Disney’s Big Win, Virgin Galactic, Did the FDA Make a Mistake? | 7investing
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Disney’s Big Win, Virgin Galactic, Did the FDA Make a Mistake?

July 12, 2021

“Black Widow” had a great weekend at the box office, but that’s not the full story. Walt Disney also took in big bucks through people paying a premium to watch the movie through the Disney+ streaming service. Is that the new normal or an anomaly? We’ll also discuss Virgin Galactic’s successful space flight and whether the FDA will admit it made a mistake in approving a controversial Alzheimer’s drug.

Transcript

Samantha Bailey 0:13

Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.

Dan Kline 0:21

Good afternoon 7investors and welcome to the Monday edition of 7investing Now. My name of course is Daniel Brooks Klein and as you can tell I am back home very briefly at West, in West Palm Beach. I’m being joined today by Steve Symington and Maxx Chatsko. Guys, we did not discuss this before the show. I spent the weekend largely in various pools at our resort property, which makes it sound way nicer than it is our modest resort property. I was in three different pools and five different hot tubs and I discovered where the fourth pool is, which was something I’d been looking for but it rained so I didn’t get in there. Steve, were you blowing things up where you hearding moose? what was going on out there in Montana.

Steve Symington 0:59

We went to a water park yesterday which was kind of strange. We didn’t do that all last year. But the city built a really nice one. And it was between that and float in the river but I think we’ll do river next. But it is smoky here we were surrounded by wildfires right now so can’t even see the mountains that are far off.

The river seems brisk out there in Montana. Maxx, how was your weekend Were there any darts involved any any disc golf?

Maxx Chatsko  1:28

Darts and disc golf, it was my birthday weekend. So yesterday was a recovery day, Dan, and I’m not feeling not feeling 100% today either. So but we’ll, we’ll keep that to myself.

Dan Kline  1:40

We will Fedex Maxx some Emergen-C or maybe some electrolyte drinks. So we’re gonna talk about the movie business, Disney (NYSE: DIS) had kind of a, let’s call it a telling weekend, then we’re going to talk about the Virgin Galactic (NYSE: SPCE) launch. We’re not gonna spend a ton of time on movies, even though that is our top story. And then we’re going to talk about the FDA and their sort of ill-advised approval of an Alzheimer’s drug. Yeah, it makes Maxx shake his head, all you have to do is say FDA, and Maxx shakes its head it’s very Pavlovian.

But before we do that I’ve mentioned to all of you that I’m going to be traveling a bit. And normally I fly Southwest (NYSE: LUV) but I, I am traveling to the Carolinas, and I could have flown into Charlotte through Southwest but there were no rental cars. So that was impossible. So I’m flying directly to Columbia, South Carolina. And anytime you think about investing in airlines, I want you to remember this story. So I have a basic fare. A basic fare basically means I’m a package. Like they don’t give you a seat. They don’t give you a bag. It’s very unclear, like I paid for a bag, but I’m not sure if that means I can actually carry that bag on you get to carry like your laptop bag on. So I have a 6am flight tomorrow, I’ll be heading over to the airport at like 4am because I’m not entirely sure when I could get on how I’m allowed to do it. And this just to me, Southwest doesn’t treat you this way. JetBlue (NASDAQ: JBLU) doesn’t treat you this way. I don’t invest in those companies either, because they’re very heavy infrastructure businesses that are very dependent on fuel, but but on fuel.  But Maxx, if you sent me money and said buy Delta (NYSE: DAL) stock, I wouldn’t do it. I’d send you the money back. That is that is how little I like how I’m being treated here.

But let’s segue to our top story. So Steve, we’re going to talk about what happened at the week at the movies this weekend. And I’m directing this to you because you have a family I know you go to the movies, Maxx doesn’t go to the movies that often so Maxx you can sit back and sip your your bone broth or whatever you’re doing as a as a recovery beverage here.

But Disney had an amazing weekend. So here’s what happened. Black Widow came out and I still haven’t seen it. I’m going to try to watch it probably in a couple weeks when I when I get back. Black Widow did $80 million at the US box office which would actually be a good, not great, opening had it not been a pandemic. But it also did $60 million dollars globally on Disney+. That’s you pay $30 extra but you also have to have Disney plus, and you get to watch Black Widow at home with in theory every person you could think of to invite over like you’re having like, you paid your $70 for a UFC fight, which in theory, you could have paid your $30 to watch Black Widow and then paid later to watch McGregor-Poirier, which spoiler alert, if you haven’t watched it yet, McGregor breaks his leg and then swears a lot at Poirier. It was not a great fight. But Steve, would you think about doing this? What what are your thoughts on this whole like mixed release model?

This is great for Disney, you look at the global take what was it $158 million or something that they did, including international sales. But what’s really interesting for Disney is that Disney+ number because they’re cutting out the middleman. And the margins are much more attractive on those Disney+ numbers. So it sort of changes the dynamics that they used to enjoy for the box office. And yeah, I think it’s fantastic for them. So what a great weekend.

Maxx Chatsko  5:00

I would do this and then charge all my friends like $10.

Dan Kline  5:06

Maxx is setting up like vending.

So we would love your questions and comments, you can get ahead of us and ask questions about Virgin Galactic, you can ask questions about other things. We’ve got a couple you already submitted on Twitter.

So Steve, I think there’s there’s one sort of problem here. This model is great for Disney, because you have to watch Black Widow. And I’d argue that you want to watch it in a theater. I’m not so sure this model works for anybody else. Except for the occasional, Comcast (NASDAQ: CMCSA) could have done it with Fast and Furious. They could do it with Jurassic World. Yeah, maybe Sony (NYSE: SONY) could do it with Mission Impossible. I think that’s there’s maybe that’s Paramount. Not even sure. But I don’t actually think this changes much, except for the fact that does this sort of show to you that movie theaters are, they’re dead? Like, if this is the biggest release, we have, yeah, and $60 million worth of people watch it at home. This is not gonna have legs, like what what are your thoughts on the long term of the movie industry?

Steve Symington  6:03

Yeah, that that that hurts the argument for for movie theaters, right. And I had this debate yesterday, where I’m sitting there, just making sure my six year old stays above water. And I was actually thinking that we should go see Black Widow and then like, the kids are all just sleeping in the car on the way home. So it was like, no, that’s not going to happen. But I want to see it the theaters. And I’d much rather do that than pay $30 bucks to watch it at home or wait another couple of months for it to be available. And Disney+ for free. But I’d love to see the theaters. But there’s only a few movies a year that most families are willing to do that for. And Black Widow is one of those. And the rest of them unless they’re really, really big name. That’s a tough go for the movie theater industry over the next several years and, it might work for the other the other companies, but you do need to have. Disney’s got this big behemoth of a streaming service that allows it to do that. So maybe not so much with other with other titles, but I don’t know it’s it’s never been a great kind of cloudy picture for, for theatres going forward.

Dan Kline  7:14

So Steve, I’m in a family of three adults, my son is 17. So for a movie purpose that that makes him an adult. So the delta on going to the theater, and paying for parking because the most of the theaters near us charge for parking. And then also probably buying candy or at least sneaking in candy and paying a $12 movie ticket. The savings are actually pretty significant. And so let me give an example for your kids. Now Boss Baby, which came out had had a narrow theatrical window. I think it’s a two week or maybe a 21 day, exclusive theatrical window. If you knew wait a month, pay $30 and your family of four could see Boss Baby a film I’m pretty sure you’re not dying to see, but would be obligated to see because of the kids. Is that the point where it just makes more sense for you to wait to watch it at home where in theory you can be answering 7investing email while that’s happening.

Steve Symington  8:07

That’s not the point. I’m not paying $30 bucks for Boss Baby at home like No, it’s not. And I actually we had that debate last week too, before Black Widow came out like we should go to a movie and I looked I was like, Yeah, no, like, we’re not going to the movies. It’s just Boss Baby and Peter Rabbit 2, which no, I’ll wait for those to come out on Netflix or pay $2 to rent them on Amazon Prime. That just doesn’t make sense.

Dan Kline  8:30

I don’t know Steve, I’d take your kids to see The Forever Purge. I think that’s wildly age inappropriate.

Steve Symington  8:37

Brace yourselves children.

Dan Kline  8:38

What does this mean? And I’m gonna go first because I literally, when we first moved to Florida, walking distance to a movie theater was an absolute factor in where we lived. And now, I probably would prefer to see Black Widow in a movie theater. But if it’s two weeks from now, and I think the crowds are going to be sparse, and my son wants to watch it, and my wife’s willing to sit there and watch it with us. We’ll probably just watch it at home. I’m not sure I’m going to go to the theater. So I actually think my barrier is really, really high in order to go to the movies. You know, Stephen with kids your age, it’s a little different. Right? But do you think your your goal has changed?

Nope. It’s not that much different, right? And these, these I’ll go to like Disney releases and stuff like stuff that there are certain movies and certain studios that are much better at creating content that parents are willing to bring their kids to see in the movie theater because yeah, you need to have something for adults in there. And Disney does a fantastic job for example, but of entertaining both parents and children and like Pixar titles in particular. But ya no, that I’d say it’s not that much different for younger families these days because there’s so much other content that will keep us busy elsewhere.

Steve, do you think this leads to Disney or maybe a consortium of Disney-Universal, which is of course Comcast and Netflix buying some sort of movie theaters, because I don’t see there being enough movies that make sense in theaters to justify these, like 18-Plexes, whereas I think if Disney owned a theater, they could put in other experiences they could put in virtual reality they could, they could even put in a dark ride or some sort of changeable system. Is that far fetched? Or do you think that could happen?

Steve Symington  10:25

No, that’s, that’s, I mean, at most a moderately cumbersome acquisition for Disney if they’re looking at buying a company like AMC (NYSE: AMC), for example, or Signature or something like that, but there’s, there’s precedent for that to this iQIYI, ticker (NASDAQ: IQ) in China actually has its own small chain of movie theaters that you can actually rent. And you can play any title from their streaming library in there. They, they’re, they’re kind of ahead of the game, in that sense, but I mean, why not? At a certain point, once you once you’ve reached a certain market cap, and you can issue a few shares, or kind of you would kind of feel like Amazon, gobbling up Whole Foods pun intended, for $13 billion, when they’re, five, or six or $700 billion company, I mean, that was barely a hiccup in the share count radar for them to be able to buy a $13 billion grocery store chain. And I think eventually it might make the most sense for companies like Netflix or Disney is they just get ever larger to be able to absorb. The small number of theaters like that

Dan Kline  11:31

Disney buying part of an AMC is like me buying like the $7 water at the movies, like it’s not fun, but it doesn’t actually impact my finances. But I actually think you’re gonna get a Hulu like situation, because if Disney buys, now, Disney might buy, say, like the one theater at Disney Springs and a few select things and own them outright. But I think it’s much more likely from a federal regulatory point of view, because if Disney was to buy AMC, you would have absolute conditions on having to devote screens, to other to other companies, and not hog all the best dates and things like that, I actually think you’re going to see it be, at least Disney and Comcast working together. And that sounds weird. But they do work together in a strange way. Because of the Marvel theme park licensing. You also have a Disney-Sony relationship, maybe Sony can become a minor partner in this. Because I actually think theaters only makes sense if you cut out the theatrical cut. You talked about how Disney plus streaming makes more money. And here’s how that works.

So Disney has the leverage for Black Widow to say, Hey, we want somewhere between 70 and 75% of the first week gross. And the longer the picture plays in theaters, the more that split starts to favor, the theater might get to 60/40 at some point, maybe even 50/50. The problem is, movies aren’t going to have legs anymore. So none of that makes any sense for the theater. So of all this money, that Black Widow is going to take in its first 10 days, Disney’s gonna get the lion’s share of that. But on Disney+, call it 98% because there is some small delivery charge. There’s processing, there’s other things that might add to a couple of points of margin away from it being a pure 100% margin.

But the theatrical business looks a lot better if there’s no middleman or if that middleman is a company you own part of. And then frankly, Steve, you think for Disney like running theaters could be a breakeven if they could use it to like, I don’t know you have a booth we can book your theme park vacation like all all the things Disney could do, you could rotate character meet and greets. You could do birthdays, like, I don’t know, Disney’s tried this before. And it didn’t work that well with with mall locations, not just the stores. They tried some theme-parky things. Maxx, I’ll let you weigh in like it. Would you do that? I mean, I know you don’t have kids, you don’t fit the demo. But when you go to something like cool virtual reality experience seeing the latest Avengers movie and eat some food that was also sold at Epcot. Like I don’t know what this looks like

Maxx Chatsko  13:58

You just pitching that now, you know what if Disney got into movie theaters even selectively or in certain markets are those giant like, there’s a lot here in Pittsburgh, right like AMC went and built those enormous theaters that probably aren’t gonna work out so well. 10 years from now, but maybe Disney could make something out of that. Like you said, like more more entertainment more of an experience as the first time I ever heard that idea. And that’s actually pretty cool. I was like sitting here like, yeah, you know what, that could make sense? I don’t know about margins or anything like that. This isn’t part of the market I covered but uh, yeah, that could. I could see that working out for Disney, right? Maybe not anyone else but

Dan Kline  14:32

Bob Chapek, if you’d like to talk this idea, and I assume you’re watching 7investing Now. You can hit me up @worstideas7, I will accept the direct message to talk about this.

We’re going to pivot a little bit and we’re going to talk about the big Virgin Galactic launch. But before we do that, it is now almost mid July, which seems absolutely insane. But on July 1st, our new pics went live for members. What does that mean? Each one of us share our highest conviction stock pick each month. So that is the one stock that if I was gonna put money into and I do put money into them, that is the one I would put money into. And each of us does that. And we also do a multi-thousand word write up on that stock with, what’s the valuation? What’s the management like? What’s the competitive balance? All the different questions you would ask. So you can read that or you could just read the key takeaway to get the gist of it. And you can watch these 15 to 45 minute videos, I say 15 I don’t think we’ve ever done one that’s 15. So let’s call them an average of 30 minute videos where we do a PowerPoint presentation. And we present our stock idea to our fellow 7investing lead advisors. And there’s questions, there’s pushback, my pick this this month happened to be one that I knew Simon really liked. So I was excited to to go into it knowing at least one person was going to be in favor of my pick.

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But Steve, we got a lot of questions here. And we’ll take these at take them as you want them. But why don’t we establish? Let me give the broad point is that Virgin Galactic had its first, I think it’s still technically a test flight, with more than one astronaut and they went into space. There’s a lot of questions about whether a sub orbital flight is actually space. Jeff Bezos would say no. Richard Branson, who was on the flight said yes, and I have to be honest, I didn’t watch this because I’ve seen enough movies where the spaceship blows up and your visionary billionaire goes away. And as much as Jeff Bezos seems like a jerk, Richard Branson seems like the best guy ever. And I absolutely want to hang out with him. He seems like fun. He’s not inviting me. But I’ve seen him speak and he really seems like a genuinely impish entertaining guy. But Steve, what happened? And sort of what does this mean? And then take it take any question you want to take?

We’ve got questions streaming in about this and, yeah, so [name unknown], um, I’m just gonna read the first couple out loud, “Why is Virgin Galactic down today after the successful launch of Branson” that was yesterday morning. Roman says, “I was pretty sure that Virgin Galactic would be up significantly this morning after Branson successful flight, but apparently the market decided otherwise”. So here’s what happened. They whipsawed really hard. And they were up early this morning, if you looked at pre market trading, they were up about 9%. And then just before the market opened, or maybe right at the open, Virgin Galactic had an SEC filing hit their website that basically disclosed that they were planning to sell $500 million in shares. And so they basically took advantage of some of that they’d hoped to take advantage I think of some of that upward momentum in order to to announce the share offering and I think they were hoping that any negativity following the news of that offering would be offset by the positivity of the Branson flight.

Steve Symington  19:11  

And to be clear, the Branson flight went perfectly It was a fantastic PR event. It was trending all over the world. It was the top discuss stock on pretty much every platform over the weekend and this morning. And as you mentioned, it was its first fully crewed flight. There were two pilots, there’s Branson there were three employees of Virgin Galactic that were each kind of testing different aspects of the flight. One was looking at scientific research, Branson said he had a notepad and pen where he took down 30 or 40 little things of ways they could kind of improve it because he’s the customer experience guy. He’s perfect for this.

So yeah, shares were popping in initial trading. But they probably reversed course, I think last I look, they’re down 13% or 14% right now. And that’s because of the offering is what you have and this is also a highly shorted stock. We’ll get to that in a minute. But some people will say, [unknown name], “Please explain, buy the rumor sell the news”, in the comments there, that’s sort of one of those people where I don’t think that’s that’s necessarily the case here.

Dan Kline  20:11

Yes, Steve, I want to jump in on that I was actually gonna take that one later. Because that’s not really how long term investing works. So now certainly, if you believe the direction a company is going in, before it’s publicly announced, that might impact your thesis. But here’s what happened here. Maxx talks about de-risking events a lot, because they happen in the, in his space, here’s what happened, the flight went off and didn’t blow up. That is a minor de-risking of it. It is not the same as we’re sending three flights a week, or 10 flights a week, or whatever it is, and we’re starting to collect this revenue, and we’re starting to raise prices. So I would argue that this is an exhale, which might cause the stock to go up, the company full well knew it was gonna go down when it announced a half billion dollar offering, but that cash is a cushion it needs. And because it didn’t blow up, this isn’t actually news. Right, Steve? Like nothing really happened here?

And I mean, it was widely expected that the flight would go well, they’ve done several test flights already. And they did have a fatal crash in 2014. That was basically the earliest iteration of the ship, right. And it had, it was actually pilot error, the pilot pulled something didn’t have mechanisms in place to prevent him from unlocking that feather. And that was just a bad situation, obviously. But everybody did kind of exhale because Okay, Branson’s still live, this is and they they’re demonstrating like we are safety first. That’s where they are at this point. And this is a later iteration of the ship.

Steve Symington  21:39

But for perspective, I mean, perspective is an order here, this isn’t necessarily a bad thing. We expected them to raise cash at some point, because they’ve got bills to pay and they have scaling to do before they can, they want to be able to ramp commercial service with more than one spaceship flying. And CEO, if you watch the there’s basically PR blitz after this flight, the CEO Michael Colgrazier, who is himself a former Disney executive, by the way, noted in several interviews that the company intends to reopen ticket sales at a higher price, probably my guess is around $500,000, right, they have 600 reservations at about $250,000. But they say the price will go up in the near term. And then over the longer term, they want to bring it down and make it more accessible, but they’ve got bills to pay, right. But they said they intend to reopen the ticket sales at a higher price after their next flight because there’s one more test flight after this. And then there is a flight with the Italian Air Force for astronaut training that will come after that before they kind of take a few months for maintenance, and then launch commercial service in early 2022.

So he said basically, at this point, we’re looking at manufacturing where we need to pivot we need additional spaceships, we need to expand our geographic reach, they have several deals in place for new space ports around the world. And they ended last quarter with over $600 million in cash on their balance sheet. And it was only down sequentially. $617 million was the exact number. And that was down about $49 million from the prior quarter. It’s not like they’re burning so much cash that they couldn’t sustain the business for several years, they didn’t absolutely need the money. But we also keep in mind shares have roughly doubled already. I think they’re still up like 90% year to date, even after today’s drop. And they’ve basically almost tripled from their lows just a couple of months ago.

So it’s hard to blame the company for taking advantage of this volatility to issue some new shares. And one last point, before we move on, even after the drop today, that $500 million offering, it’s like 11.6 million shares, right? That’s less than 5% of the total shares outstanding. It’s about 7% of their their float right now. It’s not really that big a deal. So you look at this 14% drop today after a pretty significant positive event. I would say honestly, that we’re seeing a bit of an overreaction today, highly shorted stock. And I haven’t sold a single share. So that’s that’s where I stand.

Dan Kline  24:04

And spaceships aren’t cheap. So having an extra half billion dollars and, and part of the reason Colgrazier was brought in from Disney is to Disney-fy the entire experience. So I’ve often joked that this is an 18 minute experience and Star Wars Rise of the resistance as a 17 minute experience. I’m not entirely sure that the $160 you pay to get into Disney is that different from the $250,000 you pay to get in this flight seems a little excessive. So they’re making this sort of like a four day Space Camp adventure, you get your little flight suit, all of the this isn’t just going to be about the flight. It’s going to be about the overall experience. But Steve, do you know and I hate to put you on the spot here. We do once once they they get up and going, are there four seats are there six seats, how many people are on each of these flights from a revenue point of view? So

I think there’s six seats on each flight. They had four seats in the flight yesterday. This is their first, what they call their first fully crewed flight. But I believe there’ll be six seats, and two pilots. So basically six passengers, if we’re looking at $250,000, a piece for their first 600 seats, and then $500,000 apiece probably and a lot more demand, I think, then people realize people who will be willing to pay this price in those early stages. So we’ll be looking about $3 million per flight in revenue that they’re pulling in, and Colgrazier has elaborated, there’s a great Bloomberg interview, I encourage you to look it up yesterday, it’s about seven minutes, numbers check out. And I would consider, highly recommend watching it because he talks about kind of the dynamics of what to expect going forward, he says price will go up. And I think we’re going to have healthier margins than you realize. So they’re, they’re going to be pretty quickly ramping to a fairly positive financial profile once these commercial launches commence. And, yeah, that’s kind of where where we are right now.

And they haven’t shared margin. But if you’re looking at, a million dollars to operate the flight, and you’re bringing in a million and a half, that’s still healthy, if you can get that to $3 million, and you can add some commercial payloads at much higher numbers or ferrying astronauts and things like that. There’s a lot of possibility here. I want to take Rahul’s question, because I think that’s a really good one. If you want to pull that up, Sam, “What would a major de-risking event look like for for space? Is there any?” Steve, I have some thoughts, but I want you to go first?

Yeah. I mean, I would say each of these successful test flights is a moderate de-risking event, I don’t know that I would call them major de-risking. I think one of the the big points of uncertainty that a lot of people don’t they don’t necessarily trust is how strong the demand will be when they reopen ticket sales after this next flight and at what price they will be. I think that’s one of those things where they see more reservations streaming in than a lot more people will be willing to bet on the long term viability of the business. So reopening demand and the price point could be the next kind of big catalysts that we’re looking at.

And Steve, isn’t this all just sort of a bridge business that Yep, this will be part of their business. I actually think long term the price will go down these suborbital flights, but you’re gonna have everything from faster Australia to New York travel, then you’re gonna have things like eventually the Mars orbital station vacation. And like I said, as I said to our friend [unknown name] online that this is like the first inning of a nine inning game. This is baby steps, and if they can make money to, to, to pay for their own expansion. The story for this company is 2040 it’s not, not that there won’t be great milestones.

We’ll see profitability and positive cash flow well before then from this existing kind of start to their business. But yeah, they actually it reminds me of and I pulled it up while you were talking because it reminded me of it. But if you look at the vision page on their website, they talk about what they want to do, by like a 2040. And they say our initial operations will give us unequaled experience of flying large numbers of non professional astronauts safely and enjoyably. In time, we expect to be operating a variety of vehicles from multiple locations to cater to the demands of growing space user community, whether that be transporting passengers to Earth orbiting hotels and science labs are providing world shrinking transcontinental service. Right. So hypersonic travel, hotels and space down the road. You know, spacelabs, those sorts of things Virgin Galactic wants to be leader in all of these and this is the first step in a very long term story.

Yeah, and stealing Colgrazier from Disney was great. Naming Pluto as CFO seemed a little bit of a publicity stunt. We’re going to take one last comment from Mike Fee here, because I have sort of a some pushback on this. “SPCE has lost a lot of investor confidence in the past year, the former CEO, George Whitesides left, Chamath and Richard both cashed out their stakes and the company completely scrapped all of those rosy SPAC projections previous investor, presentations removed from website fun story interesting to follow, but uninvestable in my opinion”.

So I would have felt that way a while ago. The one thing I will say here is obviously Chamath is someone we follow he’s someone really interesting, but he’s also someone that likes his name on in the news. Saying how much you like a company, but then you sold out your share because there were better opportunities. That’s publicity hound stuff. So I don’t actually follow the moves of anything like that. That’s Elon Musk, playing with Dogecoin, like this is, there are voices you listen to I actually, as an investor, I have a small stake in this company. I actually went from I don’t see the business to Wow, 20 years from now, this is going to be 100 bagger unless they have some spaceships blow up. And that’s the absolute risk.

Steve Symington  29:49

And that’s a very binary event. You know, if something like that happens, so yeah.

Dan Kline  29:53

I’m not sure how many hundreds of successful flights they have to have before their business can withstand a crash and we know from air travel crashes are inevitable no matter how careful you are, though many of the global crashes we have are because they’re not careful. But Steve, you speak to any part of that you’re like I just stepped out.

I mean, I could speak point to point to that actually, and I won’t take too long but I would disagree. I would say they’ve gained a lot of investor confidence with these recent test flights. And as far as the former CEO George Whitesides. He’s currently their chief space officer, right, he stepped aside to allow Michael Colgrazier to step in and kind of usher them into their next phase of growth because Colgrazier is a Disney guy. He totally understands what they need to actually manage this experience and George Whitesides wasn’t the right person for that.

Steve Symington  30:45

So I would say there’s that Chamath and Richard did not both cash out their stakes. There’s an asterix there. You know, a lot of people think they sold all their shares, but Chamath actually sold his personal stake in the company to fund other investments. We had a little discussion on our Slack channel, actually about this, but Chamath sold, I think, the remaining $200 million in shares he owned but he still indirectly owns 15.9 million shares through the SPAC merger vehicle that they use to take Virgin Galactic public. Chamath also remains their, their chairman of the board, so he is fully on board. Richard Branson actually did not cash out his entire stake either. They sold something to prop up the rest of the Virgin businesses. They sold, it was like 10% of their stake to do that. And he still owns almost a quarter of the company. And did not yeah, the rosy SPAC projections. Those previous investor presentations are still there, by the way, but they replaced them with more recent presentations that give theirs. But if you want to find those SPAC projections, they’re still on the website in their SEC filings. But those are there, they pushed it back, they had a long history of kind of missing deadlines. So I would argue that those those rosy SPAC projections were definitely missed. But I wasn’t interested in the company then because I doubted that they’d be able to reach them. Now. I think we’ve reached an inflection point where things make more sense. So.

Maxx Chatsko  32:08

I think, to Mike’s point, though, it’s like, there’s been a lot of excitement because it’s like, can they even fly these things? Right? Now we’ve done that and that’s the excitement is gonna kind of fade away. I see a lot of analogies or parallels to like SpaceX, remember the first time they launched a capsule to the International Space Station? Yeah, same thing. everybody’s watching I watched was on Twitter’s on YouTube, everything. Well, SpaceX has made like dozens of launches since then I couldn’t name a date for any of those, right? Yeah, we just kind of like accept it as like, okay, they can do it. Okay. They can learn rockets now. And, the expectations shift to like, more of the fundamental based, okay, how much revenue they’re gonna get, what’s the demand for this?

Steve Symington  32:45

Yeah, I’d be very interested in SpaceX if it was a publicly traded company. But that’s kind of the point at which, I think, if you’re talking about investing in a company, I love investing in companies at their inflection points, when a lot of people still doubt their stories. Right. So I would love being in SpaceX a few years ago, when everybody else was like, No, they’d never be able to, land those rockets. And I think that’s like yesterday, they landed two like orbital boosters that were 10 storeys tall. At the same time, it was just absurd watching the video of both coming down these monstrous structures. And but yeah, they look a few years ago, and people be like, you can’t do that. Like, you can’t reuse rockets in that way. And, and but yeah, for me, I want to be in the company years before then. And I think that’s where Virgin Galactic is

Maxx Chatsko  33:33

And hopefully as it shifts to more of like the fundamentals of financials, maybe hopefully, it’s a little less volatile, right? Because you have something to grab onto and quantify.

Dan Kline  33:43

Yeah, and we saw, look, there’s a lot of people trading the news. And that’s not really the story with this company. I think even some very seasoned investors that are fans of this program, and our long term investors sort of expected that wow something good happened, the stock was going to go up. And I think if we’ve seen anything, especially in these like highly visible stocks, is that the story eventually catches up. But that could take a long time. So there’s gonna be some point where they put out quarterly earnings that no one sees coming. We’re just out of the blue. They’re like, wait, we ran 50 flights and sent like four satellites into orbit and had a, had a half billion dollar quarter and made $250 million on that. Like, I actually think that’s coming again, with the very, very real risk of kablooey.

I want to take the next last comment to close this out, Sam, if you want to bring it up. “Thanks for calming us down. Dan. Your voice keeps us relaxed, long, SPCE”.  Yeah, that’s our goal here. That’s part of what we’re doing on 7investing Now is really to tune out the short term noise the the short term fear, it’s never fun to see some of your stocks go down. I have a recent pick. That’s that’s down a little bit today. And I want to be screaming from the rooftops like, wait a minute. This company is doing well, like it’s bouncing back from the pandemic, here’s all these good things. But who cares why it might be doing badly because it’s raining today in Florida who knows? Like so. So our goal is to hold your hand for the long term, it’s to be your conviction, you’re your friend that doesn’t play games with it and just says we’re in it for the long run.

We’re gonna pivot to Maxx’s “what we’re watching”. If you have any questions related to this related to other parts of the show, any general investing questions, we will have a little bit of time to take them, probably. But Maxx, why don’t you do a little bit of reset. So the FDA approved a controversial Alzheimers drug. Controversial because it probably doesn’t work. And now there might be an I don’t want to minimize that I fully understand that if you have someone in the family that this was a ray of hope, something to be, but a false ray of hope is kind of dangerous, what’s going on here, Maxx and what might happen.

Maxx Chatsko  35:53

And I think you’re right. So on June 7th, the FDA came out and approved drug from Biogen (NASDAQ: BIIB) for Alzheimer’s disease. Now the drug had not completed clinical testing. And it doesn’t actually have any data supporting that it might work. So this was highly controversial. And then later on, Biogen came out and priced the drug at $56,000 per year. So an independent and pretty influential drug pricing body before that said, Hey, you know what, given the data, which there isn’t much, we think a fair price for this drug might be $2,500 a year. So Biogen came out and just blew it out of the water. Even analysts on Wall Street, were saying, they’ll probably do like $20,000. So they almost tripled that right. Well, now, just more recently, last week, the acting FDA Commissioner bowed to some of the pressure and asked the Health and Human Services Inspector General to launch an investigation into the approval decisions. And specifically, it’s been reported that there might have been some inproper contacts between regulators at the FDA and executives from Biogen. I think some of this was reported by STAT, which is a an online, biotech media digital publication,

Dan Kline  37:17

Owned by the people who own the Boston Globe and employing many former colleagues of Dan,

Maxx Chatsko  37:22

Right. That’s why I threw that in there. I knew you liked them. So yeah, so this is just getting messier and messier right, we have this controversial approval, then they price the drug to the high heavens and might not even work. Now they’re launching an investigation into like, “Hey, we did we approve this because there was some, back channel influence campaign”. Oh, and by the way, they actually also narrowed the label. So when they approved this drug, they said, you can use it for all Alzheimers patients. And even though the studies weren’t completed, and it doesn’t work, yet, they actually never tested it in all Alzheimer’s patient, they only tested it in those who had mild to moderate Alzheimer’s disease. So the FDA actually approved it for everyone initially. And then they just last week, again, they narrow the label saying, okay, only if you have mild dementia, can you actually take this drug. So this just keeps getting messier and messier and messier. And I actually think they should just probably revoke the approval altogether.

Dan Kline  38:18

Maxx was the FDA caught between a rock and a hard place, there’s a lot of people who want any hope. And to take a drug that might work because this is obviously pretty much the worst diagnosis you can get. A slow declining disease we can’t do very much about where they just did a position where it doesn’t look like it does any harm. So maybe try it and some more people to see if it helps.

Maxx Chatsko  38:41

Well, we don’t know if it does any harm, either, because we didn’t complete testing. And there’s actually signs of neuro inflammation from taking the drug. So there it could cause harm in the long run, we don’t know. So I reject that argument, right? There’s like the argument for like, “right to try” it’s Alzheimer’s, come on, man give it a chance. Well think about the negative consequences from this, right? This drug is based on the beta amyloid hypothesis. So these amyloid plaques build up in the brain, and they cause Alzheimer’s, that’s the hypothesis. It’s actually pretty controversial, because it’s not proven that beta amyloid plaques actually cause or lead to dementia, those actually build up in parts of the brain that aren’t associated with memory. So it doesn’t actually make sense that it would be necessarily the main critical component of how Alzheimer’s disease progresses.

So by making this approval, you’re going to force other drug companies, other drug developers to maybe go and invest in this hypothesis, developing other drugs, that also might not work. So maybe we’re limiting alternative routes of action against the disease. So you’re kind of risk, channeling and funneling too much money into the wrong ideas in the wrong place. Just because of this controversial, approval, and again, we don’t want to approve drugs that aren’t safe and don’t work. And then a company can charge whatever they want for them. That’s not the role of the FDA. They’re supposed to protect you as consumers. So I get that it’s Alzheimer’s, we don’t have anything But I think not approving this is way better than having approve it. And then think of the prices that patients have to pay, like the out of pocket expenses are like 10’s of 1000’s of dollars a year, it’s a lot of money to pay for something that doesn’t work. That’s not how the FDA is supposed to operate.

Dan Kline  40:16

So Maxx, is the FDA flawed, like, is there a better way to be doing this? And then I want to talk about the investing angle a little bit?

Maxx Chatsko  40:24

No, I think, maybe there’s just a little too much influence going on behind the scenes. And it was also in a transition period. Right. So right now, the FDA doesn’t have a permanent commissioner, we still have an acting commissioner, maybe they let down some of their responsibilities and duties. You know, again, maybe some of the officials that were involved in this specific decision. They’re not the ones that make the decisions who approve all drugs, right? I think it’s by area. So maybe just, most people got the, again, that narrative of Alzheimer’s disease, let’s get something on the market. Maybe there’s kind of get swept up in the emotions, which is, again, not something you’re supposed to be doing. If you’re approving drugs for the United States of America. You know, that’s a pretty important role. You have to take that responsibility seriously. So I think, it’s just they were caught in this transition period. And, again, maybe maybe there was some influence behind the scenes between the company and and the agency representatives.

Dan Kline  41:13

So I didn’t know a lot about this space before joining 7investing. And one of the things I’ve clearly learned is, there’s going to be, call it short money, retail money, following whatever the news story is all this might get approved, and it’s a billion dollar drug, and somehow the stock gets bid up 10 times and the valuation makes no sense. That really, when you’re looking at a company like Biogen, you’re not basing it on any one thing, you have to base it on the overall platform, the overall pipeline, and sort of where it might go in a very long term. And that’s clearly not how people are investing. Am I getting that right Maxx?

Maxx Chatsko  41:47

Yeah, Biogen is a large company. Right. So we saw Biogen gain quite a bit of market cap, when that approval was announced. Same for Eli Lilly (NYSE: LLY), it has a drug that’s in a similar drug class works the same way, actually has a little bit more advanced data than the Biogen drug did. And they’re going to ask for accelerated approval now. So again, we’re seeing like the ripple effects of the FDA decision, right? In terms of like other companies, you’re like, well, we’ll get our drug approved too let’s do it. We don’t need to finish testing. And yeah, and but one thing that, from this decision, we saw, some analysts or people were like, Well, maybe the FDA is going to be more lax now, maybe all these other crazy drugs are getting approved. And I don’t think that’s the case. And I think that it’s might actually backfire, just of how much of a mess this was, there’s going to be even more scrutiny on other decisions, right? And if things are close calls, like, do you think the FDA wants to, have this happen again, for another drug approval, I think it’s actually going to get harder to get drugs that don’t have really good data approved. So this might actually backfire for drug developers.

Dan Kline  42:50

I am hoping that my drug my drug bubble yummalab, which is a an aspirin pushed into a square of bubble yum will get approved, but my handwritten letter to the FDA is probably not going to get that done.

These are both stories, we’re going to be updating regular, I have a feeling we’re going to be talking about the FDA and we’re going to be talking about Virgin Galactic a lot over the next few years. But we appreciate so many of you playing along and commenting. We get it that we will try to make sure that this show hits on the things that you’re all thinking about as often as we can, and we appreciate you watching.

But we’re nearing the end. So Sam Bailey, let’s head up to the top rope and hit our finisher. “Which are you most likely to visit in the next three months”? 9.3% said bookstore, 19.6% and movie theater, 45.6% said to hotel, 25% said the mall. I’ve actually been to all of these except a movie theater many many times. And I fully expect in the next three months I will hit a movie theater. Guys, Steve, you can go first.

I mean, I’ll hit every single one of these you know by the by in the next three months, so it’s hard for me to vote but I would say with certainty I’ll be to a movie theater because I think we’re gonna go see Black Widow this week and then yeah, we have a hotel booked for for August I think we’re gonna try and head down to Mexico for a little bit and maybe the malls the least likely because I just hate malls anyway.

Steve how far are you from a mall?

Steve Symington  44:17

Uh, five minutes.

Dan Kline  44:18

Okay.  Maxx have you been in any of these?

Maxx Chatsko  44:22

Not yet, but I have a hotel booked this month for a trip I’m taking and bookstores I’ll go to some bookstores, but malls, movie theaters not my thing.

Dan Kline  44:33

I would say we’ve gone to the mall pretty regularly even during the pandemic. I am a giant fan of Books-A-Million which is not a particularly national chain but there’s there’s one near us in Davenport, Florida that we almost always go out of our way to go to. They do a really good job with selling Funko Pops and other sort of fun things in addition to books they have a nice little coffee shop. Obviously I’ve stayed in hotels throughout. I’ll be at two different hotels over the next week. The hard one for me is movie theaters and it’s not so much that I don’t want to go to the movies is that all the other things I’m doing kind of takes my Fridays and Saturdays and I’m not home and I’m not necessarily like when I used to travel alone, I might go to the movies alone. I’m not so sure that’s worth doing anymore when I could pull up a lot of things to watch in my hotel room on my laptop

So we appreciate all of you who voted in the poll. I will be back Wednesday, with a Anirban Mahanti talking I’m not even sure what I think we picked it, but I don’t remember what it is. And that show will be live from the Cherokee Casino in North Carolina. So I’ll be hosting. I’ll be here to answer your questions. I’ll try to have a picture as background behind me but it could very well be my hotel room depending on on what the rules are like. If you’d like to get in touch with us, that is info@7investing.com. That’s an email if you want to say hi to Steve, you have a question about your membership, if you have a question about how our site works, how the Yext search works, a couple of works in progress happening on our site. So if you see something new and you don’t know what it is, and you want to ask, we are happy to answer those questions.

If you want to interact with us, that is @7investing, that is @7investing on Twitter, we are all active on Twitter, maybe a little less so for me tomorrow, cuz I’m gonna be on a plane for part of the day, but usually very active on Twitter. So, for Steve Symington, for Maxx Chatsko. I’m Dan Kline. Thank you Sam Bailey behind the glass. We will see you from North Carolina on Wednesday.

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