Entropy Rising

on finance, tech and the human condition. also Q3 pharma & what i'm up to.

FTX

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The FTX saga is irresistible pornography for market participants. One cannot look away from this sordid epic: Shakespearean? No, Homeric, at least.

There are so many victims small and large, we will be hearing and talking about FTX for a decade or more. But beyond the voyeurism and sympathy, there are lessons and opportunities for the shrewd.

If you haven’t been paying attention, it’s probably because you think ‘crypto is a scam’ with an unfathomable degree of apathy (you do know you can short crypto, right?). But the FTX saga raises bigger questions than just its effects on the crypto ecosystem. Venture capital, regulators’ unintended consequences, the nature of altruism, human nature and “FOMO” in investing and corporate controls are just a small list of topics we can start with.

A lot has been and will be written. I am not here to compete with the MSM. What are my non-consensus observations or insights?

• There is no conspiracy about Democrats or the FTX leadership’s family relationships. We can all do better than contrive these. The actual story is far more interesting than your imagination’s! A simple point: if you’ve ever played politics, leading donations in one election cycle is meaningless for ‘buying influence’. It takes a lot more consistency before politicians will be in your pocket, if ever. Politicians are much smarter than you think, and while the game can be pay-to-play, it isn’t as simple as coin-operated. Local political control by donors is a real thing and the “new kid on the block” can’t show up and take over, no matter how much money they have.

• Sam will likely get life in prison, especially if he was diverting customer funds since inception, which appears to be the case. The law is not blind to the wealthy and notable. If anything, it is more punitive. There are caveats: which district a case will be brought in, which judge will be assigned. There are districts and judges within them that would bury SBF under the prison, and others where I could see a 15 year sentence. But I can’t conjure a sentence more lenient than that.

• Caroline Ellison likely played no material role in Alameda, and was simply a stand-in figure to maximize separation. A warm body. Any ‘leader’ at Alameda in the past was just taking SBF directives for large pay and plausible deniability.

• I believe Alameda and FTX lost a lot of money (>$3B) being levered long crypto, possibly via BTC/ETH futures exposure. The $3T → $1T evaporation in crypto value is the cause of their losses. The venture capital investments the FTX/Alameda complex made were not large enough to cause the massive hole here.

• I’ll take a quick victory lap for being, what I saw, the first to say short FTT on the “bailout” move upwards, the first to point to a $10-20B hole in FTX when people were saying $1-2B, and the first to advise those interested to head to the Bahamas for bankruptcy proceedings. We’ll see if my other prognostications come true.9

• A large bank likely lent SBF >$500m on his personal stake in FTX. That bank will take a writeoff. Not too material, but interesting.

• Financial controls are an element of due diligence in hedge funds: why not venture-backed startups? Or at least financial startups?. Simple questions: can one person withdraw all of the money? In most companies, a CFO and controller are required for wire transfers above a certain amount. The same thing for ledger entries. Board approval is required for transactions above a certain amount. This is not the first time something like this has happened, and there are a litany of methods professionals use to avoid these types of disasters.

Twitter v2

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The best coverage on the FTX saga was not brought to you by WSJ or FT. Twitter citizen journalists delivered, in a way no ligma-believing formerly exclusive blue-checkmark possessors could have. I fear the day of the gumshoe journalist is over. I read a fascinating piece in Vanity Fair about a con man which demonstrated the power of a persistent (and funded) investigator to fill the gap between law enforcement and clickbait which media is supposed to do.

Very few outlets are committed to this kind of work anymore. In their place, folks like “Autism Capital” and marathon Twitter Spaces by Mario Nawfal have replaced the hole for-profit sensationalists have left us. I couldn’t be happier. Actual practitioners should be reporting the news. These are people who have subject matter expertise and won’t be fooled as easily fooled by ‘the next Warren Buffett’. It’s even more exciting that the news reporters of November 2022 are sometimes anonymous, they’re not building a brand for themselves, and they’re sacrificing for the collective good, not their career or company bottom line.

Pharma

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Q3 results show launches are going well and pharma revenue in general is holding up quite well relative to cyclical sectors. Great Q3s from Big Pharma: Tremfya, Darzalex, Erleada, Xarelto (J&J), Mounjaro, Verzenio, Jardiance (LLY), Skyrizi, Rinvoq, Vraylar (ABBV), Evrysdi (Roche), Keytruda, Gardasil (MRK), Prevnar, Paxlovid (PFE), Rybelsus, Ozempic, Saxenda (NVO), Imfinzi, Evushield, Ultomiris, Calquence (AZN), Kisqali, Kesimpta, Pluvicto (NVS), Revlimid (soft landing?), Abecma, Opdualag (BMY), Evenity, Tezpire (AMGN), Dupixent, Nexviazyme (SNY), Biktarvy, Veklury (!?), Yescarta, Trodelvy, Epclusa (!?) (GILD), Shingrix, Dovato, Xeduvy, Benlysta, Bexsero, Cabenuva (GSK). There are a few disappointing or stalled launches, but things are looking pretty sunny for drugs. Models on Github are relatively updated.

Moderna revenue is drying up and the valuation has me wondering if this is a relatively obvious short.

Mounjaro revenue may set records as more average Joes are reaching for GLP-1s for non-obesity weight loss. This recreational use of medicine is a bit worrisome, but it won’t bother Eli Lilly!

My Professional Efforts

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Sorry for not writing more! I am focused on the work I’m doing on software companies. Druglike is expanding its purview quite a bit and is being renamed. An old software suite I worked on is being added into it, dramatically increasing its scope. Some of you know what I’m talking about, others will have to wait! A private demo is up and running on the web and a closed beta will be available for that at some point soon.

And, yes, all of this software will implement the ERC-20 token MSI. I think a token economy adds a small benefit to existing software, but the focus should be on the software, not the token.

I’m also working on other cheminformatics and bioinformatics software. The free energy calculator my friend Jason made (druglike.com) has advanced steadily, with a 1 million compound screen performed on PARP1 inhibitors. There was no way to do something like that on the web before. But I’m trying to do even more new things, like a possible brand new approach to calculate logP and more easy-to-use front ends for cheminformatics.

I am also interested in online gambling and video games in general. Especially web based games that incorporate WASM, WebGL, React, Unity and new 2D/3D frameworks, with or without Canvas. I think crypto has a lot to add to the gambling space and very little progress has been made.

If you have software development expertise in the above and want to join me, please email me at martin@martinshkreli.com. If you want to learn more about what I’m doing in this space from a corporate perspective, or you just want to check in, feel free to send an email as well.