yourself that you must exit the trade now.
QI CORNER
Tesla originally purchased $1.5 billion worth of #BTC in January 20221, just weeks after this exchange below, and after a few rounds of selling it now holds roughly 10,000 of the original 43,000 bitcoin purchased.
This single formula in the image represents the entire monetary policy of Bitcoin, now and forever. You don’t need to fully understand it to use it. You can easily create a private wallet and buy Bitcoin and receive Bitcoin in exchange for your goods and services. Bitcoin is a vehicle which highlights the flaws in our financial system. What does it mean to you?
MY CORNER
Alex and I played pool quite recently. He beat me 4 games to 0. My only consolation was the games were close. (I will have to keep practicing).
SOMETHING TO THINK ABOUT
GOOD VIBES CORNER
Have a great week.
Cheers,
Jacquie
Come join me for the Mad Hedge Fund Trader’s Global Strategy Luncheon, which I will be conducting high in the Alps in Zermatt, Switzerland. The event begins at 12:00 noon on Friday, July 26, 2024.
A three-course meal will be provided and there will be an open discussion on the crucial issues facing investors today. You are welcome to attend in your mountain climbing gear, if necessary. One year, a guest descended from the Matterhorn summit to attend.
I’ll be giving you my up-to-date view on stocks, bonds, foreign currencies, commodities, precious metals, energy, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Tickets are available for $277.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The event will be held at a central Zermatt hotel, the details of which will be emailed directly to you with your confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here.
Come join me for lunch for the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Vilnius, Lithuania at 12:00 PM on Monday, August 5, 2024. A three-course lunch is included.
I’ll be giving you my up-to-date view on stocks, bonds, currencies commodities, precious metals, and real estate.
And to keep you in suspense, I’ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $197.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch location will be emailed to you prior to the event.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here.