Weekend Update #134
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.
The S&P 500 equity index fell -1.16% in the shortened trading week as mixed economic data contributed to a negative outlook for the path of interest rates.
On Wednesday, the S&P 500 closed down -0.2% after the Fed’s June Meeting Minutes were released. The report expressed division amongst members of the voting Committee after some members pushed for a rate hike in June, despite the “unanimous” headline decision to ultimately take a pause. Investors are looking for indications of the likelihood of two more rate hikes before the end of 2023. As of now, the Minutes show that a majority of FOMC members support further tightening later this year. Some economic data released this week support this narrative. The ADP Research Institute data showed U.S. companies added the most jobs in over a year during the month of June. This was contrasted by Friday’s Nonfarm Payrolls report that came in below expectations and was 30,000 payrolls down from the previous month. Along with the data, however, came strong wage growth, which suggests persistent services inflation is ahead. The unemployment rate fell to 3.6%, from 3.7% last month, meeting economists’ estimates. Focus will now move to the CPI print next week, with the current expectations for inflation forecasting a +0.3% advance in prices month-over-month and a +3.1% growth figure year-over-year.
Sentiment has generally remained subdued against positive economic data and the aggregate outlook for the stocks will hinge on earnings during the next season. Money markets are now finding it harder to bet against Fed rate hikes while the data remains, in general, so robust. This was highlighted by the U.S. Treasury yield-curve inversion expanded this week, a measure that usually signals anticipation of a recession. The 2-Year yield finished the week at 4.96% against a 10-year yield of 4.06%.
Weekly Performance
S&P 500 4,398.95 -1.16%
Dow Jones 33,734.88 -1.96%
Nasdaq 13,660.72 -0.92%
Key Economic Readouts This Week
S&P Global US Manufacturing — Actual: 46.3; Estimate: 46.3; Prior: 46.3
ISM Manufacturing — Actual: 46.3; Estimate: 46.3; Prior: 46.3
ADP Employment Change — Actual: 497k; Estimate: 225k: Prior: 278k
Factory Orders — Actual: 46.0; Estimate: 47.1; Prior: 46.9
Durable Goods Orders — Actual: +1.8%; Estimate: 1.7%; Prior: 1.7%
Initial Jobless Claims — Actual: 248k; Estimate: 245k; Prior: 239k
Continuing Claims — Actual: 1,720k; Estimate: 1,737k; Prior: 1,742k
Change in Nonfarm Payrolls — Actual: 209k; Estimate: 230k; Prior: 339k
Unemployment Rate — Actual: 3.6%; Estimate: 3.6%; Prior: 3.7%
Thank you Blue Room Analyst IAN CARTER
Greg Peterson — Head of Investor Relations
Welcome to AGCO’s 3rd annual Technology Event
There are 3 main objectives:
To demonstrate the progress they are making toward AGCO’s technology deployment goals given in September 2022
To highlight the benefit AGCO will see to the top line and operating margins as they deploy that technology
Most importantly, they will show the benefit to the farmers — the pain points the technology is helping with
AGCO has had a long-standing goal to aid farmers’ margins by 20%, and over the next two days they will demonstrate net income improvement of at least that much
Eric Hansotia — Chairman, President & Chief Executive Officer
He’s very excited about the next couple of days
Attendees will be able to go out into the field and see real-life solutions in action
They’ve been talking about this technology a lot for the past couple of years
Two to three years ago, the company started redesigning their strategy
Starting with the element that deals with results, there were three aspects they zeroed in on
The first is to be the most farmer-focused company in the industry
What does farmer-focused mean? Are all companies farmer-focused?
No — Most companies are product-focused
They go into the field and ask about the power, the seat, the fuel economy — all about the product
A farmer-focused person goes to farmers and asks what the operation looks like, where the pain points are, where the highest-impact opportunities are to fix
It’s AGCO’s job to take what they heard and decide what to do with the product, services, dealers to solve that issue and make farmers more money
They’re not all the way there yet, but AGCO is making great progress toward being a farmer-focused company
Dealers came through today and said they can tell customers are really feeling that progress
With any big hairy audacious goal, they need the fire in the belly and the organization to get there
They also want to be the employer choice for employees by getting them really aligned and really excited
—INTERN PROFILE—
LANDON
ELLIS
Wake Forest University Sophomore
Finance
Psychology and Entrepreneurship Minors
Hello everyone! My name is Landon Ellis and I just finished my Freshman year at Wake Forest, where I am majoring in Finance, with a Minor in Psychology and Entrepreneurship. At Wake Forest, I am a member of the coveted Wake Forest Pre Wall Street Career Track and am a part of the Alpha Kappa Psi business fraternity. I was originally born in New York City, before living in Shanghai, Minneapolis, Los Angeles, and finally Denver. Coming from Denver, I consider myself outdoorsy: an avid skier in the winter and hiker in the summer.
My interest in finance stems from a project I completed in high school, during which I interviewed 20 entrepreneurs asking them how they launched their businesses and what made them successful. Each entrepreneur, from the farmer selling coconuts to the founder of MongoDB and Business Insider, taught me that understanding revenues, cash flow, balance sheets, and other financial concepts is foundational. Finance will be at the heart of everything I do as an adult.
I am very excited about this opportunity at Blue Room, and have now seen first hand how much of a difference culture makes in the workplace. Everyone in this industry is busy, and there is never a time when there is nothing to do, but the time the team takes to truly get to know each other and care about one another shows that connections we make are important, in addition to the work we do.
At Blue Room, I hope to expand my horizons in terms of finance, diving deeper into the specifics of companies and working with the intern class to bring new ideas to the team!
On Tuesday, June 26, 2023, the FDA declined to approve aflibercept 8-mg (a higher-dose version of Regeneron Pharmaceuticals’ drug EYLEA) for the treatment of wet age-related macular degeneration, diabetic macular edema, and diabetic retinopathy. This unfavorable outcome caused Regeneron’s shares to tumble by 8.6%, closing at $716.09 on the 27th. The U.S. Food and Drug Administration issued a complete response letter, citing the reason for the disapproval to be an issue with the third-party filler of the higher dose. The complete response letter cited no issue with aflibercept 8-mg’s clinical efficacy or safety data. Experts hypothesize that it may take six months or more for aflibercept 8-mg to finally get approved.
As per the status quo, the sale of EYLEA in its 2-mg form is the leading source of revenue for Regeneron, far outpacing the company’s other drugs such as Dupixent, Libtayo, and Praluent. Last year, the global sale of EYLEA garnered Regeneron $9.65 billion. However, Regeneron’s EYLEA sales have taken a hit since Roche’s rival treatment Vabysmo was approved last year for wet age-related macular degeneration (AMD) and diabetic macular edema. Hence, both EYLEA and Vabysmo now treat wetAMD and DME, but where Vabysmo stands out is that its dosage of 6-mg is stronger and therefore can be given less frequently. While Vabysmo has a price tag of $2200 per shot, EYLEA costs $2000 a shot but has to be administered more frequently and with a lower dosage. Hence, this delay of FDA approval is significant because Vabysmo is gaining increased market share with each quarter. EYLEA needed to get its 8-mg dosage to market as fast as possible to retain its competitive advantage, but it is now delayed by an estimated six months. In addition, another important factor to consider is that pharmaceutical companies make about 80% of their overall revenue while their drug is on patent. However, EYLEA's ‘composition of matter’ patent expired on June 16, 2023, and EYLEA’s remaining patents will continue expiring in the coming two years. Hence, EYLEA will also soon be competing with other EYLEA generics, which means the market will be even further fragmented.
In their most recent press release on June 26, 2023, Regeneron posted the results of the aflibercept 8-mg clinical trials along with this chart comparing the effectiveness of aflibercept 8-mg to the traditional EYLEA 2-mg dosage:
This chart shows aflibercept 8mg’s effectiveness actually increasing over time compared to the EYLEA 2-mg dosage, whose effectiveness remains relatively constant over time. With patients responding better to aflibercept 8mg after the first 48 weeks elapse, the dosage of aflibercept 8mg can become even less frequent than in its first year, with roughly half the number of doses administered as in the first year.
Bottom Line
Once aflibercept 8mg comes to market, it will be an extremely strong competitor and regain the competitive advantage of the least number of dosages in a year when compared to Vabysmo. The price point of aflibercept 8-mg is currently unknown, but if the price is the same or slightly increased compared to EYLEA 2-mg, aflibercept can gain a competitive advantage in terms of price as well. Hence, aflibercept 8-mg will likely be favorably received by the market. However, again it must be considered that by the time aflibercept 8-mg is finally FDA approved and available for mass distribution, generic versions of EYLEA would have likely already entered and captured substantial market share.
—INTERN PROFILE—
ALEX
KECHRIOTIS
University of Colorado at Boulder, Junior
Leads School of Business
BBA with an emphasis in finance and real estate
Hi, my name is Alex Kechriotis and I’m very excited to be joining Blue Room for a second summer following an awesome internship the previous summer. I’m a rising junior at the Leeds School of Business at the University of Colorado, Boulder. I’m studying for a BBA with an emphasis in finance and real estate and a specific interest in asset management.
In the past year, I’ve joined our Leeds Investment and Trading Group as a health care sector analyst and am aiming for a position as healthcare sector head for next year. Through my time at the LITG fund, I’ve picked up on some more keys to fundamental equity analysis that I’m hoping to bring to this internship at Blue Room.
This summer, I’m continuing my coverage of Nutrien and Intrepid Potash (both fertilizer companies), and picking up additional coverage of Corteva, a seed technology and crop protection company, and Chegg, an online educational service provider. I’m hoping to continue building on a larger agriculture industry thesis including the coverage of fertilizers, seeds, and crop protection products for Blue Room. In addition, I’m excited to continue learning about asset management from the amazing team here and building up my skills in equity research and financial modeling!
In my free time this summer, I’ve been working out, learning golf, and watching the Nuggets win their FIRST CHAMPIONSHIP EVER! I’m also very much looking forward to heading to the Bahamas this summer with my family to play tennis, swim, and cook a lot of great food.
PLEASE JOIN US
THIS WEDNESDAY
AT BLUE ROOM HQ
10% OF ALL BLUE ROOM REVENUES GO DIRECTLY TO FUND OUR NON PROFIT TOGETHERISM.
WE CAN ACCOMPLISH ANYTHING TOGETHER.
These materials do not purport to be all-inclusive or to contain all the information that a prospective investor may desire in considering an investment. These materials are intended merely for preliminary discussion only and may not be relied upon for making any investment decision. Any discussion or information contained in this presentation does not serve as a receipt of, or as a substitute for, personalized investment advice from Blueroom or your advisor.
This publication does not constitute an offer to sell or a solicitation to buy any securities in any fund, market sector, strategy or any other product. Investing is speculative and involves substantial risks (including, the risk of loss of the investor’s entire investment). Past performance is not indicative of future results, and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable.
For more information about us and our general disclosures contact us directly.