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I hope you own it: Merck’s deal just made my favourite pharma more valuable

Nov 21, 2022

Good morning!

Stocks are firmly in the red as I type in early going.

Many people are trying to read into the early downdraft, but that’s a fool’s errand—for reasons I’ll explain in a moment.

Here’s my playbook.

My POV: holiday trading conditions

Holiday trading gets funky. Traders often leave early, volumes lighten up, and spreads—the difference between how much a buyer is willing to pay for a stock and how much a seller wants to part with it—widen to the point where you can drive a truck through ‘em. That leaves the computers in charge.

It’s a time to “do nothing,” which, I noted to the fantastic Ashley Webster on FOX Business News this morning, is a key part of my plan this week. (Watch)

First, focus on the best but ignore the rest.
Second, let the markets guide you instead of trying to predict things you cannot control.
Third, get your “buy” list ready!

You do have one, right??!!

I’d love to help if you don’t. I write One Bar Ahead®, a research journal enjoyed by savvy investors around the world, including individuals, hedgies, professional advisors, and others. It doesn’t matter if you’ve got a little or a lot, are a grizzled grey-beard like me or just starting out, there’s something for everyone! Upgrade to paid

Disney's board to Iger: fix it!

Disney CEO Bob Chapek wanted to upset no one but instead upset everyone. The cost has been horrific during his tenure. Billions of dollars squandered—and that’s not counting the millions of people who swore they’d never set foot inside a Disney theme park ever again.

Now Bob Iger’s back in the CEO seat. Disney canned Chapek to bring back Iger in a stunning move Susan Arnold, Disney’s chairman of the board, called a “pivotal period.”

Disney was a favourite of mine for years; this could put the company back on keel. Many people are buying now, but I think Iger will have his work cut out for him. I’m inclined to give it a quarter or two.

500 reasons you'll want to own a vaccine company

What’s happening. According to the WHO’s “Immunization Agenda 2030,” vaccine companies will introduce more than 500 new or underutilized vaccines on a national or subnational level... for everything from rotavirus to human papillomavirus (HPV).

It’s back on my radar because countries will now focus on ramping up missing vaccinations and rebuilding essential services as outlined in the initial January 2021 document. (Read)

Why you should care even if you hate the idea. The plan includes mandatory vaccinations for everybody on the planet, no exemptions. Oh… and your funding will get cut if you don’t play ball.

My favourite vaccine maker just got a whole lot more valuable! Not for nothing, but all that medicine is going to have to get from the lab into your arm. And everyone else’s if the WHO gets its way! Upgrade to Paid

Why Merck really paid $1.35B for Imago BioSciences

We’ve talked many times about the changing nature of medical innovation. And specifically why the best and most valuable progress will come from the use of technology in the lab.

Merck’s paying $1.35B to do just that. (Read) The deal will give Merck access to an area of medicine that it doesn’t yet have in the portfolio: blood disorder treatments.

Makes sense to me because Merck’s immunotherapy drug Keytruda loses patent protection in 2028. So, the deal helps ‘em get ahead of that.

The only thing I don’t like about the deal is that Merck is paying $36 a share in cash, which represents a 107% premium to the previous close of $17.40. Shares are trading at $35.54, which is slightly below the acquisition price as I type.

Random Thought Bubble: This deal is the 10th largest biotech deal YTD which proves that a) technology still drives the future and b) looking beyond the short-term noise is critical.

China uses 50% of all newly mined copper 🤦‍♂️

People are agog now that China’s gone back to “COVID Zero” in Shijiazhuang. (Read) Oil is tanking over fears of reduced demand.

Goldman reduced Brent oil targets from $110 to $100 as a result. I think the Vampire Squid are off base (again), but that’s a story for another time. The fact that they’re saying “sell” makes me wonder who in Goldman’s client base is buying.

OBA Action: Always do what Wall Street does, not what it says.

The real story is copper. China uses 40–50% of all newly mined copper, according to Forbes. (Read) And guess who won’t want you to have it?

Why this matters. China is the world’s third-largest copper producer at a time when EVs require 2.5–3.5X more copper than conventional gasoline or diesel-powered alternatives.

Copper is down -18.2% YTD.

Hmmm.