Mad Hedge Biotech and Healthcare Letter
September 14, 2023
Fiat Lux
Featured Trade:
(A PIGGYBACK RIDE TO THE FUTURE)
(BMY), (NVS), (PFE), (MDT), (ABT), (TMO), (HCA), (UHS), (DGX), (LH)
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As I walked the sterile, fluorescent-lit hallways of a leading biotechnological institute last summer, I overheard snippets of a conversation that immediately piqued my interest: “human-pig kidney,” “game-changer,” and “investor's goldmine.”
We often think of medical advancements in terms of their immediate patient benefits. Yet, in this chance encounter, the talk of the town was how these breakthroughs could cascade into lucrative opportunities in the stock market.
But how close are we to realizing this future?
Imagine a world where organ shortages, a grim reality for over 106,000 hopeful recipients in the U.S., could become a thing of the past. This isn’t a whimsical daydream but a tangible reality we're inching towards.
The mastermind behind this evolution? Kidneys grown inside pig embryos with a human cell composition ranging between 50% to 70%. This meticulous procedure, entailing 1,820 genetically modified pig embryos transplanted into 13 surrogate mothers, brought forth five specimens that met research criteria.
Switching our perspective, from a purely financial lens, the world of biotechnology is ripe with promise. But with the emergence of this organ transplant technology, investors should sit up and pay attention.
Consider giants like Bristol Myers Squibb (BMY), Novartis AG (NVS), and Pfizer Inc. (PFE). Their R&D teams are burning the midnight oil to roll out immunosuppressive drugs, pivotal for post-transplant procedures. Influenced by such groundbreaking endeavors, their stock trajectory could be a sight to behold in 2023.
Transitioning to medical equipment, Medtronic plc (MDT), Abbott Laboratories (ABT), and Thermo Fisher Scientific Inc. (TMO) aren't just names in the medical devices sphere. They represent the zenith of innovation, manufacturing state-of-the-art equipment integral to organ transplant procedures. If this biotechnological marvel scales, they stand at the precipice of unprecedented growth.
Moving onto healthcare, HCA Healthcare, Inc. (HCA) and Universal Health Services, Inc. (UHS) are the custodians of transplant centers. Their potential upswing is directly proportional to the success of human-pig kidney transplantations. And not to be overlooked, Quest Diagnostics Incorporated (DGX) and LabCorp (LH) are at the heart of organ compatibility diagnostics. As this transplant technology forges ahead, they are poised for a meteoric rise as well.
However, a word of caution is due.
While the financial forecasts appear rosy, any discerning investor is well aware of the need to balance enthusiasm with caution. The stock market's volatile nature, coupled with regulatory shifts and unpredictable research outcomes, can be game-changers. It is extremely crucial to keep your finger on the pulse of the sector and maybe even conduct more in-depth research on the potential of each company before making investment decisions.
Also, beyond finance, it would be remiss not to address the elephant in the room. The melding of human cells into pig embryos has raised eyebrows and ethical concerns. With human cells found in the embryos' brains and spinal cords, it prompts uneasy questions about the potential integration into the pigs' cognitive or reproductive systems. How the scientific community and regulators address these concerns will undoubtedly influence both the pace and direction of research, as well as investor sentiment.
Looking back, my chance encounter in that research institute was an omen of the times to come. On the brink of a scientific revolution, we are witnesses to a watershed moment in healthcare. But for the astute observer, it’s not just about saving lives. It's about understanding how such advancements can recalibrate the entire financial landscape.
To encapsulate the mood, let me leave you with this quote from the infamous Marie Curie: "Nothing in life is to be feared; it is only to be understood. Now is the time to understand more so that we may fear less.”
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!
Say You Were A Biotech Investor, Did You?
?Give us all your money,? said the largest of the three men who snuck up behind me at the entrance to the Orlando Marriott World Hotel. It was 1:30 AM, pitch dark, and the area was abandoned.
I had my wallet out to pay the taxi driver, brimming with $5,000 in cash, my winnings at the blackjack tables at the just completed SALT conference in Las Vegas. He took off like a shot, and I was left standing there, alone.
I turned around, put my wallet in my back pocket, took off my horn rimmed glasses and said, in my most intimidating, ?I?m going to kick your ass? manner possible, ?Trying this on a Marine with post traumatic stress is a really bad idea.? The three would be muggers backed up as fast as they could and disappeared into the swamps.
It?s all about attitude.
I mentioned the incident to the hotel staff while checking in. They were horrified, apologized profusely, and gave me a triple upgrade to the presidential suite with a $100 room service credit.
Welcome to Orlando!
I was making a 24 hour pit stop in the Sunshine State to give the good news about where the financial markets will be in 2030 to a conference of top performing independent investment advisors. After knocking their socks off, I felt I had just made several lifetime friends.
I even got to trade war stories with a fellow Dessert Storm pilot who flew OV-10 twin tailed Broncos. Once, in Kuwait I was with a Marine ground unit that came under fire. The NCO said, ?Don?t worry, the Broncos are inbound.? When I heard the BRRRRRR of its M60 machine guns, it sounded like music to my ears. I thanked him for his service, and saving my ass.
This being the heart of the Deep South and the former confederacy, I was questioned about my California politics. I told my audience they had a choice. They could listen to Fox News all day, read the conspiracy theories in the Drudge Report, and live in a permanent state of anger.
Or they could work with a guy with inside access like me, gain insights into the administrations actual thinking, and learn what they are really going to do. I hand out ticker symbols too. I suggested that the latter generated a better investment return for clients, and most agreed.
The reality is that most of the country agrees on 99% of everything I told them. It is only the media (better ratings), fundraisers (more money), and politicians (more votes) who are driving us to our corners, and the internet gives everybody flame thrower.
I also get the opportunity to influence the course of events in my own small way. The White House Staff, The Treasury Secretary, the Chairman of the Federal Reserve, the Secretary of State, the Joint Chiefs of Staff, and the Director of the CIA don?t spend time with me because I wear nice Italian suits and tell funny jokes.
You can almost count on one hand the number of people around who have been refining a global economic and political view for nearly half a century.
I also said I really loved their key lime pie and pecan pralines.
It was one of those non-stop days. After a scant four hours of sleep I was up at 7:00 AM for breakfast, delivered a 90 minute keynote speech at 8:00, and followed that up with a Global Strategy Luncheon with some of my oldest most loyal and newly enriched readers.
One made more than the 68% last year following my Trade Alerts. Then I hauled my lunch guests back into the conference to listen to me participate in a panel discussion.
I ended the day meeting with my own national staff in my greatly upsized suite, who flew in from around the country. Mad Day Trader Jim Parker was happy to flee Chicago for a day. Nancy of operations was there as fresh faced as always, as was Doug the Web developer, who we are now calling ?the lumberjack,? since he has a beard and lives in the middle of nowhere in remote Vermont.
We devised a series of new groundbreaking products, which you will be hearing about shortly. Such is life on the cutting edge of online financial education. Oh, and prices are going up too, as befits our industry beating performance.
I caught an early dinner with an old hedge fund buddy from Tampa, discussing the current state of the world. Then it was back to the hotel for an extended drinking session with the staff, who are indispensable in helping me run my global media empire.
No rest for the wicked.
By the way, I am writing all this to you from first class seat 2C on Virgin America flight VX 305, nonstop from Orlando to San Francisco. It is a perfect day, and we have just crossed the vast expanse of the ?Big Muddy,? Mark Twain?s home waters, known to you all as the Mississippi River.
I mentioned to the pilot that with my frequent flier points and platinum status the crew should have lined up and saluted when I came on board. They laughed. Then I asked if he noticed the old Strategic Air Command B-52 bomber at the airport entrance.
He said he did, and that he had worked on the birds as a senior tech in the old days, charged with arming the nuclear warheads on the cruise missiles. He was amazed when I told him the Germans designed the Stratofortress during WWII so they could bomb New York.
They never built it, but the Americans did when they found the plans at the end of the war. Out of the original fleet of 500, 75 still fly, and the Air Force intends to keep flying them until 2050, when they will be 100 years old. No kidding. A lot of Air Force pilots still say it was the best plane ever designed.
Got to love Boeing Aircraft (BA). Made in the USA.
I recounted my own stories of flying on nuclear armed missions from Anderson Air Force Base on Guam in the Pacific to North Korea, only to turn around ten minutes before we entered their air space.
We did this every Monday-Thursday, dropped conventional 500 pound bombs at a Western Australian missile range on Fridays, and took the weekends off to drink beer on pristine Tauragi beech, mindful of the armed Japanese soldiers still lurking in the jungle nearby. This was 1973.
There were no windows for the ten-hour flight. Even the front windshield carried removable steel blast shields. Good thing they always carried a spare coffee maker.
The message to the Kim Il-sung regime was clear. Be nice, or we fly the extra ten minutes. President Teddy Roosevelt (I met his oldest daughter Alice, no kidding, again!), wisely called this ?walking softly, but carrying a big stick.? Well, maybe not so softly.
The flight out was uneventful. I noticed that the older passenger next to me was wearing an $8,000 Brioni jacket identical to mine, so I complimented him on his taste in clothing. He turned out to be the head of the Neurology Department at the University of Arizona Medical School, so we spent three hours discussing the ins and outs of Obamacare. It turned a long flight into a short flight.
Bottom line? It?s going to work, give the health care industry a long overdue shake up, unleash free market competition, and improve the quality of care for all, while reducing the costs. But it may take a decade to work out the kinks. Expect a lot of disruption until then.
I added that it was also creating the investment opportunity of the decade. He said ?Oh?? and I gave him a handful of ticker symbols Gilead Sciences (GILD), the iShares Biotech ETF (IBB), Pfizer (PFE), and HCA Holdings (HCA). These doctors, so smart, yet so useless when it comes to managing their own money.
I asked if these views were controversial in ultra red state Arizona, and he said ?yes.? But at a certain point, people of all political persuasions just want the facts so they can get on with their lives. So true, so true.
We then talked about what a great guy Barry Goldwater was (another bomber pilot, B-25?s), and how his political career was ended by an unfair Johnson smear campaign (the little girl counting down the petals of a flower until a hydrogen bomb went off in the background).
Some things never change.
As is my way, I then convinced him to give me a complete physical while remaining in my seat. Was hiking 2,000 miles a year in the mountains with a 60 pound pack killing me? Was it doing more damage to my poor aging body than it was worth?
He gave me the once over. At 45 beats a minute, I had the resting heart rate of a teenaged Olympic athlete. My blood pressure at 110/70 was fabulous. Even the big toe that I froze in a high altitude blizzard last winter and was still black would get better (?That toenail really looks like it wants to come off?) (the other first class passengers are now looking over curiously). The knees would get better over my summer break. He said whatever I was doing, I should keep doing it.
It looks like I will be around for a while.
The passenger in the other seat next to me was a stunning 6?1? blonde from Atlanta. After Stacy read my website through the onboard Wi-Fi, she handed me her business card with her cell number scratched on the back.
I?m not the player I was in decades past, but it is still nice to get this kind of attention when you are Social Security age. Now I know why they call them Southern Belles.
We just crossed the snow covered High Sierras and have begun our descent into San Francisco. It?s time to fold up my laptop and fasten my seatbelt.
I?m sorry, this is turning into a bit of a ramble, but it is a long flight. This is my life, a never-ending series of utterly fascinating conversations about everything with everybody. It seems there is now a shapely brunette in the seat behind me who also wants my business card.
See you at my weekly Global Strategy webinar on Wednesday.
Wink. Wink.
