Mad Hedge Biotech & Healthcare Letter
January 21, 2020
Fiat Lux
Featured Trade:
(WHY THERE’S ANOTHER DOUBLE IN CRISPR THERAPEUTICS)
(CRSP), (BLUE), (EDIT), (NVS), (GILD)
Posts
Biotech investors, take note: 2019 was a great year for the industry, but the best is yet to come.
In the final three months of 2019, the biotech sector grew by 32% -- notably outpacing the pharmaceutical industry, which only recorded a 9.5% gain.
However, the biotechnology sector is estimated to grow substantially in 2020, and reach over $775 billion in revenue by 2024 as more and more treatments for previously incurable diseases get discovered.
Looking at all the progress in the biotechnology space, this could even be the year we’d finally discover the cure to many life-threatening and debilitating conditions like cancer and Alzheimer’s disease.
With all these technological advancements, two revolutionary tools have been overhauling the entire biotechnology and healthcare industry from the ground up: precision medicine and CRISPR. Actually, the impressive growth of the biotechnology industry has been largely attributed to the excitement generated by the gene-editing sector.
While the majority of companies concentrating on the human genome are still in the research phase, the growth of this industry is undeniable.
Here’s tangible proof.
Just 20 years ago, reading all the DNA of a single person cost approximately $3 billion. Now, this price is down to only $1,000. In the future, this number will go even lower at $100. There are now gigantic factories in China sequencing DNA for companies like Ancestry.com and 23andMe.
This is just one example of how the biotechnology industry has grown by leaps and bounds. It’s also the reason behind the surge of CRISPR shares.
In effect, the specialists in this niche, including Crispr Therapeutics (CRSP), Bluebird Bio (BLUE), and Editas Medicine (EDIT), are amplifying their efforts in 2020.
Among the specialist companies, CRISPR Therapeutics is considered as one of the frontrunners -- if not the top stock. This is because compared to its rivals, which are still in preclinical phases of development, CRISPR Therapeutics’ already has two drugs going through Phase 1 trials: CTX001 and CTX110.
The promising results of the company’s research resulted in a 113% rise in shares last year, with the bulk of the surge starting in October. In fact, CRISPR Therapeutics’ performance had been so impressive that its market cap reached $3.4 billion.
CTX001 is created to target patients suffering from genetic blood disorders, specifically sickle-cell disease and transfusion-dependent beta-thalassemia.
Meanwhile, CTX110 is a CAR-T treatment. The process involves the extraction of immune cells from the patient. These are then retrained and later re-introduced to the human body.
CRISPR Therapeutics’ CAR-T treatment is anticipated to be offered at a cheaper price compared to the other CAR-T therapies.
Both Novartis (NVS) and Gilead Sciences (GILD) are pursuing the same treatment. However, the cost of the therapy from the latter two is expected to reach as much as $475,000 for every patient annually.
Apart from CTX001 and CTX110, CRISPR Therapeutics has two more immunology candidates, currently dubbed CTX120 and CTX130.
If both phase trials succeed, these will bring massive home runs for CRISPR Therapeutics, especially since the cancer immunology market is expected to reach $127 billion by 2026. Over the next 10 years, this niche is estimated to reach $25 trillion in sales.
Among the gene-editing treatments under development today, CRISPR is projected to grow tenfold in the number of applications and potentially curing 89% of disease-causing genetic variations by 2026.
Taking this pace into consideration, the valuation for this market is expected to grow from $551 million in 2017 to reach roughly $3.1 billion by 2023 and $6 billion by 2025.
Meanwhile, precision medicine as a whole is estimated to show a significant jump from $48.6 billion in 2018 to $84.6 billion by 2024. In 2028, this market is expected to rake in $216 billion.
Hence, further success with CTX001 and CTX110 along with additional treatments in the drug pipeline would all but guarantee that Crispr Therapeutics could beat the market again in 2020.
Mad Hedge Biotech & Healthcare Letter
November 19, 2019
Fiat Lux
Featured Trade:
(TAKE A WALK ON THE WILD SIDE WITH GENE EDITING),
(EDIT), (NTLA), (CRSP), (VRTX), (REGN), (NOVN)
No other industry has inspired fear as much as the biotech world, and no other sector of the biotech industry has garnered such mixed reactions as the gene-editing group.
At the moment, the public has been grossly undervaluing the three major companies that actually hold the power to control the foundational patents for CRISPR-CAS9 — the gene-editing technique with the greatest potential to dominate the biotech industry. These overlooked Big 3 companies are Editas (EDIT), Intellia Therapeutics (NTLA), and CRISPR Therapeutics (CRSP).
There are distinct differences between these three pioneering biotech firms. With a market value of $2.7 billion, Crispr Therapeutics (CRSP) is the first company to venture into clinical trials, attracting Vertex Therapeutics (VRTX) as one of its major investors. Editas, which has a market cap of $1.3 billion, is a close second to Crispr Therapeutics in terms of clinical trials. Despite the issues plaguing its executive department lately, the company is anticipated to eventually land a big partner to help fund its research as well.
Then there's Intellia Therapeutics (NTLA). The company, which has a market cap of $850 million, is considered the laggard in the CRISPR gene-editing world. What further fuels the ambivalence of investors is the expectation that clinical trials for its lone drug candidate won't be ready until 2020 or even 2021. The lack of flashy updates from Intellia Therapeutics has several investors wondering if this low market cap company is actually a good buy.
In its third-quarter earnings report though, Intellia Therapeutics posted revenues worth $10.62 million — a jump from the $7.41 million recorded during the same period in 2018. Aside from that, the company managed to attract Novartis AG (NOVN) as one of its major investors. Recently, the company also established a partnership with Regeneron Pharmaceuticals (REGN), which is viewed as a promising step towards bolstering Intellia Therapeutics’ growth.
Based on their recent updates, Regeneron and Intellia Therapeutics are working on NTLA-2001. This is a treatment for a rare disease called transthyretin amyloidosis (ATTR), also known as a protein misfolding disorder which causes an abnormal protein buildup in the body's organs and tissues.
While this has yet to reach human trials, the preclinical studies involving non-human primates showed an over 95% reduction of the protein in the patient's liver. Since this disease requires chronic dosing throughout the lifetime of the patient, the success of NTLA-2001 has an incredible disruptive potential for one-shot treatments of ATTR. Apart from that, this treatment will position Intellia Therapeutics as the sole dominating force in this gene-silencing sector.
As things stand today, Intellia Therapeutics may seem as if it has been straggling behind Crispr Therapeutics and Editas. However, the promising plans of the company may prove this statement false. While its move to take its time before pulling the trigger on NTLA-2001 may be frustrating for investors eager to see the results, the recent developments show that this was a necessary precautionary measure to protect the company’s potentially revolutionary delivery system. Despite the delay, this move could translate to dividends across all the drugs and treatments in Intellia Therapeutics’ pipeline in the next years.
Despite their status of being on the verge of discovering treatments for the incurable diseases, it’s baffling to watch how investors continue to sidestep these Big 3 companies, which have a measly $5 billion valuation among all three of them.
Gradually though, a number of forward-thinking investors are starting to shift out of growth names and turn into more defensive investment strategies. With this switch in style slowly making its way to the public, more and more biotech stocks are revealed to be extremely undervalued — and it’s only a matter of time before the likes of Crispr, Editas, and Intellia become a household name among investors.
While the biotech industry can be a scary place to invest in, the key to succeeding in this sector is understanding the market. It’s also advisable to diversify your portfolio. However, bear in mind that not all portfolios chock full of trials in their pipeline guarantee success. At times, a company only needs one or two promising treatments that can eventually serve as the stepping stone to 30 or more moneymakers.
Buy Intellia Therapeutics on dips, as it is the cheapest of the lot.
Global Market Comments
May 3, 2019
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE LAS VEGAS MAY 9 GLOBAL STRATEGY LUNCHEON)
(APRIL 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (LYFT), (TSLA), (TLT), (XLV), (UBER),
(AAPL), (AMZN), (MSFT), (EDIT), (SGMO), (CLLS)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader May 1 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Your old target for the (SPY) was $292.80; we’re clearly above that now. What’s your new target and how long will it take to get there?
A: My new target on the S&P 500 (SPY) is $296.80. You’re looking at $295 on the (SPY), so we’re almost there. However, we’re grinding up too slowly so I can’t give you an exact date.
Q: Will Fed governor Jay Powell give in to pressure from Trump who wants him to drop rates? Does he have any sway over the process?
A: Officially he has no sway, but every day Trump is tweeting: “I want QE back, I want a 1% rate cut.” And if that happened, the economy would completely blow up—an interest rate cut with the market at an all-time high and 3.25% GDP growth rate would be unprecedented, would deliver a short term gain and long term disaster.
Q: What do you think about the Uber (UBER) IPO?
A: I wouldn’t touch it with a 10-foot pole—they’ve been cutting valuations almost every day. At one point they were going to value the company at $120 billion dollars, now they’re at $90 billion and they may even lower it from there. The last car sharing IPO (LYFT) dropped 33% from its high. I would stay away from all of the IPOs once they’re listed. The rule is: only buy these things when they’re down 50%. Warren Buffet never buys IPOs, nor do I.
Q: What do you think about buying or selling Lyft?
A: I would wait a couple of months for Lyft to find its true price. Then you’ll have something to trade against.
Q: Do you think the bad news is over on Tesla (TSLA)? Is it time to buy? Or is it going bankrupt?
A: The whole world knew that the electric car subsidy would be cut in January, so what customers did was accelerate their orders in the 4th quarter, which took us all the way up to $380 in the shares, and then created a vacuum in the Q1 of this year. It reported the first quarter last week—they were disastrous orders, and the company is cutting back overhead as fast as possible as if it’s going into a recession, which it kind of is. The question is whether or not sales will bounce back in Q2 with the smaller subsidy. I happen to think they will. But we may not see 2018 Q4 sales levels again until 2019 Q4.
Q: Why has healthcare (XLV) been so awful this year?
A: There’s an election next year and both parties promise to beat up on the healthcare industry with drug control pricing and other forms of regulation. Of course, the current president promised free competition in drug prices; but then he moved to Washington DC and found the drug industry lobby, and nothing was ever heard again on that front. It’s a very high political risk sector, but there is some great value at these levels in the healthcare industry in the long term. I’m about to start the Mad Hedge Biotech and Health Care newsletter imminently.
Q: Should I buy the (TLT) $120-$123 call spread now?
A: That's a very aggressive trade, I would wait and go with strikes for in the money, and then only on a big dip. Don’t reach for a trade when the market is at an all-time high.
Q: Should I be shorting Tesla down here?
A: Absolutely not, your short trade was at $380, $350, $330 and $300. Down here, you run the risk of a surprise tweet from Elon Musk causing the stock to go $50 against you. Buy the way, he’s already announced that he’s buying $10 million worth of shares in his next capital raise.
Q: What do you think about CRISPR stocks long term, like Editas Medicine (EDIT), Sangamo Life Sciences (SGMO), and Cellectis (CLLS)?
A: These are probably the best bunch of 10 baggers long term. Short term they are afflicted with the same problems impacting all of healthcare—promises of regulation and price control on all of their products ahead of an election. So, hold for the long term; short term I’d only be buying the really big dips. Did I mention that I’m about to start the Mad Hedge Biotech and Health Care newsletter imminently?
Q: Is your May 10th market top forecast still good?
A: Well we’re getting kind of close to May 10th. I made this prediction based on an inverting yield curve two years ago. However, that target did not anticipate interest rates topping out for the 10-year US Treasury bond at 3.25%. Nor did it consider the Fed canceling all interest rate hikes for the year. Without the artificial stimulus, the market would certainly have already rolled over and died. That said, I still have a week to go.
Q: Should I be selling my long term holds in the FANGS, like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT)?
A: For the long term, no. However, we know from December that these things can get hit with a 40% drawdown at any time. As long as you can handle that, they always bounce back.
Q: What will happen to Venezuela? Any trades?
A: The only related trades would be in the oil market (USO). If we get a coup d’ etat which installs a new pro-American president, which could be at any time, that could lead to a selloff in oil for a couple of days as 1 Million barrels of crude per day come back on the market, but probably no more than that.
Q: With current national debt and budget deficits, when will interest in gold kick in?
A: Very simple: when the stock market goes down, you want to buy gold. It’s the hedge that everyone will chase after, and inflation is just around the corner.
Q: Do you need me to place any Kentucky Derby bets?
A: Me being the cautious guy I am, I pick the horse with the best odds and then I bet him to show. That almost always works.
Q: What about pot stocks?
A: I’ve never liked them very much; after all, how hard is it to grow a weed? The barriers to entry are zero. All of these pot companies coming up now are not really pot stocks as much as they are marketing companies, so you’re buying their distribution capability primarily. That said, I’m having breakfast with the CEO of a major pot company next week, so I’ll be writing about that once I get the inside scoop.
Q: Will the Fed be the non-event?
A: Yes, as stated in the Mad Hedge Hot Tips this morning, it will be a non-event and the news is due out in about an hour.
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?
Global Market Comments
November 2, 2018
Fiat Lux
Featured Trade:
(OCTOBER 31 BIWEEKLY STRATEGY WEBINAR Q&A),
(EDIT), (TMO), (OVAS), (GE), (GLD), (AMZN), (SQ), (VIX), (VXX), (GS), (MSFT), (PIN), (UUP), (XRT), (AMD), (TLT)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 31 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: I would like to keep CRISPR stocks as a one or two-year-old, or even longer if it is prudent. What do you think?
A: Yes, there is a CRISPR revolution going on in biotech—I’m extremely bullish on all these stocks, like Editas Medicine (EDIT), Thermo Fisher Scientific (TMO), and Ovascience Inc. (OVAS). If any of these individual companies don’t move forward with their own technology, they will get taken over. The principal asset of these companies is not the patents or the products, it’s the staff, and there is an extreme shortage in CRISPR specialists (and anybody who knows anything about monoclonal antibodies).
Q: Could you explain how to manage LEAPs? For example, the Gold (GLD) and the General Electric (GE) LEAPs. Sit and leave them or trade them short term?
A: You make a lot of money trading long-term LEAPs. Just because you own a year and a half LEAP doesn’t mean that you keep it for a year and a half. You sell it on the first big profit, and I happen to know that on both the Gold (GLD) and the (GE) LEAPs we sent out, people made a 50% profit in the first week. So, I told them: sell it, take the profit. The market always gives you another chance to get in and buy them cheap. You make the money on the turnover, on the volume—not hanging out trying to hit a home run.
Q: Why did you only close the Amazon (AMZN) November $1,550-$1,600 vertical bull call spread and not roll the strike prices down and out?
A: Well I actually did do the down and out strike roll out first, which is the super aggressive approach. By adding the November $1,350-$1,400 vertical bull call spread position on Monday at the market lows and doubling the size—we took a huge 30% position in Amazon and that position alone should bring in about $3600 in profits in two weeks, at expiration. And when I put on that second position I told myself that on the next big rally I would get out of the high-risk trouble making position, which was the November $1,550-$1,600 vertical bull call spread. So that’s how you trade your way out of a 30% drop in three weeks in one of the best tech stocks in the market.
Q: Is AT&T (T) no longer a good buy at these prices?
A: All of the telephone companies have legacy technology, meaning they are all dying. Basically, AT&T is about owning a bunch of rusting copper wire spread around the country. They haven’t been able to innovate new technologies fast enough to keep up with others who have. The only reason to own this is for the very high 6.56% dividend. That said, dividends can be cut. Look at General Electric which cut its dividend earlier this year. Whatever you make of the dividend can get lost in the principal.
Q: Do you think Square (SQ) is a good buy at this level?
A: Absolutely, it’s a screaming buy. It’s one of the favorite companies of the Mad Hedge Technology Letter and one of the preeminent disruptors of the banks. We think there’s another 400% gain in Square from here. It’s dominating FinTech now.
Q: When do you expect to close the short position in the iPath S&P 500 VIX Short-Term Futures ETN (VXX)?
A: If we can get the Volatility Index (VIX) down to $15, the (VXX) should crater. We’ll take a hit on the time decay and that’s why I say we may be able to sell it for 20 cents in the future when this happens. We’ll still take a 50% hit on the position, but half is better than none.
Q: What happened to Microsoft (MSFT) last week?
A: People sold their winners. They had a great earnings report and great long-term earnings prospects, but everyone in the world owned it. Buy the long-term LEAP on this one.
Q: If we want to double up on the iPath S&P 500 VIX Short-Term Futures ETN (VXX), how do you plan to do it?
A: Go out to further with your expiration date. When you go long the (VXX) you only buy the most distant expiration date. I would buy the February 15 expiration as soon as it becomes available.
Q: How do you see Goldman Sachs (GS) from here to the end of the year?
A: It may go up a little bit as we get some index money coming into play for year-end, but not much; I expect banks to continue to underperform. They are no longer a rising interest rate play. They are a destruction by FinTech play.
Q: Is it too soon for emerging markets in India (PIN)?
A: As long as the dollar (UUP) is strong, which is going to be at least another year, you want to avoid emerging markets like the plague. As long as the Federal Reserve keeps raising interest rates, increasing the yield differential with other currencies, the buck keeps going up.
Q: What are your thoughts on retail ETFs like the SPDR S&P Retail ETF (XRT)?
A: You may get lucky and catch a rally on that but the medium term move for retail anything is down. They are all getting Amazoned.
Q: Is it better to increase long exposure the day before the election?
A: No, what we saw starting on Tuesday was the pre-election move. That said, I expect it to continue after the election and into yearend.
Q: Any opinions on Advanced Micro Devices (AMD)?
A: Yes, this is a great level. It was extremely overbought two months ago but has now dropped 50%. It is a great long-term LEAP candidate.
Q: What about the W bottom in the stock market that everyone thinks will happen?
A: I’m one of those people. So far, the bottom for the move in the S&P 500 is looking pretty convincing, but we will test the faith sometime in the next week I’m sure. We got close enough to the February $252 low to make this a very convincing move. It sets up range trading for the market for the next year.
Q: How do you figure the inflation rate is 3.1%?
A: The year-on-year Consumer Price Index for September printed at 2.3%, and the most recent months have been running at an annualized 2.9% rate. Given that this data is months old we are probably seeing 3.1% on a monthly annualized basis now given all the anecdotal evidence of rising prices and wages that are out there. That is certainly what the bond market believes with its recent sharp selloff and why I will continue to be a fantastic short. Sell every United States US Treasury Bond Fund ETF (TLT) rally. Like hockey great Wayne Gretzky said, you have to aim not where the hockey puck is, but where it's going to be.
Q: Will rising interest rates kill the housing market?
A: It already has. A 5% 30-year mortgage rate shuts a lot of first time Millennial buyers out of the market. We are seeing real estate slowing all over the country. Los Angeles is getting the worst hit.
Q: How do you see the Christmas selling season going?
A: It’s going to be great, but this may be the last good one for a while. And Amazon is getting half the business.
Q: October was terrible. How do you see November playing out?
A: It could well be a mirror image of October to the upside. We are already $1,000 Dow points off the bottom. So far, so good. Throw fundamentals out the window and buy whatever has fallen the most….like Amazon.
Did I mention you should buy Amazon?
Good luck and good trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Ten Years of Consumer Price Index
