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The Tesla Stock of Genetic Testing

Invitae (NVTA) is one of the biggest, albeit erratic, movers in 2020, but only a handful of investors know about the stock.

In March 2020, the stock was trading at $7.43 per share only to shoot to a whopping $61 by mid-December.

A year since then, Invitae stock sits somewhere at $40—a price that could go right up again in the months to come.

Despite the volatility, Invitae continues to generate excitement among its investors.

In fact, Invitae, which has $7.6 billion in market capitalization, is grouped in with bigger healthcare and biotechnology companies like CRISPR Therapeutics (CRSP), valued at $9.36 billion, and Teladoc Health (TDOC), valued at $28.7 billion.

Its potential is even said to match the likes of up-and-coming tech stocks such as Roku (ROKU), Square (SQ), and Shopify (SHOP), which have market capitalizations of $45.7 billion, $103.07 billion, and $134.6 billion, respectively.

Given its growth in the past months and its impressive 226.8% three-year revenue increase, the projections for Invitae look well-grounded.

In fact, I think it’s reasonable to say that Invitae could be the Tesla (TSLA) of the genetic testing industry.

The genetic testing market is estimated to be worth over $21 billion by 2027, growing at a compound annual growth rate of 10% until then.

In 2020, Invitae reported a 29% year-over-year increase in revenue at $279.6 million.

The company also saw a rise in its testing volume by roughly 41% to reach 659,000 billable units—this, despite the headwinds brought about by the COVID-19 pandemic, when the demand for genetic tests took a back seat to make way for COVID-19 diagnostic and other related medical concerns.

Although some of the tests offered by Invitae are covered by insurance carriers, those that are not covered can be availed for as low as $99 for services like noninvasive prenatal screening and $250 for diagnostic, carrier, or proactive testing.

To put things in perspective, people nowadays are more than willing to shell out at least $100 to discover their ancestry, which in most cases is something they already have an idea about.

So, why would these people be reluctant to spend a bit more than $100 to check if they have to take particular precautions to keep themselves safe from diabetes or heart disease?

In the future, Invitae is well-positioned to offer high-quality genetic tests at more affordable prices as well as cater to higher volumes.

One of the most notable moves by Invitae so far is buying ArcherDX for $1.4 billion in cash and stock in October 2020.

This is a telling move for Invitae in terms of its plans for the future.

ArcherDX is another genetic testing company, which specializes in oncology.\

Specifically, ArcherDX focuses on personalized cancer monitoring as well as liquid and tissue biopsy analysis.

Simply put, ArcherDX specializes in developing tests that determine the most suitable drugs to use for cancer treatments.

To date, there’s already a growing number of competition in the genetic testing market, making Invitae’s acquisition of ArcherDX is a smart move.

Most of them are bigger companies like Roche (RHHBY) with a market cap of $269.57 billion, Illumina (ILMN) with $58.28 billion, Abbott (ABT) with $205.28 billion, and Quest Diagnostics (DGX) $15.6 billion.

Invitae, which only has a market capitalization of $7.6 billion, is considered as one of the minor players.

With the addition of ArcherDX in its portfolio, Invitae’s growth could be fast-tracked as the combined companies could ramp up sales on top of queuing additional genetic tests in their current lineup.

Invitae’s shares have jumped by almost 100% in 2020 but saw an over 25% fall last month. Although it has yet to turn a profit since its creation in 2013, Invitae remains an attractive investment thanks to its top-line growth.

Digging into their numbers, Invitae has actually managed to cut down on its cash burn by roughly $20 million from the first quarter of 2020 through the last quarter, excluding the ArcherDX deal.

That’s a notable improvement for a company and indicative of its capacity to veer towards the right direction.

Invitae has a very strong cash position at the moment, with a massive equity offering just last January. Right now, the company’s stockpile is nearly $800 million, which could carry them for quite some time.

Looking at its path of profitability, the company is also projected to be on track for a 50% to 60% growth in the next few years.

For 2021, Invitae is looking at over $450 million in annual revenue, which is 61% higher than 2020.

At this point, Invitae offers an attractive purchasing opportunity for those who want to get in on the industry before it explodes.

invitae

December 28, 2020

Tech Letter

Mad Hedge Technology Letter
December 28, 2020
Fiat Lux

Featured Trade:

(ECOMMERCE AND THE UNIVERSITY SYSTEM)
(AMZN), (APPL), (WMT), (TGT), (SHOP), (APPL), (MSFT), (GOOGL)

Ecommerce and the University System

Tech Letter

The genie is out of the bottle and life will never go back to pre-Covid ways.

Excuse me for dashing your hopes if you assumed the economy, society, and travel rules would do a 180 on a dime.

They certainly will not.

The messiness of distributing the vaccine is already rearing its ugly head with Germany botching the BioNTech-Pfizer vaccine delivery, deploying refrigerators that weren’t cold enough.

Moving on to tomorrow’s tech and the decisive trends that will power your tech portfolio, you can’t help but think about what will happen to the American university system.

A bachelor’s degree has already been devalued as traditional academics trumped by the digital economy invading its turf.

Another unstoppable trend that shows no signs of abating is the “winner take all” mentality of the tech industry.

Tech giants will apply their huge relative gains to gut different industries and have set academics and the buildings they operate from as one of their next prey.

Recently, we got clarity on big-box malls becoming the new tech fulfillment centers with the largest mall operator in the United States, Simon Property Group (SPG), signaling they are willing to convert space leftover in malls from Sears and J.C. Penny.

The next bombshell would hit sooner rather than later.

College campuses will become the newest of the new Amazon (AMZN), Walmart (WMT), or Target (TGT) eCommerce fulfillment centers, and let me explain to you why.

When the California state college system shut down its campuses and moved classes online due to the coronavirus in March, rising sophomore Jose Antonio returned home to Vallejo, California where he expected to finish his classes and “chill” with friends and family.

Then Amazon announced plans to fill 100,000 positions across the U.S at fulfillment and distribution centers to handle the surge of online orders. A month later, the company said it needed another 75,000 positions just to keep up with demand. More than 1,000 of those jobs were added at the five local fulfillment centers. Amazon also announced it would raise the minimum wage from $15 to $17 per hour through the end of April.

Antonio, a marketing and communications major, jumped at the chance and was hired right away to work in the fulfillment center near Vacaville that mostly services the greater Bay Area. He was thrilled to earn extra spending money while he was home and doing his schoolwork online.

This was just the first wave of hiring for these fulfillment center jobs, and there will be a second, third, and fourth wave as eCommerce volumes spike.

Even college students desperate for the cash might quit academics to focus on starting from the bottom at Amazon.

Even though many of these jobs at Amazon fulfillment centers aren’t those corner office job that Ivy League graduates covet, in an economy that has had the bottom fall out from underneath, any job will do.

Chronic unemployment will be around for a while and jobs will be in short supply.

Not only is surging unemployment a problem now, but a snapshot assessment led by the U.S. Census Bureau and designed to offer less comprehensive but more immediate information on the social and economic impacts of Covid showed that as recently as the period between November 25 and December 7 (including Thanksgiving), some 27 million adults—13 percent of all adults in the country—reported their household sometimes or often didn’t have enough to eat.

Yes, it’s that bad out there right now.

When you marry that up with the boom in ecommerce, then there is an obvious need for more ecommerce fulfillment centers and college campuses would serve as the perfect launching spot for this endeavor.

The rise of ecommerce has happened at a time when the cost of a college education has risen by 250% and more often than not, doesn’t live up to the hype it sells.

Many fresh graduates are mired in $100,000 plus debt burdens that prevent them from getting a foothold on the property ladder and delay household formation.

Then consider that many of the 1000s of colleges that dot America have borrowed capital to the hills building glitzy business schools, $100 million football locker rooms, and rewarding the entrenched bureaucrats at the school management level outrageous compensation packages.

The cost of tuition has risen by 250% in a generation, but has the quality of education risen 250% during the same time as well?

The answer is a resounding no, and there is a huge reckoning about to happen in the world of college finances.

America will be saddled with scores of colleges and universities shuttering because they can’t meet their debt obligations.

The financial profiles of the prospective students have dipped by 50% or more in the short-term with their parents unable to find the money to send their kids back to college, not to mention the health risks.

Then there is the international element here with the lucrative Chinese student that added up to 500,000 total students attending American universities in the past.

They won’t come back after observing how America basically ignored the pandemic and the U.S. public health system couldn’t get out of the way of themselves after the virus was heavily politicized on a national level.

The college campuses will be carcasses with lots of meat on the bones that will let Jeff Bezos choose the prime cuts.

This will happen as Covid’s resurgence spills over into a second academic calendar and schools realize they have no pathway forward and look to liquidate their assets.

There will be a meaningful level of these college campuses that are repurposed as eCommerce delivery centers with the best candidates being near big metropolitan cities that have protected white-collar jobs the best.

The coronavirus has exposed the American college system, as university administrators assumed that tuition would never go down.

The best case is that many administrators will need to drop tuition by 50% to attract future students who will be more price-sensitive and acknowledge the diminishing returns of the diploma.

Not every college has a $40 billion endowment fund like Harvard to withstand today’s financial apocalypse.

It’s common for colleges to have too many administrators and many on multimillion-dollar packages.

These school administrators made a bet that American families would forever burden themselves with the rise in tuition prices just as the importance of a college degree has never been at a lower ebb.

Like many precarious industries such as nursing homes, commercial real estate, hospitality, and suburban malls, college campuses are now next on the chopping block.

Big tech not only will make these campuses optimized for delivery centers but also gradually dive deep into the realm of digital educational revenue, hellbent on hijacking it from the schools themselves as curriculum has essentially been digitized.

Just how Apple has announced their foray into cars, these same companies will go after education.

Colleges will now have to compete with the likes of Google (GOOGL), Facebook (FB), Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT) directly in terms of quality of digital content since they have lost their physical presence advantage now that students are away from campus.

Tech companies already have an army of programmers that in an instance could be rapidly deployed against the snail-like monolith that is the U.S. university system.

The only two industries now big enough to quench big tech’s insatiable appetite for devouring revenue are health care and education.

We are seeing this play out quickly, and once tech gets a foothold literally and physically on campus, the rest of the colleges will be thrust into an existential crisis of epic proportions with the only survivors being the ones with large endowment funds and a global brand name.

It’s scary, isn’t it?

This is how tech has evolved in 2020, and the tech iteration of 2021 could be scarier and even more powerful than this year’s. Imagine that!

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December 22, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
December 22, 2020
Fiat Lux

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The Most Famous Cancer Stock You’ve Never Heard of

Biotech Letter

Biotechnology stocks have proven time and time again to be excellent growth vehicles for risk-tolerant investors.

Underscoring this claim are companies like COVID-19 vaccine frontrunner Novavax (NVAX), which generated jaw-dropping returns on capital for their investors within an impressively short period.

Now, another biotechnology stock is showing telltale signs of following their footsteps: Trillium Therapeutics (TRIL).

Trillium’s story is a familiar one in the biotechnology industry.

Trading only in the penny stock range back in 2019, the company’s share price practically quadrupled since the start of 2020.

Taking into consideration that this meteoric rise actually happened while COVID-19 was blasting the world to smithereens, it’s hardly surprising that this news didn’t receive much media attention.

Trillium’s shares are currently up by an astounding 1,260% -- and the company still has so much room to grow from here.

For context, Trillium had a market capitalization of $7 million in November 2019. This number skyrocketed to $1.3 billion since its shift to cancer technology.

Although a lot of factors came into play, the key turning point for Trillium was when the company decided to go all-in on its cancer programs.

Ultimately, Trillium’s goal is to challenge chemotherapy.

The move to shutter its lead programs on tumor treatments and instead focus on developing cancer-fighting technology was the gamble of a lifetime for the company.

This gutsy move impressed investors, and Trillium was never the same since then.

Today, Trillium is the No. 1 stock on Canada’s S&P/TSX Composite Index, overtaking its previous leader e-commerce giant Shopify (SHOP) by almost 10-fold.

In the US, Trillium shares rank as the No. 4 best-performing company on the Nasdaq Composite Index.

While its epic stock market rally may have some investors feeling left out, all signs point to further gains in the future even for those who missed the initial boom.

Among the major capitalists of this biotechnology company is giant biopharmaceutical company and COVID-19 vaccine leader Pfizer (PFE), which invested $25 million in Trillium’s common stock.

While this equity stake may seem small in relation to Pfizer’s $212.16 billion market capitalization, this initial show of confidence is hailed as a prelude to an even bigger investment in the future.

So far, the most exciting cancer treatments in Trillium’s pipeline are TTI-621 and TTI-622.

These programs are in the same class of emerging cancer technologies, called CD47-based therapies, that prompted Gilead Sciences’ (GILD) $4.9 billion acquisition of Forty Seven, Inc. in April this year.

Aside from Gilead, AbbVie (ABBV) has also been reported to have invested a huge sum in this technology.

In simplest terms, CD47-based therapies can bypass the “don’t eat me signal” put up by some cancer cells in an effort to evade immune detection.

Thus far, both TTI-621 and TTI-622 have been showing promising results. Trillium recently announced that it will increase the dosage in these programs.

While Trillium leaders have not been specific in terms of being open to an acquisition, their recent statements indicate that they are not completely opposed to one.

It’s either that or a partnership with a company as big or even bigger than Pfizer.

As with all the biotechnology stocks, however, there will always be a risk.

For Trillium, the most evident one is competition.

While it’s true that the company has been recognized as the leader in the CD47 arena, more and more competitors are entering the immuno-oncology space.

Right now, the most obvious rival is Gilead, which added Immunomedics (IMMU) to its arsenal via a $21 billion acquisition deal.

Given the sheer amount of money that Gilead has been spending to practically corner the immuno-oncology market, it’s to be expected that more biopharmaceutical titans will enter the fray.

This is one of the reasons Trillium has been tagged as a prime candidate for a massive acquisition deal soon. So far, Pfizer is considered the most probable suitor.

Despite its astonishing performance this year, Trillium’s market capitalization still remains within the small-cap territory. That’s to be expected since its lead assets are still undergoing trials.

Considering that it is an early-stage biotechnology stock, Trillium does not have much in terms of income.

However, the company does have enough cash to last for a while. At the moment, it has $130 million cash.

With its total expenses of $38.8 million in 2019, I say this could offer the company more than three years of breathing room financially.

But it would be shocking if Trillium’s value won’t enter the large-cap territory (higher than $10 billion) if and when the company’s high-value assets reach the late-stage studies.

The fact that it’s also an attractive acquisition candidate offers incredible incentive to its investors.

Simply put, Trillium’s stock could get as much as 1,000% gain over the coming two to three years, making it an ideal investment for risk-tolerant investors.

December 18, 2020

Tech Letter

Mad Hedge Technology Letter
December 18, 2020
Fiat Lux

Featured Trade:

(TECH IN 2021)
(ZM), (WORK), (NVDA), (AMD), (QCOM), (SQ), (PYPL), (INTU), (PANW), (OKTA), (CRWD), (SHOP), (MELI), (ETSY), (NOW), (AKAM), (TWLO)

Tech in 2021

Tech Letter

The tech sector has been through a whirlwind in 2020, and if investors didn’t lose their shirt in March and sell at the bottom, many of them should have ended the year in the green.

My prediction at the end of 2019 that cybersecurity and health cloud companies would outperform came true.

What I didn’t get right was that almost every other tech company would double as well.

Saying that video conferencing Zoom (ZM) is the Tech Company of 2020 is not a revelation at this point, but it shows how quickly a hot software tool can come to the forefront of the tech ecosystem.

M&A was as hot as can be as many cash-heavy cloud firms try to keep pace with the Apples and Googles of the tech world like Salesforce’s purchase of workforce collaboration app Slack (WORK).

Not only has the cloud felt the huge tailwinds from the pandemic, but hardware companies like HP and Dell have been helped by the massive demand for devices since the whole world moved online in March.

What can we expect in 2021?

Although I don’t foresee many tech firms making 100% returns like in 2020, they are still the star QB on the team and are carrying the rest of the market on their back.

That won’t change and in fact, tech will need smaller companies to do more heavy lifting come 2021.

The only other sector to get through completely unscathed from the pandemic is housing, and unsurprisingly, it goes hand in hand with converted remote offices that wield the software that I talk about.

The world has essentially become silos of remote offices and we plug into the central system to do business with each other with this thing called the internet.

In 2021, this concept accelerates, and cloud companies could easily check in with 20%-30% return by 2022. The true “growth” cloud firms will see 40% returns if external factors stay favorable.

This year was the beginning of the end for many non-tech businesses and just because vaccines are rolling out across the U.S. doesn’t mean that everyone will ditch the masks and congregate in tight, indoor places.

There is nothing stopping tech from snatching more turf from the other sectors and the coast couldn’t be clearer minus the few dealing with anti-trust issues.

I can tell you with conviction that Facebook, Google, Apple, and Amazon have run out of time and meaningful regulation will rear its ugly head in 2021.

We are already seeing the EU try to ratchet up the tax coffers and lawsuits up the wazoo on Facebook are starting to mount.

Eventually, they will all be broken up which will spawn even more shareholder value.

Even Fed Chair Jerome Powell told us that he thinks stocks aren’t expensive based on how low rates have become.

That is the green light to throw new money at growth stocks unless the Fed signal otherwise.

As we head into the 5G world, I would not bet against the semiconductor trade and the likes of Nvidia (NVDA), AMD (AMD), Qualcomm (QCOM) should overperform in 2021.

Communication is the glue of society and communications-as-a-platform app Twilio (TWLO) will improve on its 2020 form along with cloud apps that make the internet more efficient and robust like Akamai (AKAM).

Workflow cloud app ServiceNow (NOW) is another one that will continue its success.

The uninterrupted shift to the cloud will not stop in 2021 and will be a strong growth driver for numerous tech companies next year.

I will not say this is a digital revolution, but as corporate executives realize they haven’t spent enough on the cloud in the lead-up to the pandemic and must now play catch-up in order to satisfy new demands in the business.

The most recent CIO survey was the thesis that cloud and digital adoption at 10% of enterprise and 15% of consumer spend entering 2020 would continue to accelerate post-pandemic and into 2021-2022.

A key dynamic playing out in the tech world over the next 12 to 18 months is the secular growth areas around cloud and cybersecurity that are seeing eye-popping demand trends.

Consumers will still be stuck at home, meaning e-commerce will still be big winners in 2021 such as Shopify (SHOP), Etsy (ETSY), and MercadoLibre (MELI).

The reliance on e-commerce will open the door for more tech companies to participate in the digital flow of transactions and the U.S. will finally catch up to the Chinese idea of paying through contactless instruments and not cards.

This highly benefits U.S. fintech companies like Square (SQ) and PayPal (PYPL). Intuit (INTU) and its accounting software is another niche player that will dominate.

Intuit most recently bought Credit Karma for $8.1 billion signaling deeper penetration into fintech.

Since we are all splurging online, we need cybersecurity to protect us and the likes of Palo Alto Networks (PANW), Okta (OKTA), and CrowdStrike Holdings, Inc. (CRWD).

The side effect of the accelerating shift to digital and cloud are troves of data that need to be stored, thus anything related to big data will also outperform.

Most of the information created (97%) has historically been stored, processed, or archived.

As new mountains of digital gold are created, we expect AI will have an increasingly critical role.

I believe that 2021 will finally see the integration of 5G technology ushering in another wave of digital migration and data generation that the world has never seen before and above are some of the tech companies that will make out well.

The average household is using 38x the amount of internet data they were using ten years ago and this is just the beginning.

October 20, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 20, 2020
Fiat Lux

FEATURED TRADE:

THE MOST FAMOUS CANCER STOCK YOU’VE NEVER HEARD OF
(TRIL), (NVAX), (PFE), (IMMU), (SHOP), (GILD), (ABBV)