Article by Investment U
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In focus this week: investing in drug resistant antibiotics, how the drought may ding the EMs and the SITFA
Small drug companies that are developing antibiotics for some of the scariest infections, those resistant to traditional antibiotics, haven’t gotten much attention from the market, but that’s all about to change.
A new law called the “Generating Antibiotics Incentives Now Act,” GAIN, will make it much more profitable to work on ways to kill these super bugs.
The two companies a Barron’s article mentioned, Cubist Pharmaceuticals (Nasdaq: CBST) and Cempra (Nasdaq: CEMP), have bright futures in these new drugs. The drugs in their pipelines could double in value.
The new GAIN law would allow these companies to have the FDA review period cut by a third and will have 10 years of market exclusivity to hold off generics. Over the next decade these new drugs could generate as much as $2 billion, says David Holman, an analyst with Decision Resources.
An RBC Capital Markets analyst says the Cubist drug Cubicin could reach super star status by 2017. Cubicin is used to fight potentially fatal infections from bacteria like MRSA.
And, earnings for Cubist are expected to grow by 27% a year for the next few years.
Cempra has two antibiotics due to enter Phase III clinical trials, solithromycin and taska. Taska is unique because it’s used for chronic infections that can take months and years to treat, but analysts think it could be 2016 before they turn a profit. But this is one you should keep an eye on.
The fear of drug resistant bugs will drive this segment of the market and it is definitely something you should have on your bogey board…
The Drought Hits the EMs
Jeremy Grantham, the Chief investment Strategists of Boston-based GMO, just sent out a 17-page letter to his investors that addressed what he called the strains the world will feel because of increasing demand and strained supplies of water and grain.
Grantham says we’re already five years into a global food crisis that will threaten the poorer countries of the world, many of them EMs, with malnutrition, starvation and even collapse.
But David Riedel of Riedel Research, an EM research firm, said the biggest threat to the EMs may be the inflation that results from increased food costs driven by the drought here in the U.S.
The drought in this country has already significantly pushed up corn and wheat prices. The Teucrium Soybean Fund, symbol SOYB, and the Corn Fund, symbol CORN, are up 20% this year alone.
Corn yield estimates were revised downward in June by 12%, soybean yields are expected to be their smallest in four years and grain futures are up across the board.
The situation, according to Riedel, is most serious for China, who’s the largest importer of U.S. soybeans and a big food importer.
If food inflation puts enough pressure on the Chinese, they may have to rethink their credit loosening policy. If that happens there may be an even greater slowing in the second-biggest economy on earth.
Higher food prices for countries that rely heavily on food imports, China in particular, will not be good for growth.
Grantham stated in his letter to his investors that this food situation is being underestimated by just about everyone but some military establishments.
That’s also not a good thing and this isn’t something we want to have sneak up on us. Keep an eye on grain and corn estimates, and their prices. If the drought numbers are as bad as everyone is predicting, this could be a completely unexpected negative for the EMs….
Finally, the SITFA
This week it goes to those countries that are paying their Olympic athletes for medals.
It seems Italy, specifically the government of Italy, is paying their athletes as much as $150,000 per gold medal, and in the U.S. a gold medal is worth $25,000, paid by the Olympic committee.
That was news to me. I thought these folks were amateurs.
But, the big cheek smacker winner this week is North Korea who gives their medal winners cars, apartments and an instant boost in status, even full-size refrigerators. Wow!
If they don’t win, well, they could end up with an all-expense paid trip to a labor camp. I’m serious, this is not out of the question, especially if they are found to have dishonored Kim Jong-Un by losing to the U.S. or South Korea.
I’m not making this up, labor camps.
Talk about motivation. Hmm, let’s see, a refrigerator or a few years in a labor camp… tough choice.
Good Investing,
Steve
Article by Investment U
