Mad Hedge Biotech and Healthcare Letter
May 4, 2022
Fiat Lux
Featured Trade:
(A PICK AND SHOVELS BUSINESS POISED TO EXPLODE)
(TMO), (CRSP), (MRNA), (BNTX), (A), (DHR), (ILMN)
Posts
There’s never a wrong time to begin investing. In 2021, the markets generated positive buzz when things started to heat up again.
That same optimism has recently transformed into bearishness following the decline in share prices.
Nevertheless, there’s still good news.
Given the lower valuations, investors can now get more bang for their buck.
In the past two years, we’ve experienced so many unprecedented events. Among the most heavily affected by the pandemic is the life sciences sector.
One of the biggest names in this field is Thermo Fisher Scientific (TMO).
With a market capitalization of roughly $200 billion, it’s no longer accurate to describe this as an under-the-radar company. TMO has received minimal fanfare among investors despite its massive size for decades.
A key reason for this is its lowkey steady execution of a well-established or tried-and-tested strategy.
Although it lacks the pizzazz of more exciting companies these days like CRISPR Therapeutics (CRSP), Moderna (MRNA), and BioNTech (BNTX), TMO has rewarded its investors with substantial returns.
Over the last 40 years, TMO has recorded an annual growth rate of 16.5%, hitting a 27,000% return in total by 2021.
In fact, TMO came off a strong 2021.
Its sales grew by 22% from 2020 to report $39.2 billion. While acquisitions played significant roles in the company’s growth, the 17% organic revenue growth of TMO served as its primary growth driver behind its solid numbers in 2021.
Even its COVID-19-related sales, particularly its testing products, contributed to reach $9.2 billion.
Looking at TMO’s business model, it’s evident that the company offers investors great exposure to the entire healthcare field via a single investment only.
That is, TMO is a broad business. It covers practically all life sciences solutions, analytical tools, specialty diagnostics, lab items, and even clinical, biotechnology, and pharmaceutical services.
Spanning the entire industry, such portfolio of products and services allow TMO to confidently go toe-to-toe against industry heavyweights like Agilent Technologies (A), Danaher (DHR), and Illumina (ILMN).
Actually, all of its segments grew last year, with TMO showing off quicker revenue increases than its competitors in the previous five years.
Hence, it is no surprise that TMO expects its numbers to climb in 2022. For this year, the company’s projected revenue is estimated to rise by at least 7% to reach $42 billion.
TMO strategically leveraged more significant acquisitions to build its diverse and deep portfolio today.
In 2011, the company spent $3.5 billion to buy Sweden’s blood-testing firm Phadia and cleverly maneuvered a relatively cheap deal to also grab chromatography company Dionex for only $2.1 billion.
In 2013, TMO bought a fast-growing genetic testing company called Life Tech for $13.6 billion.
At that time, Life Tech was the leader in this field and already possessed the technology to become a front-runner in the personalized medicine space.
In 2016, it shelled out $4.2 billion for electron microscopy company FEI and dropped another $7.2 billion in 2017 to buy pharmaceutical contract manufacturer Patheon.
To date, TMO’s most substantial deal is its $17.4 billion acquisition of contract research business Wilmington’s PPD.
This particular deal created a gateway between the biopharma giant and other drug developers, with TMO boosting its services segment focused on its biotechnology and pharmaceutical clients.
Between 2019 and 2021, the pharmaceutical and biotechnology market has experienced a promising over 20% growth.
This field is expected to grow to an additional $20 billion in 2022, following the growing interest in the industry in this post-pandemic era.
There is another emerging sector within the pharmaceutical and biotechnology market: the precision medicine and gene sequencing field.
Taking into consideration the growing demand for the products and services from this space, this market is estimated to reach roughly $1.6 trillion by 2030.
This makes TMO’s PPD acquisition timely, as it would allow the company to gain a bigger market share and expand its reach across the globe.
Furthermore, the previous acquisitions would bolster the company’s hold on the current market and ensure its position as a first-mover in potential groundbreaking innovations in the biotech and pharma sector.
Considering its expansion strategies and growth history, TMO doesn’t seem to be stopping anytime soon.
While the environment for mergers and acquisitions did become a bit more restrictive these days, there are still several potential buyout targets that could deliver favorable returns. So, we might hear about another TMO-linked acquisition sometime soon.
Overall, TMO is a healthcare stock offering robust and stable growth and a promising future regardless of economic downturns.
Moreover, its pick-and-shovels play makes it an excellent stock that looks poised to sustain its momentum and is well-positioned for global expansion. Hence, it would be wise to buy the dip.
Mad Hedge Biotech and Healthcare Letter
March 22, 2022
Fiat Lux
Featured Trade:
(THE 800-POUND GORILLA IN THE GENE-SEQUENCING SECTOR)
(ILMN), (A), (TMO), (MRK), (RHHBY)
I’m a huge fan of the "razor and blades" business strategy, where the pricing and marketing model is designed to generate recurring, dependable income by ensuring that a customer is locked in onto a product or service for a long time.
The COVID-19 pandemic underscored the significance of DNA sequencing in improving and monitoring global health.
Thanks to DNA sequencing, we were able to identify the novel coronavirus and eventually developed vaccines and PCR-based tests. This also played a crucial role in detecting new strains and even transmission tracking.
To date, the top name in the DNA sequencing community is Illumina (ILMN).
In terms of competitors, the closest to Illumina’s dominance are Agilent Technologies (A) and Thermo Fisher Scientific (TMO). However, neither have developed their platforms enough to be directly comparable to Illumina.
Illumina has a notable installed base comprising approximately 20,000 machines owned by roughly 7,300 clients.
With the rising popularity of DNA sequencing, the demand for the company’s installation base is estimated to continue growing and along with it is the sale of consumables.
This is where the razor and blades business model comes in.
The consumables form a major part of Illumina’s strategy, with the instruments serving as “razors” and consumables as “blades.”
The cost of instruments can fall within the range of $20,000 to $1 million and are essential elements of expanding the company’s portfolio and locking in clients into long-term commitments.
Consumables typically represent 50% or more of the revenue of any DNA sequencing company. For Illumina, the number climbs to 80%.
Considering that the consumables also need repairs, this segment is expected to continue generating profits in services and contracts.
Evidently, 80% recurring revenue is highly indicative of a rock-solid business.
While the business model isn’t unique to Illumina, the company has attracted attention in Wall Street due to its exponential growth over the past years.
In the last five years, Illumina has practically doubled its revenue. During the COVID-induced economic slowdown, the company quickly recovered from a brief slump and accelerated its revenue growth at an even faster pace.
In the fourth quarter report for 2021, Illumina reported about $1.9 billion in revenue or an impressive 25% increase year-over-year.
As for 2022, the company is conservatively anticipating a 14% to 16% growth in its revenue.
Another step towards securing dominance in this field is Illumina’s decision to launch the TruSight Oncology Comprehensive test in Europe.
This is basically a cancer test that uses a single tissue sample to test for a broad range of tumor genes and biomarkers.
The goal is to create a “tumor profile” of patients with rare conditions to find a matching treatment option via precision technology. This doesn’t only cover available cancer therapies in the market but also clinical trials.
While this test focuses on the oncology sector, Illumina and its competitors are presumably working on more sophisticated genetic profile-based diagnostic tools for other conditions.
Although this has yet to be launched on a larger scale, Illumina is reported to seek collaborations with leading oncology treatment providers like Merck (MRK), Bayer (BAYN), and Roche (RHHBY).
Illumina has invested in seven new startups to further expand its pipeline: 4SR Biosciences; B4X; Cache DNA; CRISP-HR Therapeutics; NonExomics; Purpose Health; and Rethink Bio.
These focus on breakthrough therapies, DNA storage, mental wellness, sustainable food, and diagnostics.
Illumina has invested in 68 startups to date. This is a brilliant scheme to continue company growth and pipeline expansion for decades.
The DNA sequencing market was valued at $6.243 million in 2017 and is projected to hit $25.470 million by 2025.
Illumina’s remarkable execution of the razor and blades model, strong profit margins, and proactive profitability initiatives catapulted it to the top of the DNA sequencing sector.
Needless to say, Illumina is the 800-pound gorilla in the gene-sequencing sector—a dominance that is expected to go on for years.
Mad Hedge Biotech & Healthcare Letter
July 8, 2021
Fiat Lux
FEATURED TRADE:
(TURNING THE BIOHACKERS’ DREAM TO REALITY)
(NEO), (AZN), (GSK), (ABBV), (ILMN), (TMO), (TXG), (BLUE), (CRSP), (EDIT)
There is a huge possibility that the first person to ever live to a thousand years old has been born in our lifetime.
That’s according to experts on life longevity. They also say that sooner rather than later, we’ll simply be checking ourselves into hospitals or clinics once every decade.
Pretty much how you’d bring your car in for a service, that’s how we’ll keep our bodies working at peak condition for centuries.
As far-fetched as it sounds, it’s undeniable that dreams of achieving immortality are as old as mankind itself.
One of the leading experts on this is the Human Longevity, Inc., which has leading genomics expert J. Craig Venter and billionaire Peter Diamandis as its founders.
Although it’s still not yet a publicly-traded company, Human Longevity, Inc. has been collaborating with cancer diagnostics firm Neogenomics (NEO).
Admittedly, NEO’s $5.32 billion market capitalization doesn’t really boost that much confidence in this company.
However, Human Longevity’s work with a Big Pharma company like AstraZeneca (AZN), which holds a market cap of $158.14 billion, definitely backs up its claims.
Moreover, AstraZeneca and Human Longevity are already halfway through their 10-year agreement that dates back to 2016.
Basically, what Human Longevity does is sequence an individual’s DNA and combine the information with an extensive list of tests to figure out how long that person will live and what steps can be taken to extend his or her life.
More impressively, the company can use the data to predict a budding disease, such as cancer, even before it exhibits symptoms.
And how much will that cost you?
Right now, the company is charging $25,000 for a comprehensive set of tests and a full profile.
In the end, you’d be given medical information about yourself that amounts to roughly 1 petabyte. For context, that’s 1,000 terabytes or 1 million GB worth of data.
While the cost is definitely high, it’s a good preventive measure to consider if you can spare the cash.
This is because the company can detect the slightest hint of diseases, which are typically at their most treatable phase.
Since the company is founded on the belief that we are all “DNA software-driven species,” it can also determine the disease-producing genes in our systems and use them as “pharmaceutical targets, so that people with those genetic changes don’t die.”
Aside from Human Longevity, another company working on this nice is called Life Biosciences, which was founded in 2017.
Since its launch, Life Biosciences has been acquiring companies left and right to boost its pipelines.
So far, it has at least 6 subsidiaries focused on developing treatments to fight the human aging process.
What makes Life Biosciences different is that it doesn’t focus on the leading causes of death, such as cardiovascular diseases or cancer.
Instead, it tries to figure out what are the underlying causes of the body’s aging. This includes stem cell exhaustion, cellular senescence, chromosomal instability, and even our metabolism.
At their core, Life Biosciences’ belief is that aging itself should not be considered a natural biological result of the passage of time.
Rather, it should be understood as a medical condition—the kind that can be treated in the same way we’d try to find medications or cures for diseases.
While Life Biosciences’ work has yet to earn any FDA approval, the involvement of GlaxoSmithKline (GSK) in its aging research seems to boost confidence in the company’s work.
Apart from GSK, a number of tech billionaires have expressly backed these efforts in the anti-aging field.
The most visible ones include Calico, which is backed by Google and AbbVie (ABBV), and Unity Biotechnology, supported by Jeff Bezos.
While Human Longevity and Life Biosciences have yet to go on IPO, there are already companies working on fields related to life longevity.
The first names that come to mind are the frontrunners of the genome sequencing market, such as Illumina (ILMN), Thermo Fisher Scientific (TMO), and 10x Genomics (TXG).
Smaller companies in this field include bluebird Bio (BLUE), CRISPR Therapeutics (CRSP), and Editas Medicine (EDIT).
Inasmuch as this is difficult to grasp at this stage, there is a massive market for this industry. In fact, the global longevity segment is projected to reach $27 trillion in 2026, which accounts for roughly 20% of the global GDP.
Meanwhile, the global market for human aging is estimated to reach at least $55 billion by 2023.
And those are just conservative estimates.
Making the public accept the idea behind longevity science has not been easy. Even with Big Pharma names backing these innovative companies, people are still wary of the concept.
After all, surveys show that most people would refuse medical treatments to slow their aging and allow them to live up to 120 or older. It’s not surprising why.
Those respondents probably witnessed how their older grandparents and parents spent their final years in pain and were subjected to invasive medical procedures. That makes the entire idea of living so long horrific to them.
However, the future imagined by these companies is different. Through their research, people can live long and still enjoy active and healthy lifestyles.
At this point, the longevity science space remains a playground dominated by a handful of transhumanists and even biohackers.
Nonetheless, the entry of the most respected researchers and the support from the biggest biopharmaceutical companies across the globe give hope that the promises the industry holds will become a reality soon.
Mad Hedge Biotech & Healthcare Letter
March 11, 2021
Fiat Lux
FEATURED TRADE:
(THE TESLA STOCK OF GENETIC TESTING)
(NVTA), (CRSP), (TDOC), (RHHBY), (ILMN), (ABT), (DGX), (ROKU), (SQ), (SHOP), (TSLA)
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.
Followers of the Mad Hedge Fund Trader Alert Service have the good fortune to own TEN deep in-the-money options positions, all of which are profitable. Six of these expire in six trading days on Friday, January 15, and I just want to explain to the newbies how to best maximize their profits.
These involve the following:
(TLT) 1/$164-$167 put spread
(TSLA) 1/$430-$460 call spread
(TSLA) 1/$570-$600 call spread
(WPM) 1/$39-$41 call spread
(GOLD) 1/$21-$23 call spread
(TSLA) 1/$830-$860 put spread
Provided that we don’t have a huge selloff in gold, silver, or Tesla, or monster rallies in bonds or Tesla, all six of these positions will expire at their maximum profit point.
So far, so good.
The storming of Capital hill on Wednesday worked to the benefit of every one of these positions. Gold and silver took off, bonds stabilized, and Tesla ceased its heroic rally.
I’ll do the math for you on our oldest and least liquid position, the Tesla January 15 $430-$460 call spread, which I initiated on December 10, 2020 and will definitely run into expiration. At the Wednesday high, it was an astonishing $315, or 68.47%, in-the-money.
This is the biggest one-month stock gain I have seen in one of my positions in the 13-year history of this service.
Your profit can be calculated as follows:
Profit: $30.00 expiration value - $25.00 cost = $5.00 net profit
(4 contracts X 100 contracts per option X $5.00 profit per options)
= $2,000 or 20% in 18 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning January 18 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday January 15. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
If for some reason your short position in your spread gets “called away,” don’t worry. Just call your broker and instruct them to exercise your long option position to cover your short option position. That gets you out of your position a few days early at your maximum profit point.
If your broker tells you to sell your remaining long and cover your short separately in the market, don’t. That makes money for your broker, but not you. Do what I say, and then fire your broker and close your account because they are giving you terrible advice. I’ve seen this happen many times among my followers.
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade
Mad Hedge Biotech & Healthcare Letter
December 31, 2020
Fiat Lux
FEATURED TRADE:
(MONOPOLY IS THE NAME OF THE GAME)
(VRTX), (CRSP), (ILMN), (BLUE)
