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RECAP OF LAST WEEK AND RESULTS:
MindMed: This stock lowered to around an average of $3.40 a share, and flattened out. Currently this company stock price is trying to find its value and should remain volatile. Try to look for dips in the price, this stock is a one of a kind where it is opening a new door into the biopharmacy market.
Palantir: PLTR dropped from $23 to $20 a share and is starting to become an attractive entry point with the all time highs being $45 a share. Earnings this week May 11th before the market opening.
IN THIS ISSUE
Firesale, market overreaction, and some new information we think is important to the companies.
Some cryptocurrencies we believe could have more upside and have value.
Aurinia Pharmaceuticals: AUPH
This company recently was approved by the FDA on Friday, January 22 for a novel drug that helps treat Lupus Nephritis (LN). LN comes from patients who suffer from Systemic Lupus Erythematosus (SLE). This company is in the initial stages of the drug launch. They reported their first quarter on May 6th aftermarket close. The stock suffered large losses because the revenue they received in the first 48 days of their launch was $930,000. Estimates from analysts predictions ranged from $400,000-3.75 Million. We think the large drop in the share price of over -15% ($12.30 to $10.30 a share) was a large overreaction and fear that the company would not succeed in profitability. We think it is important to listen to the CEO and their reassurances. During Aurinia’s earning report conference call the CEO, Peter Greenleaf, mentioned there were 80,000 to 100,000 potential patients annually in the US. The commercial launch Chairman Max Colao stated that his sales team of 160+ has met with over 6,000 physicians which is half of the total estimated physicians that could prescribe their drug Lupkynis. The cash burn for the 1st quarter was $53.5 Million which was much higher than anticipated by investors. The previous quarter was $22.6 Million. As of today, Aurinia has $360 Million in cash and near zero debt. This increase in cash burn is because of the cost of the upfront commercialization expenses and a large one time payment to Lonzo for manufacturing their drug. We have digested the news and conference call and have some reasons why we think that the stock fell and then we also have some reasons why this is an overreaction and an absolute firesale.
Potential reasons the stock fell:
Peter mentioned they believe they were on track with their internal expectations multiple times. This is something he has repeated in multiple interfaces with investors. We think there may have been some skeptics since the internal metrics of the company have not been shared. We do think the company needs to have more transparency in their own goals so investors can have confidence to stay invested. We think there were a few reasons investors sold off shares. If they would share the internal metrics, this would help ease investors worries about them misleading the narrative that they present. We do believe Aurinia has integrity but these small actions can sometimes make investors uneasy about holding shares.
CEO Peter Greenleaf, Chief Commercial Officer Max Colao (left to right)
Investor expectations of the prescription numbers were much higher than what Aurinia presented. They also seemed to hide the actual prescription (scripts) numbers by leading with 250 start forms in their initial release of their earnings report. They then stated that 40% of those were converted which is a little over 100 scripts. We think there may have been some confusion on how long they had to sell this drug which caused the drop. Instead of having a full 3 months, they had 48 days from approval to start their launch. If you think about how fast they made the drug and distributed it to their patients, this should give you some relief on their ability to execute on the manufacturing and distribution side.
Lastly, the unexpected cash burn may have scared investors from holding. They projected a runway with the cash on hand until 2023. However, this $53.5 Million cash burn if projected in the future could reduce their runway before they start having cash flow worries. They must show in their next earnings that they can stay solvent for the future. We think that their next earnings will be the final chance for Aurinia to prove their business.
Reasons for firesale and potential upside sooner than later:
Buyout: It is not a secret now that there are rumours of larger biopharma looking to acquire Aurinia Pharmaceuticals. A credible source from Bloomberg and the UK times speculated that Glaxosmithkline and Astrazeneca are looking at Aurinia. We think currently this company is being bidded for. We think think there are companies such as Merck & Co. and Biogen Inc are looking to try to buy them as well. We believe this will increase the buyout numbers to larger amounts in the range from $6 to 9 billion. Which in turn helps Aurinia shareholders if they are bought out. We think the winner of this bidding war will be Glaxosmithkline (GSK). The reason is that GSK has Benlysta which is a competing drug of Lupkynis. If they were to attain Aurinia and their intellectual property, they would own the monopoly in the whole lupus nephritis market, which as stated above is 80,000 to 100,000 people a year.
Peter Greenleaf has hinted at new indications for their proprietary drug voclosporin: They are soon to announce new possible indications in new medical markets. Greenleaf mentioned that they would announce indications for glucose and lipids. We are speculating what this means is that this could be used to help in treatment for type 1 & 2 diabetes. Glucose is something that is controlled by the pancreas and there could be some sort of correlation to the immunosuppressive properties which would help in the autoimmune disease of diabetes. This is a large market. For the indication in lipids, we are thinking that this has some potential for fatty liver disease (NASH & NFALD). As this type of calcium neuron inhibitor is used in liver transplants, we think that there could be some sort of connections between the fats (lipids) in the liver and the correlation to help treat NASH and NAFLD. Link to a source for more about this NASH. We believe it is what Aurinia will primarily try to treat. This is a 20 Billion market by 2027. Could be a potential reason why they are taking awhile to be bought out is because they want to increase their valuation with this news.
The chance of Lupkynis becoming the standard of care for Lupus Nephritis is high: Even with the current headwinds of being a small biotech, the company has shown the science of this oral medication that it is the most effective medication for helping patients on the market. It has double the effectivity and has double the speed to treat patients relative to the standard of care. This will help increase the speed of which patients can recover and keep them off of a very expensive dialysis. Lupkynis has a better safety profile from their studies than any of the other current competing drugs. We think effectiveness of the drug and the lupus community will have a large impact on it becoming the standard of care. Aurinia is working on creating a very helpful community surrounding lupus nephritis and that will help get them into the standard of care which has been stated as their mission from the beginning. We are waiting on peer review journal articles to be published to help it appear like a better choice for the physicians prescribing it. A major journal the Lancet was just published on May 7th is here.
There is a cost effectiveness case built around this drug and insurance companies are eating it up. They have covered over 100 Million lives in the US in 48 days. An independent review board (ICER) and doctors alike have said that this will benefit the whole community in whole due to the benefits of the drug and the cost of the medication.
Price hit its low during the COVID stock crash. Looking to rebound and move back up. Also buyout is in the midst, and could on merger news launch the stock price to $45-72 a share.
Current Price: $10.19
One Month Target: $12.25
One Year Target: $28
Two Year Target: $40
This stock is on a firesale in our opinion.
We wanted to take a look at something that is becoming all the hype lately. We aren't going to cover a specific currency or coin exactly, but cover the market and the strategies we are taking with this side of investing.
Now let's look at what exactly cryptocurrency is and how it can be used. “Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.” The more uses usually means greater value in the currency.
How do they work?
“Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.”
We are currently invested into:
While we won't go into detail on these this week, we would like to shine a spotlight on Ethereum which is the cryptocurrency with the most potential in our opinions. ETH has gone from $1,949.34 to $3,520.47 in the past month. Personally we recommend Coinbase just because of the security it offers, however there is a decent fee per transaction. Kraken and Etoro are also good options for buying crypto currency.
Now with any sort of new concept like this, there is a higher risk for a crash across the board for cryptocurrencies. Several analysts and experts have predicted a large crash coming within the next 6-12 months. We are going to recommend two approaches to this: One, invest into cryptos that will have and hold value like ETH, BTC, and LINK. Hold them until about mid September and then reduce your position size slowly anticipating the likely crash, then buy back into the valuable crypto's. Option two, wait until after the likely crash and then buy up the cryptos you see potential in.
We see cryptos having a lot of room to run ahead of the potential crash with more companies actually accepting coins/tokens as payment for services makes them more appealing. With any sort of investment we recommend researching it before investing. However, we do see a good upside in this sector.
All stocks talked about we have invested in, and do not intend to give advice nor recommend acting upon the information.
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Until next week,
and the Optifinancial Team
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