There is a common complaint often heard in the United States that an aging industrial plant has limited the American Dream. This is not the case. In-depth interviews with these 7 American industrial innovators reveals a much greater prospect for growth.
David Dunbar is President and Chief Executive Officer of Standex International Corp.
Prior to joining Standex on January 20, 2014, Mr. Dunbar was president of the Valves and Controls global business unit of Pentair Ltd. from 2009 through December 31, 2013.
He was appointed to that position by the Flow Control business unit of Tyco International Ltd., which merged with Pentair in 2012.
From 1997 through 2009, Mr. Dunbar held senior management positions at Emerson Electric Co., including president, Emerson Process Management Europe, president, Machinery Health Management, and president, Emerson Climate Technologies Refrigeration.
Prior to his employment at Emerson Electric, Mr. Dunbar served in numerous industrial automation and control business roles at Honeywell International Inc.
His company is a leader in a variety in high performance industrial components.
“One is a sensor and switches business, primarily built around the core technology of a reed switch, which is a simple electromagnetic switching technology.
Although it’s a relatively old technology, reed switches are experiencing a rebirth now with the electrification of so many different industries and products.
One example is in electric vehicles — we have four times the content as we do in a combustion vehicle with reed switches for two reasons.
One, the reed switch when it’s open consumes no electricity, no current.
Solid state switches, even when they’re off, still consume current.
In designing electric vehicles, there is a premium on preserving the electrical power, so they’re putting more applications to reed switches.
The second reason for the rebirth is the need to conduct occasional safety tests.
There are these built-in safety circuits that will occasionally open or close various circuits to see if there is a dangerous condition. And during that test, if there is a dangerous condition, there could be as much as 10,000 or 15,000 volts across the switch.
That would burn right through a solid-state switch.
But we have a line of reed switches that can withstand that kind of breakdown voltage.
So we’re finding a lot of opportunity in the safety isolation test circuits for EVs, and also the battery management systems that go into electric vehicles.
The second part of the electronics business is what we call high-reliability magnetics.
These are your filters, transformers, and highly engineered products that go into the power management systems of medical devices, like MRI scanners, or smart grid products for utilities, military, and aerospace.”
Another industrial innovator has his company specializing in motion control.
Richard S. Warzala is Chairman of the Board, President and CEO of Allied Motion Technologies, Inc.
Mr. Warzala joined Allied Motion as President and Chief Operating Officer in 2002.
He was named President and Chief Executive Officer in 2009.
He has been a director of the company since 2006 and Chairman of the Board since 2014.
Earlier, he was President of the Motion Components Group of Danaher Corporation and held various positions at American Precision Industries Inc., including Corporate Vice President and President of its API Motion Division.
“In any motion system, and again we’re talking about controlled motion, meaning that you’re looking for some type of control over the process, at some type of precision, that’s where Allied gets involved.
It starts with a base motor. But motors aren’t just motors.
There are many types of motors.
They all fit different types of applications. Typically, we’re in the precision side of it.
If you start with a motor, you have to move a certain distance in a certain period of time or you have to move to a position so a function can be performed.
You have to add other elements around the motor.
And those elements include what we would call drives, some people call them inverters or amplifiers, all meaning the same type of thing. They’re converting an electrical signal into the current going into the motor itself, which actually makes it move.
If you can do that more efficiently, more effectively, you can make the motor more efficient.
You could have a really good motor and a very poor drive.
So our job is to say: Let’s take the motor, let’s optimize the way we’re directing the current into the windings so that we can make the motor more efficient, create more torque, less heat.
And then as you add other elements to that, many times gearing is a good solution because it allows you to use smaller products, meeting the needs for packaging in the system itself.
It’s more compact by improving torque at a certain speed by just using multiple gears or gear ratios.
And adding to that, you have an encoder for feedback or some type of a feedback device, resolvers or encoders.
It closes the loop in the system itself.
That ensures that it’s doing what it said it was supposed to do. It is feeding back that information to the main controller, which we do as well.
The main controller is the brain over the entire system. So it’s directing everything going on in the machine or the process.
It’s getting signals back whether certain things are done, and then sending signals to do the next operation and/or the next sequence of events that may have to occur.
So Allied provides all of that.
And that’s what we’re talking about — a complete solution.
Start with a motor, add the ability to direct the current into the windings in the most efficient manner possible, add a feedback element that tells you whether or not it’s actually occurring in a continuous closed-loop basis, add gearing if the application requires gearing to give it the performance it needs at the desired speed and torque, and then monitor.
Oversee and direct the entire process through the controller.
So Allied added all of that capability here in the last few years, and we’ve been developing it over the last 20 years.”
3-D printing was all the rage a fews years back but this industrial innovator has turned his company into a champion of American ingenuity.
Ric Fulop is the CEO and co-founder of Desktop Metal.
Mr. Fulop has served as the CEO since the incorporation of Desktop Metal in 2015.
Prior to founding Desktop Metal, Mr. Fulop was a General Partner at North Bridge Venture Partners from 2010 to 2015 and served as a Founder of A123 Systems, Inc. from 2001 to 2010.
“We have a massive moat. We have over 650 patents.
We are number-one market share, 90% market share in metal binder jetting.
We’ve got a significant moat in digital casting and printed hydraulics, also two markets where we’re the leader globally.
We have the best properties in FDA Class II solutions for restorative dentistry where properties of our product are two to three times better than any competitor that is in the market.
So those are the areas where we are best in the world.
And we also have some other new products like our printed foam technology, which is fantastic.
No one else in the world does high-volume printed foams for production, and that allows you to really reduce the weight of products and use less material and produce on demand.
That’s a $120 billion market.
So that’s an area that’s growing quite well, and we expect to continue to take share in it.
We have great customers in the past quarter, companies like Ford and Eaton and Gulfstream Aerospace, Nissan, Oak Ridge National Labs, Serta, Stanford University, Saudi Aramco, Kennametal, Kimura, U.S. Navy.
We have large, enduring customers that are growing with us and are buying multiple machines, so we have good product market fit and segments that are relatively large.
We’re growing faster than our other competitors that are public.
Most of the legacy 3D printing businesses that are public today were focused on prototyping or tooling, which were, I would call, the markets of the past and they’re not growing very fast.
And what differentiates us is we’ve got a technology that’s much higher throughput with much better material properties, delivering better accuracy and tolerances in a setup where we’re enabling our customers to do things they couldn’t do before, and it’s competitive with conventional manufacturing.”
Industrial innovators are found throughout American manufacturing, and the best executives rise to lead their own company.
Josef Matosevic joined Helios Technologies Inc. in June 2020.
Prior to joining the company, he had served as Executive Vice President and Chief Operating Officer of Welbilt, Inc. (NYSE:WBT), a global manufacturer of commercial foodservice equipment, since August 2015.
Mr. Matosevic also served as interim President and CEO from August through November 2018. Previously, he held the role of Senior Vice President of Global Operational Excellence at The Manitowoc Company, Inc. (NYSE:MTW), a world leading provider of engineered lifting solutions, from 2014 to 2015, and as Executive Vice President of Global Operations from 2012 to 2014.
Prior to joining MTW, Mr. Matosevic served in various executive positions with Oshkosh Corporation (NYSE:OSK), a designer, manufacturer and marketer of a broad range of specialty vehicles and vehicle bodies, from 2007 through 2012.
“If you just go to a John Deere or a CNH tractor and look at how their ag equipment is operating, all the hydraulics and the couplings that lift a shovel or that do mining or digging, this is where our product comes into play in hydraulics.
Or even if you go to the Magic Kingdom in the world of Disney and you have any application that raises up in the air that requires hydraulics, we participate in that area as well, in the hydraulic segment and electronics.
So we supply a lot of products to both manufacturers.
And we supply the controls, not just the electronic display, but also the PDM and the sensors.
So you can control the entire functionality of a Nautique Boat for example, through our application, if it’s starting the engine, if it’s filling the ballast tanks, if it’s enabling the radio or whatever it may be.
So those are a couple of markets that we serve…”
The large United States Department of Defense budget also powers industrial innovators.
Eric M. DeMarco is President and Chief Executive Officer of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS).
Mr. DeMarco joined the company in November 2003 when it was Wireless Facilities, Inc. (NASDAQ:WFII), a commercial wireless communications system infrastructure provider, as President and Chief Operating Officer, and he assumed the role of CEO in April 2004.
Since joining the company, Mr. DeMarco has been instrumental in leading the company’s efforts to successfully transition from a commercial communication business via sale and disposition of assets, to build and grow, both organically and through strategic acquisition, a leading national-security-focused technology, product and systems provider for the U.S. and its allies.
Today, Kratos is recognized as an industry-leading provider of high-performance, jet-powered unmanned aerial drone systems, space and satellite communications, microwave electronics, rocket systems for missile defense and hypersonic programs and C5ISR.
Prior to Kratos, Mr. DeMarco was the President and Chief Operating Officer of the Titan Corporation, which was later acquired by L-3.
“Probably most importantly to what you referenced that we chatted about a few years ago, is the Skyborg program, with the Air Force.
In the last couple of months in congressional testimony, it was announced that the Skyborg initiative will become a program of record in 2023 and certain of our jet drones, including Kratos’ Valkyrie drone, falls under the Skyborg program right now.
So that’s very, very exciting.
Related to that, another Air Force Vanguard program, in addition to the Skyborg program, with Vanguard program meaning it’s supposed to be rapidly moved from initiative to program of record.
Another one called Golden Horde, which has to do with swarming drones and swarming munitions, has also been announced to become a program of record in 2023.
And we believe that’s going to be beneficial not only for our unmanned systems in our drone business, but also for our turbine technology business, where we are building engines, very small turbo jets and turbo fans for powered munitions and for jet drones.
Since we last spoke to you, those initiatives, those two Vanguard initiatives, the Skyborg Vanguard initiative and Golden Horde, have now both been publicly announced and acknowledged to become programs of record next year…
We’ve recently signed some contracts with companies in the sugar beet industry.
It is out on these co-ops with hundreds, thousands of acres of harvesting, unmanned trucks transporting to the processing site or the mill to process what is being harvested.
We haven’t emphasized it because it wasn’t quite ready for prime time, but as I said we are now signing contracts and I think over the next few years, at $100,000 and $200,000 per applique kit, if we over the next few years get 5000 trucks, that is a big number.”
John C. Rood is Momentus Inc.’s Chief Executive Officer, President and Chairman of its Board of Directors. This industrial innovator is all in on developing new products for the specialized extraterrestrial industrial sector.
“…we’re working on and plan to have a reusable version of Vigoride.
When you get to reusability, the system will stay in space, and you’ll just send it the cargo and resupply the fuel, which you can then meet in space, refuel yourself, then get the cargo and take it to the destinations you want.
But you can also do things like change the position of satellites, where they can perform a mission for a period of time in one area, you can move them to another, you can repair them and can provide refueling services.
Today, most satellites are still working at the end of their useful life.
They just run out of fuel, so it’s the equivalent of the car runs out of gas at some point and you abandon the car on the road, or in this case in space.
If you have the ability to refuel them, then this will open up a whole new set of opportunities for people in space.
And then the other part is, at some point, we’re going to put so much debris and so many items up in space. This is untenable.
You’re going to need the ability to remove debris or consolidate it as a bare minimum in space.
One of the things that we’re working on as well to give the same orbital transfer vehicle the ability to come up alongside debris, or get rockets or old satellites that have run out of fuel, and refuel and tug them to a new destination, or move them back into the Earth’s atmosphere to burn up.”
Many American industrial innovators move to the United States to pursue their dreams.
John R. Scannell is Chairman and CEO of Moog Inc. He is also leading industrial innovation in the orbital supply chain.
Mr. Scannell joined Moog in 1990 as an Engineering Manager of Moog Ireland and later moved to Germany to become Operations Manager of Moog GmbH.
In 1999, he became the General Manager of Moog Ireland, and in 2003 moved to the Aircraft Group in East Aurora, New York, as the Boeing 787 Program Manager.
He was named Director of Contracts and Pricing in 2005.
Mr. Scannell was elected Vice President of the Company in 2005 and Chief Financial Officer in 2007, a position he held until December 2, 2010, at which time he was elected President and Chief Operating Officer.
In addition to an MBA from The Harvard Business School, Mr. Scannell holds B.S. and M.S. degrees in Electrical Engineering from University College Cork, Ireland.
“We are all over the NASA Artemis I launch that’s about to happen.
We’ve been on the Space Shuttle, Mars landers, and International Space Station.
So that just gives you a sense of “performance really matters”; it’s in highly critical applications, but it’s also in military jets where we control the surfaces on the wings and the tail that moves the jet.
On commercial airplanes, we do flight-critical systems.
In other words, if our systems fail, it’s a very bad day.
It’s this idea of performance really matters that translates to the idea that the cost of failure is far higher than the cost of acquisition.
That cost of failure could be life or it could be just very expensive.
For instance, we have products that steer a drill bit on offshore oil rigs.
If the drill bit fails, it’s very expensive to take the oil rig down for a day.
The cost of failure is very high in some form or other, either monetary or in terms of injury or potentially life. We’re at the high-end.”
Marc Bell is the Co-Founder, Chairman, and Chief Executive Officer of Terran Orbital Corp., a leading manufacturer of satellites primarily serving the United States and Allied aerospace and defense industries.
Mr. Bell is an accomplished entrepreneur with a wide-spanning career.
In 2008, Mr. Bell took a $250 million SPAC public, acquiring startup Armour Residential REIT (NYSE:ARR). Armour today holds over $8 billion worth of mortgage-backed securities in its portfolio.
“We’ve carved out a niche with satellites 500 kilograms and under and we’re also the folks that invented the CubeSat, so we started the SmallSat revolution over a decade ago. All the SmallSats you see today were based on our initial technology…
At the end of the day, it’s cheaper to get there from a ride perspective.
The downside is you have to replenish them every five years.
The plus side is the cost is a fraction.
Even if you have to replace the satellite every five years, it’s still phenomenally cheaper than building one geosynchronous satellite, and you continue to refresh your technology.
We can design, build, and launch a satellite while the current model iPhone is still being made. And geosynchronous satellites, you know these things could be the size of houses and they take a decade to build and launch.”
Get the complete interviews with all of these industrial innovators, and more, exclusively in the Wall Street Transcript.
High dividends and growth at a reasonable price are a rare combination in the US stock market but the recent downturn in prices creates an opportunity for savvy investors.
“I’d like to talk about Taiwan Semiconductor Manufacturing (NYSE:TSM).
Taiwan Semiconductor is the largest semiconductor foundry business in the world. They actually began the foundry model back in the 1980s. They don’t design the semiconductor chips, they manufacture them. So what the industry has increasingly migrated toward is a so-called “fabless” design.
Companies like Qualcomm (NASDAQ:QCOM), AMD (NASDAQ:AMD), Nvidia (NASDAQ:NVDA), etc., will design the chips and then foundries like Taiwan Semi will actually do the manufacturing. Most of the foundry business is in Taiwan industry wide.
Taiwan Semi, as I mentioned, is by far the biggest, with close to a 60% worldwide market share. They have a lead in advanced technologies.
Fifty percent of their revenues right now come from seven and five nanometer technologies.
They’re now rolling out three nanometer technology, which really nobody has right now.
Their biggest competitors are Samsung (OTCMKTS:SSNLF) and Globalfoundries (NASDAQ:GFS), and, to a lesser extent, Intel (NASDAQ:INTC). They are also working on two nanometer technology. Therefore, they have a great technological advantage.
They are benefiting from a number of secular trends.
As the world becomes more digitalized, and more data is consumed, every type of device that you can think of has more and more semiconductor chip content.
Automobiles, for example, are expected to have five times the amount of semiconductor content by the end of this decade as they have now.
The major markets that they serve are high-performance computing.
That can include artificial intelligence, cloud, data centers, gaming, all manner of industrial applications, automotive, electronics, Internet of Things, smartphones, of course. Those are four major platforms that they have.
Right now, they are experiencing some good pricing power.
So, even though costs are rising in the overall worldwide inflationary environment, and there are some supply chain issues, Taiwan Semi has been able to pass on costs, and in fact, their margins have actually been increasing.
They’ve got pricing power and they’ve got increasing margins.
The thing we also like about them is valuation.
The semiconductor industry is cyclical.
It is a growth-cyclical business, because we’ve got these very powerful secular trends that are driving demand for semiconductors.
Taiwan Semi has been labeled by many people as perhaps the most important technology company in the world.
Valuation is quite modest. They’re trading at a forward EV/EBITDA of 8.7 times, and that’s actually a 15% discount to the rest of the semiconductor space.
Now, the semiconductor space is actually in a bear market right now.
If you look at the SOX index, it stands right now just over 3,000, it was over 4,000 back in the beginning of the year, so it’s actually sold off by about 25%.
The reason is that investors are concerned that there might be a worldwide economic slowdown beginning next year.
So many of them are looking past the current good times, and are positioning themselves for a possible float out.
However, we take a longer-term view, so we’ll look right through the cycle. We’ll take a three- to five-year view.
I think when you do that, you’ll see that Taiwan Semi is, I think, a very, very attractive company right now.
The foundry industry worldwide is expected to grow 20% this year, and high single-digits compounded growth over the next five years.
That compares with 4% compounded growth over the last 10 years, so we’re seeing an acceleration in growth.
Again, that’s because of these mega trends of high-performance computing, smartphones, more content, more demand for semiconductor chips.”
There are many more examples of high dividends and growth at a reasonable price in the current stock market. Even the sleepy utilities sector has pockets of growth that are now coupled to dividend payers:
“One of the strategic initiatives that Dominion’s management is taking is investing heavily in the renewable energy sector.
Management plans to spend $37 billion in renewable energy growth capex, so that is capital expenditure in renewable energy projects that will be in offshore wind.
The company plans to spend heavily in the offshore wind sector right off the coast of Virginia, in addition to onshore wind and solar farms.
These initiatives are supported by tax credits, and the company is protected by semi-automatic rate increases…we found utilities such as Dominion Energy to be a safer way to invest in the renewable energy sector, given the reasonable valuation.”
Get all the high dividends and growth recommendations, exclusively in the Wall Street Transcript.
Gregory Hahn is the President and Chief Investment Officer at Winthrop Capital Management, as well as a founding partner.
He leads the firm’s investment team and is responsible for overseeing the firm’s portfolio management, investment strategies, and security selections.
Prior to forming Winthrop Capital Management, Mr. Hahn was the Chief Investment Officer and Senior Portfolio Manager for Oppenheimer Asset Management and its subsidiary, Oppenheimer Investment Management.
There he was responsible for the oversight of the fixed-income investment process.
He also served as the Chief Investment Officer and Senior Portfolio Manager with Conseco Capital Management (40|86 Advisors). In addition to his investment management responsibilities at CCM, Mr. Hahn was President and Trustee of the 40|86 Series Trust and the 40|86 Strategic Income Fund, and had responsibility for the $1.2 billion real estate and private equity portfolio.
Mr. Hahn holds a BBA from the University of Wisconsin and an MBA from Indiana University.
He is a Chartered Financial Analyst, a member and former President of the CFA Society of Indianapolis, a former Trustee of the Indiana Public Employee Retirement System, and has served as a member on the ACLI’s Committee on State Regulation of Investments.
He also serves as an independent trustee of the FEG Absolute Access Fund, LLC, and is a member of the National Federation of Municipal Analysts.
The Winthrop success story is one that comes with many years of hard won stock picking experience.
“It’s not a glamorous story. I was working at Oppenheimer, and separated from the company in June of 2007.
During the summer as I was interviewing for other jobs, I just wanted to try to find an organization with a healthy culture, do investment work and build the business.
But what happened was, all of a sudden, the job market went quiet.
So I set up Winthrop Capital Management really as a way to stay relevant and to stay in the investment business.
I did it without any capital, without any clients, without any employees, and without any track record.
By Valentine’s Day 2008, the financial crisis was bearing down on Wall Street, and ultimately 3,000 CIOs and heads of fixed income were put out on the street.
By that time I was well along the way of building Winthrop, so I was like, well, this is what I’m going to do.
Today we manage over $4 billion in assets. We have about 26 employees.
And we run both fixed-income and equity strategies for institutional clients.
It’s a walk in faith.
I’m very thankful for the business partners I’ve had along the way. It’s been 15 years now in building out the firm.”
Mr. Hahn and his portfolio management colleagues are big fans of large cap tech stocks.
“We emphasize large-cap stocks, so it’s investing in companies that have over $80 billion in market cap.
Our two favorite companies are Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG), but we’ve had fairly large positions over the years in Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) as well…
Microsoft (MSFT) is an amazing company.
They shifted their business several years ago. It’s moved more into that software-as-a-service subscription model, so you have to buy your Windows subscription on an annual basis — you can’t go to the store and buy a diskette to update your operating system on your PC anymore.
So that’s part of the business.
Their Azure cloud business today, we look at it as one of the top three cloud businesses in the U.S. And we think their ability to compete globally, particularly in China, gives it an advantage.
And then, it’s really a large number of different businesses, but what they’ve done with the gaming business has been pretty solid.
Alphabet (GOOG) is another one of our favorites in the company.
Within Winthrop, we all have our own personal favorites. Microsoft (MSFT) would be mine.
Alphabet (GOOG) is Adam Coons’ — that’s really his number-one pick.
And I think Freddy Lavric would say the same thing — he’s one of our portfolio managers.
Alphabet (GOOG) is a business with the potential for strong revenue growth.
Its advertising revenue is extremely strong. Its cloud solution is also in the top five.
Really, their advertising revenue and the dominance in the search engine business is pretty solid.
The interesting thing is what they’ve been able to do with Fitbit and Nest.
We’re kind of waiting to see how they can further develop and grow that business, but they’ve got the ability to compete with Apple (AAPL) in a couple of areas.”
Get all the top picks from Gregory Hahn and his colleagues at Winthrop Capital by reading the entire 2,620 word interview, exclusively in the Wall Street Transcript.
Gregory J. Hahn, CFA, President & Chief Investment Officer, Winthrop Capital Management
Seabridge Gold (SA) is a David Iben top portfolio pick.
David Iben, CFA, is the Chief Investment Officer of Kopernik Global Investors, LLC and is the sole Portfolio Manager of the Global All-Cap strategy, Lead Portfolio Manager of the Kopernik Global Unconstrained strategy and Co-Portfolio Manager of the Kopernik Global Long-Term Opportunities and Kopernik International strategies.
He is the managing member, Founder and Chairman of the board of governors of Kopernik Global Investors.
Prior to Kopernik, Mr. Iben managed the $2.7 billion Global Value Long/Short Equity portfolio at Vinik Asset Management, where he was a director and head of the global value team from July 2012 through March 2013.
Prior to this, Mr. Iben was Lead Portfolio Manager, Co-Founder, Chief Investment Officer, Co-President and Manager of Tradewinds Global Investors, LLC, a $38 billion — at February 2012 — investment firm.
He continually managed equity portfolios for Tradewinds — inclusive of its two predecessor firms — from October 1998 through February 2012.
He was the Portfolio Manager for the firm’s Global All-Cap strategy, North American All-Cap strategy and Global Long/Short strategy, directly managing more than $20 billion assets at the time of his departure.
As CIO, Mr. Iben directed Tradewinds’ investment activities, including portfolio management, research, trading and risk management.
From 1996 through 1998, Mr. Iben was a senior portfolio manager at Cramblit & Carney.
He began his career with Farmers Group, Inc., where over the course of 14 years, he worked his way up from Securities Analyst/Trader to Portfolio Manager and eventually to Director of Research and Lead Portfolio Manager for both equity and fixed income strategies.
At the time of his departure in 1996, Mr. Iben was acting as Farmers’ Chief Investment Officer, responsible for $16 billion of investable assets.
Mr. Iben earned his bachelor’s degree from the University of California, Davis, and his MBA from the University of Southern California Marshall School of Business.
In his 2,991 word interview, exclusively with the Wall Street Transcript, David Iben bangs the table for Seabridge Gold (SA).
“Seabridge Gold (SA) is exactly what I’m talking about.
This is the largest undeveloped gold mine in Canada. And the key there is being undeveloped.
If it were developed, the market would be paying more for it than what they’re paying now.
So, like I say, one of the largest undervalued gold miners in Canada, and the world, at a market cap of roughly $1 billion.
And so, a billion-dollar market cap for about 27 million ounces of gold, and probably a lot more, is compelling. Even post-risk adjustment, that’s pretty much a bargain price.
This is a company where if the gold price settles around $2,000, we believe it is worth multiples of $1 billion.
And for free optionality, consider the idea that a tenfold increase in the money supply might continue to cause inflation to migrate through the system like we’ve seen in the last few years.
We’ve seen inflation go from one area to another area to another area, and that will likely continue into gold. And gold, keep in mind, is pretty much the same price as it was more than 10 years ago.
So inflation has yet to migrate into the price of gold.
We believe that we have something with Seabridge where, if we’re wrong and the price of gold stays where it is now, we are getting a bargain price.
And if the price of gold goes to something higher, which it should based on the economics of mining, and absolutely should, based on the creation of currency over the last 10 years, then the upside can be many, many times what it’s selling at now.
That’s one of our favorites.”
In addition to Seabridge Gold (SA), Mr. Iben has identified other deep value stocks.
“We have a similar one in the United States called Northern Dynasty (NYSEAMERICAN:NAK).
This is possibly the largest undeveloped copper and gold mine in the world.
The U.S. is interested in having copper, which is needed for EVs and windmills and other things that people need, looking to reduce carbon in the environment.
And the U.S. is looking for things where the supply chain won’t be disrupted by geopolitics. And so here, right in Alaska, are some 60 billion pounds of copper and another 30 million ounces of gold after recovery.
Here again, it’s really a great property. But they’ve had struggles to build this because certain NGOs and Hollywood actors have been against building this mine.
The Army Corps of Engineers undertook a two-year study saying, “Yes, this presents no harm to the environment whatsoever; we think it should be approved.”
Politics got in the way, and they reversed themselves. Now, they’re redoing the study.
It’s likely to be quite some time before this mine gets approved, because of all the politics.
But eventually, economics and common sense, the idea that if you can get access to copper that the U.S. needs in an environmentally friendly fashion, a property out in the middle of Alaska, this is something that should be built and that probably will be built.
And if it is, the stock could be worth easily 10 times what it is selling at now.
So this, we’re very, very high on.
Sticking with natural resources, I’ve mentioned that natural resources are undervalued for things that aren’t built yet, and that emerging markets are generally disliked.
And so, there’s a company called Platinum Group Metals (NYSEAMERICAN:PLG) that has a lot of palladium.
Palladium is something that’s used a lot in catalytic converters for cars.
And a lot of the world’s palladium comes from Russia.
With problems there, that makes palladium in other places potentially worth a lot more.
This is located in the Bushveld of South Africa, with 23 million ounces of reserves and resources, plus another 10 million ounces of platinum.
That could have a lot of value. Platinum used to trade at roughly double the price of gold.
Now it’s more like half the price of gold, a little more than that.
So potential big upside here.
For a market cap of a fraction of a billion dollars, we’re able to get scarce assets for a metal that we think people need.
In this case, the market cap is about $150 million.
The mine could be built in the next two or three years.
And once again, the upside we believe is many, many times where the stock is selling now. Unlike the other ones, Seabridge Gold (SA) or Northern Dynasty (NAK), it might only be a handful of years before it’s up and running. And as I mentioned, once Wall Street can see the cash flows, they’re willing to pay much, much higher prices.
So, in a world where most things are way overvalued, to be able to buy things that are undervalued at current prices and conceivably are worth five or 10 times more than they’re selling at is really exciting to us.”
Get more top picks from David Iben like Seabridge Gold (SA) by reading the entire 2,991 word interview, exclusively with the Wall Street Transcript.
David Iben, Chief Investment Officer & Portfolio Manager, Kopernik Global Investors
Warren Buffett, Graham and Dodd, Classic Value Investing is key to navigating a rising interest rate, rising inflation cycle in the global economy. These three portfolio managers turn this into specific classic value stock picks.
John DeGulis is the President and Portfolio Manager at Sound Shore Management, Inc. Mr. DeGulis joined the firm in 1996. Earlier, he worked at Morgan Stanley & Co. Mr. DeGulis holds an MBA from Columbia Business School and also graduated from Northwestern University.
Peter B. Evans is a Partner at Sound Shore Management, Inc. Mr. Evans joined the firm in 2005. Earlier, he worked at American Express. He is a graduate of Dartmouth College and Columbia Business School.
David B. Bilik is a Partner at Sound Shore Management, Inc. Mr. Bilik joined the firm in 2003. Earlier, he worked at Morgan Stanley. He graduated from Williams College and Columbia Business School.
John DeGulis puts the Sound Shore Fund investment philosophy into simple Warren Buffett type terminology.
“We manage the Sound Shore Fund the same way we do our institutional separate accounts. It’s a large-cap value strategy that is run in the same manner as we have since the firm’s inception in 1978. We screen for what’s cheap out there. Then we do our own fundamental research to come up with a reasonably concentrated portfolio of 35 to 40 stocks. It’s a very straightforward and disciplined process that we apply across all of our accounts, including the Sound Shore Fund…
It’s a value investing style. We are contrarians by nature. We’re looking for stocks that are cheap, but not just statistically cheap on a sort of static ratio basis, if you will, a low p/e — it’s certainly one way to screen and we do that to create our opportunity set. But then we very quickly take that opportunity set and do our own fundamental research to discern which stocks we think are going to be the best risk/reward ratios. So it’s a classic value investment style.”
John DeGulis gives an example:
“I’ll start with Vistra (VST). It is a diversified electricity supplier.
They have both generation as well as a retail business that does transmission and distribution.
It’s an interesting company that came together through a series of acquisitions over the years, but now is one of the largest providers of electricity in the United States.
They have exposure to many markets.
Their biggest market is Texas.
But they also have exposure in the mid-Atlantic, they have some exposure in Illinois and business in California. So it’s diversified geographically within the United States, but still entirely a U.S. business.
And it trades for very, very cheap multiples on both earnings and cash flow today and prospective cash flow and earnings as you look out.
So in today’s marketplace, given everything that’s happened in the electricity markets, their earnings power has increased since we bought it.
And it now trades for a p/e that is, we think, under 10 times what the earnings power is of the business.
And also very importantly, free cash flow, which is critical in a capital-intensive business such as electricity generation, is similarly at very low multiples of earnings.
So when you look out to 2023, and 2024, earnings estimates for Vistra (VST), they’re north of $2.60 a share; the stock is trading at $23.70 today.
We actually think those earnings numbers are a bit low when we look out at the various scenario analysis of what they might earn in 2023, and 2024, given how electricity prices have increased over the last 12 to 24 months.
So we’re looking at a company that’s trading for less than 10 times earnings, less than 10 times free cash flow, that we think is an increasingly important part of the energy infrastructure in the United States.
The other important part about Vistra (VST) is they’re diversified by their fuel source.
So about a third of their businesses encompass retail and electricity transmission and distribution.
Meanwhile, the electricity generating business, which is about 70% of the company, is diversified by fuel source.
They’ve got nuclear, they’ve got coal, they’ve got natural gas, and now they also have wind, solar and some batteries as well.
And so they are increasingly investing in renewables.
You’re going to see that mix shift, continue to accelerate towards renewables and away from carbon over the next 10 to 20 years.
And they have targets set out for both 2030 and 2050 as they execute their transition.
They’ve already closed about half of their coal plants.
They’ll continue to close their coal plants over the next five to seven years — that’s already planned.
They’re putting incremental growth capital principally into solar and battery technology and they’ve already built up a wind business as well.
So you have this transition, much like you’re going to see in many parts of the United States, but also globally as we move away from carbon as our electricity generation continues to transition into more renewables.
But there has to be a pace to it. Obviously, we’ve seen with storms and weather and geopolitical events, there’s a balance to all this.
It’s important to maintain stable electricity in all environments.
And so the trick is that we need to transition to renewable low-carbon or no-carbon sources at the same time, providing good stable electricity as we transition.
It’s a big part of the story.
There is a transition to renewables.
And in the meantime, they are continuing to grow their cash and their free cash flow and they’re generating a tremendous amount of free cash flow that’s going to be returned to shareholders.
In fact, we think they’re going to be buying in upwards of 50% of the stock over a four-year period.
They are about a year and a half into that.
So you’re getting a very significant share shrinkage and return of capital to shareholders in the meantime.
If it trades at what we think is a very fair and reasonable 10 times free cash flow per share, which next year could be north of $3.50, you get a stock into the mid-$30s as a target.”
Peter Evans also has a favorite current example for his Warren Buffett, Graham and Dodd classic value stock.
Their products range from data center routers to glucose monitors to EV charging stations.
In addition to very efficient manufacturing, Flex helps its customers navigate supply chain challenges that we’ve seen of late by nearshoring and then using its scale to source components when there are shortages.
Flex also has a subsidiary called Nextracker, which sells tracking systems for solar panels to increase their efficiency.
Earlier this year, the private equity firm TPG invested a valuation equivalent of over $6 a share.
Their CEO, Revathi Advaithi, who we know from her time at Eaton, refocused the company on less cyclical end markets, like health care and cloud data centers.
And despite having a majority of its earnings in these attractive end markets, core Flex is trading at less than five times earnings.
So just using a modest 10 multiple on this core business, there’s more than 65% upside to our price target. The company is operating very, very efficiently under new leadership…
A slowdown is likely at this point. But if we dig down to a stock-specific level — if I go back to Flex, their free cash flow generation is actually counter cyclical. When there is a slowdown, they wind up selling down their inventory. And they’ve been very good at buying back shares.
Flex has shrunk its share count by about 15% over the last five years.
They have the ability to actually take advantage of a slowdown and a commensurate reduction in their share price to maintain earnings, and then increase that earnings power over time.
We try to find companies that we think can control their own destiny as they go through slow times, as well.”
The portfolio managers agree that now is the best time for Warren Buffett, Graham and Dodd classic value investing style:
“The setup for us, the opportunity set, is a good one for a value style, such as Sound Shore.
And the reasons include that coming into the COVID pandemic, there was a boom in the growth stocks and long-duration assets because of perennially low interest rates.
That era may be ending.
We’re going to move back to, in all likelihood, a marketplace more defined by earnings and earnings growth, which is where we spend most of our time.”
This new market environment favors the Warren Buffett, Graham and Dodd, Classic Value Investing style of Sound Shore Management.
“All the uncertainty that you are now seeing in the market, both economically and politically, gives a lot of volatility and change in market prices that are often more significant than really the value of the businesses.
And that’s what our job is: to find those opportunities.
And so, we’ve been doing this for a very long time, very targeted in the stocks that we own.
But given the amount of disruption that you’ve seen over the last 10 years leading into COVID, and now, today’s marketplace as the Federal Reserve is raising rates, has actually given us an opportunity set that is quite fertile.
As we look forward, we certainly don’t make predictions as to where the equity markets are going to go.
But we do feel like our strategy has every opportunity to do well.
…the firm is 100% employee owned. Our retirement money is in the Sound Shore Fund.
So we’re very much aligned.
We have one strategy.
We’re very much focused on making sure that we’re getting the returns for our investors. So that’s another important point to underline in terms of what differentiates Sound Shore.”
John P. DeGulis, President & Portfolio Manager
Peter B. Evans, Partner
David B. Bilik, Partner
Sound Shore Management
Warren Buffett, Graham and Dodd, Classic Value Investing
A confirmed solar power electricity bull, Charles F. Michaels, CFA, is the Chief Executive Officer, Chief Investment Officer and co-founder of Sierra Global Management, an investment management firm launched in 1996 with holdings in European growth companies including climate-related companies.
Mr. Michaels worked for Goldman Sachs (GS) in London and Zürich where he was a founding member of the company’s European equities business.
He graduated from UC Berkeley in 1978 with a B.S. degree in Business Administration, and from Columbia Business School with an MBA in 1986.
He is also a CFA charterholder. While at UC Berkeley, he became deeply interested in what today is known as “sustainability.”
This led to his support for the funding and founding of UC Berkeley’s Haas Sustainable Investment Fund in 2007, for which he continues to serve as an advisory board member.
He also sponsors the new Michaels Graduate Certificate in Sustainable Business at the Haas School of Business. Additionally, Mr. Michaels serves as an advisory board member for Columbia University’s new Climate School.
He is a confirmed solar power electricity generation investor, with many years leading to this point.
“Sierra Global Management, as it sounds, is a global investment management company, which today is managing two investment vehicles; we manage approximately $130 million.
One is a hedge fund investing principally in Europe, that’s a long and short equity hedge fund. And the other is a traditional long fund investing in companies that have innovative solutions for the energy transition, and that fund is a global fund.
Sierra’s climate strategy is a more recent investment vehicle, having been launched on April 1st of 2021.
Sierra’s hedge fund strategy goes back a long way. We started it back in 1996, in fact October 1st of 1996, so it’s coming on its 26-year anniversary.
As a little background information, I was born and raised in Europe, a German mother, and I studied at UC Berkeley, where I have an undergraduate business degree. And then I went on to work in commercial banking at Wells Fargo Bank (WFC) for about six years — that was both in San Francisco and New York City.
And then in New York City, from Wells Fargo I went to get an MBA at Columbia, where I studied international finance, and then joined Goldman Sachs in Europe, with responsibility out of their Zurich office for building a European equities business from scratch.
So that’s my background.
I would say that something important that I did not mention is that while at UC Berkeley during my undergraduate studies, I wrote my senior thesis on corporate social responsibility, which has become ESG and sustainability.
At Sierra many years later — I would say, looking back, about three years ago — we began integrating ESG into our investment approach, and then that led to a pure “E” fund, the climate strategy.
After integrating ESG for a little over a year, we realized that we really found that the outlook for companies that benefit from the energy transition, and also allocating capital to companies that make this energy transition possible, is really satisfying.
So that’s a high-level description of our firm.
I would add, you can call our headquarters in New York City — we have an office in New York City, we always have since the day we launched back in 1996 — but these days, since COVID began, sheltering turned into being dispersed, and we haven’t gone back to the office and office approach.
We work virtually, and we find that to be more efficient than the old approach, because we’re investing in many different countries of the world.
Just Europe alone, we have investments in over 10 countries, and then when you add the investments we make for the climate strategy, we’re dealing with at least 15 countries for most of our investments.
We want to meet with managements.
We want to have industry contacts in these places.
And we’re speaking to 50 or so brokerage firms around the world, mostly in Europe. That is so much more easily accomplished, in a seamless and efficient fashion, virtually.
We will, from time to time, have physical meetings, go to conferences, meet with companies in their offices, but for the most part we work virtually.
I didn’t tell you about the size of our team — that’s important, too.
Sierra has three analysts.
My role, I spend most of my time on investment management and risk management for the funds, so you can call me the Chief Investment Officer of the funds, but I get deep into the ideas, so I work also almost like an analyst you could say, and so that would be the fourth person who’s operating as an analyst.
We have a president of the firm, Dan Glatt, who manages the business side of the firm, and under him we have a day-to-day business operations manager.
In addition to that we have a CFO, but our CFO is outsourced, not internal.
Historically, we typically had an internal CFO, but we’re very happy working with a very high-level person who is actually working on a part-time basis.
Between the president of the firm and our outsourced CFO and our business manager, that business side of the firm is well taken care of.”
Solar power electricity generation is investment power for this ESG fund manager.
“The opportunity for wind will grow handsomely over the period, and for solar, it’ll grow massively. So, the answer to your question is really one of the biggest opportunities — that is 11% of the energy mix today to almost 40% in 2050 — is solar.
And when you look at solar, there really are a lot of interesting companies to invest in, and if there’s one category where we have more exposure than any other, it would be companies that are beneficiaries of the growth in producing solar energy.
It can be companies that make inverters, solar systems, solar modules, the backend infrastructure for solar, solar trackers, solar farm operators — many ways to invest in solar.
That’s not to say we don’t have other interesting investments that are very different.
We believe nuclear has a role to play, so we have a small investment in nuclear.
I would imagine that our exposure there can increase over time.
We have some investment in wind.
That investment can increase over time.
It’s been bigger in the past, but the wind turbine manufacturers have had supply chain challenges, which has led us to want to limit our investments there.
We also like investing in battery technology facilitating electric vehicles or storage of energy for solar or wind producers.
I mentioned the three main categories — renewable energy, energy conservation, and circular economy.
If you break it down, about 63% of our exposure is in renewables, 20% in energy conservation, and 2% in the circular economy.”
The solar power electricity cheerleader has a negative view of the “green” hydrogen power industry:
“For the European hedge fund, short positions are very important.
An example of a short position would be taking our ESG and the “E” knowledge that we have from our climate strategy and cross fertilizing it in the European strategy as a short.
We have been short, and continue to be short, and believe strongly in this case that there’s been too much hype about hydrogen as a fuel, and specifically hydrogen made with renewable energy, so it would be called green hydrogen.
There’s definitely a place for green hydrogen, but the problem with such hydrogen is that it is way too expensive today.
It’s more of research and development in the area that will lead to producing hydrogen much more cheaply, and when hydrogen can be produced much more cheaply in, let’s say, two to five years from now, then this industry will work better, sales will come through, and the companies will be meeting revenue expectations and meeting earnings expectations.
Today they’re missing revenue and earnings expectations, and they’re losing a lot of money.
So that is one of the key reasons we’re short the most valuable — so that means a lot to short there — hydrogen equipment manufacturer specifically making what’s called an electrolyzer.
And the second reason to be negative in this area is that electrolyzers have been around for a long time, many decades, perhaps 100 years.
I would give credit to the company that we’re short that their technology is definitely differentiated and better than what existed 100 years ago, but the industry doesn’t have big barriers to entry and is one that can be commoditized — is already commoditized, for that matter — and therefore, there will never be an opportunity to make high margins and make as much money as the analysts and many investors expect.
So we expect that this commoditized industry will make lower margins, and that currently it’s challenged because the cost of making the hydrogen is too high.
So that would be an example that’s in the short book of our European strategy.”
Charles F. Michaels has a lot of insight into the solar power electricity generation future of the global economy and more information for the expected failures of alternative energy electricity. Read the entire 4,787 word interview to get the complete picture, exclusively in the Wall Street Transcript.
Gamida Cell (GMDA) and Inhibikase Therapeutics (IKT) are two publicly traded equities with low current valuations and significant upside.
Julian Adams, Ph.D., joined Gamida Cell (GMDA) leadership as Chief Executive Officer in November 2017, bringing more than 30 years of drug discovery and development experience to his role.
He has served on the GMDA board since September 2016.
Prior to his CEO appointment, Dr. Adams served as President and Chief Scientific Officer at Clal Biotechnology Industries (CBI), where he oversaw the Boston office, evaluating investment opportunities and supporting portfolio companies, including Gamida Cell (GMDA).
Before joining CBI, he served as the President of Research and Development at Infinity Pharmaceuticals, Inc., where he built and led the company’s R&D efforts.
Dr. Adams also served as Senior Vice President of Drug Discovery and Development at Millennium Pharmaceuticals, Inc., where he played a key role in the discovery of Velcade® (bortezomib), a therapy widely used for treatment of the blood cancer, multiple myeloma.
Earlier in his career, he was credited with discovering Viramune® (nevirapine) for HIV at Boehringer Ingelheim.
He has also held senior leadership roles in research and development at LeukoSite, Inc. and ProScript.
Dr. Adams has won several awards for his drug development efforts throughout his career, holds more than 40 patents from the United States Patent and Trademark Office and has authored more than 100 papers and book chapters in peer-reviewed journals.
Dr. Adams holds a B.S. from McGill University and a Ph.D. from the Massachusetts Institute of Technology. He also holds a Sc.D., honoris causa, from McGill University.
“The bottom line is the clinical data, our interactions with the hematology/oncology community, and the steady reporting of data further supporting our hypothesis.
We have also engaged in a lot of sophisticated laboratory work to explain how this works at a molecular level.
The story really has come together in the last year with gaining a lot of attention from physicians, both who are on our trials or who are not necessarily on our trials.
Our medical affairs group continues to connect to the transplant community and we have presented over a dozen abstracts in the last year at major medical meetings, all which have been very well received.
As an example, for the bone marrow transplant, for the Phase III program, we have conducted additional studies on the pharmacoeconomics of the product.
There is the potential for better patient outcomes.
Also a feature that is very important in the field of bone marrow transplantation is the ability to match patients at a genetic level to omidubicel, and what omidubicel can achieve and what we showed in our clinical trial is that patients of racial and ethnic diversity have a very hard time finding a match in the registry.
We have been able to have about 95% matching in our clinical trial.
If a patient cannot find an appropriate donor, they will unfortunately succumb to their cancer.
Omidubicel has a less stringent matching criteria for patients.
Moreover, we demonstrated our ability to match racially and ethnically diverse patients in our Phase III study as 40% of the patients in our study were non-Caucasian.
In our lymphoma study, we’ve had patients that are out three and a half years and are disease-free.
And the safety profile, as I’ve mentioned, compares much more favorably to the CAR T therapies in lymphoma, where patients have to be hospitalized, carefully monitored, and there are higher relapse rates.
Also, we have positioned the company for success over the near-, mid- and long-term.
Upon approval of omidubicel, our hematopoietic stem cell therapy candidate, we are in a position to become a commercial biotech company in the first half of next year.
Our mid-term strategy revolves around the success of our GDA-201 NK cell therapy candidate program.
If our company-sponsored clinical trials are successful, we could potentially file a BLA in the next two to three years.
Longer term, or five years out, we are advancing a pipeline of genetically modified NK cell therapy candidates, some of which have already reported promising preclinical data in blood and solid tumor cancers.”
Milton Werner, Ph.D. is the President and Chief Executive Officer of Inhibikase Therapeutics (IKT), a company developing novel protein kinase inhibitor therapeutics to treat neurodegenerative disease and viral infection inside and outside of the brain.
Previously, Dr. Werner served as Vice President of Research at Celtaxsys, a cell-free immunotherapeutics company.
From September 1996 until June 2007, Dr. Werner was a Head of the Laboratory of Molecular Biophysics at The Rockefeller University in New York City.
Throughout his scientific career, Dr. Werner has been an innovator integrating chemistry, physics, and biology into a comprehensive approach to solving problems in medicine, including an explanation of the origin of “maleness” in humans, the mechanistic basis of several forms of leukemia and lymphoma and, more recently, the development of therapeutics that can halt and potentially reverse functional loss in neurodegenerative disease.
Dr. Werner is the author or co-author of more than 70 research articles, reviews, and book chapters and has given lectures on his research work throughout the world.
He is the recipient of numerous private and public research grants totaling more than $30 million.
He is the recipient of several awards, including the Naito Memorial Foundation Prize, the Young Investigator Award from the Sidney Kimmel Cancer Foundation, the Research Chair from the Brain Tumor Society, and a $1 million Distinguished Young Scholars in Medical Research Award from the W. M. Keck Foundation.
Dr. Werner received his Doctor of Philosophy in Chemistry from the University of California, Berkeley, and his Bachelor of Science in Biochemistry from the University of Southern California, and he was an NIH intramural postdoctoral fellow prior to his tenure at the Rockefeller University.
“…We have two active trials ongoing and one recently completed.
Two of the trials were centered on a novel Abelson tyrosine kinase inhibitor that’s brain penetrant, IkT-148009 — 148009, as we often refer to it — evaluated in the 101 Trial, an acronym for that trial, a healthy volunteer and Parkinson’s patient trial that ran between February of last year and was formally closed in May of this year.
In the 101 trial we explored both dose escalation, side effect profile, pharmacokinetics and a variety of safety observations in healthy subjects between the ages of 45 and 70.
Using 148009 in healthy subjects across a wide range of dosing between 12.5 and 325 milligrams once daily showed an outstanding side effect profile — just seven adverse events were seen in 88 healthy subjects, and just five adverse events were seen in 13 Parkinson’s patients who had mild to moderately severe disease, including patients with Parkinson’s who were also taking other medications for Parkinson’s itself.
And there were no clinically significant adverse events.
Only two of the adverse events observed across all of those dosing groups had a possibly related adverse event to the drug in Parkinson’s patients, but nothing of clinical significance, no laboratory abnormalities to speak of.
And so, this drug, despite having very, very high exposures, has a really excellent safety profile so far.
We do not know, obviously, the full safety profile. We’ve only dosed as long as seven days.
Beginning in May of this year, we opened the first of now 11 sites, and there’ll be a total of 40 sites opened for the 201 Trial with 148009.
That’s a three-month dosing trial of 148009 in early-stage Parkinson’s.
These are patients who have a proper diagnosis, have disease progression by a number of standard markers, but who do not take other medications for their disease, so we can begin to evaluate the potential for IkT-148009 to act as a disease modifying therapy in Parkinson’s.
The basis for those trials came from validated animal models that we’ve spoken about for the last couple of years, and the details of which will be appearing in an upcoming publication.
The publication date hasn’t been announced yet, so I can’t disclose more than that.
But in that publication, and many presentations we’ve made publicly, and on our website, we’ve shown that we can both halt disease progression in validated animal models of Parkinson’s disease and actually restore lost function.
And when we restore lost function, we simultaneously clear the pathology of the disease, which is, to my knowledge, the first time any of those accomplishments have ever been achieved in a living organism.
We now see alignment between the doses we’re giving human beings and the drug exposures that they get, and the efficacy in animals where we saw activity.
So we’re hopeful in three-month dosing, which is what the 201 Trial will focus on, that we’ll see early signs of disease impact.
We do not know what the rate of potential recovery in a human being is for Parkinson’s disease, if that’s even possible, because historically, every drug in Parkinson’s or Alzheimer’s, or ALS, or every other neurological disease of its type has no activity whatsoever.
So here is where Inhibikase’s sort of differentiated strategy, I think, has its greatest potential.
And that is why we focus on scientific discovery.
We focus on modeling disease accurately.
We demonstrate therapeutic efficacy in a manner that we think aligns with the human disease.
So that when we go into the clinic, we have potentially a better chance of success.
But obviously, we don’t know whether it will be successful or not just yet.”
Get the complete interviews with Milton Werner, Ph.D., the President and Chief Executive Officer of Inhibikase Therapeutics (IKT), and Julian Adams, Ph.D., Chief Executive Officer of Gamida Cell (GMDA), exclusively in the Wall Street Transcript.
Milton Werner, Ph.D., President & CEO, Inhibikase Therapeutics (IKT)
Julian Adams, Ph.D., Gamida Cell (GMDA)
Nanocap biotech companies with public market capitalizations under $500 million with enough capital in the bank to launch a new product are a sweet spot for investors looking to take advantage of the current market fear.
For biotech companies the Phase III trial is the penultimate step to launching a new prescription drug.
Once Phase III trials are complete, the company creates a “Biologics License Application” or “BLA” submission for the FDA, the Federal Drug Administration.
Once the FDA has approved the drug for sale to the general public, the company can market the prescription drug to MDs throughout the United States.
John Vandermosten, CFA, is a senior biotechnology research analyst for Zacks SCR where he covers a portfolio of small-cap equities. His background includes 20 years of experience in a variety of investment management and research roles across all market cap ranges and throughout the capital structure.
In his 3,514 word interview, exclusively with the Wall Street Transcript, John Vandermosten points out that is has been difficult getting through the FDA process during COVID:
“The regulatory environment has been very difficult during COVID, and a lot of the attention and focus of the FDA has been on COVID and vaccine approval since early 2020, which diverted their attention from approving other drugs.
And also COVID has impacted clinical trials.
In 2020, a lot of those were delayed or held back, because frequently oncology patients are very sick and they don’t want to be exposed to the virus. So there were a lot of potential subjects that didn’t join trials and things were delayed.”
And then last year, it became very difficult to get goods and services — and this is apart from regulatory requirements. The FDA couldn’t do inspections, the FDA had to delay, a lot of times, some of the approval work that they were doing. So it made things very difficult for companies to get drugs approved.
Now that we have vaccines for COVID, the agency’s attention can shift back to regular approvals and we’ll see more focus on some of the products for existing diseases that need attention.”
One of the nanocap biotech companies that John Vandermosten covers has maneuvered through this difficult time and is poised to reap the rewards of its diligence.
“The third recent initiation is BioLineRx (BLRX). It recently completed a Phase III trial for stem cell mobilization in multiple myeloma.
Their lead candidate’s name is motixafortide, and it helps expand stem cells for use in transplantation. And results from their Phase III trials showed a 3.5-fold increase in stem cell mobilization in two apheresis sessions, versus standard of care.
It is 9.3 times more effective versus standard of care for mobilizing over 6 million cells in one apheresis session.
These are impressive statistics that show the drug can help patients needing a hematopoietic stem cell transplant.
BioLineRx (BLRX) conducted a pharmaco-economic study, which showed they could save $30,000 per patient compared to standard of care and improve outcomes…
BioLineRx (BLRX) and their drug motixafortide completed a Phase III trial and they’re preparing an NDA right now; targeting mid-year to submit their product to the FDA.
So as soon as that happens, we could see an answer from the FDA about 10 months later — they could actually have a revenue-generating product by second half next year. And they do have sufficient funds to get there.
Although sometimes companies like to raise a little bit more to give them some negotiating room.
I always think it makes sense to partner with a larger company that already has a marketing and sales group in place.
BioLineRx (BLRX) has said they can do it themselves if they need to, because it’s a relatively small group that they’ll be marketing to. But either way, things are looking good for them. And I think there’s a lot of upside there.”
Dr. Kumaraguru Raja is a Senior Biotech Analyst at Brookline Capital Markets.
Previously, he was Vice President, Biotechnology Research at Noble Life Science Partners.
He started his equity research career in 2010 as a Senior Associate Analyst on the Citi Research biotechnology team.
His expertise includes bottom-up scientific and financial analysis on companies across therapeutic areas and across a spectrum of market capitalizations.
In his 1,876 word interview with the Wall Street Transcript, Dr. Raju has also identified a number of nanocap biotech companies that have drugs ready to go to market and therefore may have tremendous upside.
“Earlier, pharmaceutical companies used to acquire early-stage companies, and they still do, but to a smaller extent.
Typically, the approach nowadays is to wait for Phase III data. And the pipeline is then de-risked, and they are willing to pay more for a de-risked asset than paying less for an early-stage asset.
They are not willing to take that higher risk. And I am not saying that earlier-stage companies are not takeover targets, but we are seeing much less of that more recently.
But a lot of these companies are looking at collaborations too, not just takeovers.
So, in my coverage universe, Dare Biosciences (NASDAQ:DARE), in the women’s health space, has developed a drug for bacterial vaginosis.
It is called XACIATO.
They have a global license agreement with another company called Organon (NYSE:OGN).
So that has happened early this year. So that is a drug which was already approved by the FDA. And they entered into this collaboration agreement following the approval.
So that is one example where the collaboration has happened following the approval.
And some of my companies, they are also acquiring earlier-stage private companies so that they can expand the pipeline, because they have enough cash on the balance sheet and then they can leverage that to buy other smaller private companies, which are in Phase I or Phase II development.”
Nanocap biotech companies are high risk/reward ratios.
Because of the COVID-19 pandemic, they have been clobbered in the public markets over the past 12 to 24 months and investor expectations are close to multi year lows. The FDA is now in the position to review and permit new drugs for the market.
In the recent Biotechnology and Pharmaceuticals Report from the Wall Street Transcript, investors can get detail from both industry experts and the CEOs of many nanocap biotech companies, and determine how to best take advantage of the current fear factor in pharmaceutical stocks.
John Vandermosten, CFA, Senior Biotechnology Research Analyst
Dr. Kumaraguru Raja, Senior Biotech Analyst
Word count: 2,971
TWST: Let’s start with an overview of the company, its history and how it has evolved over the years.
Mr. Rawcliffe: Sure. So Adaptimmune is an integrated cell therapy company. We’re focused with a platform derived from affinity enhanced T-cells and we’re targeting solid tumors. And that’s different. We also have a pipeline of clinical products with a first BLA — Biologics License Application — to be submitted this year for a rare tumor type called synovial sarcoma. We presented data at ASCO this year on that. And we think that will be the first transformative medicine for patients with metastatic synovial sarcoma for several decades, actually.
Behind that we have a pipeline of affinity enhanced T-cells, the most advanced of which other than the one that’s being submitted for the BLA, is across a range of tumor types in a family of trials called SURPASS. And it targets a target that’s present on head and neck, bladder cancer, lung cancer, gastroesophageal cancers. And we’re in mid-stage trials in those indications with the intention to take future products towards the market in due course, and we’re presenting data from the Phase 1 SURPASS trial at ESMO this year. So we are an integrated cell therapy company, submitting a BLA this year, broad platform coming, broad pipeline coming behind that.
And in terms of how we’ve evolved? I think we’ve evolved consistent with the space and our leadership position in it. We, as a company — we’ve been a company for 14 years. So we’re long standing in the cell therapy space. And we’ve seen that space evolve from science projects to real products on the market. And the next frontier, the holy grail for cell therapy is the ability to get cell therapy to work in solid tumors. And that’s where we’ve been focusing all our energy. And we are absolutely at the leading edge of that with the first engineered T-cell therapy in a solid tumor space, with a BLA submission this year.
TWST: I know you have different terminologies here, so I just want to make sure. Is that a part of SPEAR or is that something separate?
Mr. Rawcliffe: So a SPEAR describes the underlying technology platform. It stands for Specific Enhanced Activity Receptor. So it describes the fact that we engineer the T-cell receptors on T-cells to be able to recognize cancer, specific targets on cancer with enhanced affinity. And that overcomes the main thing that happens with your immune system and cancer, which is your immune system just can’t recognize cancer with enough specificity to go ahead and kill it.
And so we engineer the T-cell receptor, which is the business end of the T-cell. It’s the thing that T-cell uses to recognize what it wants to kill. And we engineer that so it can see cancer targets. And then when it does, the T-cell does its job; it kills those targets, and it brings in the rest of the immune system as well to attack that cancer. So the way to think about these cells is like they’re the stormtroopers kicking in the door; if these cells can attack cancer cells, then the rest of the immune system piles in behind to eradicate the tumor.
TWST: And where are you in terms of clinical trials?
Mr. Rawcliffe: So our lead product, or afami-cel, for synovial sarcoma has completed the hypothesis testing cohort for its pivotal trial. We announced that the trial was positive last year with a clear separation between the responses that we see, the response rate that we see and historical controls. And we have RMAT designation with the agency — that’s Regenerative Medicine Advanced Therapy designation — that gives us access to talk to the agency — the FDA — about the program and we’ve talked to the FDA about the pivotal SPEARHEAD-1 trial, and its design and that will be the basis of the BLA that we will submit this year. So that’s the most advanced program.
Then behind that, the next-generation T-cell, with the same target as afami-cel, but with enhanced potency is in Phase I and Phase II trials. The Phase I basket trial we call SURPASS, which is across a broad range of tumors — that’s really a signal-finding study in late-stage patients to try to see where we see responses. And that’s the data that we are putting out at ESMO later this year. And then as we see responses in particular tumor types — we’ve seen responses in head and neck, bladder, and gastroesophageal and ovarian cancers so far.
Based on data in gastroesophageal and ovarian cancers, we initiated a Phase II trial last year in gastroesophageal cancers and plan to initiate another Phase II trial this year in ovarian cancer. And subject to the data, we aim to put those on a path to registration and ultimately becoming a commercial product.
TWST: Is there anything else you have in the pipeline that you’re expecting to be able to present soon?
Mr. Rawcliffe: Yes, so the other very exciting thing that we’ve got is that all of the stuff that I’ve been talking about before and all of our clinical pipeline is what’s known as autologous cell therapy. An autologous cell therapy basically means they’re your cells, and we take them out from each individual patient, we engineer them for our enhanced T-cell receptor, our SPEAR T-cell receptor in there, and we send them back to you. And so it’s a personalized treatment for you, with our engineered T-cell receptor. And that as a process takes time. And it’s obviously patient specific and what we have been working on for six years now.
There are a number of other companies in the space all trying to get a universal cell, donor cell that could go into any patient. That’s very difficult to do. And that’s called allogeneic. So you’ll hear the autologous platforms and allogeneic platforms, and we have both. Our allogeneic platform is in the research phase, is yet to go into the clinic. We plan on filing an IND for that next year. But that’s super exciting for us and for the field.
And if successful, that has the opportunity to have an off-the-shelf cell therapy. So rather than having to go through this complex manufacturing process, which although well-established now and we were good at it, as are the other cell therapy companies in the autologous space, it does take time and it is costly. You would have an off-the-shelf product available immediately for a patient when they received the diagnosis and wanted a cell therapy treatment. And that’s to say our first IND for that will be filed next year.
TWST: I was curious, how did the pandemic impact your research, your work? And where are you now in that process?
Mr. Rawcliffe: I think the interesting thing about the pandemic was, and this is true not just for us and for other biotech companies, I think it was true for the majority of society, is the realization of just how much you can do completely remotely. And at the same time, after a period of time, we’ve found that there were some very important things that it was difficult to do entirely remotely, that some level of face-to-face contact was necessary.
So from a sort of operations of the company perspective we were actually quite successful through the pandemic. We were able to very effectively take everybody remote and then bring them back, and actually our style — our approach to work remotely or in the office — has changed and alongside many others we’re implementing a hybrid model based on specific roles. So I think that is a significant change brought about by the pandemic, that increased flexibility.
The other thing for us, obviously, is clinical trial recruitment. And as well as the operations of Adaptimmune, you’ve got the operations of the hospitals that were also hit, not just in terms of their processes in place to combat COVID in their workplace, which I think puts additional constraints on patients seeking help, but also the fact that many of the hospitals were overrun at certain points in time with large numbers of COVID cases and prioritized those and obviously didn’t prioritize even late-stage cancer patients. And so, there was a definite period of time where recruitment slowed.
I think one of the advantages that we’ve had is that we are running our trials both in North America — U.S., Canada — and in Europe. And actually, when you chart the waves of COVID backwards and forwards, it was rare that all those locations were shut down at the same time. So by and large, we were able to continue to recruit the trials, but there were definite effects on — for example, MD Anderson Cancer Center in Texas was one of our major recruitment sites and went through phases of having very strict COVID responses and a lot of cases, and so on a site-by-site basis, that was significant.
I think, overall, we’ve come through that, I think, quite strongly. I think that’s true of the sector, as well as not just of Adaptimmune. I mean, it’s notable that during the pandemic we recruited our pivotal trial almost entirely during the pandemic. That went fine. We raised a quarter of a billion dollars on the basis of ASCO data that we put out in 2020. And we did that entirely virtually. And we executed a very large deal with Roche Genentech, which we signed at the tail end of last year, so late 2021, but most of that was negotiated through the pandemic, through various waves of the pandemic. So I think we’ve managed to come through it stronger on the other side, although COVID clearly had a significant impact.
TWST: Can you talk about the deal with Genentech and why it’s important?
Mr. Rawcliffe: So I referred earlier to an allogeneic platform. And this is a genuine platform. So whilst we can use it to develop our products, and the first product we will put into the clinic is targeting MAGE-A4 and is wholly owned, which is the same target as afami-cel, but this will obviously be an off-the-shelf version. The applicability of that platform is much broader. And so we’ve had a strategy for some time to make that platform available to partners and to leverage and monetize that platform to some extent, so that they can pursue their own programs and targets of interest on an allogeneic stem cell derived allogeneic platform, which is what our platform is.
And so in 2020, we did a deal with Astellas that enabled them to have a number of targets that we’d work on closely and move through. And then last year, we did a much larger deal with Roche Genentech. They paid us $150 million upfront and they will pay us another $150 million over the five years subsequent to the signing of that. And there’s development milestones downstream, and I forget the exact biobucks number we put out there, but it was — I think it was $3 billion of biobucks associated with the program. But more importantly it’s real validation by an acknowledged scientific leader in the space, Roche Genentech, that Adaptimmune platform can be the basis of a long-term set of products.
And Genentech’s interest is very long term. The deal has two parts to it — one part of which is a very long-term approach to a personalized off-the-shelf therapy that we’re working with our partner Genentech. So it’s super exciting, super validating, and part of the strategy to leverage that platform because it has potential way beyond what we could possibly hope to do with it.
TWST: I was wondering, what are your priorities for the next 12 months to 24 months? And what would make that timeframe a success?
Mr. Rawcliffe: We have four very clear priorities. And particularly in this biotech market, it’s really critical that we’re focused on those. So number one, we are submitting our BLA for afami-cel. That is a gargantuan task. There have only been five successfully filed cell therapy products in history. And so we plan on being the sixth or possibly the seventh. And so there isn’t a roadmap, there’s a lot of stuff that we’re working through with the FDA as we go and we plan on submitting the BLA this year. And subject to regulatory review, that product will then be available commercially in late 2024. So that’s a key priority. And so the BLA itself and standing up a small focused targeted effort to commercialize afami-cel for patients with synovial sarcoma.
Secondly, the SURPASS family of trials. This is the opportunity to make cell therapy mainstream in the solid tumor space because the SURPASS product has shown activity across a broad range of tumors, and prosecuting those trials into late-stage development and towards the market is going to be key to demonstrate the value of our platforms.
Thirdly, is the allogeneic platform that I referred to. Focusing on that and delivery of the IND for MAGE-A4 and progression of the partnerships with Genentech and with Astellas.
And then lastly, we have believed for the longest time that to be successful in cell therapy, you have to own your manufacturing. There’s a whole set of rationale about why that’s particularly important in autologous cell therapy versus in monoclonal antibodies or other therapy types. And we’ve invested significantly in that over the years, and it’s really paid off. The capabilities we have to be able to manufacture ourselves, I think puts us in a very strong position, both when it comes to executing on clinical trials and as we move forward to commercialize that product out of the same facility where we did the clinical trials, actually.
And so, investment in that so that we can supply both the commercial demand for afami-cel in synovial sarcoma, and the late-stage clinical trial demand — that investment in the CMC space is a fourth priority for us.
So, what does success look like? We will be one of the very, very few biotech companies that’s actually commercialized its own product that it discovered eight years ago in the clinics in Oxford and has developed all the way through clinical trials. And we will now be putting that on the market. Not only will we be one of that select group, which is a small group, but we will have done the first engineered T-cell therapy in a solid tumor as well, which is another major first. And we will have established the potential of cell therapy in solid tumors, and that will be a similar step to the one that, for example, Kite Gilead took when it established that you could do CAR T therapy for B cell malignancies for the lymphomas and leukemias. It will show that we have been able to do that for solid tumors, which I think is a huge step for the field.
TWST: I was wondering what are some of the challenges you face? What keeps you up at night?
Mr. Rawcliffe: So, this is a very complicated space. And as is true with all new modalities of therapy, new types of therapy, there’s no playbook for a lot of this. And so what we’ve had to do is build a team who all come with their own skill sets from different places, but who have integrated around getting cell therapies to market and that knowledge to be very different. So that, I suppose it’s unknown. If you’re not comfortable with ambiguity in this space then being the cell therapy CEO is not a good place to be. So I think you’ve got to be comfortable that we’re doing stuff that just hasn’t been done before.
I think there’s not that much that keeps me up at night. I think that historically there has been, and it was when we weren’t sure what the benefit for patients was from our therapies. But the reality is at the moment that everywhere we look in our trials, we see — most of our trials are not blinded – so I see patient data as it comes through, sometimes in semi real time. And so everywhere we’re looking at the moment, we are seeing the positive effects these cells are having on patients. And once you’re convinced of that, all the ambiguity is manageable. Because you can see that scan and that patient had a huge tumor at baseline, and it’s gone now. And so you can see that your cells are doing something.
And so, you know, the road may be unknown, it may or may not be navigated before with certainty. But I think if you believe that you’re doing something profound for patients there’s a hell of a lot of ambiguity you can deal with elsewhere.
TWST: What’s the most important thing a potential investor should know about the company?
Mr. Rawcliffe: Adaptimmune is the leader in engineered T-cell therapies in solid tumors. We’ve built a successful, integrated, completely dedicated and specific company to advance cell therapies. And that’s what’s going to make us successful, establishing these as a mainstream therapy in solid tumors. And the field is enormous. If you think that monoclonal antibodies are a big space, a big target market, a big economic potential, big upside, cell therapy will dwarf that in time. And Adaptimmune is right at the forefront of getting that access.
TWST: Was there anything you wanted to mention that we didn’t discuss?
Mr. Rawcliffe: I think the only thing that is what I just said about where we’re positioned relative to the field. I think that’s the take home for Adaptimmune at the moment. BLA this year, everything to play for.
TWST: Thank you. (CJ)
Adrian “Ad” Rawcliffe
351 Rouse Boulevard
Philadelphia, PA 19112
(215) 825 9260
(215) 825 9459 — FAX
Hartaj Singh is Managing Director and Senior Analyst, Biotechnology at Oppenheimer & Co. and recommends Gilead (GILD) for investors looking for a biotech investment.
Earlier, Mr. Singh was Managing Director and Senior Biotechnology Analyst at BTIG Securities.
He began his sellside career at Lehman Brothers and subsequently moved to the buy side covering biotechnology at Visium Asset Management and Tecumseh Partners.
He began his career as a clinical trial project manager for ClinTrials Research and also worked as a strategic analysis manager for Johnson & Johnson (JNJ), both of which give him experience in clinical trial design.
Mr. Singh has a B.A. in biology from Case Western Reserve University and also did graduate work in computational neurobiology. He received an MBA from Duke University’s Fuqua School of Business.
For investors looking to get started in biotech, Hartaj Singh believes Gilead (GILD) is at an excellent entry point.
“Yes, we have a “buy” on Gilead (GILD).
And we have one of the highest price targets on it.
And it’s just human psychology that if things are not looking good in the outside world, you will generally tend to go to areas or stocks that are safer. So you’ll avoid higher-risk stocks.
And in that kind of an environment, the larger caps look very good. They don’t tend to be as volatile.
The large caps in biotech have already seen their valuations pretty depressed for a few years now, since valuations started declining during the back half of 2015. And since then, because of drug pricing concerns, and some other concerns, large-cap biotech has been undervalued.
So, it’s already cheap; it already looks cheap.
And in a recession, potentially, investors would go to names that seem to be safer. And then Gilead (GILD) screens especially well because it doesn’t have a lot of binary pipeline readouts.
It’s got good likely top- and bottom-line growth of about in the low- to mid-single-digits.
And then it’s got a 4% to 5% dividend yield.
Its dividend yield is probably the best in biopharma right now.
So if you’re looking for a safe haven, what in a very bullish economy would seem like a very boring stock that everybody would avoid, right now Gilead (GILD) may be kind of boring and it has a great dividend yield.
So we think actually Gilead (GILD) should perform better and better, especially if the environment seems to potentially indicate a recession going forward.”
Funding rates have affected startups rather than the Gilead (GILD) level biotechs.
“Biotech consumes a tremendous amount of cash.
There is a number that’s often thrown out, which has been published by various data sources, that it takes about $1 billion to get a drug to market, but that includes all the other drugs that failed.
And one out of every 13 drugs that gets into human beings for clinical trials actually makes it to market. So in biotech, the failure rates are tremendous.
But investors make the money off of the one drug that works, because essentially, it’s a moonshot or star-shot kind of project that more than makes up for all the other losers.
But that also gives an insight as to why biotech is so sensitive to the economic environment.
When cash is very constrained, meaning like in a recessionary environment, the incremental dollar from investors is more and more difficult to get.
And then, of course, sectors like biotech become very difficult to fund. And so, valuations start going down.
When a market is on an uptrend and people have more and more money to spend and can take riskier bets, then biotech is usually one of the first sectors to recover, because that’s when the risk-on mood is around to be invested.
However now, investors will probably gravitate towards projects and companies that have less risk. So there will be fewer preclinical projects, more clinical projects.
And more focus on diseases where there’s a higher understanding of molecular biology, which is called the disease pathology — the underlying way the disease works — and then also where there are validated targets.
And that usually is in oncology, immunology, genetics, and the genetic underpinning of various diseases that become much more interesting.
So you won’t necessarily see somebody going after, for example, ALS or Parkinson’s.
But you’ll see investors go after parts of Parkinson’s or Lou Gehrig’s disease that have an underlying genetic component, and that’s a really a smaller subset of the overall Parkinson’s disease population.
So those areas have become much more focused upon by investors.”
Hartaj Singh has a portfolio approach that includes stocks like Gilead (GILD) but also some riskier companies.
“Percentage-wise, if you’ve got $100 to invest, biotech probably should never be more than $10 — so 10% of your portfolio.
Then, out of that $10, invest about $4 to $5 in companies like Gilead (GILD) and Vertex that are bigger, smart beta; put about $4 to $5 in companies that are smaller and speculative.
Out of that four or five that are smaller and speculative, you probably want to put $2 to $4 in like United Therapeutics and Sarepta, and then $1 into companies where you’re looking for the home run, but which also might go to zero.
So you’re doing a mix of some smart beta with mid-cap companies like United Therapeutics or Sarepta that will give you some alpha and then, you just shade in a little bit of spice with that last dollar to get your home run.
And whether the markets are up or down, I would recommend that over and over again.”
Read the complete 2,892 word interview with Hartaj Singh is Managing Director and Senior Analyst, Biotechnology at Oppenheimer & Co., exclusively in the Wall Street Transcript.