Stocks to watch

The Internet of Things (IoT) can be explained as a way to connect everyday appliances like homes, industrial equipment, watches, etc to the internet, for the purpose of tracking usage, collecting data and automating systems. The IoT connectivity is expected to hit 50 billion objects by 2020 with $7.1T valuation by that same year.

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Current use of IoT in the companies:
Company                                      IoT Focus
Apple                                          Smart watches
Alphabet                                    Smartwatches, Nest, Andriod Things, Google Home, Google                                                         cloud IoT services, Weave platform
General Electric                        Predix software, Asset Performance management software,                                                       IoT security monitoring and Brilliant Manaufacturing                                                                 software.
Verizon Communications       Smart city connections, ThingsSpace platform, asset                                                                     tracking and management, smart device monitoring, 5G                                                             wireless

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The impact of IoT is not limited to a particular sector, as there are telecom companies already building Internet of Things networks that are designed specifically to bring low-power devices online. Tech firms pushing for virtual assistants that are helping to connect IoT devices to each other and car makers are pushing for driveless cars with help me small IoT comopanies to make their plans into reality.

Worldwide spending on IoT is predicted to reach $1.4T by 2021, according to IDC (the Motley Fool, LLC)

Companies likes Amazon (NASDAQ: AMZN), Skyworks Solutions (NASDAQ: SWKS) and Verizon Coomunications (NYSE: VZ) are already making big investments in the IoT spcae, with aim to gain benefits for years to come.

Best Stocks in IoT 2018

Verizon Communication: The connectivity play

With being positioned as the nation’s leading wireless service provider, the company has made a couple of strategic IoT acquisitions over the past several years, including Fleetmatics and Telogiz. these takeovers helped Verizon boost its telematics business (connecting cars and fleets to the internet), which generated $220 million in the Q3 2017 & grew 13% y/y. Despite the fact that telemetics numbers seems far less than other revenue streams Verizon has, but the telemetics market is expected to grow into an $18.4B industry by 2022, with Verizon has an early lead in the space. Apart from telemetics, Verizon is expanding its IoT presence through its LTE Cat-M1 network- this is specifically designed for IoT devices and the development of its 5G network. The LTE Cat-M1 network was the first of kind to launch in U.S. last year, and it gives the company the option to sell cellular connectivity for low-power, low-bandwidth devices, from water meters to wearable tech devices for consumers.

And Verizon is also conducting more tests of its 5G wireless network, which will be used to connect more IoT devices and could be used to navigate telematics space. And investors should take notice of Verizon’s annoucement to lauch 5G network in the selected cities this year, allowing them to have a kick start in this space.

Amazon: The IoT cloud and device play

Amazon has entered the race through its latest product; Echo devices, powered by the voice assistant Alexa. Echo devices account for about 70% of the smart speaker market right now, and there is plenty of evidence indicating that 2018 will bring more growth for sales of such devices as RBC Capital is already estimating that Echo devices could add atleast $10B to Amazon’s top line by 2020. But Amazon is not only solely focused on smart speakers (Echo) but also keen on extending IoT through Amazon Web Services- its cloud computing segment, which is on the forefront of this space as well, suggested by the data that Amazon is already a cloud computing leader with 40% of the market.

The underrated company within IoT: Skyworks Solutions 

Skyworks is a chipmaker that used to only focus on selling its products/components to large mobile device manufacturers like Apple and Samsung. But the company expanded into IoT components that connects cars to the internet. The company is banking on the fact that more semi-autonomous driving components are being added to the vehicles, and that automakers and tech companies will rely on wireless connections to update the software that controls them. For instance, Tesla, already sends over-the-aire updates to its vehicles. Skyworks, IoT chips can already be found in Amazon’s Echos, Hyundia’s connected cehicles, and smart-home lighting technology by Cisco Systems.
Quickly breaking down Skyworks revenue segments, it earns around 26% of its top line from non-mobile revenue, with 22% y/y growth in recent quarter. Skyworks has already proven that it can be a primary supplier for major tech and automotive companies, which should put company in a great position once market starts to adapt more IoT devices and connected vehicles hit the market.

 

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Investment strategy: Go Long

While Amazon, Skyworks and Verizon are in great position to reap the IoT space benefits, investors should understand that they need to play the long-game in this market. For instance, Verizon will roll out 5G network slowly, and its telematics business will take time to grow. Skyworks is earning significant revenue from its IoT components, but it still relies mostly on its chips sales for mobile phones. And Amazon is acting rapidly within its IoT devices and AWS IoT services, but its other AWS services provide majority of the company’s profit.

Strategic Tech Opportunity: SNAP & ETF

As we all know, Snap Inc. (NYSE: SNAP) hype train is gone and many never bought into it. Despite the fall, the app developer behind Snapchat instant-messaging service did well early upon going public this month, as it sold 145 million shares at $17 per share (Leading investment banks such as Goldman Sachs and Morgan Stanley suggested that Snapchat could have kept the offer price higher, as order book ratio was 10-to-1) during its IPO and raised nearly $2.5 billion. Following the IPO execution, price surged 44% on Day 1, followed by bopped around uncertainty for the past weeks and backslide has yet to fully develop.

But the attention Snap is drawing with its high profile IPO, does nothing to change its iffy business model or finances – its 2016 net loss was north of $500 million, despite improving revenue. And many core analysts believe that it will be difficult for Snapchat to engage users for long period of time when comparing its social platform with Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR). Plus, Snapchat could also find it difficult to attract advertisers, as compare to heavyweights like Google (NASDAQ: GOOGL), Youtube and Facebook.

However, on the flipside, Snap is taking early steps not only to unlock new growth but also to diversify its revenue streams with camera-equipped spectacles sunglasses. This approach could pave the way for entry into the VR space that Facebook (FB), Microsoft (MSFT) and Sony (SNE) have shown to be potentially revolutionary.

Therefore, despite bumpy start for Snap Inc. (NYSE:SNAP), many analyst who are part of banks that work on SNAP IPO believes it could still soar as 13 initiated research coverage with nine on BUY recommendations and four on HOLD along with price target of $24 to $31. While, of the 14 analysts whose firms didn’t work on the Snapchat IPO, only two suggested that the company’s stock was worth buying with median price target at $21 a share.

That’s why suggestion would best to start looking at the First Trust U.S. Equity Opportunities ETF (NYSE: FPX), which tracks the IPO market by seeking to replicate the IPOX-100 U.S. Index. And it picked up shares of Snap at its IPO.

So if one got in on FPX, the upside and excitement of Snap’s IPO is already part of the investor’s portfolio – without the risk and volatility of buying Snap outright.

Numerous private tech companies – including some can’t-miss outfits -have filed to go public this year. It’s largely not because of consumer-focused Snap’s success.  It’s because these companies are selling their products and services to businesses.

And the appetite from Corporate America for these B2B-focused firms is soaring.

The massive – if overshadowed by Snap – success of the recent MuleSoft Inc. (NYSE: MULE) IPO shows this. The software firm also gained more than 40% in its first day.

FPX is a nice way to be part of the pre-IPO world. As it’s an ETF that every tech investor should consider holding for a long time.

Why Invest In The Water Industry

• Starting point can easily be that Water is the commodity which will never be obsolete due to its form factor and how it is being consumed unlike oil & electricity industry.
• After doing a rough research to lay down foundation for further investment thesis on the water industry, the best position would be to focus on household names within this industry because it is seen that despite water industry holding such an essential role in our economics, they are less covered by advertisers or discussed in news outlets compare to Apple or Google. Thus, making it difficult for new investor to locate these stocks for its portfolio.
• American Water Works (NYSE: AWK) and Aqua America (NYSE:WTR), which are the two biggest water utility companies in the U.S

The water and wastewater industry is the nation’s most fragmented utility industry. The great majority of the U.S. population is served by municipal drinking water and wastewater systems. Approximately 53,000 water systems and more than 16,000 wastewater systems exist in the country. Even though roughly half of the drinking water systems are privately owned, they serve only about 15 percent of the population. Approximately 20 percent of the wastewater systems are privately owned, but they serve only about 3 percent of the population. More stringent regulations from federal and state environmental regulators, and the capital needed to meet such standards on the part of many system owners, as well as the monetizing of public assets to support the financial condition of municipalities, are among the factors that might drive consolidation. The U.S. Environmental Protection Agency has estimated that an investment of $335 billion is needed for required improvements to the nation’s aging water infrastructure over the next 20 years. While the American Society of Civil Engineers has estimated that $298 billion is needed to improve the nation’s wastewater infrastructure.

In nutshell from Aqua water’s statement (above), we can conclude that market outlook looks to have enough potential for expansion since the companies in the industry can look to expand water services to more residential and commercial regions along with scoring contracts with public authority to manage water and replace outdated wastewater system.

AQUA AMERICA (NYSE: WTR)

• Founded back in 1886, is the publicly traded holding company for regulated water and wastewater utilities that serve approximately 3 million people and growing with their growth strategy
• Region covering: Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana and Virginia
• Company completed more than 200 acquisitions of utility systems in the last 10 years
• Services provided include repair, inspects, clean waterline and sanitary wastewater lines.
• Supports municipal authorities as well as regular households

From reviewing the financial statements, it is clear that WTR has been steadily increasing revenue for the past 10 years. Most notably aspect is the increase in debt from their annual reports. According to the company, they are using the debts to obtain more water and wastewater systems as followed by their growth-through-acquisition strategy.

AQUA AMERICA’s GROWTH STRATEGY:

“Aqua looks to capitalize on its core capabilities, which include prudently investing in infrastructure, consistently earning credibility with our stakeholders and maintaining our status as one of the most efficient utilities in the nation. This strategy directly and positively impacts the communities we serve. Our employees’ expertise and the company’s financial strength allow us to prudently analyze and competitively bid for utility systems, especially those that have neglected to invest in infrastructure over time. The company has completed more than 250 utility system acquisitions in the last 15 years. In 2015, Aqua’s growth-through-acquisition strategy yielded the largest customer growth rate seen since 2008. The company’s successful growth initiatives included four municipal acquisitions, which contributed to a 1.9 percent customer base increase. A 1.5 to 2 percent increase is anticipated by year-end 2016. In 2015, Aqua invested approximately $365 million to improve its infrastructure systems. The company expects to invest more than $350 million in 2016 and more than $1.1 billion through 2018.”

Reasons to Invest:

Here are few reasons for investors to consider before including WTR to their portfolio:

• Water: it’s a commodity that will never be obsolete and there are no replacements for water in form factor compared to electricity or oil or other type of energy for consumption usage.
• Climate Changes: Rain has been falling less in several regions in the U.S and due to that new innovations will be required to move water to water deprived states.
• Dividend Power: WTR has increased their dividend for 26^th time in 25 year and 2016 marked the 71^st consecutive year of paying a quarterly dividend. This sits well with current shareholders.
• Stock Performance: WTR has outperformed the S&P 500 since IPO execution in early 1980s.
• Growth Potential: Projected growth rate for the next 5 years is 5.25% which is better than several other utilities companies, which falls in the average growth rate of 4.2%
• Market Capture: WTR has a huge market according to the chat below, they have potential to expand operations by penetrating in drought stricken states such as California & Southern States.
• Marco Impact: Water utility companies are recession proof because even doing market turmoil, people will need to consume/use water.

 

 

Risk Profile:

• Sole Growth driver: WTR drives growth through acquisitions and upgrades; this is a potential risk because having only one source of growth going forward could mean company may face difficulties in growing if debt gets expensive or no cash to acquire small utility systems.
• Management Concern: There is a lot to understand about the management structure of the WTR because poor management could corrupt business practices & damage shareholder value.
• Debt issue: The Debt to Cash is significantly high, as currently WTR has 1.8B in debt and only 3.2 million in cash. Hence, if company is hit with any micro/marco level shocks, dividend payments would suffer.

American Water Works:

While American Water Works has not been public company as long as WTR, it has grown rapidly to be considered the largest water utility company in the U.S. The company serves approximately 15 million people across more than 40 states and two Canadian provinces. Similar to WTR, AWK also focus on acquisition tactic for growth.

Financial Summary:

Comparing the financials with WTR, both companies have similar outlook as revenues have increased for past couple of years along with gradual increase in debt burden, allowing company to have little cash reserve. The total debt for the company stands at 6.2B v the cash of 66M.

Reasons to Invest in American Water Works:

Important to note that American Water works has same benefits as WTR in terms of reasons to invest, however there are few others that separate them from their competitors, which also include WTR.

• Experience with desalination: this could be a key expertise in drought regions for expansion as AWK can provide drinkable water through synthesizing ocean water.
• Dividend: AWK has increased its dividend since 2008 IPO
• Stock performance: AWK stock has outperformed S&P 500 by 183.99% since 2008
• Growth: Projected growth rate for next 5 years is between 7-10%
• Investments: AWK has heavily invested in new technology, especially in smart water grid management which helps them being more reliable and efficient in the industry
• AWK has 5 U.S patents and more than 80 competitive research grants.

Hence, these competitive advantages will help AWK stay ahead of the other water utility companies.

Risks:

The set of risks are similar to the WTR. However, they will need more resources to drive the growth past 2020 & poor management could potentially impact stock performance.

Conclusion:

It can be said that both WTR and AWK are in good position to capitalize to grow its market based on the water and wastewater system in the U.S. However, the fragmented US water market is in need for consolidation in the wake of limited access to financing. For example, the funding allocation for clean water fell from US$2.1B in 2010 to US$689 million in 2013 and this could be seen as a potential obstacle for private companies to grow beyond certain level. And investor should focus on investing in these stock for long term returns along with applying fair value mechanism in deciding whether the stock is overvalue or not.

Coherus BioSciences Q4 and FY16 Highlights

 

On 13^th March, 2017, Coherus BioSciences, Inc. (NASDAQ:CHRS) reported Q4 and full year financial results.

Operations highlights for Q4

Oncology therapeutic franchise:

• CHS-1701, the biosimilar candidate of pegfilgrastim (Amgen’s Neulasta ®) was confirmed that FDA has accepted the filing of 351 (k) Biologics License Application (BLA) for it.
• Confirmation of acceptance of Marketing Authorization Application (MAA) to European Medicines Agency (EMA) for CHS-1701. This marked as a first EMA submission and acceptance for Coherus.
• Management expects to use cash towards commercial activities of CHS-1701

Immunology (anti-TNF) therapeutic franchise:

• CHS-1420, the biosimilar candidate of adalimumab (Humira®), received decision from the PTAB (Patent Trial and Appeal Board) of the US Patent and Trademark office denying institution of petition for Inter Partes Review (IPR) of AbbVie’s U.S Patent 9,114,166 (“166 Patent) releated to AbbVie’s Humira formulation.
• CHS-0214, the biosimilar of Amgen’s Enbrel ® (etanercept), released results from two PK studies.
• The trial CHS-0214-06 trial compared CHS-0214 vs EU Enbrel, which resulted in achieving the primary PK BE endpoint. The trial, CHS-0214-07 provided additional relative bioavailability data for CHS-0214 candidate. Anticipate filing of Marketing Authorization Application (MAA) in 2H of 2017.
• Partnering discussions for the immunology (anti-TNF) therapeutic franchise are underway, targeting agreement in place in the first half of 2017, subject to a favorable “135 patent IPR decision.

Others:

• CHS-131; completion of additional animal studies on the candidate to validate its mechanism of action, with licensing agreement locked down for 2H of 2017

 

Financial Summary for Q4:

• On 28th October  2016, Coherus BioSciences Inc (NASDAQ:CHRS) entered into a Sales Agreement with Cowen and Company LLC to act as a sales agent for executing the sale of CHRS’s common stock with aggregate gross sales proceeds of up to $100,000,000 from time to time, through an “at the market” equity offering program.
• During the Q4 and in January 2017, CHRS issues 2.2 million shares, which raised $60.8 million in gross proceeds under the “at the market” program, with an average price of $28.10 per share price.

Q4 and FY’16 Financial Results:

Research and Development (R&D):

• Expenses for Q4:16 were $59.0million v $51.4million for Q4:15.
  • The jump in the Q4:16 compare to Q4:15 was largely due to analytical studies for early stage programs (phase I studies) and CHS-0214 programs, on-going CHS-1420 PK and Phase 3 trials for the biosims. This was offset by completion of CHS-1701 BLA-enabling and CHS-0214 phase 3 clinical program.
• R&D for FY’16 were $254.4million v $213.1million for FY’15.
  • The surge in FY’16 expense compare to FY’15 was mainly because of proceedings on clinical programs associated with Phase 3 clinical study in psoriasis for CHS-1420, along with hiring of additional personnel to support both early-stage and late-developments programs. This increase was partially offset by a decrease in costs related to BLA-enabling studies for CHS-1701 and a decrease in costs associated with the CHS-0214 phase 3 trials that were completed in 1H of 2016.

General and administration (G&A):

• Q4:16 expenses were $15.3m v $11m from Q4:15 (Q/Q 39.9% increase).
• G&A expense for FY’16 were $51.6m v FY’15 $36.0m (Y/Y 43.33%)
  • The surge in these expenses were mainly contributed by hiring of personnel to support pre-commercial and accounting activities, stock options costs- which was granted since Q3:15 and legal fees to support the IP strategy.

Net loss:

• Q4:16 ($75.9)m (or $1.71 per share) v ($52.4)m or ($1.35 per share) during Q4:15.
• FY’16 ($127.3)m (or $3.04 per share) v FY’15 ($223.3)m (or $6.01 per share)

Cash and Cash equivalents:

• $124.9m cash total for Q4:16 v $159.7m Q3:16 along with additional raise of $120milion in net proceeds from equity offerings in February and March 2017.

Total Revenue:

• Q4:16 figures stood at $844 thousand, as compared to $10.2m in Q4:15. While the total revenue for FY’16 was $190.1m v $30.0m in FY’15.
  • The increase over the same period was due to increased recognition of collaboration revenue as a result of regaining the full development & commercial rights of CHS-0214 from shire in Europe, Canada, Brazil, the Middle East and other territories.

 

 

Conference Call InformationWhen: Monday, March 13, 2017 at 4:30 p.m. ETDial-in: (844) 452-6826 (toll free) or (765) 507-2587 (International) Conference ID: 66529524Webcast:  http://investors.coherus.com The webcast will be archived on the Coherus website.

Amgen accuses Coherus of stealing its Neulasta secrets

Coherus BioSciences, Inc (NASDAQ: CHRS) had been waiting  anxiously to get a chance for launching their bio-similar of Neulasta, Amgen (NASDAQ: AMGN)- the drug that is used to stimulate white blood cell production after cancer treatment and brought in more than $4.6B last year for Thousand Oaks, California based Amgen. But before Coherus could get any approvals, Amgen is dragging Coherus into a court battle, filling a trade secret action, alleging trade secret misappropriation & other claims against Coherus. According to Amgen, Coherus poached Amgen employees to get at their proprietary knowledge.

In its new lawsuit, Amgen claims Coherus engineered a “massive conspiracy” to steal its information, according to analysts at Barclays. That conspiracy, Amgen says, included recruiting its employees, who then siphoned off secrets and passed them to Coherus.

Coherus allegedly received information on “stolen” USB drives, including “sensitive Amgen standard operating procedures, laboratory notebook pages, validated analytical methods, method development reports, specifications, documents reflecting process optimization work, cost calculators and pricing and contracting strategies,” the analysts say.

But Coherus CEO Denny Lanfear “categorically” rejected the allegation & stated that action is without merit, while suggesting that Amgen’s lawsuit represents baseless litigation to delay Coherus from entering the pegfilgrastim market as a serious competitor.

Coherus’ Neulasta biosimilar, now known as CHS-1701, is scheduled for FDA decision on 9^th of June. Meanwhile, in the lawsuit, Amgen seeks several injections against Coherus, plus restitution and damages. One of the Barclays analysts wrote that this suit could have negative impact on Coherus as its regulatory approval date gets closer.

Dan Lanfear also added that Coherus is keen on introducing competition & offering biosimilar products at competitive prices with and lower than those sustained by Amgen and other large pharma companies. And according to the data, bio-similar have reached the U.S market with 15% discount to the brands from large Pharmaceutical companies.

Amgen is also locked in a court battle over Sandoz’ biosimilar version of its Neulasta predecessor, Neupogen, with case scheduled for arguments before the U.S Supreme court next month, and it is certain that high court’s decision is expected to influence future bio-similar patent fights & launch dates.

About Coherus BioSciences, Inc.

Coherus is a leading pure-play, global biosimilar company that develops and commercializes high-quality therapeutics for major regulated markets. Biosimilars are intended for use in place of existing, branded biologics to treat a range of chronic and often life-threatening diseases, with the potential to reduce costs and expand patient access. Composed of a team of proven industry veterans with world-class expertise in process science, analytical characterization, protein production, sales & marketing and clinical-regulatory development, Coherus is positioned as a leader in the global biosimilar marketplace. Coherus is advancing three late-stage clinical products towards commercialization, CHS-1701 (pegfilgrastim biosimilar), CHS-0214 (etanercept biosimilar) and CHS-1420 (adalimumab biosimilar), as well as developing a robust pipeline of future products in four therapeutic areas, oncology, immunology (anti-TNF), ophthalmology and multiple sclerosis. For additional information, please visit www.coherus.com.

Information on Bio-similar Products:

A biosimilar product is a biological product that is approved based on a showing that it is highly similar to an FDA-approved biological product, known as a reference product, and has no clinically meaningful differences in terms of safety and effectiveness from the reference product. Only minor differences in clinically inactive components are allowable in biosimilar products.
Please visit for more: www.fda.gov/Drugs

Cowen and Company 37th Annual Health Care Conference

Cowen and Company 37th Annual Health Care Conference

37^th Annual Health Care Conference
Monday, March 6 through Wednesday, March 8, 2017
The Boston Marriott Copley Place, Boston, Massachusetts

Webcast

http://www.cowen.com/conferences/conferences-overview/

 

Below are the several big biotechnology names that presented at the event and following slide deck link are attached by the companies in conjunction with this event.

Amgen Inc. (NASDAQ: AMGN)

Amgen Cowen HCC Presentation

Allergan, Plc (NYSE: AGN)

PDF Link

Bristol-Myers Squibb (NYSE: BMY)

Bristol-Myers Squibb Cowen HCC

Stemline Therapeutics, Inc. (NASDAQ: STML)

STML Cowen HCC 2017

Pfizer Inc.  (NYSE: PFE)

PFE Cowen HCC 2017

GlaxoSmithKline plc (GSK) (LSE: GSK, NYSE:GSK)

GSK Cowen HCC 2017

Top Stock Picks

The pick for this month is posted below. The Pick is Not a recommendation.

We only recommend a constructive diversified portfolio approach for investing, since a single stock investment can be very risky.

The Monthly Stock Pick for February:  AKAO

The Monthly Stock Pick for January 2017:  CLVS +46%

The Monthly Stock Pick for December:  ARRY +9%

The Monthly Stock Pick for November:  CLCD +16%

The Monthly Stock Pick for October:  SGEN -4%

The Monthly Stock Pick for September:  TSRO +18%

The Monthly Stock Pick for August:  MDVN (acquired) +26%

US Household Debt rose to $12.6T: the biggest jump in a decade

 

• The data released by FRB: G.19, consumer credit releases by the Fed and the quarterly NY Fed report on Household Debt and Credit Developments revealed that total US household debt jumped in Q4 driven by increases in credit card debt, auto and student loans, and a Q4 surge in mortgage origination, and as of December 31, 2016, stood at $12.58 trillion, a $226 billion (1.8%) increase from the third quarter of 2016.

• Total household debt is 0.8%/$99B shy of Q3 2008 peak and measured as percentage of GDP, household borrowing today is 67% of nominal GDP, compared with 85% in 2008

 

• Mortgage balance: largest component of the household debt: increased by $130B in Q4 and stands at $8.48T.
• Non-housing debt: $22B increase I auto loans, $32B increase in Credit cards balances and $31B student loan bal increase
• Non-housing Debt: $22B increase in the auto-loans, $32B increase in Credit cards and $31B rise in the Student loan balances.

• Nutshell: the debt for ordinary American is growing at a fast pace; mostly contributed by non-housing debt.

• Biggest driver for the household debt:
  • The rise of student loans and Auto loans; where decade ago there was less than $500B in student loans, as college tuition surged, sum surpassed $1T for first time since 2013 and currently stands over $1.4T.
  • Car loans: During Q4, $142B auto loans were originated, making 2016 the highest auto loan origination year in 18 year history.
  • Plus credit cards limit increased for 16^th consecutive quarter.

 

• Delinquency Rates:
  • The rates were fairly stable in the last quarter of 2016, with small uptick in severely derogatory balances were offset by a small improvement in 30 days delinquent balances.
    • Dec 31^st : Outstanding debt in some stage of delinquency stood at 4.8%
    • Of the $607B of debt that is delinquent, $412B is seriously delinquent (90+ days)
  • Auto-loans: delinquent by 30+ grew to $23.27B, the most since $23.46B in Q3 of 2008.
    • The Serious Delinquent auto loans with payments were 90+ days past due jumped to $8.24B in Q4:16.
  • All eyes remain on the delinquent student loans, where trend continues to deteriorate with every quarter passing.

 

Summary:

Housing Debt:

• $617B newly originated mortgages in Q4:16 [highest since Q3:07]
• Mortgage delinquencies for 90+ days ( Serious Delinquency) were mostly unchanged with 1.6% of the balance.
• Between October 1^st and December 31^st, about 79,000 individual had a new foreclosure notation added to their credit reports
• Delinquency transition rates for current mortgage accounts improved slightly, with 1.0% of current balances transitioning to delinquency from 1.2% in Q3:16.
• In early delinquency, 18% transitioned to 90+ days delinquent, while 37% became current.

 

Student Loans, Credit Cards, and Auto Loans

• Outstanding student loans stood at $1.31T as of Dec 31^st 2016
• 2% of aggregate student loan debt reflects 90+ days delinquent
• Auto loans increased by $22B and is on steady rise
• Auto loan delinquency rates deteriorated, with 3.8% reflects 90+ days delinquent on December 31^st (0.2% above Q3)
• Credit Card balances increased by $32B, to $779B, while 90+ credit card delinquency rates were unchanged at 7.1%
• Credit Inquiries: Number of credit card inquiries within six months (an indicator of consumer credit demand) declined from previous quarter to 171 million.

 

Full Report

Auto-Loans, Used Cars, Delinquencies & blast from the past..

For months now, the auto-sales had been propped up by low-interest rates along with continuous degradation of lending standards over the past 6 years fed by the Wall Street securitization vehicle with terms being stretched to the maximum lengths and a wave of leases. Hence, this have allowed the American consumer to trade up/upgrade to more expensive vehicles while sticking to their low monthly payments structure. And eventually flooding the used car market that will trigger the collapse of $1.1tn automobile industry.

While the data from Manhiem indicates that things are smooth and market is doing its job to sustain economic growth with wholesale pricing remained stable despite sharply rising supplies of used cars.

… the used car pricing as a percentage of new car pricing has been on the decline.

 

Thus, the collapse of used car prices propped up by excessive supply of used vehicles could cast a massive disaster for subprime auto-loan securitization. Despite the fact that it is difficult to pen down the exact time of this collapse, a combination of record-high lease returns in 2017 and 2018, along with rising interest rates could imply that the auto loan bubble is on the precipice

It is essential to understand that in the overall auto market, strong used car pricing is a critical component for sustainability as Bloomberg recently pointed out. While American’s are obsessed with their brand new cars purchases (thanks in part to low-interest rates, leasing has becoming popular method to drive away a new car, with BMW and Mercedes-Benz in particular living on such methods to pump up sales).And if used car prices fall at rapid pace then substitution will hurt the new car sales.

“There’s going to be a lot of units coming back over the next several years,” Ford Motor Co. warned last month. “They’re going to get to levels that we have never seen on an absolute basis in the industry before”

The most obvious reason behind as to how we got to this bubble is: Monthly Payments. The most important factor majority of Americans take into account when buying cars. Of course, paying as much as $40,000 with $559 per month has become an affordable option for those who are seeking to maintain their excessive lifestyles on smaller budgets.
Below is the Bank Rate calculations (screenshots):

With lease share of U.S vehicles skyrocketing in wake of the “great recession”, the problem is inevitable once lease vehicles get returned to their originating lenders every 3 years from brand new leases. And with vehicles having useful lives of 15-20 years, it wouldn’t take long before many excessive lease cycles to flood the market with used car supply and bring whole industry to its knees.

Subprime Delinquencies Soar to 2009 Levels:
Quick look at the 61+ Day Delinquency Rate in General Motors’ subprime securitization book suggests that current delinquency rates is on an upward trend, highest levels since early 2010. Additionally, according to the data pulled from transition, more than 1 million have fallen behind on their payments with delinquency rates souring to record high in the $1.1tn market.

 

Such rise in bad loans suggest that lenders may be letting customers take a bigger debt burden beyond their capability to repay on time. Strangely, Lending to consumers with weak credit scores has been one of the fastest growing parts of the industry!!

Despite the fact that underwriters of such auto-loans securities will go in lengths to reassure the investors that these instruments performed relatively well, even at the height of 2009 crash, the simple economics of demand & supply clearly suggests the upcoming bold bath.
Moreover, it wouldn’t harm to mention that customers with subprime auto-loans have never been so underwater of their cars as they are right now. The negative equity in the Used car sales is on the upward trend.

On closing note, according to Bloomberg, in 2017, more than 1 million off-lease vehicles will be available in the U.S compared with 2015. Such additional volume will flood the used car market with excessive supply resulting in downward pressure on used car prices, possibly higher securitization losses, automakers’ earnings will suffer and car finance companies may have to book write-downs on the value of their leased assets.

Guess, Dutch Tulip bubble almost 400 years ago, where speculation on tulips made a lot more sense than speculating on automobiles as autos will never appreciate in value over time!

Plus if you keen on buying used car in the USA-better hold on for couple of months as to get a sweet deal on Camry..

Good day!

SUNBEAM Trial: Ozanimod outperforming

In 2015, Celgene (NASDAQ: CELG) acquired Receptos, taking full control of Receptos next-generation immune modulating blockbuster drug; Ozanimod. Since, the acquisition, it has shown promising results in multiple sclerosis and inflammatory bowel disease. Looking at from the financial stance, Celgene purchase price for Receptos was $7.6B and taking into account the interest costs and clinical trial costs, the total investment hits $8B figure.

And on 17th Feb 2017, Celgene released top-line data along with brief commentary on what’s the key study of two Phase 3 studies in MS.

According to the top-line data, both ozanimod 1 mg and 0.5 mg treatments illustrated statistically significant & clinically meaningful improvement compared with Avonex ® for the primary endpoint of ARR and the measured secondary endpoints of the number of gadolinium-enhancing magnetic resonance imaging (MRI) lesions and the number of new or enlarging T2 MRI lesions at month 12. As per agreement in the Special Protocol Assessment with the FDA, a pre-specified analysis on the time to onset of disability progression will be conducted using collective results from both the SUNBEAM and RADIANCE phase 3 trials.

The press release also elaborated why Ozanimod may be improvement from current in-market MS drugs, such as Aubagio from Genzyme, Sanofi (NYSE: SNY) and Gilenya from Novartis (NYSE: NVS), which works by a similar mechanism.

Ozanimod is a novel, investigational oral, selective, sphingosine phosphate receptor 1 (S1P1) and 5 (S1P5) modulator in development for immune-inflammatory indications including relapsing multiple sclerosis (RMS), ulcerative colitis and Crohn’s disease. Selective binding with S1PR1 receptors is believed to inhibit a specific sub set of activated lymphocytes from migrating to sites of inflammation. The result is a reduction of circulating T and B lymphocytes that leads to anti-inflammatory activity. Importantly, immune surveillance is maintained.

SUNBEAM Trial:

What is SUNBEAM:

SUNBEAM is a phase III multicenter, randomized, double-blind, double dummy, active-controlled study assessing the efficacy, safety and tolerability of two orally administrated doses (0.5 mg + 1 mg) against weekly intramuscular interferon beta-1a (Avonex®) over minimum of a 12-month treatment period.

 

SUNBEAM Trial Outcome (summarized version of Celgene press release):

The phase 3 SUNBEAM trial, which evaluated the efficacy & safety of ozanimod (Celgene), an investigational oral, selective, sphingosine phosphate receptor 1 (S1P1) and S1P5 modulator, in patients with relapsing multiple sclerosis (RMS) met its primary endpoint in reducing the annualized relapse rate (ARR) compared with weekly interferon (IFN) beta-1s (Avonex- Biogen (NASDAQ: BIIB)

The Trial (SUNBEAM) evaluated Ozanimod with two orally administrated treatment doses of 0.5 mg and 1 mg on patients for at least one year. The randomized phase III trial enrolled 1,346 RMS patients in 20 countries.

The Phase 2 RADIANCE study is in a phase III extension study, with results due soon. Hence, with current turn of events and projected approvals, the drug could come to market in the US next year. And CELG has not issued any statement on the note as how Ozanimod will be marketed, could be either a direct drug for MS (following FDA approval) or out-license it.

 

Celgene noted that ozanimod’s overall safety and tolerability profile was consistent with results from previously reported phase-II RMS (RADIANCE) and phase-II ulcerative colitis (TOUCHSTONE) trials.

 

People living with multiple sclerosis need additional therapies and we are pleased that oral ozanimod showed meaningful improvements across primary and measured secondary endpoints in this study,” said Scott Smith, President of Celgene Inflammation and Immunology. “We look forward to data from the confirmatory phase-III RADIANCE trial in the second quarter as we advance toward planned regulatory submissions by year-end.

 

Stock performance following positive trial outcome:

On Friday, 17^th Feb 2017, after the announcement, CELG’s shares upped 2.11%, closing the trading session at $121.16. A total vol. of 4.85million shares were executed by end of the day, which marked the highest against the 3-month average volume of 4.28miliion shares. The company also was restated a Buy by several different analyst firms. Price target range from $130 a share at Mizuho Securities to maximum at Cantor Fitzgerald of $159.