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Anthony Alfidi
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Anthony J. Alfidi is the founder and CEO of Alfidi Capital, a research firm in San Francisco, California. Alfidi Capital publishes free financial research with honesty and humor. Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame (cum laude) and... More
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  • Galectin Therapeutics (GALT) Misfired In 2014

    Galectin Therapeutics (GALT) just cannot catch a break these days. They announced a Q4 loss this week, just a day after a law firm announced an investigation of the management team's investor relations program. It's fair to wonder what went wrong.

    One of the company's drugs is GR-MD-02, a treatment for nonalcoholic steatohepatitis (NYSEARCA:NASH) with advanced fibrosis. The possible reversibility of fibrosis tempts drug makers to develop treatments. Alcoholics everywhere will rejoice when their liver problems are solved. Non-alcoholics will be even happier with a solution for fatty buildups that inflame livers. Chronic kidney disease (CKD) and end-stage renal disease (ESRD) are related ailments. The size of the market for fibrosis treatment can be approximated from CDC data on CKD and ESRD, and Medicare pays for a decent slice of the ESRD treatment market. In other words, a fibrosis treatment would reap financial rewards.

    Here's a run-down of Galectin's select metrics from Reuters. The company's ROA, ROI, and ROE are all disastrous over both the short term and long term. Galectin's destruction of investor capital is evident in over three years of progressively negative retained earnings. The GR-MD-02 drug has been under development at least since 2009, according to research papers Galectin cites on its website. More than half a decade is sufficient to show satisfactory Phase 2 trial results, and yet Galectin is just now beginning Phase 2 for GR-MD-02. Efficiency is not this company's strong suit.

    There is no turnaround in sight. Galectin will spend more years burning cash until it gets test results, if ever. I cannot be certain whether its drug pipeline will ever reach an addressable market for liver disease patients comparable to the CKD or ESRD markets.

    Mar 19 12:29 AM | Link | 1 Comment
  • Biotech Blowoff Beats Even Dot-Com Madness

    Annual health tech fests like the JPMorgan Health Care Conference,Biotech Showcase, and One Med Forum came and went this year in San Francisco. The star performers in this sector no doubt have a lot to brag about. They will also have a lot of explaining to do when the biotech and health care sectors eventually crash.

    The NASDAQ Biotechnology Index (NBI) has only been around since November 1993. It does not have as much history with the United States business cycle as the S&P 500. Retail investors did not need to pick stocks in this sector to compensate for whatever they lost in the 1990s dot-com crash. The iShares Nasdaq Biotechnology ETF (ticker IBB) was priced at $95.32 at inception on Feb. 12, 2001. It now stands at $341.43, a healthy gain for anyone who held it through the financial crisis and didn't get spooked when it dropped into the high 50s in March 2009.

    Consider that IBB's P/E of 24 signals a valuation far out of whack with what the health care sector of the economy can deliver in the future. IBB's components are large-cap stocks heavily weighted towards pharmaceuticals. Specialty drug makers have received an unsustainably large portion of prescription spending in recent years. The health insurance coverage that sustains all prescription spending is now heavily dependent on ACA subsidies. Anecdotes about the Affordable Care Act pale in comparison to the government's National Health Expenditure (NHE) data, which show how further projected increases in health care spending through 2023 are strongly driven by ACA coverage expansion.

    Continued ACA subsidies, like all other federal discretionary spending, depend very much on the US government's ability to borrow at low interest rates indefinitely. That is unsustainable. Any upward movement in interest rates would explode the federal government's interest costs on sovereign debt and immediately crowd out discretionary programs. The likely effects on politically popular entitlements like ACA handouts would include inflation indexing. Uncle Sam is an expert practitioner at artificially understating inflation to save on CPI-based entitlement costs. The end of endless cheap borrowing will bring the end of meaningful ACA subsidies and Medicare reimbursements. The health care and biotech sectors will not escape that banquet of consequences.

    Full disclosure: No position in IBB at this time. No position in other health care or biotech stocks at this time. One small private equity position in one medical device startup.

    Mar 11 12:18 AM | Link | 2 Comments
  • Thematic Investing Train Leaves The Station

    The finance sector is always ready to entertain some new theory. The latest is thematic investing, which can mean just about anything. A handful of asset managers and consultancies have think pieces telling institutional clients how to make this work. Do a Web search to read them yourselves. I poked around a number of reputable sources tracking thematic investing to see what's missing from the discussion.

    Academic validation is the main missing link. The academic research onfocus investing validates a very selective approach to investing in a small portfolio of actively selected stocks, provided those stocks have strong fundamentals and are held for the long term. Books covering Warren Buffett's methodology support this conclusion but it's worth mentioning that Buffett himself is genetically unique. No other human investor or human-created selection screen has been able to duplicate his performance. Ten years is the minimum for a long-term holding but active investors pursuing thematic investing usually don't have that kind of patience.

    Whether an average investor can outperform a broad market simply by starting with a pure macro idea is questionable. Investors awaiting hard evidence need only look at the poor track records of most hedge funds and sector-specific mutual funds to see the problems facing theme investing. The longer think pieces I've read on thematic investing emphasize wishy-washy concepts like hunches, feelings, and inclinations. Those are poor reasons to pick stocks. Thematic investing appeals to some of the lamest institutional investors, specifically sovereign wealth funds and pension plans, who fell for the Swensen-Yale investing model when it was hot.

    Plenty of macro ideas are just plain bad. "Globalization" is a very broad theme implying multinational corporations are best suited to handle it. The trouble is that multinationals are often tied to the regulatory environment of their home countries. Here's one I won't try: the "food-water-energy security nexus." It matters to geopolitical strategists who try to predict conflict flashpoints. It matters less to corporations that play it primarily by mitigating its risk.

    Thematic investing is not for everyone. Investors are welcome to pick their favorite sectors provided they know a sector inside and out. Sector market leaders have pricing power and the sectors themselves have barriers to entry (like switching costs) that deter competitors. Those are components of a Buffet-style durable competitive advantage. The dearth of competent investment managers means the mediocre majority will fall back on weak top-down selection strategies. Thematic investing is gaining speed with people who don't know where they're going.

    Tags: macro
    Mar 08 10:52 PM | Link | 1 Comment
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  • $GALT Galectin Therapeutics just keeps losing money:
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