Weekend Update #119
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
Equity markets eagerly anticipated the Federal Reserve’s rate decision and commentary as the S&P 500 drifted up 2.2% throughout trading on Monday and Tuesday. Wednesday’s 25 basis point rate hike was initially met with enthusiasm in markets as the dovish interpretation that the Fed would downshift rate hikes took hold. Yet throughout Jerome Powell’s Q&A session with reporters, the S&P fell 2.6% as uncertainty and policy mistakes took center stage. With the Fed Funds target rate raised to 4.75% to 5%, FOMC members’ median projection for interest rates at the end of 2023 remained at 5.1% — painting quite a different story than the 4.0% year-end 2023 rate currently being priced in by the market.
The financial sector benefited from some relief and calmness to start the week after UBS’s acquisition of Credit Suisse was announced, the Swiss government stepped in with $54 billion in support, and there was news that the FDIC had begun planning with one scenario showing 100% insurance of all bank deposits. However, that optimism was short-lived, as shown by the KBW Bank Index’s 6.6% rally to start the week through Tuesday and subsequent 6.7% fall to end the week lower.
In Europe, bond markets continued to show signs of stress after $17.3 billion worth of Credit Suisse’s additional tier 1 (AT1) notes became worthless as part of the takeover, sparking fear that other AT1 notes could risk a similar lack of protection. On Friday, concerns grew as Deutsche Bank traded to its biggest single-day loss in 3 years before the Chancellor of Germany, Olaf Scholz, sought to quell fears around the bank, asserting, “Deutsche Bank has fundamentally modernized and reorganized its business model and is a very profitable bank. There is no need to worry about anything.”
Block (SQ) shares suffered a 15% decline on Thursday as Hindenberg Research published a short report alleging the platform inflated userbase numbers and is under investigation for a lack of oversight around COVID stimulus fraud on the platform. Coinbase (COIN) also fell 13% on Thursday as the SEC issued a Wells notice to the company that could be the precursor to fines and a court battle over the legality of certain Coinbase services. Activision Blizzard (ATVI) shares benefitted on Friday as UK regulators dropped certain antitrust concerns related to Microsoft’s acquisition, increasing the probability of the deal winning approval.
Friday’s Close (Weekly Performance)
S&P 500 3,970.99 (+1.39%)
Nasdaq 11,823.96 (+1.66%)
Dow Jones 32,237.53 (+1.18%)
Thank you Blue Room Analyst JARED FENLEY
Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
Earnings Preview
During the third and fourth quarter, atai made good on many of its catalyst event promises, including:
September 27, 2022
Initiation of Phase 1 trial for EMP-01 (MDMA) for PTSD
October 5, 2022
First subject dosed in Phase 1 trial of buccal and IV VLS-01 (DMT) for TRD
October 12, 2022
Positive initial results for Phase 1 trial of KUR-101, an oral formulation of mitragynine for OUD
October 18, 2022
Initiation of Phase 1 proof-of-concept clinical trial for its sol-gel based direct-to-brain drug delivery technology
October 25, 2022
atai Life Sciences and Perception Neuroscience completed enrollment for the Phase 2a clinical trial of PCN-101 (R-ketamine) for TRD
November 17, 2022
atai Life Sciences and Massachusetts General Hospital announce initiation of clinical study investigating neuroplasticity biomarkers in Treatment-Resistant Depression patients undergoing ketamine treatment
November 29, 2022
atai Life Sciences strengthens leadership team with appointment of Dr. Sahil V. Kirpekar as Chief Business Officer
December 16, 2022
The atai Fellowship Fund in Psychedelic Neuroscience announces its First Cohort at Massachusetts General Hospital
December 19, 2022
atai Life Sciences initiates Phase 2b proof-of-concept trial of RL-007 for Cognitive Impairment Associated with Schizophrenia
December 23, 2022
atai Life Sciences announces results from the Kures Therapeutics Phase 1 trial of KUR-101 (deuterated mitragynine for Opioid Use Disorder)
January 6, 2023
atai Life Sciences announces results from Phase 2a trial of PCN-101 (R-ketamine) for Treatment-Resistant Depression
January 9, 2023
atai Life Sciences company GABA Therapeutics announces positive final results from Phase 1 single and multiple ascending dose trial of GRX-917 (deuterated etifoxine)
March 6, 2023
atai Life Sciences announces key clinical pipeline and corporate updates:
RL-007 (for CIAS): first patient dosed in the on-going Phase 2b study
GRX-917: intention to progress GRX-917
Tailwinds: Full year 2023 revenue outlook revised upward (from low single-digits reported growth to high-single digits), led by a stronger-than-expected third quarter. Fourth quarter y/y growth to be flat or up low single digits, which comes in-line with expectations. Gross margin outlook was maintained, slightly offset by increases in operating expenses.
Inventory increased 16% y/y, after increasing 44% in 1Q23 and 43% in 2Q23, highlighting Nike’s ability to push product out the door via promotions, high demand for new products, and conservative inventory purchases going into the Spring season.
Nike continues to benefit from its brand positioning, as the company was able to increase prices for new releases behind names like LeBron J., Jayson T., as Sabrina I., as well as lean into product innovations based on consumer feedback through its mobile apps.
Continue to value demographic expansion with focus on women’s products, with an increasingly larger share of new product releases incorporating athleticwear/technology for women.
Headwinds: SG&A expenses were revised upward, indicative of continued brand development, NIKE Direct costs, and increasing wages. Demand in China also continues to be a challenge, with reported revenue declining 8% on a reported basis. On a currency adjusted basis, China revenues grew 1.0%.
Nike is also seeing cost pressures from its rollout of the distributor model in Chile, Argentina, and Uruguay.
David Kirn — Chief Executive Officer & Co-Founder
Thank you everyone for joining us today. We're excited to provide an update on our Fabry Disease cardiomyopathy program today. As many of you know, our company is boldly innovating to unlock the full potential of genetic medicines for millions of patients. Our platform technology is based on Nobel prize-winning technology-directed evolution to invent targeted and customized vectors with superior therapeutic profiles compared to wild-type vectors.
Today, we've demonstrated human clinical proof-of-concept for our platform with three vectors across three therapeutic areas and by three different routes of administration. We are currently developing five clinical-stage product candidates for seven patient populations in markets.
On this slide, you can see that we have a broad and deep pipeline across the ophthalmology, pulmonology, and cardiology therapeutic areas. Each of which leverages a proprietary and optimized 4DMT vector. Today, we'll be focusing on cardiology and I'm excited to be discussing detailed interim clinical data from our INGLAXA Phase 1/2 clinical trials of 4D-310 for Fabry disease cardiomyopathy.
BLUE ROOM ANALYST TAKEAWAYS
Nvidia’s March GTC focused on the inflection point of AI and provided comprehensive qualitative data regarding new product configurations, new AI libraries and new partnerships. As other companies of Nvidia’s scale are several generations behind on the AI revolution, we assume that the company will be the dominant market leader in AI-acceleration for the foreseeable future. During the keynote, CEO Jensen Huang also noted that the market is,”..at the iPhone moment for AI,” to highlight the current strategic focus of Nvidia. A summary of key conference updates is provided on the following page.
While we have not [at this time] made an update to our financial model, we continue to assume that a major portion of Nvidia’s revenue for the next ten years will come from the Data Center segment.
Est. 72% of total company sales over ten years will be attributable to the Data Center.
Our current CAGR for the Data Center segment is 21.0% from FY24 to FY34.
Helmy Eltoukhy — Co-Chief Executive Officer
(…) We had an excellent year — 42% growth in terms of clinical volume. I think overall 20% growth in terms of revenue. And then obviously, making tangible progress in terms of these new emerging areas of MRD and obviously, a successful readout of ECLIPSE. And so I think '22 was a pivotal year. It was our 10-year anniversary from founding the company, and it really brought to tangible reality this vision of really transforming the entire continuum of cancer care from beginning to end. And so now we have I think three franchises that are truly disruptive and have multibillion-dollar opportunities ahead of them.
I think the other thing that got lost and I think the headlining around ECLIPSE and screening and the sexiness of that market was just our base business, which is, I think, some people call mature, but it really is still in the early innings. I mean, you take our business, and you shut down MRD and screening. We have a business that's doing around $500 million in revenue that's growing between 20% to 30% per year, and that is nearly profitable or will be profitable in a few months. So our investments are very strategic and they're very discreet. I mean, they're specific for specific programs, it's not like it's part and parcel to the revenue generation we have. We have very healthy gross margins in our sort of quote-unquote mature business.
On Thursday, March 16, Christine Lagarde and the European Central Bank raised their three key interest rates by 50 basis points while also promising liquidity for commercial banks in the Euro area as they attempt to walk the fine line between price stability and financial stability.
The 50 basis point increase on the 16th followed the collapse of Silicon Valley Bank on March 10th and the closure of Signature Bank on March 12th. Indeed, the announcement came in the midst of turmoil surrounding the future of Credit Suisse, as its acquisition by UBS was not announced until March 19. Amidst the great uncertainty in the banking sector, the aggressive hike was seen by some analysts as a surprise.
As the banking sector continued on unsteady footing in the days following Lagarde’s remarks, the ECB thought it appropriate to provide additional explanation for their interest rate increase. In a speech titled “The Path Ahead,” Lagarde provided more justification for the ECB’s aggressive monetary tightening in the face of financial stability. The crux of the ECB’s argument for raising interest rates can be summarized in Lagarde’s opening remarks:
“To that end, our future policy path will be determined by three factors: our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. At the same time, I have made clear that there is no trade off between price stability and financial stability. We have plenty of tools to provide liquidity support to the financial system if needed and to preserve the smooth transmission of monetary policy.”
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