Mad Hedge Biotech and Healthcare Letter
March 12, 2024
Fiat Lux
Featured Trade:
(A BIOPHARMA'S RESURRECTION FROM PATENT PURGATORY)
(BMY), (PFE)
So, Bristol-Myers Squibb (BMY), that old stalwart of the biopharma world, is making a comeback, and not just any comeback.
After what seemed like an eternity in the doldrums, with sales taking a hit left and right thanks to the expiration of patents on blockbuster drugs like Revlimid, this giant is stirring again.
And let me tell you, it's about time. My take? Keep a keen eye on BMY because this phoenix is rising.
To put things in perspective (and explain why I’m excited about this), let's not forget this little nugget: in the past year, Bristol-Myers was practically the only biopharma not to get an invite to the price surge party, apart from Pfizer (PFE), which took a 33.4% nosedive. Ouch.
Now, for the important details. After five quarters of watching sales dip like a roller coaster on the downward run, Bristol-Myers is back with a bang — or at least, a firm step in the right direction.
Although the company reported a slight 2% dip in annual sales to $45 billion, the underlying story is one of renewal and optimism. For the first time in a while, there are tangible signs that the company is navigating its way out of the patent purgatory that had ensnared its revenue streams.
Diving into the deep end, their LOE drug revenue shrunk to $7.1 billion in 2023, with Revlimid sales plummeting 36% to a mere $1.45 billion in the fourth quarter alone.
Yet, there's a glimmer of hope with new bloods like Reblozyl and Breyanzi, racking up a cool $423 million in Q4 sales between them.
Meanwhile, the bread and butter of Bristol-Myers, their in-line product portfolio, pulled in $34.3 billion, managing a modest 3% growth last year.
But here’s where it gets interesting: their new product portfolio skyrocketed by 77%, touching $3.6 billion for the year. As we waved goodbye to Q4, these new products were nearly outselling the old guard.
Sure, they're still the newbies, but their slice of the revenue pie jumped from 4.4% in 2022 to about 8% in 2023.
Add to that the success of their cancer treatment Opdivo, which enjoyed a 9% revenue bump, and you've got reasons to be cheerful.
Plus, with the market whispering sweet nothings of a return to growth, with sales expected to hit $46 billion in 2024, it’s hard not to get a little enthusiastic.
Let’s also not forget where Bristol-Myers shines: they've got a knack for snapping up small biotechs, keeping R&D spending savvy while hunting for the next big breakthrough.
In 2023, they're sitting pretty with a $7.51 EPS and operating cash flows to the tune of $14.0 billion. Translation? They've got the war chest to fund their growth crusade starting in 2024.
More importantly, Bristol-Myers has an extremely diverse portfolio.
It's like they've got their fingers in every pie – or, in this case, a smorgasbord of drugs tackling everything from the nitty-gritty of Oncology and Hematology to the intricacies of Immunology/Fibrosis and Cardiovascular health.
This isn't your run-of-the-mill, all-eggs-in-one-basket kind of deal. While some pharma giants are playing a high-stakes game banking on a single blockbuster or a handful of hopefuls, Bristol-Myers’ playing it smart with a kaleidoscope of treatments across the board.
To date, they've got over 12 assets strutting towards the registrational phase with another 30 doing the early-stage clinical studies. If that doesn't scream "long-term growth and earnings potential," I don't know what does.
Looking ahead to 2024, the brass at Bristol-Myers is promising "low-single-digits" revenue growth, while eyeing an EPS somewhere in the neighborhood of $7.10 to $7.40.
Sure, that might look like a step back from 2023's $7.51, but let's not forget their bill for their shopping spree – snagging Mirati Therapeutics for $14 billion isn't exactly pocket change, and neither is giving their new product lineup the grand tour.
What happens next? Well, the market loves a comeback story, especially in biopharma, and Bristol-Myers is penning a gripping narrative.
After a year that tested its mettle, Bristol-Myers is on the upswing, promising more thrills for investors. Admittedly, there might be some bumps along the way as they fold in their latest acquisitions, but any dips could be golden opportunities for the savvy investor.
I suggest you keep Bristol-Myers Squibb on your radar. This biopharma phoenix is just getting its second wind, and the journey ahead looks as promising as ever.
Global Market Comments
March 12, 2024
Fiat Lux
Featured Trade:
(THE MAD HEDGE MARCH TRADERS & INVESTORS SUMMIT IS ON!)
(HOW TO HANDLE THE FRIDAY, MARCH 15 OPTIONS EXPIRATION),
(AMZN)
Followers of the Mad Hedge Fund Trader alert service have the good fortune to own one in-the-money options position that expires on Friday, March 15, and I just want to explain to the newbies how to best maximize their profits.
This involves the:
(AMZN) 3/$155-$160 vertical bull call debit spread
Provided that we don’t have a monster move down in the market in three trading days, this position should expire at its maximum profit point.
So far, so good.
Your profit can be calculated as follows:
Profit: $5.00 expiration value - $4.50 cost = $0.50 net profit
(25 contracts X 100 contracts per option X $0.50 profit per option)
= $1,250 or 13.63% in 25 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning, March 18 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next quarter end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
You Can’t Do Enough Research
"I enjoy issuing Berkshire stock as much as I relish preparing for a colonoscopy," said Oracle of Omaha Warren Buffet of Berkshire Hathaway (BRK/A).
(DOCN), (AMZN), (MSFT), (GOOGL), (AKAM)
Cruising down the ever-expanding highway of cloud computing, we're all familiar with the big rigs such as Amazon (AMZN) Web Services, Microsoft (MSFT) Azure, and Google (GOOGL) Cloud.
These established names, with their seemingly endless lanes of digital services, are the usual suspects when we talk about the cloud. They cater to the big boys of the business world with their deep pockets and complex needs.
But what about the little guy? This is where DigitalOcean Holdings, Inc. (DOCN) comes in. It’s the plucky underdog with a mission to bring the power of the cloud and artificial intelligence (AI) to small and midsize businesses (SMBs), who have often felt as if they're stuck watching the cloud revolution from the sidelines.
Now, I hear you asking, "How does a company valued at a modest $3.4 billion go toe-to-toe with these cloud colossuses?"
Well, it's all about heart, or in DigitalOcean's case, a sharp focus on what SMBs really need: straightforward pricing, top-notch support, and a treasure chest of resources to get the most bang for their cloud buck.
This approach is like a breath of fresh air for the little guys, who are often overshadowed by the bigger fish swimming in the cloud pond.
But here's where it starts to catch my attention. DigitalOcean isn't just stopping at making cloud services more accessible. This company is diving headfirst into the AI pool with its $111 million acquisition of Paperspace back in 2023.
If you're not yet familiar with Paperspace, think of it as the cloud's unsung hero for SMBs venturing into AI without the fear of exorbitant costs. Thanks to Paperspace's GPU-powered data centers, crafting AI models and applications is not just feasible but up to 70% more affordable compared to what the industry giants demand.
The essence of DigitalOcean's acquisition of Paperspace surpasses mere expansion; it's a strategic merger of visions, uniting two forces in their quest to make advanced cloud computing accessible for the SMB David against the Goliath of larger enterprises.
This alliance not only extends DigitalOcean's clientele but also paves the way for Paperspace's users to explore DigitalOcean's diverse product landscape.
So, why does this acquisition matter? In a world where AI is set to be the next big gold rush, with projections of $14 trillion in revenue by 2030, DigitalOcean's integration with Paperspace hands SMBs a veritable key to the AI kingdom.
Considering Paperspace's already impressive roster of over 500,000 customers, coupled with DigitalOcean's 644,000-strong user base, this partnership is set to make significant ripples in the cloud domain.
But it's not all sunshine and rainbows. The road to cloud dominance is fraught with potholes, not least of which is competition from other players like Akamai (AKAM), which acquired Linux-focused provider Linode in 2022.
And then there's the looming shadow of AWS, Google, and Microsoft, who could decide at any moment to turn their full attention to the SMB market.
So, what's an investor to do? While DigitalOcean's stock might seem like a tempting buy today, especially with its valuation taking a nosedive from its 2021 highs, I'd recommend keeping your powder dry for now. The cloud market is as unpredictable as a game of blackjack, and while DigitalOcean has a strong hand, we're yet to see how it plays out against the house.
I suggest you keep an eye on this scrappy cloud provider. The next few quarters will be telling, and if DigitalOcean can navigate the choppy waters of the cloud market and capitalize on its unique position in the AI revolution, it might just be worth a flutter.
But for now, let’s wait and see if there truly is a lane for the underdog in this race.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Mad Hedge Technology Letter
March 11, 2024
Fiat Lux
Featured Trade:
(MICROSTRATEGY STRATEGIZES TO PROFITS)
(MSTR), ($BTC)
There has been one tech company that has tied its fortunes directly to the price of Bitcoin ($BTC) and that is MicroStrategy (MSTR).
Gutsy is a word that would describe this direction, and some would even say it’s full out irresponsible.
The daring company has had to deal with fallout when bitcoin crashes and it was brutal in the PR world.
Yet as Bitcoin soars in price today, the co-founder of MSTR Michael Saylor should take a victory lap.
Saylor was on the receiving end of a great deal of scorn and criticism as Bitcoin tanked to $15,000 per coin.
Now the company is levering up some more to go bigger.
MSTR bought another 12,000 Bitcoin for $821.7 million, the second-largest purchase by the enterprise software maker since it began acquiring the cryptocurrency almost four years ago.
The fresh hoard raised MicroStrategy’s total Bitcoin holdings to around 205,000 tokens, or to more than $14 billion.
Saylor started buying Bitcoin in 2020 as an inflation hedge and alternative to holding cash. MicroStrategy has already spent more than $1 billion in Bitcoin in the first three months of 2024, more than half of last year’s total buying. The cryptocurrency is up around 675% since Saylor began buying.
The shift into Bitcoin has led to a revival in the share price of MicroStrategy, which has surged more than 1,000% since Saylor’s pivot.
The company’s market capitalization has increased to around $25.7 billion, topping the level that it previously peaked at in March 2000. MicroStrategy reached a settlement in December 2000 with the SEC over accounting fraud allegations.
The average price for the total holding is $33,706, according to the filing. Bitcoin reached a record high of more than $72,000.
The company also presides over a real software business and they believe that the combination of an operating structure including a bitcoin strategy will succeed.
MSTR’s focus on technology innovation provides a unique opportunity for value creation.
Being an operating company, MSTR’s software business remains a core revenue and cash flow generator.
In addition, it also enables them to acquire bitcoin through the use of excess cash or proceeds from equity capital raises or corporate debt capital raises and to pursue software innovations that leverage the bitcoin blockchain.
They’ve deployed these levers to increase bitcoin holdings in a manner that has created shareholder value.
Bitcoin development includes its Bitcoin acquisition strategy and Bitcoin advocacy initiatives.
MSTR’s software development includes BI, AI, Cloud, or Bitcoin and Lightning-related software development.
In 2024, they are hell-bent to shift focus to grow in AI plus BI, while accelerating a sharp transition to a cloud-centric operating model.
Key strategic goals are to grow cloud, innovate with AI, and increase profitability.
In December, they successfully deployed Google Cloud platform integration, furthering multi-cloud capabilities, and providing greater optionality to their customers.
I won’t say that MSTR’s software and cloud business will compete with the Silicon Valley Magnificent 7, but its existence is to support a risky Bitcoin strategy which is actually working effectively as we speak.
Sometimes risky bets pay off well.
Shares in this company will either skyrocket or go to zero depending on what Bitcoin does.
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