Global Market Comments
July 17, 2019
SPECIAL BIOTECH ISSUE
(FIVE BIOTECH STOCKS TO BUY AT THE BOTTOM),
(SPY), (VRTX), (JNJ), (ISRG), (CELG), (BMY), (AMGN), (ILMN)
Global Market Comments
July 17, 2019
SPECIAL BIOTECH ISSUE
(FIVE BIOTECH STOCKS TO BUY AT THE BOTTOM),
(SPY), (VRTX), (JNJ), (ISRG), (CELG), (BMY), (AMGN), (ILMN)
No sector has been beaten, maligned, and abused more than the biotech sector in recent years. However, some of them are so bad they’ve become good, which piques my interest.
Investing in biotech stocks is not for the faint of heart. The road to developing and commercializing new drugs is long and riddled with hard battles, and an anxious investor won’t be able to sleep at night.
However, the returns offer incredible gains when everything falls into place. In this sector you’re almost buying lottery tickets rather than investing in shares.
In 1919, the term “biotechnology” was coined by a Hungarian agricultural engineer named Karl Ereky to define the merging of two industries: biology and technology. Almost a century later, Ereky’s vision has been realized with thousands of products and services available in the biotech market today.
Despite the advancements of this industry though, the majority of the buy-and-hold investors choose to steer clear of biotech stocks — and for sensible reasons.
It’s no secret that investing in biotechnology firms can be unnervingly risky. Since its advent, investors have been regaled with horror stories of costly stage three drug trials going bust or plummeting stock prices due to the expiration of critical patents. Needless to say, these stories have soured would-be investors on the whole biotech world.
However, inadequate information and a lack of understanding of how the biotech industry really operates along with reliance on the performance of only a handful of biotech stocks may have caused investors to miss out on attractive risk-reward relationships. Not all biotech investments lead to disastrous results.
You may be surprised to learn that shares of the biotech industry has collectively gone up by approximately 70% in the past five years. This proves just how much these biotech companies rewarded their enduring. Success in biotech investing is simply a matter of buckling down to do your homework and applying a tad of common sense.
Throughout this decade, one sector has managed to outperform the S&P 500 index (SPY) in terms of total return annually: the healthcare sector. While there’s no guarantee that healthcare stocks will go on to beat the S&P 500 in the years to come, the fact remains that people will continue to need medicines as well as healthcare services regardless of the country’s economic status. The increasing reliance of the healthcare industry on technology has put the biotech industry smack dab in the center of all these demands.
I’ll give you some of my favorite plays in the sector.
Vertex Pharmaceuticals (VRTX)
Big-cap pharmaceutical company Vertex Pharmaceuticals Inc currently has the monopoly on the treatment of cystic fibrosis (CF) with three approved drugs out in the market, Kalydeco, Orkambi, and Symdeko, along with several promising products in the pipeline to target other auto-immune diseases.
In June, Vertex turned its sights on the genetic therapy part of the business via an expansion of its ongoing collaboration with CRISPR Therapeutics (CSPR). Vertex also purchased gene therapy firm Exonics Therapeutics to strengthen its foothold in this revolutionary technology.
Given the spectacular success of Vertex with CF treatments, its work with gene therapy is projected to bring in another blockbuster deal to the company. To ensure its monopoly in the CF market, Vertex has been aggressively seeking additional regulatory approvals to cater to younger CF patients. If the company succeeds, its target market of 75,000 CF patients would gain an additional 44,000.
Vertex is not limiting its efforts in this field though. To seal its position as the leader in CF treatments, the company is looking at developing triple-drug therapies as the next big development in their treatment plans. It has been performing clinical trials on three varying triple-drug combinations. If approved, these therapies would be able to address approximately 90% of the total number of CF patients.
As for the remaining 10% with no operational CF treatment, Vertex aims to address this via its work on gene editing alongside CRISPR Therapeutics. Aside from CF, the two companies have commenced clinical studies on applying gene-editing therapies to treat rare blood diseases and sickle cell disease.
Overall, Vertex is a certified outperformer in the world of big-cap biotech and provides good value to its shareholders.
Johnson & Johnson(JNJ)
Johnson & Johnson (JNJ) is one of the most attractive names in the biotech space. While the lawsuits against it involving alleged toxic baby powder endanger (JNJ)’s equity, the company is still hailed as one of the most notable innovators in the healthcare ecosystem.
The company recently disclosed its progress in developing an AIDS vaccine. Although the negative headlines about the company can be a cause of concern to some, it could turn out to be a win-win situation for long-term investors who can then take advantage of the bargain basement stock price.
(JNJ) has reinforced its stronghold in the fields of neuroscience, oncology, and immunology with these three areas generating over 72% of the company’s drug sales in the first quarter. In fact, (JNJ) recently received an FDA approval on its myeloma drug Dexamethasone. Its collaborative work on cancer treatment with Celgene’s (CELG) Revlimid and its own Darzalex received the FDA’s green light as well.
Apart from developing new treatments and medications, (JNJ) is also moving forward in the development of its robotic sector. Earlier this year, the company purchased robotic surgery firm Auris Health for $3.4 billion in an effort to dethrone the current sector leader Intuitive Surgical (ISRG).
With all that is in its drug and services pipeline along with its earlier successes, (JNJ) raised its 2019 outlook despite its legal woes. The biopharma giant now anticipates a sales growth of 2.5% to 3.5%. Meanwhile, its adjusted earnings per share now stands somewhere in the range of $8.53 and $8.63 per share.
Celgene (CELG) is one biotech stock that you can get on the cheap. It offers shares trading at only 7.4 times expected earnings.
With its shares trading well below the total book value courtesy of the pending acquisition by Bristol-Myers Squibb (BMY), investors would be hard-pressed not to take advantage of the opportunity to add a company leading in the development of treatments for cancer, blood disorders, and immunological conditions.
Aside from the looming acquisition, another reason for Celgene’s dirt-cheap stock involves the decision to sell blockbuster immunology drug Otezla to allow Bristol-Myers Squibb to appease the Federal Trade Commission’s concerns over the deal. Nonetheless, Celgene’s remaining drugs still perform well in the market.
Its blood cancer drugs, Revlimid and Pomalyst, are the leading go-to drug for multiple myeloma. Revlimid has been approved to treat two additional rare blood diseases, myelodysplastic syndromes and mantle cell lymphoma. Another winner in Celgene’s lineup is its solid tumor drug Abraxane, which has been approved for advanced breast cancer treatment along with non-small-cell lung cancer and advanced pancreatic cancer.
Celgene’s pipeline is loaded with promising winners as well, with myelofibrosis drug Fedratinib and multiple sclerosis treatment Ozanimod up for FDA approval this year. Three additional blood disease drugs including Luspatercept are also in the works along with a cell therapy called Liso-cel, which engineers the body’s immune cells to target particular types of cancer. Celgene’s work with Bluebird Bio is expected to bring another cell therapy procedure called bb2121, which is anticipated to bolster the biopharma firm’s dominance on the multiple myeloma market.
With its ability to flex its financial muscles at will, Amgen (AMGN) has accumulated nearly $30 billion in cash and investments. In the past four years, it has recorded an average annual net profit of roughly $6 billion.
The company has achieved tremendous success in developing groundbreaking technology and edging out its competition courtesy of its innovative treatments like the post-chemo therapy called Neulasta. Its cholesterol drug Repatha and arthritis medication Enbrel are both impressive performers in the market as well.
Despite its aggressive drive to acquire small biopharma firms, Amgen is actually a pretty safe investment. Throughout the years, the company has made a conscious effort to diversify its portfolio to steer clear of dependence on a single product.
In fact, no single drug provides more than one-fourth of Amgen’s total income. Among its products, only two drugs generate over a tenth of its revenue. This pattern of revenue diversity doesn’t stop here either as Amgen’s pipeline has nine Phase 3 trials and an additional five Phase 2 trials.
One of the incredible developments in healthcare involves the unlocking of the secrets of the human genome – and Illumina (ILMN) has been widely recognized as the leader in this field. In fact, this company has performed more than 90% of all gene sequencing procedures ever recorded.
Branded as the “gold standard” for gene sequencing, Illumina’s highly accurate technology has turned the company into one of the leaders in the biotech space. Illumina is projected to dominate the industry for a very long time.
More importantly, Illumina has managed to make these treatments affordable. Using Illumina’s technology, the cost of human genome therapy has been remarkably cut from a staggering $100 million back in 2002 to an affordable $1,000 today.
Despite its potential, Illumina released lower-than-expected revenue guidance for this year. However, its track record indicates that the company has the tendency to underpromise but overdeliver.
Its revolutionary gene sequencing equipment NovaSeq has made remarkable progress since its availability in 2017 and has yet to reach its peak. Illumina has been on the lookout for high-growth markets currently in their infancy in an effort to become a pioneering force in other fields.
A good example of this is Illumina’s move on noninvasive prenatal testing (NIPT), which has recently gained popularity among patients. The company released an updated and more powerful version of its fetal genome detector system VeriSeq this year. This technology offers the quickest processing time compared to its rivals.
Illumina is also looking to utilize gene sequencing to bolster cancer research efforts and screening through its TruSight Oncology 500, which is a molecular test used to detect lung cancer. Since its release in 2018, the company has been seeking ways to expand TruSight’s application to include blood tests capable of detecting the very early stages of several types of cancer.
Another significant growth driver for Illumina is population genomics, with the United States, France, Singapore, England, and other countries already utilizing the company’s technology. Consumer genomics also shows a promising fiscal advancement for Illumina. To date, the company has been catering to major providers including Ancestry and 23andMe. Illumina even created its own genealogical spinoff called Helix.
Global Market Comments
April 2, 2019
(WHAT’S REALLY BEHIND THE BRISTOL MYERS/CELGENE MERGER),
(ON EXECUTING MY TRADE ALERTS),
Global Market Comments
February 28, 2019
(GOLD IS BREAKING OUT ALL OVER),
(GLD), (GDX), (NEM),
(THE STEM CELLS IN YOUR INVESTMENT FUTURE)
(CELG), (TMO), (REGN)
I’ll do anything to postpone aging, as regular readers of this letter already know.
So when my doctor told me that she could extend the life of my knees by ten years with a stem cell injection, I was all for it.
You better pay attention too.
Stem cells, along with CRISPR gene editing, are two hyper accelerating medical technologies that promise to cure your ills, extend your life, and make you fabulously rich along the way.
Have I got your attention?
When my doc confirmed that she was already getting a spectacular result from her other elderly patients, such as the dramatic regrowth of knee cartilage, it was like pushing on an open door.
Yes, these are the famous well-worn 67-year-old knees you have heard so much about that hike and snowshoe 2,000 miles a year with a 60-pound backpack.
My doc is no lightweight. She is the orthopedic surgeon for the US Ski Team at Lake Tahoe, which is why I sought her out in the first place.
As a UCLA trained biochemist, I have known about stem cells for most of my life. They only left the realm of science fiction a decade ago.
Early sources of stem cells relied on stillborn human fetuses, creating a religious and political firestorm that led to severe restrictions, a funding drought, or outright bans.
During the 2000s, California was almost the only state that permitted stem cell research.
Since then, the technology has developed to the point where they can be easily harvested throughout the human body.
Easy, except when the source is the bone marrow in your own hip.
“You may feel a slight twinge,” said my doctor, as she flushed the air out of a gigantic horse needle the width of a straw. “I only have to hammer this needle into your hip bone 20 or 25 times to get the marrow I need.”
This was definitely NOT in the literature I had been provided.
I said, “Don’t worry, Marines are immune to pain.”
“Does that work?” she asked.
“No, not really,” I replied, grimacing.
I felt every single blow and tried to imagine myself on a faraway tropical island.
Once she obtained the 10cc she needed, she popped it into a small centrifuge to separate the stem cells (clear) from the red blood cells (red).
She then used an ultrasound machine to precisely inject my own stem cells at the exact right spot in both of my knees.
Being the true journalist that I am, I took pictures throughout the entire procedure with my iPhone 6 (see below).
The problem with advanced, experimental treatments is that they are not covered by your health insurance. Still, I thought $2,000 for ten years of extra life for both knees was a bargain.
Stem cells are undifferentiated cells that can transform into specialized cells such as heart, neurons, liver, lung, skin and so on, and can also divide to produce more stem cells.
You can think of stem cells as chemical factories generating vital growth factors that can help to reduce inflammation, fight autoimmune disease, increase muscle mass, repair joints, and even revitalize skin and grow hair.
When you are young, you have oodles of these cells, which is why kids so rarely die from dread diseases.
However, as you age, your exposure to too much sunlight at the beach, too many chemicals in the food and water you eat and drink, and natural background radiation degrades your DNA and reduces your stem cell supply.
Supplies of stem cells diminish as much as 100 to 10,000-fold in different tissues and organs. Welcome to old age, and eventually death.
The procedure I underwent is called Autologous Adult Stem Cells Treatment.
The great thing about it is that since you are using your own cells, the risk of rejection or infection is minimal. And they are free!
This approach has become the must-go-to treatment for the wealthy seeking to repair aging, sagging parts of their bodies.
They are often sold with vacation packages in exotic third world countries where regulation and medical malpractice suits are non-existent.
The fact that the treatments are now becoming widely available in the US testifies to its effectiveness.
Do any search on stem cell treatments, rejuvenation, or life extension and you will find hundreds and hundreds of private clinics offering to do so for high prices.
California leads the nation with 109 clinics (including 18 in Beverly Hills alone), followed by New York and Texas.
Just follow the money.
The market is now on fire and is expected to reach $170 billion by 2020.
As a result, a number of breakthroughs in longevity are just around the corner.
The industry is now branching out into fields considered unimaginable just a few years ago. I’ll cover some of the highlights.
Imagine using your own stem cells to repair not only your knees but any other organ. This is already being done in the lab with animal trials.
In Japan, they are growing human eyes from scratch, including lenses, and corneas.
At Stanford, stem cells are bringing dramatic improvements in stroke victims.
At USC, they are deployed to bring rapid repairs to those with severe spinal cord injuries.
A number of private firms have sprung up to facilitate banking of your own stem cells through cryogenic freezing, such as Lifebank. Just harvest them when you are young for future use.
Better yet, get born to wealthy parents who will pay to have your birth placenta and umbilical cord frozen, the two richest sources of stem cells known.
The key term to search for your investment strategy is Mesenchymal Stem Cells, the major stem cells for cell therapy, or MSCs.
These cells have the ability to differentiate into vital cells that can be used to cure autoimmune disease, cardiovascular disease, liver disease, and cancer.
There are now several hundred clinical trials involving these cells underway.
A more adventurous strategy is to buy the stem cells of others and have them injected into yourself, a procedure known as parabiosis.
A company in Monterey, CA named Ambrosia is doing exactly this for $8,000 a patient. The goal here is to reverse aging across every major organ system.
Of course, I’m thinking there’s got to be a trade here.
Not so fast.
Almost all stem cell efforts are now confined to the research labs of major universities or are buried inside of large biotech and drug companies.
A few pieces of research have spun off to set up their own private companies with substantial venture capital backing.
That said, there are a few peripheral listed plays.
Celgene (CELG) is one of my favorites and is an early entrant in the field. They are using placenta-derived cells to cure a whole host of diseases which you can find listed on their site, click here.
Thermo Fischer Scientific (TMO) provides a range of tools and supplies scientists need to pursue stem cell research (click here for their site).
Regeneron (REGN) is using stem cells to pursue a broad range of serious medical conditions, including ophthalmology, cancer, rheumatoid arthritis, asthma, atopic dermatitis, pain, and infectious diseases. Visit their site here.
There is one problem with the entire sector. We have a new president who has opinions on drug companies, which on occasion have led to traumatic one-day declines in these shares.
So these may be next year’s investments, instead of next week’s.
And how are my knees doing? I knew you would ask.
A little swelling in my knees went away in a day. I sat funny for a few more days, thanks to my bone marrow extraction.
It will take about six months before any real growth in new cartilage in my knees can be measured with an MRI scan which I have scheduled. I’ll let you know those results in a future letter.
But you know what?
My knees have not hurt an iota, despite my regular tortuous exercise regimen. And I thank that, right there, it’s a win.
And if it works, my doctor wants to extract fat cells from my middle, known as Adipose Cells, and inject their stems cells, into my knees.
Talk about killing two birds with one stone!
Global Market Comments
June 21, 2018
SPECIAL BIOTECH ISSUE
(HERE COMES THE NEXT REVOLUTION),
(CVS), (AET), (BRK.A), (AMZN), (JPM), (CI),
(BIIB), (CELG), (REGN)
One has to be truly impressed with the selloff in biotech and health care stocks over the past year.
Since May, there were signs that life was returning to this beleaguered sector. Then Mylan decided to raise the prices of it’s EpiPen by 400% and it was back to the penalty box.
Let?s gouge poor small children who may die horrible deaths if they can?t afford our product. That sounds like a great marketing and PR strategy. NOT!
Once the top performing sectors of 2015, they went from heroes to goats so fast, it made your head spin.
What I called ?The ATM Effect? kicked in big time.
That?s when frightened investors run for the sidelines and sell their best stocks to raise cash. After all, no one wants to sell other stocks for a loss and admit defeat, at least in front of their clients.
It?s not that the companies themselves were without blood on their hands. Valuations were getting, to use the polite term, ?stretched? after a torrid five-year run.
Gilead Sciences (GILD) soaring from $18 to $125?
Celgene (CELG) rocketing from $20 to $142?
It has been a performance for the ages.
If a financial advisor wasn?t in health care, chances are that he is driving for Uber in a bad neighborhood by now.
Then there was The Tweet That Ate Wall Street.
Presidential candidate Hillary Clinton made clear in a broadcast on September 21, 2015 that the health care industry would be target number one in her new administration.
Her move was triggered by an overnight 5000% price hike for a specialty HIV drug by a minor player in the industry.
Among the reforms she would implement are:
1) Give the government power to negotiate drug purchases with the industry collectively.
2) Allow Medicare to import drugs from abroad to encourage price competition (which I already do with my annual trips to Switzerland).
3) Ban drug companies from using government grants to pay for sales and advertising.
4) Set an out of pocket limit for drugs bought through Obamacare at $250 a month, thus ending customers? blank checks.
5) Set a 20% of revenue minimum which companies must spend on research and development.
She certainly got our attention.
Competition in the drug industry? Yikes! Not what the shareholders had in mind.
Raise your hand if you think Americans aren?t paying enough for their prescription drugs.
Yes, I thought so.
Drug company CEOs aren?t helping their case by flying to press conferences to complain about the proposals in brand new $65 million Cessna G-5?s.
And that Mylan CEO, Heather Bresch? She took home $18 million last year, and she?s just a kid.
Here?s the key issue for health care and biotech for investors. It all about politics.
Even if Hillary does get elected, the government is likely to remain gridlocked for another 4-8 years. The Democrats will almost certainly retake the Senate in 2016, thanks to a highly favorable calendar, and keep it for at least two years.
But the heavily gerrymandered House is another story.
With the current districting map, the Democrats would have to win 57% of the national vote for them to regain a majority in both houses.
That is a feat even Barack Obama could not pull off in 2008, when a perfect storm in favor of his party blew in.
A Hillary appointed liberal Supreme Court could bring an end to gerrymandering, but that is a multiyear process. Texas hasn?t had a legal districting map since 2000.
Even with Democratic control of congress, Hillary won?t get everything she wants.
Remember, Obamacare passed by one vote only after a year of cantankerous infighting, and then, only when a member changed parties (Pennsylvanian Arlen Spector).
That means few, if any, Clinton proposals will ever make it into law. If they do, they will be severely watered down and subject to the usual horse-trading and quid pro quos.
Beyond what she can accomplish through executive order, her election may be largely symbolic.
Therefore, the biotech and health care stocks are a screaming ?BUY? at these levels, provided you ignore Mylan (MYL), now the poster boy for corporate greed.
It?s a political call I can only make after spending years in the White House and a half century following presidential elections.
It?s easy to understand why these stocks were so popular, and are found brimming to overflowing in client portfolios and personal 401ks and IRAs.
We are just entering a Golden Age for biotech and health care.
Profit growth for many firms is exceeding 20% a year. Hyper accelerating biotechnology is rapidly bringing to market dozens of billion dollar earning drugs that were, until recently, considered in the realm of science fiction.
And we have only just gotten started. Cures for cancer, heart disease, arthritis, diabetes, AIDS, and dementia? You can take your pick.
Most biotech and health care stocks have given up all of their 2015 gains. Here is a chance to hoover up the fastest growing companies in the US at 2014 prices.
If you missed biotech and health care the first time around, you?ve just been given a second chance at the brass ring.
Here?s a list of five top quality names to get your feet wet:
Gilead Sciences (GILD) ? Has the world?s top hepatitis cure, which it sells for $80,000 per treatment. For a full report, see the next piece below.
Celgene (CELG) ? A biotech firm that specializes in cancer cures (thalidomide) and inflammatory diseases. It also produces Ritalin for the treatment of ADHD.
Allergan (AGN) ? Has the world?s third largest low cost generic drug business. In addition, it has built a major portfolio of drug therapies through more than two dozen acquisitions over the last decade.
Regeneron (REGN) ? Already has a great anti-inflammatory drug, and is about to market a blockbuster anti cholesterol drug that will substantially reduce heart disease.
HCA Holdings (HCA) ? Is the world?s largest operator of for profit health care facilities in the world.
If you want a lower risk, more diversified play in the area, you can buy the Health Care Select Sector SPDR (XLV). Please note that a basket of stocks is going to deliver a fraction of the volatility of single stocks.
Therefore, we have to be more aggressive with our positioning to make any money, picking call option strikes that are closer to the money.
Johnson and Johnson (JJ) is the largest holding in the (XLV), with a 12.8% weighting, while Gilead Sciences (GILD) is the fourth, with a 5.1% share. For a list of the largest components of this ETF, please click: https://www.spdrs.com/product/fund.seam?ticker=XLV.
The other classic play in this area is the Biotech iShares ETF (IBB) issued by BlackRock (click their link: https://www.ishares.com/us/products/239699/ishares-nasdaq-biotechnology-etf ).
Their largest holding is Biogen (BIIB), followed by Gilead Sciences (GILD), Celgene (CELG), Amgen (AMGN), and Regeneron Pharmaceutical (REGN).
I?ll be shooting out Trade Alerts on biotech and health care names as soon as I think the coast is clear.
Until then, enjoy the ride!
It was known as the ?Tweet that sank Wall Street.?
When presidential candidate Hillary Clinton attacked the drug industry last summer, the entire pharmaceutical and health care industries were taken out to the woodshed and beaten like the proverbial red headed stepchild (my apologies in advance to red heads).
One of the principal victims was cancer drug maker Celgene (CELG), which dropped some 24.6% from top to bottom.
Never mind that Clinton is unlikely to get what she wants, even if she wins the election.
For that, you need a congress in your pocket, a probability that is at least 5-9 years away.
That is, unless Donald Trump continues his campaign for the Republican nomination.
However, in this nervous, twitchy, gun shy trading environment, it is shoot first and ask questions latter. So Celgene shares sank, whether it was warranted or not.
Celgene is really all about one drug, Revlimid, a blood cancer treatment that accounts for 75% of its sales. Last year, the company sold $7.6 billion worth of this complex molecule.
To wean itself off of its overdependence on a single drug it has embarked on a number of aggressive initiatives.
Since the spring of 2012, it has increased the use of its Abrazane drug to treat late stage pancreatic cancer, the disease that killed Steve Jobs. It has won regulatory approval for the psoriasis drug Otezla.
It has also pursued the mergers and acquisitions road to growth, picking up some two-dozen small drug makers in recent years. The $7.2 billion purchase of Receptos was a big one, which manufactures Ozanimod, a drug used to treat ulcerative colitis and multiple sclerosis.
Celgene also picked up Juno Therapeutics for $1 billion a few months ago, a maker of innovative cellular immunotherapies.
If this ambitious strategy works, Celgene?s net earnings should continue to grow at a 25% annual rate for the next five years. That means the shares should triple by 2020.
This is why the company?s shares command a lofty multiple of 18 times 2016 earnings, the higher end of the range for this industry.
So the next time Hillary opens her mouth, use the dip in (CELG) shares to load the boat. It would also be helpful if stock investors shift their focus from value back to growth.