Mad Hedge Biotech & Healthcare Letter
March 17, 2020
Fiat Lux
Featured Trade:
(THERMO FISHER SCIENTIFIC BECOMES A MAJOR CORONA PLAYER),
(TMO), (QGEN)
Mad Hedge Biotech & Healthcare Letter
March 17, 2020
Fiat Lux
Featured Trade:
(THERMO FISHER SCIENTIFIC BECOMES A MAJOR CORONA PLAYER),
(TMO), (QGEN)
Thermo Fisher Scientific (TMO) recently executed a strategic move that effectively transformed itself into a major coronavirus disease (COVID-19) player overnight.
The lab tools giant opened the month of March with a bang as it announced an $11.5 billion acquisition deal with Dutch company Qiagen (QGEN).
The transaction also includes Thermo Fisher’s assumption of Qiagen’s debts worth $1.4 billion, with the US biotechnology company paying roughly $43 per share. The deal is anticipated to be closed by the first half of 2021.
And just like that, Thermo Fisher has positioned itself at the forefront of the potential pandemic threatening to push the global economy to a recession.
What does this transaction mean to the race to solve the looming coronavirus pandemic?
Thermo Fisher and Qiagen make quite a good pair. The Massachusetts giant is a major manufacturer and developer of the CDC-approved scientific equipment used to detect Covid-19 in the US.
Meanwhile, Qiagen provided the equipment used during the SARS and swine flu outbreaks years ago.
In the past weeks since the Covid-19 outbreak, the company has been quietly working on tests for the Wuhan coronavirus as well. The latest update on this front is that Qiagen already shipped test kits for evaluation for the deadly epidemic to four hospitals in China.
Although it’s highly unlikely that Thermo Fisher splurged on an 11-figure deal for the sole purpose of getting ahead in finding the cure for the latest virus epidemic, Qiagen’s promising progress on that particular endeavor possibly nudged the big biotechnology company’s decision along.
Obviously, coronavirus test kits would eventually be huge sellers in the months and even years ahead. However, Thermo Fisher’s interest in this deal goes deeper than that.
Qiagen is a strategic addition to Thermo Fisher and could be a steady revenue source, and one of the key reasons for this collaboration is the complementary nature of both businesses.
Geographically speaking, Thermo Fisher and Qiagen can also conveniently cross-sell from each other’s existing lineups.
The Dutch company’s life sciences and molecular diagnostics solutions are expected to boost Thermo Fisher’s broader set of diagnostic offerings. Hence, this consolidation could potentially amount to approximately $200 million in savings every year in the next few years.
This isn’t the first time that Thermo Fisher wielded its huge cash flow to expand its growth segments.
In 2014, Thermo Fisher executed a $13.6 billion acquisition of genetic testing company Life Technologies. Working hand in hand, the two companies managed to contribute a 44% boost in revenue from $16.9 billion that year to $24.4 billion by 2018.
Just last year, Thermo Fisher snapped up one of the newest and most promising players in the gene therapy sector. Paying $1.7 billion to acquire Brammer Bio, the biotechnology giant secured the expansion of its cell and gene therapy pipeline.
With a free cash flow of roughly $3.9 billion in the past 12 months, the company still has room for additional acquisitions.
Amid all the major moves Thermo Fisher executed in the past five years though, the company has remained consistent in producing a strong bottom line.
Since the deal with Qiagen was announced, Thermo Fisher disclosed that it plans a 16% increase to its quarterly dividend to reach 22 cents per share compared to its current 19 cents. Moreover, the company expects a 14% growth in the next five years and projects to keep up its strong segmental performance.
Although the company’s growth level may not be as enticing for growth investors, its impressive diversification makes it an attractive investment.
Its broad mix of income from numerous segments combined with steady profits allows Thermo Fisher to provide investors the much-needed predictability and stability.
To minimize risk to our staff while continuing to provide an excellent service to our customers, the Mad Hedge Fund Trader is going completely virtual. Of course, the fact that we are already a global virtual company makes this really easy.
All work will be done from home. Everyone has to lay in a two-month stockpile of food. If you have to leave the house, you must wear a 3M N-95 Respirator Mask (click here for the link). Make sure your Netflix account is paid up. Stay on good terms with your family. You are about to get to know them really well.
My bet is that most US companies will adopt the same policies in the coming weeks. The major Bay Area technology companies already have. The Internet was built to cope with a nuclear war. We got a biological one instead.
As long as the Internet and our key applications keep working, we should have no problem delivering our investment and trading advice several times a day as usual. Now, you have more time to read it. We have just suffered the most rapid bear market in market history with only modest trading losses. Making money from here should be like shooting fish in a barrel.
Again, thank you for supporting my research. Let’s make 2020 our best year ever!
Good Luck and Good Trading. And stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Biotech & Healthcare Letter
March 12, 2020
Fiat Lux
Featured Trade:
(GILEAD SCIENCES’ CORONA BOOM)
(GILD), (FTSV), (SNY)
The possibility of a pandemic is a terrifying thought. Nowadays though, you can’t switch on the news or surf the Internet without seeing reports about the worldwide spread of the coronavirus disease (COVID-19). Unfortunately, the fear that we once hoped to never be realized has become a reality.
The World Health Organization (WHO) has officially declared the coronavirus disease a pandemic.
The numbers are rising at an alarming speed, with over 1,300 confirmed cases in the United States alone and approximately 129,000 worldwide. As for the mortality rate, more than 4,700 people have died from this coronavirus disease.
Unsurprisingly, financial markets have taken a hit in recent weeks in response to the outbreak. The potential of an uncontrollable pandemic has wreaked havoc in the global economy instilling fear among investors.
With economists predicting that a full-scale pandemic could throw not only the US but also many developed countries into recession, the public has brace themselves for what lies ahead.
While a lot of companies are raking in profits enough to keep the wolf from the door, one biotechnology stock has been on a roll since the coronavirus outbreak went public: Gilead Sciences (GILD).
To date, Gilead has been hailed as possibly our best hope in discovering an effective treatment for the coronavirus.
Aside from being the first biotechnology stock to offer a solution to the outbreak, Gilead has another advantage over its rivals. It no longer has to start from scratch. Instead, the company reused Remdesivir, which is a drug it previously developed to cure Ebola but failed.
Basically, Remdesivir is designed as an antiviral drug that helps patients fight off viral infections. That means it targets not only the Ebola virus but also other types of viruses including SARS and MERS.
Since SARS and MERS are caused by the coronavirus as well, health experts believe that Remdesivir could be a treatment for COVID-19.
On January 31, doctors administered a dose of Remdesivir on a COVID-19 patient and discovered that the drug reversed almost all the major symptoms.
If Remdesivir proves to be the key to solving the COVID-19 outbreak, then Gilead will not only experience a massive performance boost but might even end up saving the world from a recession.
Despite this promising development, Gilead isn’t putting all its eggs in just one basket.
The company has recently made its first major purchase in three years in the form of a $4.9 billion acquisition of cancer biotechnology company Forty Seven (FTSV) — approximately twice as much as the latter’s market cap.
Gilead’s main draw for this huge deal is FTSV’s promising lead pipeline candidate Magrolimab, which is a treatment that targets various types of cancer such as myelodysplastic syndrome and acute myeloid leukemia.
What sets apart Magrolimab is that it targets CD47, which is typically called the “don’t eat me signal” molecule that cancer cells utilize to circumvent the immune system.
Although Magrolimab is still in its trial phase, the treatment showed a notable 40% response rate for hard-to-treat blood cancers and 50% for Myelodysplastic syndrome. The drug is also getting tested for lymphoma and ovarian, bladder, and colorectal cancers.
This latest deal is in line with some of Gilead’s biggest acquisitions in recent years like its $11.9 billion deal with cancer immunotherapy developer Kite Pharma in 2017.
Apart from these, Gilead has expanded its $5 billion partnership with Galapagos (GLPG) in the hopes of finally bringing another blockbuster in its lineup.
The two have been working on rheumatoid arthritis (RA) and Crohn's disease treatment Filgotinib, which has the potential to bring at least $1.3 billion in revenue in the next five years.
Once it hits the market, Magrolimab is expected to rake in $800 million to $1 billion in peak sales.
Although Gilead’s deal with Forty Seven has the highest price tag, it wasn’t the only acquisition of smaller immuno-oncology companies that happened recently. Merck (MRK) acquired AqQule for $2.7 billion while Sanofi (SNY) purchased Synthorx for $2.5 billion.
The COVID-19 pandemic has provided an unexpected opportunity for Gilead, and there’s no doubt that Remdesivir’s success will contribute to the company’s profits this year.
However, Gilead’s most promising growth driver is the rheumatoid arthritis lineup it’s developing with Galapagos. On top of these, it’s immuno-oncology pipeline is also shaping up to have some of the most exciting and promising candidates particularly for rare diseases.
The coronavirus pandemic has infused panic among the public, with more and more stocks getting dumped based on alarm and confusion. But as terrifying as this situation is, the best way to handle it is to remain calm and to put things in perspective.
Remember, solid companies will continuously achieve success in the long run no matter the temporary drawbacks in their stock prices. Buy those shares and simply hold on to them. Your future self will be grateful for that decision.
As fear continues to take over a lot of investors’ strategies, let me share with you one of my favorite pieces of advice from Warren Buffett: “Be fearful when others are greedy and be greedy when others are fearful.”
Mad Hedge Biotech & Healthcare Letter
March 10, 2020
Fiat Lux
Featured Trade:
(A NEW TECHNOLOGY TO EDIT GENES HITS THE MARKET)
(MRNA), (GILD)
The biotechnology market is estimated to surge over $775 billion by 2024 as experts in this sector continue to discover cutting-edge treatments for thousands of previously incurable diseases.
While gene-editing therapies have been dominating the rare disease field in the past years, Moderna Inc (MRNA) has been working on a novel but supposedly more effective solution.
Instead of altering the genes via the DNA of a person to treat the sickness, the company strengthens the messenger RNA (mRNA) to help the body fight the disease on its own.
Here’s Moderna’s take on why its treatments are more sustainable and effective in the long run.
Unlike DNA-based therapies, which target the nucleus of the cell, Moderna is developing mRNA treatments. According to the company, their method would be easier to implement compared to the more commonly used technique.
This is because the DNA is stored solely in the cell’s nucleus, which makes it difficult to access. In comparison, mRNA can be found throughout the cell, making it more readily available.
Moderna uses the same logic in developing its vaccine for the coronavirus disease (COVID-19) --- and they might have just hit the nail in the head here.
Since the coronavirus outbreak, Moderna has been at the forefront of the crisis. Using its patented technology, the company recently announced that it has created a new vaccine against this potential pandemic.
In fact, the first batch of COVID-19 vaccine called mRNA-1273 was already shipped to the National Institutes of Health for testing.
The first trial for this vaccine, which will include 20 to 25 volunteers, will be completed by April. Initial clinical data is estimated to be released by July or August.
Given the complexity of the situation and the limited information we have about the coronavirus, Moderna’s response was actually quite impressive.
After learning about the genetic composition of the coronavirus, the company was able to develop a potential vaccine in less than two months.
To put things in a better perspective, keep in mind that there are only two companies that have something to show for since this outbreak became public: Gilead Sciences (GILD) and Moderna.
However, Moderna’s output is different from Gilead’s treatment.
For one, Gilead’s approach is to build upon or reuse an existing antiviral drug Remdesivir to develop a coronavirus cure.
In comparison, Moderna created a new vaccine from scratch and still managed to get ahead of the pack.
Both companies stand to win though since the two treatments won’t be directly competing against each other.
Gilead’s drug aims to cure people who are already suffering from the coronavirus disease while Moderna offers a vaccine to avoid infection.
Aside from working on the coronavirus disease solution, Moderna has recently announced another promising mRNA-based vaccine called mRNA-1647.
This vaccine seeks to offer treatment for cytomegalovirus (CMV), which is a virus related to those that cause infectious mono and chickenpox.
While this disease is most dangerous to newborn babies because it could cause birth defects when transmitted through the pregnant mother, this is a common virus that can affect almost everybody.
In the US alone, approximately 50% to 80% of adults have been infected by the time they reach 40. Once you get infected by CMV, the virus stays in your body for life.
According to Moderna, the results of the Phase 2 trial for the CMV vaccine should be out by the third quarter of 2020. If all goes well, the company will enter the next phase by early 2021.
Although Moderna’s true value will only emerge when the company actually brings a product to market, it’s 32.5% jump in the first two months of this year is still noteworthy.
The fact that it is on track to deliver potentially lifesaving drugs in the form of the coronavirus and CMV vaccines also makes it a first-rate hedge against this current anxious and fearful market.
Mad Hedge Biotech & Healthcare Letter
March 5, 2020
Fiat Lux
SPECIAL MARKET BOTTOM ISSUE
Featured Trade:
(TEN LONG TERM BIOTECH & HEALTH CARE LEAPS TO BUY AT THE BOTTOM)
(UNH), (HUM), (AMGN), (BIIB), (JNJ), (PFE), (BMY)
Joe Biden’s romp over Bernie Sanders in the Tuesday Democratic primary takes the lid off on the entire biotech and healthcare sector. Sanders has promised to dismantle the entire sector by promising Medicare for all and banning private coverage.
Sanders was also about to take a cudgel to drug pricing. While Sanders was leading in the primary, the threats hung over the industry like an 800-pound gorilla.
Yesterday, Sanders went down in flames. You can see this clearly in the price action of Humana (HUM), which rose a ballistic 14.44% yesterday. Similarly, United Health Group (UNH) was up a monster 10.72%.
It is safe to say that the bottom is in for biotech and healthcare stocks.
I am often asked how professional hedge fund traders invest their personal money. They all do the exact same thing. They wait for a market crash like we are seeing now and buy the longest-term LEAPs possible for their favorite names.
The reasons are very simple. The risk of a LEAP is limited. You can’t lose any more than you put in. At the same time, they permit enormous amounts of leverage.
Two years out, the longest maturity available for most LEAPs, allow plenty of time for the world and the markets to get back on an even keel. Recessions, pandemics, hurricanes, oil shocks, interest rate spikes, and political instability all go away within two years and pave the way for dramatic stock market recoveries.
You just put them away and forget about them. Wake me up when it is 2022.
I put together this portfolio using the following parameters. I set the strike prices just short of the all-time highs set two weeks ago. I went for the maximum maturity. I used today’s prices. And of course, I picked the names that have the best long-term outlooks.
If you buy LEAPs at these prices and the stocks all go to new highs, then you should earn an average 229% profit from an average stock price increase of only 11.4%. That is a return 20 times greater than the underlying stock gain. And let’s face it. None of the companies below are going to zero, ever. Now you know why hedge fund traders only employ this strategy.
There is a smarter way to execute this portfolio. Put in throw-away crash bids at levels so low they will only get executed on the next 1,000 point down day in the Dow Average.
You can play around with the strike prices all you want. Going farther out of the money increase your returns, but raises your risk as well. Going closer to the money reduces risk and returns, but the gains are still a multiple of the underlying stock.
Buying when everyone else is throwing up on their shoes is always the best policy. That way your return will rise to ten times the move in the underlying stock.
Amgen (AMGN) - January 21 2022 $235-$240 bull call spread at $3.68 delivers a 172% gain with the stock at $245, up 14% from the current level
Biogen (BIIB) - January 21 2022 $365-$375 bull call spread at $3.89 delivers a 157% gain with the stock at $375, up 14% from the current level
Johnson & Johnson (JNJ) - January 21 2022 $150-$155 bull call spread at $1.63 delivers a 206% gain with the stock at $155, up 8.3% from the current level
Pfizer (PFE) - January 21 2022 $40-$45 bull call spread at $1.05 delivers a 376% gain with the stock at $40.60, up 11.5% from the current level
Bristol Meyers Squibb (BMY) - January 21 2022 $65-$70 bull call spread at $1.50 delivers a 233% gain with the stock at $68, up 11.40% from the current level
Mad Hedge Biotech & Healthcare Letter
March 3, 2020
Fiat Lux
Featured Trade:
(WHY ZOETIS STILL HAS MILES TO RUN)
(ZTS)
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