Best of Bloomberg Technology For Week Ending February 24 2017

stock-market-videos A0vP40 - Best of Bloomberg Technology For Week Ending February 24 2017February 24, 2017: The best interviews and technology news highlights from the week are brought together in “Best of Bloomberg Technology,” a weekly long-form program, hosted by Bloomberg Technology’s Cory Johnson.

The show talks about Snapchat. My opinion on the Snapchat IPO is that there is no way Snapchat should be valued at $20 billion. Snap’s monetization model is nothing new. Basically Snap tries to get more eyeballs on their software that they can serve ads to. The problem I have with Snap is that it appeals to a younger, more self-centered and immature audience. These are precisely the types of consumers that don’t buy things. With the majority of Snap chat users being below the age of 18, advertisers on Snap chat will quickly realize that while their ads may get clicks, the type of people who click their Snap ads are not actually buying anything.

Full Show: Best of Bloomberg Technology (02/24)

Analyst Actions and Breaking News

Overnight Analyst Actions:

Raised: None

Initiates: None

Cuts: None

Overnight Headlines By Ticker:

PLX Protalix Biotherapeutics Inc

12/27 07:30 Receives confirmation of order for over $24M of alfataliglicerase to treat gaucher patients in Brazil

PTLA Portola Pharmaceuticals

12/27 07:49 Price Target raised to $29 from $20 at Credit Suisse, reiterates Neutral rating

SGEN Seattle Genetics

12/27 08:00 Announces clinical hold on several Phase 1 trials of Vadastuximab Talirine after deaths [SELL NO LONGER COVERING]

12/27 07:55 Trading halted; news pending; to resume trading at 08:30ET

Pharmaceutical Drug Pricing

Pharmaceutical drug pricing is all over the mainstream financial media right now. Let’s examine the macroeconomics of what is happening.

The demand for pharmaceutical drugs is inelastic. People that need a pharmaceutical drug prescribed by their doctor will demand that drug regardless of price. As the price of the drug goes up, demand mostly stays the same.

Notice how steep the demand curve is. This steep drop-off represents the inelastic demand for pharmaceutical drugs. The increase in supply from S to S1 leads to a relatively large decline in the price, but not much of an increase in quantity demanded.

Companies like Valeant Pharmaceuticals and former CEO Michael Pearson abused the inelasticity of demand for pharmaceutical drugs for maximum profit. If demand for pharmaceutical drugs is hardly influenced at all by price changes, then raise the price of the drug to a level that maximizes shareholder profits. Sure the supply curve may shift up a little from a drop in demand from people on the margin, but most of the public with their large health insurance providers will pay the higher price.

Pharmaceutical Drug Price Ceiling

Some are pushing for a pharmaceutical drug price ceiling. As you learned from the macroeconomic analysis of rent control, price ceilings do not work.

The horizontal brown line on the supply and demand graph below represents a drug price ceiling.

The lower price of the drug shifts the demand curve up a little to point b. However, suppliers will rapidly stop supplying the drug when they are forced to sell it below market price at point a. The difference between the quantity of the drug demanded and the quantity of the drug supplied is a drug shortage as represented by the red shaded area. People will die from a drug shortage when there are no readily available substitutes, and so the government should not attempt to use price ceilings.

Make Pharmaceutical Drug Demand More Elastic

The way to control runaway drug prices is to make the demand for pharmaceutical drugs more elastic. If people have choices and substitute drugs they can use, the steepness of the demand curve will be flattened and represent a more healthy free market as illustrated below.

Notice that the demand curve is flatter and not so steep.

How do you change the shape of the demand curve so that demand is more elastic? You make it legal for generic versions of drugs to come to market sooner. Gov. Charlie Baker is trying to do that by reducing the time it takes for the FDA to approve generic drugs.

Pharmaceutical drug makers have been fighting to preserve their inelastic demand pricing power by colluding to fix generic drug prices.

Folks, until all this drama gets worked out, I recommend staying away from pharmaceutical drug stocks.

TEGNA Nice Way To Profit From Increased Political Ads

TEGNA Inc operates 46 television stations that produce local programmings, such as news, sports, and entertainment. The company also operates Cars.com, CareerBuilder, among other digital properties.

TEGNA is the largest independent owner of NBC and CBS affiliates. Profit more than doubled in the most recent quarter because of political advertising. The Wall Street Journal writes

Chief Executive Gracia Martore said the company expects political revenue to ramp up steadily in the third and fourth quarters as a longer-than-usual primary process led to delayed ad purchases from front-running candidates. She also pointed to “robust advertising from the Olympics this summer driven by our strong NBC footprint.”

TEGNA Stock Chart

The chart shows a beautiful candle over candle reversal that has breached above the speed lines.

I like the stop loss just below $20.82 in case the trade goes south.

Disclosure: I do not hold any stock in TEGNA at the time of publishing this article.