Mad Hedge Biotech & Health Care Letter
October 3, 2019
Fiat Lux
Featured Trade:
(GETTING ON BOARD THE GENE-EDITING REVOLUTION),
(CRSP), (VRTX)
Posts
I love buying straw hats during snowstorms, Christmas ornaments in January, and the latest outdoor equipment in October when the best quality gear is for sale at incredible discounts.
Such a bargain is to be had right now with CRISPR Therapeutics (CRSP), which has been at the forefront of the gene-editing revolution from day one. And I actually know how this works.
After decades of false starts and controversial experiments, genetic treatments are now starting to paint a credible and promising picture of their benefits. With the first-ever gene therapy treatment receiving approval in 2017 and the first RNA interference (RNAi)-based drug getting the greenlight in 2018, the biotech world appears to be ready for the next big thing: CRISPR gene editing.
Crispr technology has the potential to offer a cure for diseases such as multiple sclerosis and even cancer. Apart from its healthcare benefits, this technology can also be utilized in the agriculture industry. A possible application of it is to synthesize chemicals including fuels and plastics. Crispr can be used to store data as well.
Well, that’s what the investors in this revolutionary technology are hoping to accomplish anyway -- so much so that the market cap of pioneering company CRISPR Therapeutics (CRSP) has soared to an incredible $2.7 billion.
Although CRISPR Therapeutics has been experiencing an upward trajectory in 2019, shareholders of this stock since its inception in 2013 have been through quite a rollercoaster ride as the company’s first drug candidate only managed to enter clinical trials this year.
While cash burn is obviously a legitimate fear, CRISPR Therapeutics actually has a massive mound of cash pile. Hence, the future (or the next five years, at least) of this red-hot growth stock won’t be a problem for the company as long-term prospects look promising.
One of the most aggressive supporters of CRISPR Therapeutics is Vertex Pharmaceuticals (VRTX), which recently splurged $175 million in an upfront cash payment to fund the development of the biotech company’s study on a gene-editing therapy called CTX001.
This method is designed to help patients suffering from rare genetic blood disorders beta-thalassemia and sickle cell disease. Aside from these blood diseases, Vertex expanded the collaboration to also cover muscle disorders commonly known as Duchenne muscular dystrophy and myotonic dystrophy type 1. Earlier in 2019, the FDA granted a Fast Track designation for CTX001.
Despite minimal information on CRISPR’s pipeline, a lot can be deduced from the behavior of its investors alone. Looking at the roster of the company’s largest shareholders, it’s quite noticeable that a whopping 42% belongs to institutional investors.
Since institutions tend to prefer more established companies compared to smaller ones, the presence of these investors in CRISPR signifies a positive outlook for the stock. A quick caveat though -- the downside of this is for the stock to turn into a “crowded trade” due to the number of institutions that own it. That makes its share price sensitive to the biotech market and to the on-again, off-again IPO market.
Meanwhile, insider ownership for CRISPR Therapeutics amounts to $51 million -- a fact that could signify the earning potential of this stock and the promising future it holds. Some shareholders would consider this as a real positive sign as the heavy presence of the board members in the share registry ensures that their interests align with that of the shareholders.
So, what’s the bottom line here? While CRISPR’s shares at one point jumped by an astounding 72% this year, there’s no indication that the stock is slowing down anytime soon. That is if no clinical setback hinders the company’s forward march. Given the potential of the technology and its healthy cash pile ready to fund its future endeavors, this development biotech is anticipated to be worth tens of billions in terms of future revenues.
The global clamor to embrace revolutionary medical treatments is something we can’t ignore, particularly due to the northward rise of the biotech sector. With CRISPR Therapeutics promising that the initial clinical trials are only there to whet investors’ appetites, it’s exciting to be part of a technology that could actually change the landscape of the medical profession.
Buy CRISPR Therapeutics on the dip. Now is a great place to start scaling in with a one-third position.
Global Market Comments
March 27, 2019
Fiat Lux
Featured Trade:
(JUMP ON THE VERTEX BANDWAGON),
(VRTX), (CRSP),
(MAD HEDGE FUND TRADER CELEBRATES ITS 11-YEAR ANNIVERSARY)
The biotech industry has at least 500 stocks listed on the market today. These companies range from huge biotech firms with several blockbuster drugs to humble money-losing startups still on the lookout for their first big break.
Among these companies, Vertex Pharmaceuticals Incorporated (VRTX) presents a compelling case that could attract investors.
Recent developments on Vertex's triple-combination treatment for cystic fibrosis (CF) have been predicted to spur the company's revenues this year in a major way. If the results of the studies turn out successful, then Vertex is on the verge of becoming the sole treatment provider to at least 90% of the people suffering from this severe genetic condition. That’s a nice monopoly to have.
While the recent developments have yet to aggressively show its effect in Vertex stock, the company has already recorded an impressive 160% growth since 2017 and this is anticipated to go higher in the years to come.
At present, the annual revenue of Vertex is recorded as $3 billion, while major competitors like Pfizer has $53.4 billion, Bristol-Myers Squibb has $22.6 billion, and Novartis has $51 billion. In order words, there is plenty of room to grow.
Just how far can Vertex shares go?
Let's take a look at previous reports on the company. Its December 2018 financial report reveals that its earnings per share jumped by 113% year-over-year to $1.3. Its quarterly revenues increased by 40% and reached $869.44 million -- a gigantic 39.7% leap from the $622.63 million it achieved during the same period in the previous year.
While the March 2019 EPS for this company is anticipated to go down to $0.68 compared to the $0.76 recorded the same period last year, its 2020 EPS is projected to get a 49.46% boost. With that estimate, Vertex is expected to reach its long-term annual earnings growth rate of 53.86%.
How can investors be sure that Vertex continues with its remarkable progress?
The company's moves in the past months have been quite promising. A major factor that could guarantee its success is its dominance in the CF market. At the moment, Vertex has three approved CF drugs available in the market: Kalydeco, Orkambi, and Symdeko.
Of these three, two are already considered as blockbuster products while Symdeko is poised to hit the $1 billion yearly sales mark this year.
Another promising reason to invest in Vertex is its move to expand the addressable CF market it currently covers. If the company succeeds in cornering the market for treating younger patients, then its target population will increase from 39,000 to 44,000.
Vertex is also working towards gaining approval for a triple-drug combo this year. The biotech company projects an additional 24,000 patients globally to benefit from this triple-drug regimen.
Should all these plans fall into place, Vertex would see a 75% expansion on its addressable CF market in the years to come.
Although CF has been the focus of Vertex in the previous years, the company also intends to widen its scope and plans to conduct early-stage clinical studies for at least two new diseases this year.
This move would prove to be beneficial in the long-term considering the decision of AbbVie Inc (ABBV) to join the triple-drug CF race. So far, AbbVie has a long way to go before it can catch up with Vertex's progress in this arena especially since the latter practically has a monopoly as it alone offers the drugs that can treat the underlying causes of CF.
Vertex's collaboration with CRISPR Therapeutics (CRSP) on gene-editing treatments, which aim to treat rare blood disorders beta-thalassemia and sickle cell disease, is yet another promising development for the company.
All in all, Vertex is a good biotech stock to invest in today. However, its plans are not foolproof.
There remains the risk that its pipeline candidates fail at clinical trials or that the company loses its bids for regulatory approvals. Nonetheless, it's a promising stock to add to your portfolio especially since the company has more than doubled its stock in the past two years.
High risk, high gain. Welcome to the world of biotech stocks.
Global Market Comments
January 25, 2019
Fiat Lux
Featured Trade:
(JANUARY 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (EDIT), (NTLA), (CRSP), (SJB), (TLT), (FXB), (GLD),
(THE PRICE OF STARDOM AT DAVOS)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 23 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Would you buy Tesla (TSLA) right now?
A: It’s tempting; I’m waiting to see if we take a run at the $250-$260 level that we saw at last October’s low. If so, it’s a screaming buy. Tesla is one of a handful of stocks that have a shot at rising tenfold in the next ten years.
Q: CRISPR stocks are getting killed. I know you like the science—do you have a bottom call?
A: What impacted CRISPR stocks was the genetic engineering done on unborn twins in China that completely freaked out the entire industry and killed all the stocks. That being said, CRISPR has a great long-term future. They will either become ten-baggers or get taken over by major drug companies. The first major CRISPR generated cure will take place for childhood blindness later this year. The ones you want to own are Editas (EDIT), Intellia Therapeutics (NTLA), and CRISPR Therapeutics (CRSP).
Q: Do you ever reposition a trade and add contracts?
A: I very rarely double up. I’d rather go on to a new trade with different strike prices. A bad double up can turn a small loss into a big one. Sometimes I will do a “roll down,” or buy back one spread for a loss to earn back that loss with a spread farther in-the-money.
Q: For us newbies, can you please explain your trading philosophy regarding purchasing deep in the money call spreads and how that translates to risk management?
A: I did a research piece in Global Trading Dispatch yesterday on deep in-the-money call spreads, and today on deep-in-the-money put spreads. The idea is to have a position where you make money whether the market goes up, down, or sideways. Your risk is defined, and you always have time decay working for you, writing you a check every day. Here are the links: Vertical Bull Call Spread and Vertical Bear Put Spread.
Q: What’s the risk reward of floating rate corporate debts?
A: Number one: interest rates go down—if we go into recession, rates will fall. That wipes out the principal value of the security. Number two: with corporate debts, you run the risk of the corporation going bankrupt or having their business severely impacted in the next recession and their credit rating cut. It’s far safer to invest in a bank deposits yielding 2-2.5% right now. Some smaller banks are offering certificates of deposit with 4% yields.
Q: What are your thoughts on the British pound (FXB)?
A: I think Brexit will fail eventually and the pound will increase 25%; so play from the long side on the (FXB). It would be economic suicide for Britain to leave the EC and eventually people there will figure this out. If the Brexit vote were held today, it would lose and that may be how they eventually get out of this.
Q: Is it a bear market for bonds (TLT)?
A: Yes, it’s back on again. I expect we will visit $112 in the (TLT) sometime this year, down from the current $121. That brings us back up to the 3.25% yield on the ten-year US Treasury bond. That is down nine points from here, so it’s certainly worth taking a bite out of.
Q: What’s the best time to buy the ProShares Short High Yield (SJB)?
A: At the top of the next equity market run. It rose a whopping 10% during the December stock market meltdown so that gives you a taste of what can happen. Junk bonds are called “junk” for a reason.
Q: How do you see gold (GLD)?
A: Take profits now and buy back on the next dip. If we dip 5%-10% in gold, that would be a good entry point for a larger move later on in the year. To get a real move in gold, we need to see real inflation and that will eventually come. Another stock market crash will also gain you another 10% in gold.
Q: When will the government shutdown end?
A: I think it will go a lot longer than anyone realizes because Trump needs a deal worse than the Democrats do. Trump is basically saying pay for my wall or I’ll keep shooting another of MY supporters in the head every day. The Democrats can wait a really long time in that circumstance. Trump’s standing in the polls has also collapsed to new lows. By the way, the Chinese are using the same approach in the trade talks so that could be a long wait as well.
Q: There’s been a big shift in the MHFT Profit Predictor in the last 30 days—does this mean we should not be adding any positions?
A: Absolutely; this is a terrible place to be adding any new positions. The index went from 2 to 57 which shows you how valuable it is at calling market bottoms. Now we are at the top end of the middle of the range. All markets are now dead in the middle of very wide trading ranges which means the best thing you can do is take profits on existing positions, which I have been doing. Or watch Duck Dynasty and Pawn Stars replays. As for me, I am an Antiques Roadshow guy.
Q: What percentage should you be invested in the market now?
A: I’ve gone from 60% to 30% and have only 3 weeks left on my remaining position. I’m looking to go 100% cash as long as we’re stuck in the middle of this range. Better to sit on your hands than chase a high risk/low return trade.
Did I mention that we have had the best start to a New Year in a decade?
