SmileDirectClub shares tumble on new California law

SmileDirectClub says nothing in AB1519 requires ceasing or modify operations

SmileDirectClub (SDC) issued a statement on California Assembly Bill 1519, stating in part:

“We are pleased with the Governor’s signing statement for AB1519.

New California law sends shares lower, Stockwinners

While the authorizing nature of AB1519 made it difficult to veto the bill, the Governor clearly indicated that he expects all stakeholders to come to together to find a better way to create policy around teledentistry.

While this bill does not preclude SmileDirectClub’s continued operations in California, it will create unnecessary hurdles and costs to Californians that need care but struggle to afford it. The undebated, clinically unsupported, and ill-advised policy changes that are included in this bill – a bill that was intended to reauthorize the Dental Board of California until last-minute policy additions were added – have created arbitrary barriers to technological innovation…Simply put, this bill represents the dental lobby’s thinly-veiled attempt to protect traditional dentistry at the expense of Californians, and Governor Newsom made the correct choice in issuing his strongly-worded rebuke of the tactics and policy that this bill represents.

California law may require a dentist at every SDC shop, Stockwinners

Nothing in AB1519 requires SmileDirectClub to cease or modify its operations, and nothing regarding teledentistry in this legislation can take effect until the Board has given all stakeholders the opportunity to submit public comment and debate the merits of any proposed rules with clinically-based data – as the Governor has requested in his signing statement. To that effect, SmileDirectClub will be reaching out to our partners in the field to coordinate efforts so that a positive outcome for the industry – and for the California consumers – can be reached…To be clear, SmileDirectClub will continue to legally operate in California, we will be an active participant in the administration-directed public debates surrounding teledentistry, and we will continue to provide affordable orthodontic care to thousands of smiling Californians.

Moving forward, SmileDirectClub welcomes transparent policy debates that include all stakeholders.”

Heavy lobbying by both sides made AB-1519 national news, Stockwinners

UBS Comments

UBS analyst Kevin Caliendo noted that California Governor Gavin Newsom signed bill AB-1519 over the weekend and the law is expected to go into effect on January 1, 2020.

He thinks that SmileDirectClub may need to place dentists inside its shops due to the new law, though it is less clear if the bill will mean that patients will need to get x-rays as well as iTero scans, which may eventually be determined in court.

The analyst, who noted that SmileDirect is scheduled to report Q3 results on November 12, noted that he has received questions on if the company might pre-announce, but he has “no insight or precedent into whether the company will opt to do that or not.” Caliendo has a Buy rating and $24 price target on SmileDirectClub shares.

SDC shares are down 9% to $10.12 in Monday’s trading.

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Watch Shares of Adverum Biotechnologies!

Adverum Biotechnologies reports additional data from Phase 1 trial of ADVM-022

Adverum Biotechnologies (ADVM) announced additional clinical data for the first cohort of patients in the ongoing OPTIC phase 1 clinical trial of ADVM-022, the company’s intravitreal injection gene therapy, in treatment-experienced patients with wet age-related macular degeneration.

Adverum Biotechnologies reports additional data from Phase 1 trial of ADVM-022 in patients with wet age-related macular degeneration, Stockwinners

Adverum also announced enrollment plans for the third and fourth cohorts in the ongoing OPTIC trial.

The third cohort has been initiated and patients will be treated with ADVM-022 at a dose of 2 x 10^11 vg/eye, the same dose used in the second cohort.

Subsequently, patients in the fourth cohort will be treated with ADVM-022 at a dose of 6×10^11 vg/eye, the same dose used in the first cohort.

Since inflammation has generally been mild and responsive to steroid eye drops, patients in the third and fourth cohorts will receive prophylactic steroid eye drops instead of prophylactic oral steroids.

Previously, on September 12, 2019, Adverum presented data from the first cohort in the ongoing OPTIC trial at a pre-specified 24-week time point.

Wet and Dry Macular Degeneration, Stockwinners

The additional data for this cohort includes key outcomes with a median follow-up of 34 weeks.

In treatment-experienced patients previously requiring frequent anti-VEGF injections to maintain vision, the data continue to demonstrate that the single ADVM-022 injection in this cohort was sufficient to maintain vision, with zero rescue injections required for any of the six patients.

Aaron Osborne, MBBS, chief medical officer of Adverum, added, “The clinical profile of ADVM-022 demonstrates this gene therapy’s potential to be a significant advance for patients with wet AMD. It is very encouraging that there continues to be zero rescue injections in this cohort of treatment-experienced patients with more than 6 months follow-up on all patients. We are expanding the development of ADVM-022 and are excited to share that enrollment is now open for the third cohort in OPTIC.

We look forward to being able to deliver this novel intravitreal gene therapy candidate as soon as possible to patients with wet AMD and diabetic retinopathy, our second indication for ADVM-022. We are grateful for all of the investigators, patients, and caregivers who continue to participate in the OPTIC trial.”

Adverum plans to begin dosing patients in the third cohort of the OPTIC trial in the fourth quarter of 2019 and plans to begin enrollment in the fourth cohort in the first quarter of 2020.

Adverum plans to present 52-week data from the first cohort of patients in the OPTIC trial as well as 24-week data from the second cohort of patients in the first half of 2020.

Adverum plans to submit an investigational new drug application for the treatment of ADVM-022 in diabetic retinopathy in the first half of 2020.

Piper Jaffray

Commenting on Adverum Biotechnologies update at AAO, Piper Jaffray analyst Tyler Van Buren notes that zero rescue injections have been required and disease activity by OCT and visual acuity has been maintained with 6 ADVM-022 patients now out to a median of 34 weeks.

Importantly, despite the intense criticism over inflammation and visual acuity fluctuations during the initial data disclosure last month, numerous KOLs at the conference were unconcerned and believe that ADVM-022 looks like a potential treatment option so far, he contends.

Overall, the analyst argues that safety continues to be clean in these initial patients and looks forward to the 52-week update in first half of 2020.

Van Buren reiterates an Overweight rating and $14 price target on the shares as ADVM-022 continues to look like a viable gene therapy candidate for wet AMD, which has $1B-plus potential.

ADVM closed at $5.29.

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Enterprise Spending Drought

Forescout pummeled, Cisco falls amid weakening enterprise spending view

Shares of publicly-traded companies in the network security space are trading lower after Forescout Technologies (FSCT) announced preliminary results for its third quarter.

Forescout slashed its view on sales and profit for the quarter, as sales are seen getting pushed out to future quarters amid a weakening in the global macroeconomic environment.

Forescout shares tumble on weak demand, Stockwinners

EXPECTATIONS FALL

Forescout now sees total Q3 revenue of $90.6M-$91.6M as compared to its prior view of $98.8M-$101.8M. Non-GAAP operating loss for Q3 is expected to be in the range of $1.6M-$1.4M, compared to the company’s prior guidance range for an operating profit of $2.6M-$3.6M.

Forescout CEO Michael DeCesare said, “Q3 results were impacted by extended approval cycles which pushed several deals out of the third quarter.

This was most pronounced in EMEA against the backdrop of a challenging macro-economic environment. These deals were not lost to competitors and we are working to get them over the finish line.” JPMorgan analyst Sterling Auty downgraded ForeScout to Neutral from Overweight after the company announcement.

Auty cut his price target for ForeScout shares to $35 from $54. He also called this the “first notable negative preannouncement” in the software sector and thinks investors will be watching carefully to see if there are further issues that will cause multiples in the space to contract further.

ENTERPRISE SPENDING DROUGHT

Adding to the negativity in the Enterprise space was a Cisco Systems (CSCO) downgrade from Goldman Sachs.

Goldman Sachs downgrades Cisco Systems, Stockwinners

Goldman Sachs analyst Rod Hall downgraded Cisco Systems to Neutral from Buy with a price target of $48, down from $56.

Large enterprise spending will continue to weaken and telecom spending activity will remain depressed in the near term, Hall stated.

The analyst noted that Goldman’s Enterprise Activity Index deteriorated in September, while his latest reseller survey was also incrementally negative on enterprise spending trends. PRICE ACTION: Shares of Forescout are down over 35.5% to $25.26 while Cisco is down over 2%.

OTHER STOCKS TO WATCH

Other companies to watch in the enterprise and security space include A10 Networks (ATEN), Check Point (CHKP), CyberArk (CYBR), Cyren (CYRN), and Fortinet (FTNT).

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Sarepta reports positive results for muscular dystrophy Type 2E treatment

Sarepta announces results from gene therapy trial for beta sarcoglycanopathy

Sarepta Therapeutics (SPRT) announced the nine-month functional results from three Limb-girdle muscular dystrophy Type 2E ,LGMD2E, clinical trial participants who received SRP-9003. SRP-9003 is an investigational gene therapy intended to transduce skeletal and cardiac muscle with a gene that codes for the full-length, native beta-sarcoglycan protein, the lack of which is the sole cause of LGMD2E.

Sarepta drops after U.K. trial halt,
Sarepta rises on muscular dystrophy data, Stockwinners

In Cohort 1 of the SRP-9003 study, three participants ages 4-13 were treated with an infusion of SRP-9003 at a dose of 5x1013vg/kg.

Improvements in functional outcomes were observed at day 270 for all three participants.

“We have now observed consistent functional improvements, in addition to high levels of expression of the missing protein of interest and strong results in related biomarkers, in both of our first cohorts for Duchenne muscular dystrophy and LGMD2E. We intend to test one higher dose of SRP-9003 in LGMD2E participants, select our clinical dose and then advance our SRP-9003 program, along with our other five LGMD programs, as rapidly as possible,” said Doug Ingram, Sarepta’s president and chief executive officer.

“With the results of our first LGMD2E cohort, Sarepta continues to build its gene therapy engine, an enduring model created to design, develop and bring to the medical and patient community transformative therapies for those living with, and too often dying from, rare genetic disease.”

No new safety signals were observed and the safety profile seen to date supports the ability to dose escalate in the next cohort of the study. As previously disclosed, two participants in the study had elevated liver enzymes, one of which was designated a serious adverse event (SAE), as the participant had associated transient increase in bilirubin. Both events occurred when the participants were tapered off oral steroids and, in both instances, elevated liver enzymes returned to baseline and symptoms resolved following supplemental steroid treatment.

SPRT is up $5.52 to $86.86.

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AstraZeneca and Merck report prostate cancer data

AstraZeneca, Merck presents results from Phase 3 PROfound trial of LYNPARZA

AstraZeneca (AZN) and Merck (MRK) presented detailed results from the Phase 3 PROfound trial in 387 men with metastatic castration-resistant prostate cancer who have a mutation in their homologous recombination repair genes and whose disease had progressed on prior treatment with new hormonal agent treatments e.g. abiraterone or enzalutamide.

see Stockwinners.com
AstraZeneca and Merck report prostate cancer, Stockwinners

The trial was designed to analyze men with mCRPC harboring HRR-mutated genes in two cohorts: the primary endpoint was in those with mutations in BRCA1/2 or ATM genes and then, if LYNPARZA showed clinical benefit, a formal analysis was performed of the overall trial population of men with HRRm genes.

Merck presents results from Phase 3 KEYNOTE-426 study, Stockwinners
AstraZeneca and Merck report prostate cancer , Stockwinners

Results showed a statistically-significant and clinically-meaningful improvement with LYNPARZA in the primary endpoint of radiographic progression-free survival in BRCA1/2 or ATM-mutated tumors reducing the risk of disease progression or death by a median of 7.4 months versus 3.6 months for those receiving abiraterone or enzalutamide.

LYNPARZA reduced the risk of disease progression or death by 66% for these men. The trial also met the key secondary endpoint of rPFS in the overall HRRm population, where LYNPARZA reduced the risk of disease progression or death by 51% and improved rPFS to a median of 5.8 months vs. 3.5 months for those receiving abiraterone or enzalutamide.

In the key secondary endpoint of time to pain progression, median TTPP was not reached with LYNPARZA and was 9.92 months with abiraterone and enzalutamide in patients with BRCA1/2 or ATM mutations.

Results also showed a trend at this interim analysis time point for improvement in overall survival, another key secondary endpoint. LYNPARZA extended OS to a median of 18.5 months versus 15.1 months for abiraterone or enzalutamide in men with BRCA1/2 or ATM-mutated tumors, of which 81% started on abiraterone or enzalutamide and, following confirmed disease progression, then switched to LYNPARZA.

At this interim analysis, the OS endpoint did not meet statistical significance. In an exploratory analysis, a similar trend in OS was observed at this interim analysis in the HRRm population with a median of 17.5 months for men treated with LYNPARZA vs. 14.3 months for those receiving abiraterone or enzalutamide.

The trial showed a confirmed overall response rate a key secondary endpoint of 33.3% for LYNPARZA vs. 2.3% for abiraterone or enzalutamide in patients with BRCA1/2 or ATM mutations.

In an exploratory analysis of patients in the overall HRRm population, confirmed ORR was 21.7 % for LYNPARZA vs. 4.5% for patients receiving abiraterone or enzalutamide. The safety and tolerability profile of LYNPARZA in the PROfound trial was in line with that observed in prior clinical trials.

The most common adverse events greater than or equal to20% for LYNPARZA compared to abiraterone or enzalutamide were anemia, nausea, fatigue and asthenia, decreased appetite, and diarrhea. Grade 3 or above AEs were anemia, fatigue and asthenia, vomiting, dyspnea, urinary tract infection, nausea, decreased appetite, diarrhea, and back pain. AEs led to discontinuation of treatment in 16% of patients on LYNPARZA vs. 9% on abiraterone and enzalutamide.

AstraZeneca and Merck are also exploring additional trials in prostate cancer, including the ongoing Phase 3 PROpel trial, evaluating LYNPARZA as a first-line therapy in mCRPC for patients with or without HRR mutations, in combination with abiraterone acetate.

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Aptiv, Hyundai Motor to form autonomous driving joint venture

Aptiv, Hyundai Motor to form autonomous driving JV

Aptiv (APTV) and Hyundai Motor Group (HYMTF) announced that they will be forming an autonomous driving joint venture.

This partnership brings together one of the industry’s most innovative vehicle technology providers and one of the world’s largest vehicle manufacturers.

Aptiva scores a victory by forming JV with Hyundai, Stockwinners

The joint venture will advance the design, development and commercialization of SAE Level 4 and 5 autonomous technologies, furthering the partners’ leadership position in the global autonomous driving ecosystem.

The joint venture will begin testing fully driverless systems in 2020 and have a production-ready autonomous driving platform available for robotaxi providers, fleet operators, and automotive manufacturers in 2022.

As part of the agreement, Hyundai Motor Group and Aptiv will each have a 50 percent ownership stake in the joint venture, valued at a total of $4B.

Hyundai forms autonomous driving joint venture, Stockwinners

Aptiv will contribute its autonomous driving technology, intellectual property, and approximately 700 employees focused on the development of scalable autonomous driving solutions.

Hyundai Motor Group affiliates – Hyundai Motor, Kia Motors and Hyundai Mobis – will collectively contribute $1.6B in cash at closing and $0.4B in vehicle engineering services, R&D resources, and access to intellectual property.

The partnership reinforces the companies’ shared vision of making mobility more safe, green, connected, and accessible by advancing the development and commercialization of the highest-performing and safest autonomous vehicles.

Shares of Aptiva are up 1.6% to $88.50.

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Federal Reserve cuts benchmark interest rate by 25 basis points

Fed Chair Powell says more rate cuts could be needed if economy weakens

The Federal Reserve voted to cut interest rates by a quarter-percentage point for the second time in as many months to cushion the economy against a global slowdown amplified by the U.S.-China trade war. While they left the door open to additional cuts, officials were split over the decision and the outlook for further reductions.

Voting for the today’s 25 basis point cut today were Federal Reserve Chairman Jerome Powell, John Williams, Michelle #Bowman, Lael #Brainard, Richard #Clarida, Charles #Evans, and Randal #Quarles. Voting against the action were James #Bullard, who preferred at the meeting to lower the target range for the federal funds rate to 1.5% to 1.75%, and Esther George and Eric Rosengren, who preferred to maintain the target range at 2% to 2.25%.

FOMC Chair Powell votes for rate cut., Stockwinners

The Federal Reserve said in today’s statement, “Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

Trade Negotiations

Fed Chair Powell said the Fed has to try to look through near-term volatility due to “complex” trade negotiations to react to the underlying economic situation. Powell said the central bank needs to be careful to not overreact but also to not underreact.

The Fed continues to see a strong labor market and reiterated that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.

Stockwinners.com

There was still a split between solid household spending, but weakening in business fixed investment and exports. Inflation is still running below 2%, while market-based measures of remain low. The Committee continued to appeal to implications of global developments for the economic outlook and low inflation as rationale for the easing.

More from Powell: this is a time of difficult judgments and disparate perspectives. The bulk of the FOMC is taking it meeting-by-meeting. He continues to believe it’s better to be proactive when adjusting policy, and when trouble is seen approaching on the horizon, you should steer away from it if possible. The Fed has repeatedly shifted policy to support the economy, showing the Fed’s willingness to to move based on an evolving risk picture. There’s real uncertainty around the effects of the trade policy. On the funding issues seen this week, Powell said analysts took appropriate actions to address the pressures. If there are additional pressures, analysts have the tools to address the funding pressures and analysts will not hesitate to use them. The Fed will be returning to the question of when to build the balance sheet. The level remains uncertain, however.

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FDA panel approves Aimmune Therapeutics’ peanut allergy treatment

FDA Panel approves peanut allergy treatment, Stockwinners

A Food and Drug Administration panel voted 8-1 in favor of the benefits of Aimmune Therapeutics’ (AIMT) peanut allergy treatment outweigh the risks. The panel also voted 8-1 in favor of the drug’s safety. The body of independent advisers voted 7-2 in favor of effectiveness.

If approved, Palforzia could come with a Risk Evaluation and Mitigation Strategy, or REMS. A REMS includes special steps a physician must take when prescribing a medication to limit serious side effects.

Side effects are key when it comes to Palforzia. In a key study, 11.6% of patients who received the peanut allergy treatment dropped out due to side effects vs. 2.4% of patients who took a placebo. Further, Palforzia patients needed emergency allergy shots more frequently.

Peanut allergy is expected to be a $3.9B market by 2027, Stockwinners

The advisory committee vote is not binding, but is a recommendation to the full FDA.

Peanut allergies are the leading cause of death from food-induced allergic reactions in the United States but a lack of approved preventive treatments has left patients and caregivers desperate for options.

Palforzia, previously known as AR101, is an oral immunotherapy consisting of fixed doses of powdered peanut that is sprinkled over food daily.

While it does not aim to cure peanut allergy, the treatment’s clinical trials have shown that patients consuming small doses of the substance to which they are allergic become desensitized over time, reducing the likelihood or severity of a reaction to it.

Stockwinners.com

If approved, Palforzia is expected to have a black box warning, the FDA’s harshest, and strict restrictions requiring the therapy to be administered in a certified facility.

Aimmune expects to win approval for use of Palforzia in patients aged 4 to 17 and said it is considering a list price range of between $3,000 and $20,000 a year.

Analyst Comments

Piper Jaffray analyst Christopher Raymond kept an Overweight rating and $60 price target on Aimmune after an FDA’s Allergenic Products Advisory Committee, or APAC, voted in favor of the company’s AR101 peanut allergy drug on both efficacy and safety.

The analyst said, after the vote, he “increasingly likes the chances for Palforzia approval by late January 2020 (if not sooner).” Raymond noted that the stock is likely to open sharply higher on Monday as there is a 30% short interest in Aimmune, and said he is a buyer on the open as he sees “a lot of room to go.”

AIMT last traded at $24.67.

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Assurance IQ sold for $2.35 billion

Prudential acquires Assurance IQ for $2.35B plus additional earnout up to $1.5B

Prudential Financial (PRU) announced that it has signed a definitive agreement to acquire Assurance IQ, “a profitable, fast-growing direct-to-consumer platform that transforms the buying experience for individuals seeking personalized health and financial wellness solutions.”

Prudential Financial (PRU) announced that it has signed a definitive agreement to acquire Assurance IQ, "a profitable, fast-growing direct-to-consumer platform that transforms the buying experience for individuals seeking personalized health and financial wellness solutions."
Prudential pays $2.35 B for Assurance. Stockwinners

Terms of the acquisition include a total upfront consideration of $2.35 billion, plus an additional earnout of up to $1.15 billion in cash and equity, contingent upon Assurance achieving multi-year growth objectives.

Under the terms of the agreement, Assurance will become a wholly owned subsidiary of Prudential under the U.S. Businesses division.

Prudential buys Assurance IQ for $2.5B, Stockwinners

Assurance co-founders Michael Rowell and Michael Paulus will continue to focus on the growth of Assurance.

Rowell will remain CEO of Assurance and report to Andrew Sullivan, who will assume the role of executive vice president and head of U.S. Businesses as of December 1.

Paulus will remain president of Assurance.

The acquisition is expected to be modestly accretive to EPS and ROE starting in 2020.

In addition to enhancing the growth of Prudential’s financial wellness businesses, the acquisition is expected to generate cost savings of $50 million to $100 million, in addition to the $500 million of expected margin expansion by 2022 discussed at Prudential’s June Investor Day.

Prudential plans to use a combination of its current cash, debt financing and equity to fund the acquisition, which is expected to close early in the fourth quarter of 2019. Prudential’s Board of Directors unanimously approved the transaction.

Prudential’s Board of Directors has authorized a $500 million increase to its share repurchase authorization for calendar year 2019.

As a result, the share repurchase authorization for the full year 2019 is $2.5 billion.

As of June 30, Prudential had repurchased $1.0 billion of shares of its common stock under this authorization.

Prudential expects to fully utilize this increased share repurchase authorization by the end of 2019.

PRU +$2.21 to $81.85

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Celgene sells its Otezla to Amgen for $13.4 billion

Amgen to acquire Otezla from Celgene for $13.4B in cash

Amgen (AMGN) announced that it has entered into an agreement with Celgene (CELG) in connection with its previously announced merger with Bristol-Myers (BMY) to acquire worldwide rights to Otezla, “the only oral, non-biologic treatment for psoriasis and psoriatic arthritis,” and certain related assets and liabilities, for $13.4B in cash, or approximately $11.2B, net of the present value of $2.2B in anticipated future cash tax benefits.

Bristol Meyers Comments on Celgene purchase, Stockwinners
Celgene sells Otezla to pave the way for its merger with Bristol-Meyers, Stockwinners

Otezla (apremilast) is a prescription medicine approved for the treatment of patients with moderate to severe plaque psoriasis for whom phototherapy or systemic therapy is appropriate. Otezla is a prescription medicine approved for the treatment of adult patients with active psoriatic arthritis. Otezla is a prescription medicine approved for the treatment of adult patients with oral ulcers associated with Behçet’s Disease.

Amgen goes shopping, Stockwinners

Amgen believes that the acquisition of Otezla offers many benefits including: A strong strategic fit with Amgen’s long-standing expertise in psoriasis and inflammation; A differentiated, oral therapy complementary to Amgen’s existing inflammation franchise of innovative biologics and biosimilar products; At least low double-digit Otezla sales growth, on average, over the next five years; Acceleration of Amgen’s near- and long-term revenue growth; Immediate non-GAAP EPS accretion; Intellectual Property exclusivity through at least 2028 in the U.S.; Worldwide rights which fit well with Amgen’s international presence and global expansion objectives; Support of increased R&D investment in 2020 to advance Amgen’s innovative pipeline of first-in-class molecules; No interruption in deployment of Amgen’s capital allocation priorities. Sales of Otezla in 2018 were $1.6B driven by strong volume growth.

Bristol-Myers treatment for colorectal cancer approved, Stockwinners
Bristol-Myers is in the process of buying Celgene, Stockwinners

The closing of the acquisition is contingent on Bristol-Myers entering into a consent decree with the Federal Trade Commission in connection with the pending Celgene merger, the closing of the pending merger with Celgene and the satisfaction of other customary closing conditions.

The transaction is expected to close by the end of 2019.

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CBS and Viacom to merge

CBS, Viacom to combine in all-stock merger to create ViacomCBS

CBS Corp. (CBS) and Viacom (VIA, VIAB) announced they have entered into a definitive agreement to combine in an all-stock merger, creating a combined company with more than $28B in revenue.

The combined company, ViacomCBS, “will be a leading global, multiplatform, premium content company, with the assets, capabilities and scale to be one of the most important content producers and providers in the world,” the companies stated.

Viacom, an acronym of Video & Audio Communications to merge with CBS, Stockwinners

Bob Bakish, President and CEO, Viacom, will become President and Chief Executive Officer of the combined company.

Joe Ianniello, President and Acting CEO, CBS, will become Chairman and CEO of CBS and will oversee all CBS-branded assets in his new role.

CBS to merge with Viacom to compete with Disney, Netflix, Stockwinners

The merger agreement was approved by the boards of directors of both CBS and Viacom by unanimous vote of those present, upon the unanimous recommendations of the Special Committees of the CBS and Viacom Boards of Directors, respectively.

Existing CBS shareholders will own approximately 61% of the combined company and existing Viacom shareholders will own approximately 39% of the combined company on a fully diluted basis.

Under the terms of the merger agreement, each Viacom Class A voting share and Viacom Class B non-voting share will convert into 0.59625 of a Class A voting share and Class B non-voting share of CBS, respectively.

NAI, which holds approximately 78.9% and 79.8% of the Class A voting shares of CBS and Viacom, respectively, has agreed to deliver consents sufficient to assure approval of the transaction.

More than two-thirds of the CBS directors unaffiliated with NAI, and all of those unaffiliated directors who voted on the transaction, have approved the transaction, as required in order to permit NAI to consent to the transaction under the terms of the 2018 settlement agreement entered into among CBS, NAI and certain other parties thereto.

The transaction is subject to regulatory approvals and other customary closing conditions. It is expected to close by the 2019 calendar year end.

Sumner Redstone is the majority owner and chairman of the board of the National Amusements (NAI) theater chain. Through National Amusements, Redstone and his family are majority voting shareholders of CBS Corporation and Viacom (itself the parent company of Viacom Media Networks, BET Networks, and the film studio Paramount Pictures). Redstone was formerly the executive chairman of both CBS and Viacom. 

ANALYST COMMENTS

Bernstein

Bernstein analyst Todd Juenger downgraded CBS (CBS) to Underperform from Market Perform following the company’s confirmation earlier of a deal to combine in an all-stock merger with Viacom (VIAB). Any synergies produced “will pale in comparison” to inheriting Viacom’s structural problems, Juenger tells investors.

Imperial Capital

 Imperial Capital analyst David Miller lowered his price target for CBS (CBS) to $62 from $72. The analyst says that while this is generally consistent with where both names had been trading for the last 90 days, the ratio is below what he had been hoping for from the Viacom side, which was a ratio of 0.7. Nonetheless, Miller keeps an Outperform rating on shares of CBS.

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Wesco Aircraft sold for $1.9 billion

Wesco Aircraft to be acquired by Platinum Equity affiliate for $1.9B

Wesco Aircraft sold to Carlyle Group affiliate, Stockwinners

Wesco Aircraft Holdings (WAIR) announced that it has entered into a definitive merger agreement to be acquired by an affiliate of Platinum Equity in a transaction valued at approximately $1.9B.

Upon closing, Wesco will be combined with Platinum Equity portfolio company Pattonair, a provider of supply chain management services for the aerospace and defense industries based in the United Kingdom.

Under the agreement, which has been unanimously approved by Wesco’s Board of Directors, Wesco shareholders would receive $11.05 per share in cash.

The cash purchase price represents a premium of approximately 27.5 percent to the 90-day volume weighted average share price for the period ended May 24, 2019, the last trading day prior to media speculation regarding a potential transaction involving Wesco Aircraft.

Wesco’s three largest shareholders, affiliates of The Carlyle Group (CG) and Makaira Partners, as well as the Snyder Family Trusts, support the transaction and have entered into voting and support agreements to vote their shares in favor of the transaction.

CG to buy Wesco Aircraft, Stockwinners

The transaction will be financed through a combination of committed equity financing provided by affiliates of Platinum Equity Capital Partners IV, L.P., as well as debt financing that has been committed to by Bank of America Merrill Lynch.

The transaction is expected to be completed by the end of calendar 2019 and is subject to Wesco shareholder approval, regulatory clearances and other customary closing conditions.

Upon the completion of the transaction, Wesco will become a privately held company, and shares of its common stock no longer will be listed on any public market.

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Cambrex sold for $2.4 billion

Cambrex to be acquired by Permira Funds for $60.00 per share in cash, or $2.4B

Cambrex sold for $2.4 billion, Stockwinners

Cambrex (CBM) announced that it has signed a definitive agreement to be acquired by an affiliate of the Permira funds in a transaction valued at approximately $2.4B, including Cambrex’s net debt.

Under the terms of the merger agreement, Cambrex shareholders will receive $60.00 in cash for each share of Cambrex common stock, which represents a 47.1% premium to the August 6 closing stock price and a 37.3% premium to the 60-day volume weighted average closing price leading up to this announcement.

Completion of the transaction is subject to customary closing conditions, including receipt of approval by Cambrex’s shareholders and customary regulatory approvals. Closing is expected to occur during the fourth quarter.

Permira goes shopping, Stockwinners

The transaction will be financed through a combination of debt and equity financing.

Cambrex Corporation provides various products and services for the development and commercialization of new and generic therapeutics worldwide. Its products comprise active pharmaceutical ingredients and pharmaceutical intermediates that are used in the production of prescription and over-the-counter drug products, as well as finished dosage forms.

The company serves generic drug companies; and companies that discover and commercialize small molecule human therapeutics. The company sells its products directly, as well as through independent agents. 

Cambrex announced that it will not hold a second quarter 2019 earnings conference call and will not update previously provided financial guidance given the pending acquisition.

The Permira investment team advises the Permira Funds. The investment team identifies long-term macro trends to back, across five key sectors including healthcare. Healthcare is one of the World’s largest industries, spanning hundreds of sub-sectors (e.g., from Biotechnology to Heavy Medical Equipment, from Hospitals to Veterinary medicine). It has the potential to create significant value for its customers through improving the human experience but its costs are also potentially limitless. The sector’s fundamental trends and complexity along with its scale generate attractive investment opportunities.

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Exotic Metals sold for $1.725B

Parker-Hannifin to acquire Exotic Metals for $1.725B in cash

Exotic Metals sold to Parker Hannifin, Stockwinners

Parker Hannifin Corporation (PH) announced that it has entered into a definitive agreement to acquire Exotic Metals Forming Company LLC for $1.725B in cash. When adjusted for approximately $170M of expected tax benefits, the net transaction value is approximately $1.56B.

Parker enters exotic metals business, Stockwinners

The transaction has been approved by the Board of Directors of each company and is subject to customary closing conditions, including receipt of applicable regulatory approvals.

Exotic Metals, headquartered in Kent, Washington, is a privately held company founded in 1966 that designs and manufactures innovative and technically demanding, high temperature, high pressure air and exhaust management solutions for aircraft and engines.

Exotic Metals has expected annual sales of approximately $450M and employs 1,600 team members across three locations in the United States.

Exotic Metals has long-term agreements in place across high growth aerospace programs.

Exotic Metals makes the exhaust cone for GE engines, Stockwinners

Parker also expects growth synergies through cross-selling opportunities and leveraging Parker’s strong aftermarket position.

Parker expects to realize approximately $13M in pre-tax run-rate synergies by fiscal year 2023 by combining supplier networks and implementing Win Strategy initiatives. The cumulative cost to achieve these synergies is expected to be approximately $5M.

The transaction is expected to be accretive to Parker’s organic growth, EBITDA margins, EPS and cash flow, after adjusting for one-time costs, and to achieve high single-digit ROIC in year five with continued expansion.

Upon the closing of this transaction, Parker plans to have Exotic Metals operate as a standalone division within Parker’s Aerospace Group, which is led by Roger Sherrard, Vice President and President Aerospace Group.

Exotic Metals manufactures the intake blades for GE engines, Stockwinners

Parker plans to finance the transaction using new debt.

Following the completion of the transaction, Parker expects to maintain a high investment grade credit profile.

The transaction is not expected to impact Parker’s dividend payout target of approximately 30-35% average percent of net income over a five-year period, while maintaining its record of annual dividend increases.

The transaction is expected to be completed within the next two to three months and is subject to customary closing conditions, including receipt of applicable regulatory approvals.

PH last traded at $172.46, down $2.45.

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Tesla crashes after latest report

Model Y to become available in the U.S. in Fall 2020

Model 3 to become available in China in Fall 2020

Tesla (TSLA) shares are sharply lower in Thursday’s trading after the electric car maker posted a loss that surprised investors.

Tesla (TSLA) reported a 2nd Quarter June 2019 loss of $1.12 per share on revenue of $6.3 billion. The consensus estimate was a loss of $0.52 per share on revenue of $6.4 billion. Revenue grew 58.7% on a year-over-year basis.

https://stockwinners.com/blog/
Tesla shares tumble following its results, Stockwinners

The company said in it continues to expect positive GAAP earnings in the third quarter. The current consensus estimate is earnings of $0.27 per share for the quarter ending September 30, 2019. Tesla reported 95,356 vehicle deliveries in Q2 and production of 87,048 vehicles in Q2.

Tesla CEO says Model Y production ramp will be ‘significantly faster’ – Musk cites parts compatibility of the company’s existing models. 

Tesla CEO Elon Musk wrote in the company’s Q2 update letter, “This quarter, we are simplifying our approach to guidance. We are most focused on expanding our manufacturing footprint in new regions, launching new products and continuing to improve the customer experience, while generating and using cash sustainably. Local production and improved utilization of existing factories is essential to be cost competitive in each region.

Tesla Model 3 named Popular Mechanics' Car of the Year
Tesla Model 3 to become available in China, Stockwinners

We remain on track to launch local production of the Model 3 in China by the end of the year and Model Y in Fremont by fall of 2020. We are also accelerating our European Gigafactory efforts and are hoping to finalize a location choice in the coming quarters. We are working to increase our deliveries sequentially and annually, with some expected fluctuations from seasonality. This is consistent with our previous guidance of 360,000 to 400,000 vehicle deliveries this year. Additionally, we expect positive quarterly free cash flow, with possible temporary exceptions, particularly around the launch and ramp of new products. We believe our business has grown to the point of being self-funding. We continue to aim for positive GAAP net income in Q3 and the following quarters, although continuous volume growth, capacity expansion and cash generation will remain the main focus. Our 2019 capex is expected to be about $1.5B-$2.0B, a reduction from prior guidance. We continue to find opportunities to improve capital efficiency and shift cash outflows to future periods. This estimate includes the development of our main projects, on the timelines referenced, and to expand our Supercharger and service networks.”

TSLA shares are down $36.90 to $228.50

Model Y to become available Fall 2020, Stockwinners

ANALYSTS’ COMMENTS

Barclays

Neither revenues nor earnings were “anywhere near a record” in Tesla’s Q2 results, which “calls into question the growth story,” Barclays analyst Brian Johnson tells investors in a research note. The analyst believes Tesla’s loss in Q2 “should mark the top of the current ‘swing trade.'”

The results should temper bullish expectations for profit leverage, says Johnson, who reiterates an Underweight rating on the shares with a $150 price target.

Canaccord

Canaccord analyst Jed Dorsheimer lowered his price target on Tesla to $350 from $394 following Q2 results that were roughly inline with his expectations.

The analyst said its free cash flow suggests the company has a bit more time to grow into its profitability expectations. Dorsheimer maintained his Buy rating on Tesla shares.

Credit Suisse

Credit Suisse analyst Dan Levy notes that Tesla posted a Q2 EPS miss. Broadly, while Tesla has maintained its narrative, the analyst expects the stock to be under pressure near-term, as expectations had risen post the Q2 deliveries release earlier this month. Levy reiterates an Underperform rating and $189 price target on the shares as the Q2 results reminded him of the challenges ahead for Tesla in gross margin, especially as it relates to Models S/X. While Tesla has maintained its delivery guidance, he believes the company will be challenged to meet it given challenges to S/X volumes and the phase-out of the U.S. EV tax credit.

Model S interior, Stockwinners

Jefferies

Tesla last night reported a “challenging set of numbers,” although its pre-restructuring loss was in line with consensus estimates and its free cash flow better with a $600M operating inflow, Jefferies analyst Philippe Houchois tells investors in a research note titled “Q2 Challenging but Still Encouraging.”

Tesla’s vehicle gross margin improved but remains low for sustainable profitability at this stage, adds the analyst. Further, he believes e. JB Straubel moving to an advisory position adds to fears of “executive fatigue.” Houchois keeps a Buy rating on Tesla with a $300 price target.

JMP Securities

JMP Securities analyst Joseph Osha lowered his price target on Tesla to $337 after its Q2 results, saying the company’s revenue was “solid” but gross margins disappointed even in the absence of reduced regulatory credits.

The analyst adds that the output of 87K cars was below capacity, which is a positive because of “low utilization” of its Model S and X, but notes that the “fixed-cost asset under-absorption” suggests the company is struggling with reducing Model 3 costs as expected.

Morgan Stanley

Following Tesla’s analyst call, Morgan Stanley analyst Adam Jonas shares his key thoughts, including his view that JB Straubel giving up the Chief Technical Officer role “may be the biggest news of the quarter.” It is unclear what motivated the 15-year veteran of the company to give up direct operational responsibility, but, “unfortunately, nobody asked this on the call,” Jonas said.

Elon Musk said that Q4 will be “very strong, but said the first and second quarters of 2020 will be “tough,” noted Jonas, who thinks investors should be ready for more quarter-to-quarter sales volatility heading into 2020. He keeps an Equal Weight rating and $230 price target on Tesla shares.

Model X sales slow down, Stockwinners

Needham

Needham analyst Rajvindra Gill kept his Underperform rating on Tesla after its “significant” loss reported in Q2 along with a “slight” increase in its margins hurt by average selling price reductions across all of its vehicle models. The analyst notes that while the company affirmed its FY19 delivery target and forecast profitability in Q4, he is cautious on that outlook as it would require a “significant snapback” in the second half of the year. Gill sees Tesla remaining challenged by “structurally low margins” and growing competition.

Nomura Instinet

Nomura Instinet analyst Christopher Eberle lowered his price target for Tesla to $270 from $300 following last night’s “mixed” Q2 results. Deliveries exceeded initial expectations meaningfully, but profitability metrics “underwhelmed,” Eberle tells investors in a post-earnings research titled “Spinning Its Wheels.”

The analyst doubts the quarter “will inspire enough confidence to get the stock working.” As such, he keeps a Neutral rating on Tesla.

Oppenheimer

Oppenheimer analyst Colin Rusch lowered his price target for Tesla to $356 from $437, noting that while automotive revenue and full company free cash flow beat expectations, full company revenue, gross margin and EPS results were below, driven partially by Model S/X ASP declines.

The analyst believes this dynamic will fuel bearish investors focused on limited demand for Tesla products, but believes bulls will focus on strong volumes, stable Model 3 ASP and better than expected cash flow as the company appears to be getting increasingly efficient with its spending. Rusch has an Outperform rating on the shares.

Piper Jaffray

Piper Jaffray analyst Alexander Potter reiterates an Overweight rating on Tesla following last night’s Q2 results while lowering his price target for the shares to $386 from $396.

Forward looking metrics related to revenue, such as orders and deliveries, are “all trending in the right direction – and that’s probably the most important thing,”

Potter tells investors in a research note. The post-market selloff was driven initially by mix-related concerns, and the resulting pressure on gross margin, but then Tesla’s Chief Technology Officer subsequently resigned on the earnings call, and the selling pressure intensified, explains Potter. He believes today’s pullback provides an entry point into Tesla shares.

Roth Capital

Roth Capital analyst Craig Irwin lowered his price target for Tesla to $224 form $238 after the company posted weak Q2 EPS, with automotive margins marking the lowest levels since Q1 of 2018. The analyst reiterates a Neutral rating on the shares.

Wedbush

Wedbush analyst Daniel Ives lowered his price target for Tesla to $220 from $230 to reflect a softer margin profile and pushed out profitability looking ahead. The analyst notes that the company delivered some bad news that will weigh on shares on Thursday as the company significantly missed the Street on the bottom line with “disappointing” gross margins that fundamentally call into question its ability to show sustainable profitability on the heels of lower margin Model 3 units going forward. Ives reiterates a Neutral rating on the shares.

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This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.