Job trouble? Wave of rehiring after economy reopened to fade in July after viral spiral


The engine of the U.S. economy may have gotten clogged again — no thanks to the recent acceleration in coronavirus cases. That’s bad news for Americans hoping to return to their old jobs.

Just how much damage has been done will become more evident this week, especially from the U.S. employment report for July due next Friday. The number of jobs regained last month is unlikely to match the huge increases in May and June that totaled a combined 7.5 million.

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economists predict the U.S. added about 1.5 million jobs in July.

Even that estimate may be inflated though by seasonal changes in educational employment at the state and local level, Morgan Stanley contends. Private-sector jobs could increase by less than one million, the investment bank calculated.

See: MarketWatch Economic Calendar

Whatever the case, a much smaller increase in hiring or rehiring in July would bode ill for the U.S. recovery from the coronavirus pandemic. The government last week reported that gross domestic product sank a whopping 32.9% in the second quarter on an annualized basis, the biggest decline since World War Two.

Read: Economy suffers titanic 32.9% plunge in 2nd quarter, points to drawn-out recovery

Also:‘A massive welfare economy’ – federal aid prevents even steeper GDP collapse

“The big question hovering over next week’s employment report is whether the two-month surge in job gains stopped in July,” says David Donabedian, chief investment officer of CIBC Private Wealth Management. He thinks that’s exactly what happened.

It will be hard for the economy to make up a lot of lost ground in the third quarter unless hiring snaps back even faster.

See:MarketWatch Coronavirus Recovery Tracker

The U.S. lost a record 22 million jobs in March and April, according to Labor Department data. So far the economy has recovered less than one-third of those jobs.

The weekly tally of jobless claims, meanwhile, showed an even higher 30 million unemployed people were collecting benefits as of mid-July, representing about one in five Americans who said they were working before the pandemic, according to a Labor Department survey of households.

Robert Frick, corporate economist at Navy Federal Credit Union, said many people who expect to return to work are going to find they have no jobs or businesses to which they can return, a “grim reminder” of how much long-term damage the pandemic has caused.

“In the long run we are going to see a sobering slowdown in job growth,” he said.

The still-high level of unemployment, the viral spiral, and the uncertainty over whether Washington will provide more financial aid has understandably made Americans feel less confidence. On Friday Congressional lawmakers were still at odds on the next relief package with many benefits set to expire at the end of July.

A variety of measures that monitor consumer attitudes show a clear deterioration in July that’s likely to bleed over into August. That will make a recovery even harder.

Read:Consumer confidence wanes in July and points to rockier economic recovery

And:Consumer sentiment falls as coronavirus cases rise and federal aid set to expire

The news might not all be negative next week, however.

Manufacturers — auto makers in particular — have shown more resilience than the service side of the economy. The closely followed ISM manufacturing survey could show improvement for the third straight month.

The housing industry has also snapped back faster than expected amid a surge in home sales. Prospective buyers with secure jobs are taking advantage of record-low interest rates to buy new homes, a trend that may have been fueled by people fleeing the closed spaces of cities with a high number of coronavirus cases.

Even that potential bit of good news, however, has been overshadowed by the broader damage to the economy from the latest spike in coronavirus cases in many American states.

A full recovery can’t take root and blossom, economists say, until the disease is brought under control.

See: Pandemic will continue for some time, experts tell Congress as U.S. case tally nears 4.5 million



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Confused or having trouble with coronavirus unemployment? Here are answers to your questions


The massive scale of rapid closings resulted in a flood of questions about regular unemployment insurance, as well the temporary unemployment programs implemented as part of the CARES Act.

We’ve collected your most frequently asked questions and answered them below.

General

Q. My unemployment claim was denied because I didn’t earn enough. What should I do now?

Most states require you to work a minimum number of hours over a given period of time — typically the past 12 to 18 months — to qualify for regular unemployment benefits. The exact amount you need to earn varies by state. If you didn’t meet that requirement, you’ll likely be told you are “monetarily ineligible” for benefits.

Currently, people who didn’t earn enough to qualify for regular unemployment insurance can still receive benefits through Pandemic Unemployment Assistance (PUA), a temporary program established to aid people out of work due to the coronavirus. In some states, you will automatically be considered for PUA benefits if you’re denied regular unemployment. In other states, you need to fill out a separate application.

Q. I’m currently receiving unemployment. Will working part time affect my benefits?

Working part time doesn’t automatically disqualify you for unemployment benefits, but it will reduce the amount you receive each week. By how much? That depends on how much you earned and the state you live in.

Federal Pandemic Unemployment Compensation, the additional $600 weekly benefit authorized via the CARES Act, works a little differently. If you qualify for at least $1 of unemployment benefits in a given week, you will still receive the full $600 in Federal Pandemic Unemployment Compensation.

Q. I was laid off but received a severance. Can I still collect unemployment benefits?

The rules around severance vary by state. In Illinois, for example, you can collect unemployment even if you receive a severance. That’s because Illinois doesn’t consider your severance pay as income, even if it’s paid out over time rather than in a lump sum. The same is true in California and New Jersey. But in states like Texas, New York, Massachusetts and Arizona, severance pay could temporarily disqualify you from receiving unemployment benefits.

Q. Will the $600 a week of Federal Pandemic Unemployment Compensation affect my Social Security Disability Income?

No. Unemployment insurance benefits, including Pandemic Unemployment Assistance and Federal Pandemic Unemployment Compensation, are considered unearned income and won’t affect Social Security Disability Income. The same is true for Social Security retirement benefits.

Unemployment benefits may affect Supplemental Security Income payments and must be reported.

Q. Can I collect unemployment benefits if I receive Social Security?

Yes. If you receive Social Security retirement benefits but also work, you can collect unemployment benefits if you lose your job, so long as you are eligible under your state’s rules. You may also qualify for temporary coronavirus unemployment programs, such as Pandemic Unemployment Assistance, as well as the $600 a week in Federal Pandemic Unemployment Compensation.

Self-employed/contractors/gig workers

Q. I applied for unemployment but was denied. What should I do now?

In many states, you need to apply for, and be denied, regular unemployment benefits before you will be considered for Pandemic Unemployment Assistance (which covers self-employed, contract and gig workers, among others).

Once you’ve been denied regular unemployment benefits, your state agency will either automatically review your claim for Pandemic Unemployment Assistance or prompt you to submit an additional application for those benefits. In Indiana, for example, you have to proactively apply for PUA after being denied regular unemployment insurance.

Also read: 41% of Black small businesses have closed since the pandemic

Q. How will my benefits be calculated if I don’t have a W-2 or regular weekly income?

Each state has a minimum and maximum possible weekly benefit for Pandemic Unemployment Assistance. This amount varies by state. You can submit the following documents, either when you apply or after, depending on your state, to verify your income:

  • 2019 federal tax return, including the following when applicable:
  • Schedule C, Profit or Loss from Business.
  • Schedule F, Profit or Loss from Farming.
  • Schedule K-1, Partner’s Share of Income.
  • 2019 1099 form.
  • Final pay stub in 2019.
  • Invoice, billing or other documentation to provide proof of self-employment.

Some states will automatically issue the minimum benefit to process your claim quickly but will adjust your benefits after you provide proof of your earnings.

Q. Is Pandemic Unemployment Assistance calculated using my net or gross income?

Pandemic Unemployment Assistance benefits for self-employed individuals are calculated using your net income for 2019.

Q. I have a W-2 job and am self-employed/have a contracting gig. Can I claim lost wages of my self-employment, but not my W-2?

The short answer is no. You have to report any W-2 income earned during the base period (typically the past 12 to 18 months) when you file a claim for unemployment insurance. If your W-2 income during that time is enough to qualify for regular unemployment, those earnings alone would be used to calculate your weekly benefit amount.

Also read: People receiving unemployment benefits are MORE likely to look for jobs, Chicago Fed study finds

If your W-2 earnings were less than the minimum required to receive regular unemployment benefits, you may qualify for Pandemic Unemployment Assistance using your income from self-employed, contract or gig work.

Returning to work

Q. Will I lose my unemployment if I don’t go back to work?

Generally speaking, you must be “able and available for work” to qualify for unemployment benefits. That means you risk losing your benefits if your workplace reopens and you choose not to return to work.

The fear of contracting the coronavirus on its own isn’t a valid reason to refuse work, according to the U.S. Department of Labor. But the CARES Act allows for some possible exceptions to this rule, including:

  • You are the primary caregiver and your child’s school or day care is closed due to coronavirus.
  • You’ve been advised by a health care professional to self-quarantine due to coronavirus concerns.
  • You are caring for a member of your household who was diagnosed with COVID-19.
  • You don’t have transportation to and from your workplace due to the coronavirus.

Under those circumstances, you may lose regular unemployment benefits but could qualify for Pandemic Unemployment Assistance.

Q. I’m returning to work at reduced hours. Will I still get the $600 a week in federal assistance?

It ultimately depends on your earnings. If you earn too much to qualify for unemployment, you will also stop receiving the $600. But if you still qualify for reduced unemployment benefits, even a small amount, you will also still get the $600 a week.

Q. I am supposed to return to work, but my child’s day care hasn’t reopened. Will I lose unemployment benefits if I don’t return to work?

You can continue to receive unemployment benefits if you are the primary caregiver and are unable to work because your child’s school or day care is closed due to coronavirus.

A note about fraud

The massive influx of unemployment claims in recent months, coupled with outdated systems and a push to process claims as quickly, has created a perfect storm for fraud attacks on state unemployment systems.

Fraud rings are using Social Security numbers, addresses and other information exposed in past cyberattacks to illegally claim unemployment benefits.

Related: Buyer beware: SEC warns investors to avoid coronavirus-related frauds and scams

If you believe someone has filed for unemployment benefits using your information, contact your state unemployment agency as soon as possible. Some states, including Washington, have a designated place to report suspected fraud.

More from NerdWallet:



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The U.S. Job Market Is In Serious Trouble. Why An Exuberant Stock Market May Soon Follow – Part 2 (NYSEARCA:SPY)


In our last article, Part 1 of 2, we discussed the tremendous strains that many small businesses are experiencing in light of the recent mandatory shutdowns across various states.

Specifically, we cited three surveys that were recently conducted with these small business owners, to better understand the situation that they are facing and gauge how helpful the U.S. government’s response has been to provide federal assistance programs such as PPP and EIDL to help as an interim stop-gap measure until the economy starts up again.

The data presented in these surveys is both troubling and disappointing.

The implementation of COVID-19 social distancing measures have had a substantial impact on both the financial and psychological health of many of the country’s small business owners.

The data from the SHRM survey found that 42% of small businesses have already made the decision to close; unable to continue operating in light of the huge drop off in revenues as a result of having few customers coming through their doors.

These same business owners, if they have been able to somehow remain in business, are not very optimistic that they will be able to hang on for much longer.

To them, it appears that any return to normal operations is going to take much longer and provide much less revenues than they had originally thought.

Many are rapidly losing hope, since they have been unable to secure the necessary monies promised by the government programs, on which many were depending.

Source: Goldman Sachs Investment Research

There are signs that some countries, Russia, South Korea, Iran, as well as many U.S. states, are opening up, and relaxing social distancing measures too early. As result they are starting to show a spike in the number of COVID-19 cases.

Based on the early re-openings in some states, we have serious concerns about the lack of social distancing and the failure to follow guidelines as it relates to health protocols.

Unless the number of new cases and deaths, as a result of the Coronavirus, begin to show improvement, there is a chance that we could see a second wave of this highly-transmittable and contagious pathogen.

A second wave seems all the more likely if people continue to ignore following some simple rules to help everybody weather this storm and stay safe.

Looking at two recent news stories, one in Massachusetts, and one in Colorado, it is clear that some people don’t realize the importance of continuing to maintain social distancing in order to re-open the economy.

In Hawaii, people are breaking quarantine orders and are being arrested.

If this is the way people are going to approach rules that are designed to protect them and their neighbors, we can almost guarantee that there will be a second wave of COVID-19, and we will be right back to square one with strict social-distancing measures being re-instated.

If that were to happen, investors could kiss any chance of the U.S. economy returning to normal goodbye. The stock market would plunge, yet again, only this time it would make the most recent decline look tepid.

A second wave of the Coronavirus pandemic would surely prove to be disastrous for both the welfare of the general population and the health of the economy, and just about ensure that President Trump would go down to defeat in November.

The recent optimism by stock market investors has primarily been a result of the anticipation of the economy returning to some sense of normalcy.

Has this optimism been misplaced?

Judging from the anecdotal evidence that we are observing, we would have to emphatically say, yes.

Returning to the topic of jobs, it seems that investors may be giving too much weight to the Federal Reserve, and not enough on the consequences of seeing a continuing rise in unemployment.

We have made this argument before, but perhaps it is worth repeating.

  • Without an end to the transmission and spread of COVID-19, there can be no return to social normalcy.
  • Without a return to social normalcy, we cannot reopen the economy with any degree of confidence.
  • Without re-opening the economy, workers cannot return to their jobs, since it is likely that there would be no customers to serve.
  • Without customers, there can be no business revenues.
  • Without revenues, businesses would close their doors, thereby denying their employees the ability to earn a decent wage.
  • Without a decent wage, households would have no income.
  • Without household income, consumer spending would decline precipitously.
  • If consumer spending were to decline precipitously, the GDP of the United States would plunge.
  • If the GDP of the United States were to plunge, there would be no corporate profits, stock buybacks, or dividends.
  • Without corporate profits, buybacks and dividends, the stock market would crash again.

We would find ourselves mired in another deep depression, perhaps even worse than the Great Depression of the late 1920’s and early 1930’s.

Remember that consumer spending accounts for two-thirds of GDP. Without consumer spending the economy would grind to a halt.

We cannot afford any more reckless and irresponsible behavior by people who do not take the COVID-19 pandemic seriously, and we cannot afford the loss of any more jobs.

Source: Bloomberg, Standard Chartered Research

There are some analysts that make a strong case for the current BLS-reported unemployment rate being much higher than the 14.7% reported a few weeks ago. One of those analysts is Steve Englander, from Standard Chartered bank whose calculations we referenced in our Part 1 article.

Another is Neil Dutta, head of economics at Macro Renaissance Research, who says that based on the Bureau of Labor Statistics U-6 rate, which accounts for that portion of the population that have given up searching for employment, the real unemployment rate is closer to 20%.

According to a recent Zero Hedge article:

With the US economy sliding into a depression with the BLS reporting – when one reads between the lines as Standard Chartered did over the weekend – that there were 42 million unemployed workers in April, pushing the unemployment rate to an unheard of 25.5%, far above the reported 14.7% (forget any hope for a V-shaped recovery as millions of those recently laid off will never get back to full-time work … it is not a surprise that according to the latest New York Fed survey of consumer expectations, virtually every metric having to do with one’s financial well being – income, wealth, debt sustainability and earnings expectations – is cratering with expected earnings, income, and spending growth each hit survey lows which is what one would expect in a depression.

Furthermore, according to SCR, the expected probability of losing one’s job jumped to an all-time high of 20.9% from 18.5% in April; the probability of missing a minimum debt payment over the next three months surged to 16.2% – a 7 year high – from 15.1%, while expected earnings growth tumbled to the lowest on record at 1.87%, down from 2.05% in April.

Source: Zero Hedge

Source: Standard Chartered Research

Even White House economic adviser Kevin Hassett, is calling for the unemployment rate to reach 20% in the next report due out in May.

Going back to the alternative opinions offered by Steve Englander and Neil Dutta, the rate of decline would be starting at a much higher point in the U-6 unemployment rate, thereby requiring an even faster return of jobs for the rate to fall as the economy re-opens.

The idea that as the economy re-opens, the unemployment rate will drop quickly does not seem to be borne out by some of the data.

Source: Morgan Stanley Research

The forecasts that we see in the preceding chart, seems to show that even in a best case, bullish scenario, we won’t see a return to prior employment levels until mid-2021 and possibly into 2022 under a worse case, bearish scenario.

Source: Goldman Sachs Investment Research

The above chart seems to indicate that trying to wring out the slack in the labor market could require much more time than stock market investors are anticipating. Based on our translation of the data presented in that chart, it appears that the slack in the labor market could continue well into late 2021 and early 2022.

We would note that Goldman’s projections assume no additional wave of COVID-19 that would require another shutdown of the economy.

Goldman’s takeaway is that “contrary to expectations for a quick return to normal, it will take years (if ever) before the unemployment rate recorded in late 2019 is back”.

Source: Bloomberg

Based on our interpretation of the chart above, it seems to be illustrating that while the majority of layoffs occurred in such industries that include hospitality & leisure, along with bars & restaurants, all of the subcategories in the labor market saw declines in employment during April 2020.

The fact that these job losses were widespread among all sectors of the U.S. economy, they conclude that a “V”-shaped recovery is highly unlikely.

The loss of jobs is only part of the problem facing workers. There are also other dynamics at work which are making it increasingly difficult for many to maintain the lifestyle to which they have become accustomed.

The first problem has to do with the lack of savings to provide a short-term cushion to fall back on during hard economic times.

Source: Real Investment Advice

The savings rate, while having increased most recently, remains low and presents a major problem for weathering these tumultuous times. This is especially true for many in those industries, mentioned above, that were hardest hit, i.e., hospitality & leisure and bars & restaurants.

These workers, who generally are employed in the aforementioned industries, tend to be located at the bottom of the income spectrum. They are the ones hardest hit by the loss of a job, and are also the least able to survive for very long without a paycheck since the have virtually no savings to fall back on.

Source: Real Investment Advice

The number of consumers failing to financially make ends meet has grown dramatically over the past 10 years. They have had to rely on credit to get by, using every resource available to them, mortgage loans, car loans, credit cards, etc.

Source: Real Investment Advice

The newest problem that many of these folks are now facing, is that lending standards have become much more stringent. In fact, some banks are now requiring that a borrower have a credit score of at least 700 to qualify for a mortgage, and, in addition, these same banks are requiring a minimum down payment on a property of 20%.

Source: Deutsche Bank Research

Is it any wonder then, that these lower-income families, forced to live paycheck-to-paycheck, with no jobs and no savings, are electing to stay home and take the unemployment benefits that are available to them.

They are literally making more money by not working, than they are going to work. But, how will that help the economy? The answer is that it won’t.

Source: The Wall Street Journal

On top of that, because the uncertainty among this lower-income group is so much greater than others who are less impacted by state-mandated business closures, what little money that they can save they are not spending. Instead, they are hoarding every dime that comes their way. Can we really blame them?

All of this circles right back to what we have been discussing, some would say ad-nauseam, in our recent spate of Seeking Alpha articles.

Wealthy global consumers are also pulling back. Even those with a mid-six-figure portfolio, a vacation home in Monte Carlo, a Bentley parked in the garage and an uber-luxurious lifestyle are feeling uncomfortable.

Even real estate is not immune to what is happening in the luxury market.

Fear knows no class, race or ethnic boundaries, and it doesn’t care how much money you have.

Source: Haver Analytics, Rosenberg Research

In spite of all of this, the expectations, among a predominantly retail investor constituency, is that stock prices are destined to go much higher.

Why do we say predominantly retail investor?

Take a look at what retail investors are doing and what professional investors are doing. Retail investors are piling into stocks at nosebleeds levels, while the professionals have been net sellers of equities during the Coronavirus pandemic.

Source: Zero Hedge

If you believe in contrarian indicators, you won’t find one with a better track record than the behavioral buying and selling patterns of retail investors.

Source: Guggenheim Investments, Haver Analytics

In summary, the chances for the economy to experience a “V”-shaped recovery are declining every day.

The job market is in shambles, and is expected to get worse before it gets better.

We reiterate our bearish view and are maintaining a defensive posture in the equity market. The potential for a “V”-shaped recover has come and gone. The job market trumps the Fed, since the Fed cannot create jobs, nor put a stop to the spread of COVID-19.

The economy is in a very deep recession and could easily tip into a depression later this year. Analyst’s earnings estimates on the S&P 500 are still too optimistic and will have to come down to match the reality of reduced corporate profits. Dividend cuts continue to take place for companies to preserve cash and corporate buybacks are thing of the past. Capital spending plans have been cut or totally eliminated and 401-k matching contributions, which can only be made by payroll deduction, will be down considerably.

The retail investor continues to pour cash into the equity market at a record pace and the mere fact that such a large number of investors continue to believe that stock prices will continue to rise despite a backdrop of sheer economic ugliness, gives us great pause.

We have had a stock market rally off of the March 23rd low that continues to defy gravity along with defying every bearish thesis, including ours.

This is feeling very similar to the “tech-wreck” in late 1999 and early 2000, where momentum players ruled the market, and investors ignored just about everything else. We all know how that ended.

Remember, trees don’t grow to the sky and neither do stock prices.

Disclosure: I am/we are long SPXS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: We are not responsible for updating either our articles or our opinions on Seeking Alpha. We are not in the business of giving advice and ask that readers refrain from asking for it. Please do your own due diligence before investing. We are not responsible for any actions that you take based on the opinions that we express on Seeking Alpha.





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Can’t FIXX This – We Believe Homology’s HMI-102 Is In Trouble (NASDAQ:FIXX)


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Summary

It’s an understatement to say that Facebook has changed the world – it’s created an ability for people to be transparent about their experiences, lives, and opinions, for better or worse. In the case of Homology, it’s for the latter. Homology, a gene therapy company whose technology has already been scrutinized by scientists as “untrue,” has just one product in clinical trials, HMI-102, for the rare disease phenylketonuria (“PKU”). As Med Genie reported back in January, FIXX’s trial update showed interim phenylalanine (Phe) results that suggested HMI-102 was not efficacious for low and mid-dose patients. Our note today highlights a data point the company would very much like you not to know – the only patient in FIXX’s high dose cohort posted her results on Facebook, and they show that HMI-102 is unlikely to reach trial endpoints even at a high dose. We believe this patient was forced to take her posts down as a result, and management selectively disclosed the issue to the sell side, providing comments about the drug’s safety, and conveniently ignoring the implications to efficacy and the business. Maybe they were hoping to raise capital before officially announcing trial results. Who knows? We believe that the HMI-102 program is dead in the water, and since its progress is the major driver of FIXX’s value, we believe that the stock should trade to cash value, or $5.80, down 56% from the April 27th close.

Background

The best shorts are often one-trick ponies, but rarely do we find one where a single data point completely upends the long investment case. Homology Medicines, FIXX, is one of those rare finds.

Homology is a gene therapy company which has their first and lead product candidate, HMI-102, in a dose-escalation Phase 1/2 trial (pheNIX) for phenylketonuria. FIXX also has 2 IND-enabling programs and some discovery stage programs, but the HMI-102 trial is the company’s main shot at viability.

PKU is a relatively rare disease, with a U.S. incidence of approximately 350 cases per year and a prevalence of just 16,500, per FIXX’s 10-k. PKU is tied to mutations in the gene that control PAH, an enzyme that metabolizes phenylalanine, or Phe. The condition results in a deficiency in the enzymatic activity of PAH, causing an excess in Phe in the bloodstream that can result in intellectual disability. PKU patients are identified soon after birth, and are primarily treated with a Phe-restricted diet. FIXX’s HMI-102 seeks to modify the underlying genetic cause of PKU, effectively curing the disease and allowing patients to eat normally and not experience the cognitive and metabolic issues from higher than normal Phe.

FIXX’s technology, which does not use the CRISPR approach to gene therapy, has already been subject to scrutiny, with David Russell, a researcher at the University of Washington, saying, “What’s surprising is this company raised so much money on something thought to be untrue in the scientific community,” in a piece in MIT Technology Review.

We believe that recent revelations about the efficacy of HMI-102 support this skepticism and show that the drug is not efficacious, kicking out the one leg holding up FIXX’s business, and that FIXX should trade to cash value, or $5.80 per share, down 56% from the April 27th closing price.

The pheNIX trial

The pheNIX trial for HMI-102 launched in June 2019, and its primary efficacy endpoint is two plasma Phe measurements below 360 umol/L (or 6 mg/dL) between 16 and 24 weeks after dosing. Following evaluation of the first two patients in a cohort, “a decision can be made to either escalate to the next dose level, add a third patient or expand the cohort at the selected dose level”.

Now before we review what’s new, it’s helpful to note that a mouse study presented at the 21st Annual Meeting of the American Society of Gene & Cell Therapy titled “Sustained Correction of Phenylketonuria by a Single Dose of AAVHSC Packaging a Human Phenylalanine Hydroxylase Transgene” showed that HMI-102 showed an effect to mouse Phe levels just one week after dosing – in fact, mouse Phe levels remained relatively flat after that first drop.

This would imply that the therapy shows its effect soon after dosing and the longer timelines contemplated in the study endpoints are to indicate that the effect is long lasting. Sure enough, we see a similar dynamic in the pheNIX trial data released by FIXX in December 2019. There were 3 patients examined here – from the 10-k: “(n=2 patients in the low-dose Cohort 1 and n=1 patient in the mid-dose Cohort 2) as of the data cutoff of December 2, 2019. A fourth patient was dosed in Cohort 2 subsequent to the data cutoff date and was therefore not included in the analysis.”

In this release, we see the two patients in the low-dose cohort experienced no improvement in fasting Phe after dosing or even 12 weeks later. The cohort 2 patient, getting a mid-dose, showed an improvement in Phe level immediately after dosing, but their Phe level did not fall below the 360 umol/L threshold defined as the primary endpoint (it stayed around 500) calling into question the efficacy of the treatment, which Med Genie mentions in their piece (from the 10-k):

Damning revelations

On March 5, 2020, a woman we will call Miss A started a Facebook group (since made private or taken down on April 15, 2020) to discuss her experience getting gene therapy for PKU:

On March 9, 2020, Miss A, who lives in Normal, IL tells us she’s going to Chicago, which happens to be one of the pheNIX trial sites:

The next day, Miss A provides us with enough to data to know that she is Patient 5, part of the high dose cohort 3 in FIXX’s HMI-102 trial (cohort 3, mentioned by Miss A, would be the next dose up from the cohort 2, the mid-dose cohort):

Dr. Burton appears to be Dr. Barbara K. Burton, a physician focused on PKU at the Ann & Robert H. Lurie Children’s Hospital of Chicago, a trial site mentioned in the pheNIX trial description on clinicaltrials.gov:

This, taken together with the fact that Biomarin’s own PKU trial was in too early a stage to enroll a Cohort 3 patient in March 2020, it’s probably safe to say that Miss A is taking part in FIXX’s pheNIX trial.

On March 11, Miss A receives her infusion:

Miss A then shares a series of updates on how she is feeling and the progress of her weekly visits post-infusion. Six days post infusion, she says she hasn’t gotten any test results back, but that it may take 2 or 3 weeks to get a Phe level:

27 days post-infusion, Miss A tells a FB commenter that she won’t get Phe levels till six weeks post-infusion:

And then 35 days post-infusion, on April 15, 2020, a bombshell – Miss A gets her Phe levels, and at 25 mg/dL or 1497uMol/L, they are well above the 360 uMol/L endpoint threshold after 5 weeks (and after the drug typically takes effect), suggesting that HMI-102 is not efficacious even for a high dose patient:

Just a few hours after her post, Miss A’s entire group is either taken down or made private, perhaps at the demands of FIXX itself.

Management’s disclosure problem

We believe that management was aware of this post and tried to manage the perception of it by talking to the sell side and to select investors. In fact, Oppenheimer’s equity sales desk was sharing the below email conversation between their analyst Matt Biegler and FIXX’s Theresa McNeely to explain the price action on April 15th:

Who was Theresa planning to speak to? We know that Baird’s Madhu Kumar got a call:

But when we asked Theresa ourselves, she was much less forthcoming:

It appears to us that FIXX chose to inform the sell side and potential larger investors, who appear to be selling the stock (it has dramatically underperformed biotech broadly), but not the average investor. This is a significant red flag that investors should be aware of.

Why all this matters

Because the mouse study and the Cohort 2 data showed an effect to Phe levels one week after dosing rather than a gradual reduction, we can conclude that Miss A’s level, at 1497 uMol/L, is probably not going to get better, unfortunately. Further, her levels several weeks into the trial are still much higher than the threshold level specified in the primary endpoint of 360 uMol/L. This means that the therapy is showing zero efficacy even for a high dose patient. This data point is damning given the size of the trial and importance of the high dose patient in light of the lack of efficacy in the low and mid-dose cohorts.

Now the sell side may parrot management and say that there is no way to know whether Miss A is who she says she is, but the evidence is certainly strong supporting her case. They may say that there was no way for her to know her Phe level, but her posts show that she expected to receive them. They may also say that the drug is safe, and that liver enzyme elevation should be expected in a therapy like HMI-102, but that’s all beside the point. The point is that the Phe level Miss A received 5 weeks after infusion show that HMI-102 is not efficacious.

These results support the skepticism around FIXX’s use of the AAVHSC vector in liver directed gene therapy, which, based on the results thus far, and in particular Miss A’s results, appear to show zero efficacy and thus makes it inferior to Biomarin’s AAV5 vector.

Furthermore, if management thought this information was material enough to talk to the sell side analysts covering the stock, why not put it in an 8-k or even a press release for the benefit of their entire shareholder base? Given the materiality of the information, wouldn’t all shareholders have benefited from the same level of disclosure rather than be kept in the dark? This is behavior consistent with that of MDXG and ALLK, both companies with executives formerly from reputed companies who have seen their stock prices demolished.

For FIXX, we believe that this is a huge problem – the HMI-102 pheNIX trial is the ONLY program in their portfolio that is in the Phase 1/2 stage, and thus the primary path to viability for the company. With this piece of data showing that HMI-102 is not efficacious, we believe that the program is likely worthless and unlikely to proceed to commercialization. While FIXX may try to apply HMI-102 to other indications, we believe that doing so would essentially restart the trial and approval clock without making up for the lost time to market from a failed PKU trial.

Furthermore, social media matters. While FIXX management may be dismissive of people posting on Facebook, these posts have value. In the case of Allakos (ALLK), Seligman Research put together a barn burner of a report which included numerous Facebook posts questioning the efficacy, safety, and trial design of ALLK’s drug candidate. Since that report, ALLK stock is down approximately 51%, and ALLK actually has several later stage trials.

In the case of FIXX, we believe that HMI-102 in PKU is the ONLY path to viability – given the lack of efficacy of HMI-102 at high dose, we believe that the HMI-102 program is dead, and that the stock should trade to its cash value per share, or $5.80 per share, down 56% from the April 27th close price.

Disclosure: I am/we are short FIXX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This piece is our opinion and not an offer to buy/sell any securities. We’re biased, you’re biased, so do your own work and make your own decisions.





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Bank Of Hawaii’s Exposure To The Hawaiian Economy To Spell Further Trouble (NYSE:BOH)


Bank of Hawaii Corporation’s (NYSE:BOH) earnings plunged in the first quarter mostly due to a jump in provision expense. As the COVID-19 pandemic has hit the Hawaiian economy hard, BOH’s provision expense will likely remain elevated in the remainder of 2020. BOH has limited direct exposure to high-risk industries, but indirectly the entire loan portfolio will be at risk because Hawaii’s economy relies heavily on the tourism industry. The heightened provision expense will likely drag earnings this year. On the other hand, continued loan growth will likely support earnings in 2020. Additionally, the management’s expense control efforts will likely contain earnings decline in 2020. Overall, I’m expecting BOH’s earnings to decline by 31% year-over-year in 2020. The December 2020 target price implies a high upside from the current market price. However, the risks to earnings and valuation are high due to the uncertainties surrounding the depth and duration of the economic recession. Due to the risks and uncertainties, I’m adopting a neutral rating on BOH.

Hawaii’s Reliance on the Tourism Industry to Boost Provision Expense

BOH’s provision expense surged to 30bps of net loans in the first quarter, up from 4bps in the fourth quarter of 2020. Provision expense will likely remain high in the remainder of the year because BOH operates in the state of Hawaii that is heavily reliant on the tourism industry. As mentioned in the first quarter’s investor presentation, the leisure and hospitality sector makes up 10% of Hawaii’s gross domestic product. As the tourism sector is suffering disproportionately from the COVID-19 pandemic, BOH’s provision expense will likely remain high in the remainder of the year.

The company has limited direct exposure to high-risk sectors as lodging, retail, restaurant, and entertainment represent 11% of total loans, as mentioned in the investor presentation. However, indirectly the entire portfolio will be at risk because the loan portfolio is concentrated in Hawaii. The state will likely recover from the recession later than the rest of the country. Based on these factors, I’m expecting BOH’s provision expense to rise to $132 million in 2020, or 113bps of net loans, compared to 15bps of net loans in 2019.

High Credit Demand to Drive Net Interest Income

BOH’s net interest margin, NIM, is not very rate-sensitive, as is evident from the NIM movement in the past three quarters. The management expects NIM to decrease by 1 to 2bps in the second quarter on a linked-quarter basis, as mentioned in the first-quarter’s conference call. Management’s expectation excludes the impact of the Paycheck Protection Program (PPP). The program will dent NIM in the second quarter as PPP has a low fee. I’m expecting NIM to recover in the third quarter as some PPP loans will likely get repaid early. Overall, I’m expecting NIM to dip by 8bps in the second quarter and then recover by 2bps in the third quarter on a linked-quarter basis.

The lockdown has boosted demand for relief loans, which will likely drive loan growth this year. Low interest rates are also likely to boost demand for credit in 2020. Further, the demand for PPP loans will likely push up loan balances in the second quarter; however, the majority of those loans will likely get repaid by the third or fourth quarter. Overall, I’m expecting net loans to grow by 7.2% in 2020 compared to the year end of 2019, as shown below. Bank of Hawaii Balance Sheet Forecast

The strong loan growth will likely outweigh the NIM compression this year, leading to an increase in net interest income. For the year, I’m expecting net interest income to increase by 2% year-over-year.

Expecting Net Income to Decline by 31%

The increase in provision expense and dip in NIM will pressurize earnings this year. Moreover, BOH’s non-interest income will likely decline this year, which will further drag earnings. The non-interest income will decrease due to a lower level of customer derivative activity, as mentioned in the investor presentation. Additionally, BOH has waived off some fees to help customers in these tough economic times, including ATM fees that have been waived through June 2020. The fee waivers will compress non-interest revenue this year, but help BOH retain its customers and their deposits for the long-term. Considering these factors, I’m expecting non-interest income to dip by 3% year-over-year in 2020.

On the other hand, BOH’s earnings will likely receive support from a fall in non-interest expense. BOH recently repositioned some of its senior management to cut salary expenses, as mentioned in the conference call. Moreover, BOH recently reduced its branch structure from 68 branches to 31 branches, which will likely cut administrative expenses. Due to these measures, the management expects non-interest expense to decline by 10% in the second quarter compared to the first quarter of 2020. Considering management’s guidance, I’m expecting non-interest expense to decline by 5.7% year-over-year in 2020, which will limit earnings decline.

Considering the factors mentioned above, I’m expecting earnings to decrease by 31% year-over-year, and earnings per share to decrease 29% year-over-year to $3.93. The following table shows my income statement estimates.Bank of Hawaii Income Forecast

The impact of COVID-19 on credit quality is highly uncertain, which leads to the chance of a negative earnings surprise. If the economic impact of the lockdown is greater than my expectations, then provision expense can exceed its estimate. The COVID-19 related uncertainties have increased the riskiness of the stock.

I’m expecting BOH to maintain its quarterly dividend at the current level of $0.67 per share. I’m not expecting a dividend cut because the dividend and earnings estimates suggest a payout ratio of 68%, which is high yet sustainable. BOH maintained its dividend during the financial crisis, which shows that the company prefers to bear high payouts over sending negative signals to investors through dividend cuts. The dividend estimate for 2020 suggests a dividend yield of 4.4%.

BOH is Offering High Upside, But Risks are Also High

I’m using the historical price-to-book (P/B) multiple to value BOH. The stock has traded at an average P/B multiple of 2.57 in the past, as shown below.Bank of Hawaii Historical Price to Book

Multiplying this P/B ratio with the forecast book value per share of $32.8 gives a target price of $84.3 for December 2020. This target price implies an upside of 37% from BOH’s April 24 closing price. The following table shows the sensitivity of the target price to the P/B multiple.Bank of Hawaii Valuation Sensitivity

The high upside suggests that BOH is a good investment for a holding period of nine months. However, as discussed above, risks to the earnings and valuation are high due to the uncertainties surrounding the impact of the COVID-19 pandemic. Based on the risks and uncertainties, I’m adopting a neutral rating on BOH.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: This article is not financial advice. Investors are expected to conduct their own due diligence, and consider their investment objectives and constraints before investing in the stock(s) mentioned in the article.





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