Mad Hedge Biotech & Healthcare Letter
January 7, 2020
Fiat Lux
Featured Trade:
(WHAT’S NEXT IN THE BIOTECH PIPELINE?)
(ITCI), (AIMT), (BIO), (JNJ)
Investing in biotech stocks demands prudence combined with a sprinkling of optimism. This means taking in announcements from companies bragging about potential blockbuster drugs with a grain of salt.
After all, a single misstep towards gaining FDA approval could easily set back any progress, erase any hope of salvaging the discovery, and eventually, send their share prices spiraling down.
On the other hand, choosing a biotech stock that would deliver on its promise means reaping rich dividends in the future.
With all the developments in store though, it’s hard to see why 2020 can’t easily go down as The Year of Biotech. Here are some things that caught my eye.
Christmas came early for Intra-Cellular Therapies (ITCI) as its long-awaited schizophrenia drug, Caplyta, received the green light from the FDA.
Although it has taken a few years for the biotech firm to announce the results of its schizophrenia trials, its investors are confident that Calpyta’s journey from this highly sought approval to marketing will be smooth sailing.
While the number of people suffering from schizophrenia and bipolar disorder is not as many as those facing major depressive disorder, treatments for the former conditions remain lacking. In fact, health specialists have been looking for more convenient options -- one that won’t hinder the daily lives of patients taking it.
This blockbuster drug, pegged as a safer and better alternative to Johnson and Johnson’s (JNJ) Risperidone, is expected to expand Lumateperone’s reach in the mental health market.
Despite earning an early victory, ITCI is already gearing up to tweak Calpyta’s indications and seek bipolar depression approvals as well. At the moment, this schizophrenia drug is estimated to cross $1 billion in sales following its 2020 launch in the market.
Meanwhile, there’s another big market drug that’s projected to make a major launch in 2020. Aimmune Therapeutics’ (AIMT) AR101. Otherwise known Palforzia, this will be the first-ever treatment for peanut allergies.
Although there’s no price tag released yet, a year’s supply of Palforzia is estimated to cost $4,200 per patient.
These pull-apart capsules, which are basically comprised of unmodified peanut flour plus a bunch of inactive ingredients, aim to provide medication for a food allergy that affects one in 13 children today.
The FDA is expected to release its decision on Palforzia sometime in January 2020, so it’ll definitely be a prosperous New Year for its investors.
Another biotech company that’s set to make a splash in a lucrative market is Bluebird Bio (BIO).
At the moment, investors are chomping at the bit for good news concerning the company’s future crown jewel: genetic blood disease treatment Zynteglo.
In 2019, Zynteglo gained approval in the European market. Now, Bluebird is setting its sights to also conquer the US market as one in every 100,000 people is afflicted by this rare condition.
More than that, the only approved therapy for this genetic blood ailment is a blood transfusion done regularly.
Given the rarity of the disease and the efficacy of the treatment, Zynteglo’s price tag will obviously be on the high end.
This therapy is expected to cost roughly $1.8 million in total for every patient. To ease the burden though, Bluebird shared that it’s open to four- and five-year installment plans. That puts every gene therapy infusion at $355,000 per session.
Despite this massive expense, Bluebird actually believes that it’s selling its treatment at a discount of about 15% compared to the actual market value of $2.1 million.
This conviction comes from the fact that the company estimates adding 22 quality-adjusted life years to the lives of every successfully treated patient.
All three biotech stocks could easily skyrocket, especially Bluebird Bio. As for Aimmune Therapeutics, the company is currently financially healthy so it shouldn’t encounter any trouble meeting obligations. Meanwhile, ITCI has been gifting its investors with early Christmas presents since it first released promising results of its schizophrenia study.
Mad Hedge Biotech & Healthcare Letter
December 26, 2019
Fiat Lux
Featured Trade:
(THE BOOM IN CANCER DRUGS),
(MRK), (CELG), (RHHBY), (BMY), (LLY), (NOVN)
Forecasting drug revenue can be a tricky business -- just ask the biotech leaders who overpromised but underdelivered.
These days, more and more variables are coming into play, with the US elections looming over us and the threat of generic meds overtaking market leaders becoming more tangible by the minute.
Another threat is the entry of biosimilars in the US, knocking down big-name drugs even in the most lucrative markets. Payers are also constantly seeking discounts, forcing tougher competition among crowded markets like diabetes and hepatitis.
However, the oncology sector remains a booming sector for the biotech industry.
Practically all major companies are either developing oncology treatments or already marketing these as blockbuster treatments, with 63 cancer drugs launched in just the past five years.
Unfortunately, not all cancer drugs are created equal. Looking at the spending on the treatments in recent years, it can clearly be seen that almost 80% of the money has been hogged by the industry leaders with the rest of the group lagging far behind.
To put things in perspective, bear in mind that the annual sales of the top 20 cancer drugs have reached over $50 billion, with $31 billion distributed among industry leaders Merck and Co (MRK), Celgene (CELG), and Roche Holdings (RHHBY).
These numbers hardly come as a surprise especially in light of over $133 billion recorded in spending for cancer treatments.
The top-selling oncology drug to date is multiple myeloma treatment Revlimid. Technically a Celgene product, the company’s $74 billion acquisition by Bristol-Myers Squibb (BMY) means the drug will be joining the other powerhouse offerings in the newly formed company’s lineup in the years to come.
With over a decade of dominance in the market and an impressive $9.7 billion in global sales annually, Revlimid has yet to hit its peak.
In fact, this mega-blockbuster is projected to exceed $15 billion in sales next year.
As if that wasn’t impressive enough, this oncology leader is estimated to bring more than double that amount come 2022.
Another dominant player in the oncology market is lung cancer drug Keytruda. Since its launch, this Merck immunotherapy leader has been able to usher in a boatload of cancer treatments using its core indications -- and it’s not yet done.
With an FDA approval eyed on June 29, 2020 for yet another indication for Keytruda, specifically for treating cutaneous squamous cell carcinoma (cSCC), its goal to dethrone Revlimid as the leader in this space now looks achievable.
Right now, Keytruda is used for various cancer types.
Aside from dominating the large addressable lung cancer market, it’s also used to treat head and neck cancer as well as melanoma. This makes Keytruda’s contributions indispensable to Merck’s overall top-line and continuous growth in sales in the past years.
Hence, it comes as no surprise that Merck’s recent third-quarter earnings had Keytruda is the starring role once again. Sales for this oncology drug jumped 62% year over year, reaching almost $3.1 billion.
One more dominant force in the oncology sector is Roche, with breast cancer drug Herceptin serving as the primary moneymaker of the company in the past 15 years.
With Herceptin raking in roughly $7 billion in annual sales in recent years, Roche has been proactive in securing its position in the oncology space by adding blockbusters ovarian cancer drug Avastin and leukemia medication Rituxan in the list.
For years, these three cancer drugs have formed the foundation of Roche’s continuous growth in the oncology sector. However, these treatments are now in danger of facing competition.
A particularly aggressive competitor is Pfizer (PFE), with its breast cancer drug Ibrance gaining traction as shown by its growing sales from $0.7 billion in 2015 to a promising $4.1 billion in 2018. Other competitors include Eli Lilly’s (LLY) Verzinio and Novartis’ (NOVN) Piqray.
To maintain its stronghold, Roche has been aggressive as well in developing new drugs.
Word has it that the company is expecting an addition $5 billion in sales for its new cancer treatments like breast cancer drugs Perjeta and Kadycla along with lung cancer medications Tecentriq and Alecensa.
Mad Hedge Biotech & Healthcare Letter
December 24, 2019
Fiat Lux
Featured Trade:
(TAKING A SECOND LOOK AT SANOFI),
(SNY), (NVO)
Investors on the lookout for a large-cap biotech investment have several options, with Sanofi SA (SNY) being one of the most interesting companies to consider. The French multinational pharma giant has a diverse drug portfolio which has been attracting attention recently thanks to its focus on the lucrative market of diabetes treatments.
Unfortunately, the diabetes project hasn’t been working as well as Sanofi hoped this year. Earlier in 2019, FDA rejected the company’s new diabetes candidate Zynquista. Despite this setback, the company announced more promising Phase 3 results from another diabetes treatment, Toujeo, which is aimed at children and adolescents with Type 1 diabetes.
Regardless of the roadblocks encountered by Sanofi in its bid to dominate this lucrative market, the company has been insistent in this endeavor -- a determination that’s actually pretty understandable given that the diabetes market covers over 425 million people worldwide.
So far, Sanofi has managed to be one of the leaders in this sector, with insulin injection pen Lantus working as a stable revenue driver for the biopharma for years now.
To offer a clearer perspective on the promising diabetes sector, Lantus raked in $3.95 billion in sales for 2018 alone -- an impressive growth that has been attracting competitors left and right.
In fact, this Sanofi diabetes moneymaker has been experiencing steep competition with sales slipping by over $1.17 billion largely due to the emergence of cheaper and stronger rivals in the market.
Nonetheless, Sanofi wants to maintain its stronghold so new deals are expected to crop up soon in an effort to shore up its declining Lantus revenue. Among the drugs in its portfolio, Toujeo has actually been doing quite well, raking in $930 million in sales in 2018. While this doesn’t really cover the $1.17 billion slip from Lantus sales over the same period, the figure is close enough to bring hope to investors and keep competitors at bay.
Sanofi’s strongest competitor, particularly in the diabetes market, is Novo Nordisk (NVO). The latter’s diabetes drug Tresiba has actually accounted for 84.2% of its overall sales.
While this is definitely daunting for Sanofi, the sales performance of Tresiba can also highlight a key differentiator between the two. That is, Sanofi offers a more diversified portfolio especially in terms of revenue sources. Meanwhile, Novo Nordisk is focused on the diabetes market alone.
Although both Toujeo and Lantus have been remarkable in sales thus far, Sanofi has a number of other top-performing drugs in its portfolio. After all, Sanofi isn’t just about diabetes treatments.
In terms of growth, eczema treatment Dupixent has shown a remarkable 142% jump in sales over the past year. Its revenues rose to $628 million for the third quarter in 2019. In comparison, the overall sales for Sanofi’s diabetes treatments declined by 18% since the third quarter of 2018.
While it’s easy to get distracted by the allure of the lucrative diabetes market, these treatments actually comprise a small portion of the French biopharma’s drug portfolio.
To date, Sanofi has 85 up-and-coming drugs, with 51 of these already sent to early clinical tests and the remaining 34 either in Phase 3 trials or sent for approvals. To provide a more direct comparison, reports show that only two drugs in the pipeline are aimed towards the diabetes market. The rest of Sanofi’s portfolio has 28 oncology candidates and 18 immuno-inflammation drug prospects.
Overall, Sanofi has a stable, well-rounded portfolio to offer its investors. However, stiff competition can prove to be a huge obstacle especially in the high-growth diabetes space. Its revenue growth in this sector isn’t also as remarkable as its competitors.
This doesn’t take away from Sanofi’s other products though. What it means is that it would be a better call to buy Sanofi stock once prices fall at a cheaper valuation.
Mad Hedge Biotech & Healthcare Letter
December 19, 2019
Fiat Lux
Featured Trade:
(PLAY GUARDANT HEALTH FOR THE LONG TERM), (GH)
The company that cures cancer will be the next Apple (AAPL). That is the consensus of most scientists and investors out there. The question is: which of the hundreds of players out there should one be picking up today?
Guardant Health employs a unique approach.
The company believes the key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease. It is developing a solution through tests that require only a blood sample.
Guardant’s blood tests are enabling timely therapy selection for patients with cancer while we also advance programs for recurrence detection and early cancer detection. In addition, it is working together with pharmaceutical companies to discover and understand new treatment approaches that lead to better outcomes for patients.
So far, GH has exhibited a great health rating. Unfortunately, there remains anxiety over its profitability. In particular, some investors look at its medium growth rate and feel that this biotech stock is valued expensive.
On the other hand, GH has shown a remarkable growth rate in the previous year. In fact, this oncology-focused company has achieved an impressive revenue growth of 81.85% in 2018.
Looking at the company’s performance and the estimates in the next two years, GH is projected to report a strong growth in its earnings per share. To be specific, its EPS is estimated to jump by 17.24% on average annually.
Meanwhile, the sales of its breakthrough treatments are anticipated to break above $200 million in 2019 alone -- showing off over 125% in annual growth.
To provide more tangible results to support these predictions, here are the highlights from the company’s third-quarter earnings report released in November:
GH raked in $60.8 million in revenue, indicating a 181% jump from the value recorded in 2018. (Roughly $5.5 million of this revenue was from the sample GH processed last year. No reimbursements were granted to payers for those samples, and GH succeeded in its appeal. The said revenue was added to the 2019 third-quarter report.)
GH increased its full-year revenue prediction from $180 million to $190 million to reach $207 million instead, showing an increase of over 125% year-over-year.
GH performed 13,259 tests with clinical customers, indicating an 89% jump from the number recorded during the same period in 2018 when the company only had 7,027 tests.
Meanwhile, GH’s biopharmaceutical clients performed 5,280 tests. This shows a whopping 111% increase year-over-year as well.
Apart from increasing the number of tests performed, the average revenue for every biopharmaceutical test actually jumped by 16% to be priced at $4,052. This is a result of more OMNI tests performed, which is priced higher than the Guardant360 tests previously favored by the clients.
GH has finally hit its stride this year. Its gross margins have improved to 70% compared to the 54% it recorded in 2018. The company also managed to lower its operating losses. A year ago, GH’s third-quarter operating loss amounted to $24.2 million. In the same period in 2019, the company decreased it to $17.5 million, indicating a 28% improvement.
To date, Guardant Health has reported an estimated annual revenue of $170.8 million. Its main competitors are Biocept, Epic Sciences, and Pathway Genomics.
Mad Hedge Biotech & Healthcare Letter
December 17, 2019
Fiat Lux
Featured Trade:
(WHY THE M&A BOOM WILL SPILL INTO 2020),
(BMY), (CELG), (NOVN), (LOXO), (ROG), (ONCE), (MRK), (SAN), (ARQL), (THOR), (AMRN), (GSK), (AMGN), (GILD)
The biotech industry is breaking out, with the sector witnessing tremendous growth in the later part of 2019. With the stocks surging, it looks like the new year is setting up to a strong start that could continue well up into 2020.
Despite the anxiety over the feared government price controls in the drug sector, the early thinking in the biotech world remains optimistic. In fact, the stage seems to be set for even bigger news come 2020. This prediction comes on the heels of the over $7 billion deals closed just this summer alone.
To date, approximately $100 billion total potential value of research and development have been spent by biotech companies since June 2019, with $11 billion paid upfront in cash.
Among those deals, the biggest so far is Bristol-Myers Squibb’s (BMY) $74 billion acquisition of Celgene (CELG). Another massive agreement is Novartis AG’s (NOVN) $9.7 billion acquisition of The Medicines Company (MDCO).
Eli Lilly and Co’s (LLY) $8 billion takeover of rare genetic mutation drug Vitakvi creator, Loxo Oncology (LOXO), also signified notable movements in the industry along with Johnson and Johnson’s (JNJ) $5.8 billion buyout of robotic surgery company Auris Health. Even Roche Holding AG (ROG) is expected to complete its $4.3 billion merger with gene therapy company Spark Therapeutics (ONCE) before the year ends.
Not far behind are Merck and Co’s (MRK) $2.7 billion acquisition of ArQule (ARQL) as well as Sanofi SA’s (SAN) $2.5 billion buyout of clinical-stage DNA base pair treatment company Synthorx Inc (THOR).
The majority of the deals were in the oncology space, with three times as many oncology deals made compared to the number two sector, the neurology sector. To put things in perspective, seven of the top 10 deals made in 2019 involved oncology treatments.
What can we expect in 2020?
A number of drug candidates remain in the pipeline, but one mid-cap biotech company is anticipated to make big bucks next year. The catch? It’ll need the help of a bigger and more established company to make it happen. That is, this promising company has become the most eligible buyout candidate for 2020.
Amarin Corporation (AMRN) has taken center stage when it became the first-ever company to hit positive results for its prescription omega-3 treatment, Vascepa -- a feat that none of the other biotech giants managed to accomplish. Actually, competitor GlaxoSmithKline (GSK) created its own omega-3 treatment, Lovaza, only to have it fail to reach its goal.
Barring any major setback, Vascepa is slated as the next blockbuster treatment in the cardiovascular disease space -- possibly even displacing Pfizer’s (PFE) Lipitor as the king of this segment. In fact, several major healthcare groups like the American Heart Association, American Diabetes Association, the European Society of Cardiology have already endorsed Vascepa as an effective treatment for LDL cholesterol.
The Amarin medication is projected to peak at $4 billion in annual revenues by 2028. Considering that its manufacturer’s reported third-quarter earnings this 2019 is only at $112.4 million, the approval of Vascepa will undoubtedly be a game-changer for its investors.
However, Vascepa’s incredible potential along with the fact that Amarin has no other drug candidate in its pipeline makes the company ripe for a takeover. For one, it’s not financially capable of juggling both the marketing of Vascepa and developing or building a solid pipeline to support its growth. With the omega-3 treatment’s projected blockbuster status, a bigger and more established company could undoubtedly be more fit to help it reach its potential.
Who are the potential suitors?
Three heavyweights have been repeatedly linked to Amarin: Pfizer, Novartis, and Amgen (AMGN). Since all three have a budding cardiovascular unit, it could be anyone’s game.
However, Novartis’ recent acquisition of The Medicines Company makes it the least likely candidate in the list right now. After all, the latter already has a potential blockbuster cholesterol-lowering drug in Inclisiran.
That paves the way for a new suitor in the form of Gilead Sciences (GILD). Just a few weeks ago, Gilead added Vascepa to one of its ongoing trials involving nonalcoholic steatohepatitis. Whether or not this signifies interest in buying out Amarin is anybody’s guess.
Heading into the next year, the biotech sector is expected to welcome the new year with strong fundamentals and great opportunities for outperformance. While the election may bring changes to policies, the ongoing growth and innovation in this industry make it impossible to be excited for what’s in store for the future.
After all, more and more life-extending and even life-saving treatments are getting discovered by the day. Aside from following the developments in the industry, why not use your knowledge to fatten your pocketbook along the way?
