Cancer cures and Trump’s new friend

Thu 28 Jun 2018

By Brian Dennehy

Access Level | public

Fund analysis

Print

biotechIf you are a Gold Member you will be familiar with the above from our June teleconference. For those who aren’t, this blog will explore the rapidly changing and emerging (I should say re-emerging) opportunities in biotech, where our fund focus is AXA Framlington Biotech.
 
The chart below shows the Axa fund since launch versus the US stock market:
 
Despite the sharp fall from the high in 2015, there are three broad indicators which suggest this fund should be bought:
 
  • Technical indicators 
  • Positive political trends (yes, Trump)
  • Emerging new treatments and cures
Technical indicators
 
Here is a chart of the NASDAQ Biotech index, which is the hunting ground for the AXA fund:
 
Straddling 2015/2016 you can see what we call a “double bottom”, marked by the red line. 
 
This is where an index re-tests a recent low and then bounces upwards - it highlights an emerging positive trend.
 
As the index bounced, it has got a bit stuck as it has moved towards the previous high (marked X, Summer 2015).  This is what we call an area of resistance. You will often see toing and froing at this point.  
 
If the index can exceed this resistance, and break above the 2015 high, this is VERY positive – blue sky above. 
 
Positive political trends
 
In case you’re wondering how Trump has made yet another appearance in our blog posts, it is because he is making friends in the biotech sector.
 
Starting with his State of the Union address at the end of January, Trump stated that one objective in the year ahead was “to speed access to breakthrough cures”. The agency responsible for such “speeding up” is the Food and Drug Administration (FDA), and Trump elected Scott Gottlieb to run this vital board. Funnily enough, Gottlieb used to sit on the boards of several small biotech companies. He certainly picked the right guy for the job.
 
More generally, Trump wants to pull down unnecessary regulatory barriers to dynamic businesses. I must admit that alone would mean he would have my vote! [but please don’t tell anyone I said that]
 
The Trump tax reforms will also benefit nearly every biotech company, with one firm saying it expects a tax rate of just 13% a year in the next five years. That can only encourage more biotech research and development (R&D) spending.
 
Emerging new treatments and cures
 
Turning away from Trump (for now anyway), the news flow from the biotech sector in recent months has been almost biblical in the scale of the advances.  Unlike announcements of yester year, it’s not just mice and pigs who have benefitted from the latest results.
 
The following examples are split between stem cell advances and immunotherapy, and illustrate the rapidly emerging breakthroughs in a range of treatments, all announced in the last 3 months:
 
Stem cell treatment:
 
  • for multiple sclerosis, at this stage to at least halt its progress and relieve symptoms
  • to solve chronic back pain
  • to reverse early menopause in women
  • to reverse age-related macular degeneration
Immunotherapy has been used to take the brakes off the immune system so it can more effectively attack tumours.
 
This has already saved the lives of some men and women with:
 
  • Terminal prostate cancer (“the tumour was undetectable” after other treatments failed)
  • “Deadly” brain cancer (“the survival rate is quite remarkable”)
  • Terminal breast cancer
This last one is both heartening and instructive, it is the case of Judy Perkins. 
 
The doctors extracted the white blood cells capable of fighting the cancer, but which so far had been losing the battle.  They then grew huge quantities of those particular cells and pumped them back in – it’s a kind of “shock and awe” technique.
  
In the case of this lady, Judy Perkins, they pumped 90 BILLION of these cancer killing cells. She says that after just a week or two tennis-ball size tumours had simply disappeared.
 
And here is a picture of that 49-year-old lady, who now has her life back:
 
 
These therapies do not work for all patients, so we must not get carried away at this early stage. But progress is now rapid as doctors learn from all of these separate, but ground-breaking, successful treatments on humans.
 
Later this year and early next results are expected on Alzheimer’s from a company called Biogen, which is held by the Axa fund.
 
Be in no doubt that this is a volatile sector, and this fund has nearly 30% in micro and small caps, mostly in the US. The sector is very much news driven, and any purchase now assumes a string of positive stories for a few years yet.  But it might not happen.
 
I have painted a very positive picture, but there is no rule that says “Brian is right” (not yet anyway!).  Even if I was a specialist in biotech (which I’m certainly not), I would be largely talking my own book. Plus, for many of us this is a highly emotional area, and we must be wary of that.
 
That is why you MUST:
 
  • Restrict any purchase e.g. 5% of your portfolio
  • Decide a stop-loss level e.g. 10%?  Or 15% to allow for the volatility?
  • Apply that stop-loss without hesitation
 
FURTHER READING
 

Categories:

Fund analysis

Print

Share this post: