Mad Hedge Biotech & Healthcare Letter
April 14, 2020
Fiat Lux
Featured Trade:
(ELI LILLY’S CORONA LEAP FORWARD)
(LLY), (GSK)
Eli Lilly (LLY) is one of the major biotechnology companies that have been working double-time to develop a coronavirus disease (COVID-19) cure, and the company shared its progress in this field.
According to this top biotech company, its partnership with the National Institute of Allergy and Infectious Diseases will explore the potential of Olumiant as a COVID-19 treatment.
This drug was first approved in June 2018 as a rheumatoid arthritis medication. Health experts believe that its anti-inflammatory effects on the immune system could be effective as a COVID-19 cure.
The clinical trial for Olumiant will involve COVID-19 patients in the US, with results available within two months.
Other than this Olumiant trial, Eli Lilly has another potential COVID-19 clinical trial already in Phase 2 for an experimental antibody treatment currently dubbed LY3127804.
This trial will involve pneumonia patients diagnosed with COVID-19. These patients are at a higher risk of acquiring acute respiratory distress syndrome (ARDS). The antibody treatment trial is slated to begin by late April at several US centers.
Apart from these experimental treatments, Eli Lilly is also taking an active part in providing testing centers to frontliners in its home state Indiana.
In March, Eli Lilly launched drive-through testing centers for active healthcare workers. This initiative was in partnership with the Indiana State Department of Health and backed by the U.S. Food and Drug Administration.
Eli Lilly’s centers test for the SARS-CoV-2 virus, which is the type that caused COVID-19. This service is offered free of charge to frontliners.
Outside its COVID-19 efforts, Eli Lilly has been active in developing its pipeline.
The latest deal towards this end is with privately held company Sitryx, which focuses on creating drugs for cancer and inflammatory diseases.
The partnership involves a five-year collaboration culminating in the development of four drugs. Eli Lilly has already selected two lead projects from Sitryx’s pipeline to be the first drugs they’ll submit for licensing.
Founded in 2018, all projects in Sitryx’s pipeline are still in the preclinical phase. The company is also comprised of widely known immunology experts, with another biotech heavyweight GlaxoSmithKline (GSK) contributing to its technology.
According to the terms of the collaboration, Sitryx will handle drug discovery while Eli Lilly will fund the clinical development as well as the marketing efforts.
Sitryx will get $50 million from Eli Lilly upfront, with the Indianapolis biotech company making an additional $10 million equity investment.
Meanwhile, the smaller biotech is eligible to almost $820 million if the development milestones are reached. Sytrix is also entitled for royalties.
Amid the pandemic, Eli Lilly is riding the momentum of its previous quarters and is still aiming to deliver a promising growth this year.
Coming off a strong 2019 fourth quarter, the company saw an 8% year over year growth in its top line. The entire year’s sales also went up by a modest 4% from how much they earned in 2018.
As for earnings per share (EPS), the said quarter showed off an impressive 49% year over year jump to reach $1.64. Meanwhile, the entirety of 2019 recorded an EPS of $8.89 which is more than twice 2018’s $3.13 total.
For Eli Lilly’s 2020 performance, the company is anticipating more growth, especially after the completion of its $1.1 billion all-cash acquisition of Dermira.
This acquisition opens a plethora of opportunities for Eli Lilly, particularly in the dermatology medicines sector.
A prime example to illustrate potential growth is Dermira’s top-selling product Qbrexza, which is used to treat excessive underarm sweating. This bestselling item boosted Eli Lilly’s quarterly sales by 27%, increasing the revenue from $8.1 million to $10.2 million.
Even without the collaborations, Eli Lilly can stand on its own as a solid buy.
The company has shown a strong operating margin, staying over 20% in all the previous 10 quarters. Moreover, its free cash flow of $3.5 billion and consistent revenue generation platforms through the years, Eli Lilly is in a good position to take on more acquisitions down the road.
Basically, Eli Lilly is ideal for investors on the lookout for a biotech stock that you can buy and just forget.
Only a handful of sectors managed to escape the coronavirus pandemic unscathed as practically every stock suffered a 20% drop over the course of the past months. I believe there’s one group that merits our attention even in the midst of this pandemonium: the biotech sector.
I think biotech stocks will roar back soon enough, and buying shares of solid and well-managed biotech companies that pride themselves with promising product lineups and solid pipelines should be rewarded in the long run.
Among these biotech stocks, Eli Lilly is one of the best-positioned growth stories. Investors searching for a port in this coronavirus storm might want to take a good look at this biotech stock.
Mad Hedge Biotech & Healthcare Letter
April 9, 2020
Fiat Lux
Featured Trade:
(A SLIVER OF HOPE FOR CORONAVIRUS)
(MYL), (NVS), (BAYRY), (PFE)
To this day, there’s still no solid proof that any drug can treat or prevent infection with the deadly coronavirus. Faced with an exploding pandemic that brings an alarming death toll, the public is eager -- desperate -- for a sliver of hope and some news regarding discoveries of COVID-19 treatment.
Lately, the drug that has been gaining so much attention is hydroxychloroquine. This is primarily thanks to Trump’s endorsement, with the president going as far as labeling it a “miracle” drug.
By now, we’ve become all too familiar with the story behind this “miracle” drug.
Trump was watching TV the night before and saw a feature about a Michigan woman who was suffering from COVID-19 for 12 to 14 days. Her suffering was so intense that she felt she would die anytime soon. One night, she asked her husband to find hydroxychloroquine.
Four hours after taking it, she felt better and eventually recovered.
While health experts are still waiting for conclusive evidence on the drug’s efficacy, this story inspired Trump to urge the public to try it as well.
Aside from describing it as a potential cure, Trump is also recommending hydroxychloroquine as a preventive measure for health workers. His point is that there’s really nothing to lose here. After all, the drug has been used for decades so “it’s not going to kill anybody” compared to completely novel treatments.
In fact, he has been so intent in using hydroxychloroquine to cure COVID-19 patients that he ordered 29 million doses added to the government’s cache of medical supplies.
Just what is hydroxychloroquine?
This is a prescription drug approved to treat malaria decades ago. It can also be prescribed to treat autoimmune diseases such as lupus and rheumatoid arthritis. It’s called by its brand name Plaquenil as well.
Is it really effective to treat COVID-19?
The answer remains unclear. However, there are a couple of studies that point to promising results.
One is a laboratory study using cultured cells. In this research, it was found that chloroquine has the ability to prevent the coronavirus from invading the cells. Obviously, blocking the virus means protecting the body from the illness.
However, scientists issued a word of caution about this.
They reminded us that the drugs that work well in killing off viruses in petri dishes or test tubes do not necessarily translate to the same results in the human body.
As for hydroxychloroquine, studies showed that it can’t prevent or cure influenza and other viral diseases.
This doesn’t mean that hydroxychloroquine is useless as a COVID-19 treatment.
It just shows that more trials are needed to determine its actual effect. Several studies have been launched to figure out the answer to this.
In Detroit alone, there will be 3,000 patients set to participate in the trial to come up with a formal and conclusive study on hydroxychloroquine.
In a nutshell, what the health experts are saying is that the celebration might be a tad premature.
So this leads to a lot of investors to wonder which companies stand to benefit if hydroxychloroquine gets approved as a COVID-19 treatment.
Probably no one.
Keep in mind that this is an old drug, which came to the market sometime in the 1940s. Hence, it’s highly unlikely for it to become a blockbuster drug for any company.
Right now, several companies are already making it, including Novartis (NVS) and Bayer (BAYRY).
However, investors interested in buying cheap biotech stocks might be interested in generic drug maker and Mylan (MYL) are also in the running.
When Trump started touting the effects of hydroxychloroquine on COVID-19 patients, Mylan immediately restarted its production of the tablets.
The company aims to have the drug available in the market by mid-April, targeting up to 50 million tablets for over 1.5 million people.
Like I said, hydroxychloroquine isn’t going to be a high-selling drug for any company.
Nonetheless, this could provide the much-needed momentum for Mylan as its investors start to lose confidence in the company.
With the company back in the spotlight, it can easily redirect everyone’s attention to its upcoming merger with Pfizer’s (PFE) Upjohn unit to form a new company called Viatris.
This combined company will hit the ground running as it buys two assets from Pfizer.
One will be Meridian, which is the maker of EpiPen along with other auto-injectible treatments. The second is Mylan-Japan, which has been the generics collaboration unit of Pfizer and Mylan since 2012.
Both units recorded $598 million in annual revenue in 2019.
Viatris’ portfolio will also include a number of top-selling products like erectile dysfunction and pulmonary arterial hypertension Viagra and arthritis Celebrex.
The lineup will even feature the blockbuster cholesterol drug Lipitor, which generated more than 2 billion in sales last year alone.
According to the terms of the deal, Pfizer shareholders will own 57% of Viatris while Mylan shareholders get 43%.
Due to the upcoming merger, Pfizer went ahead and upped the 2020 guidance for Upjohn’s revenue from the $7.5 billion and $8 billion range to $8 billion and $8.5 billion.
The Viatris spin-off is expected to be completed by mid-2020.
For years, Mylan has been plagued with numerous issues like pricing concerns and even lawsuits.
Hence, this merger with Upjohn is considered a crucial turning point for Mylan. It represents a fresh beginning from this previously embattled stock.
Mad Hedge Biotech & Healthcare Letter
April 7, 2020
Fiat Lux
Featured Trade:
(AMGEN THROWS ITS HAT IN THE RING WITH COVID-19)
(AMGN), (ADPT)
Another biotech heavyweight, Amgen, has entered the race to find a cure for the deadly coronavirus disease (COVID-19).
Amgen (AMGN) has decided to collaborate with Adaptive Biotechnologies (ADPT) in order to develop a treatment targeting COVID-19. Specifically, the joint effort will rely heavily on Amgen’s immunology expertise combined with Adaptive’s innovative platform used to identify virus-neutralizing antibodies.
The trials will focus on studying the antibodies of individuals who successfully recovered from COVID-19.
Similar to how Biogen (BIIB) and Vir Biotechnology (VIR) handled their collaboration, Amgen and Adaptive also opted to take the plunge even before finalizing all the details of the deal.
Although the urgency of the pandemic is definitely one of the reasons both companies agreed to this setup, another reason could be their history of working together.
Amgen and Adaptive first started collaborating in 2017 when the two companies developed a test for acute lymphoblastic leukemia patients.
In 2019, they expanded their partnership with Amgen utilizing Adaptive’s next-generation sequencing assays for all the blood cancer drugs and even pipeline candidates.
Prior to its partnership with Amgen, Seattle-based Adaptive has been blazing a path in the biotech world. Its biggest claim to fame is its ability to sequence the human immune system.
This is far more challenging than human genome mapping, which only involves 30,000 genes. To sequence the immune system, you would need to look at 100 million genes.
As if that wasn’t challenging enough, Adaptive has also ventured on mapping over 30 billion immune receptors, even owning the data rights to 20 billion of those.
Sensing the potential and the demand from this genetic sequencing system, Microsoft (MSFT) actually offered a collaboration agreement with Adaptive in 2017.
This partnership resulted in a system that can create a universal blood test, which helps doctors read and analyze a patient’s immune system. They will then be able to determine what diseases a person’s body is fighting.
For instance, the body of a cancer patient knows of the threat so its immune system starts fighting the cancer cells. However, this is not immediately known to the doctors, especially without the usual symptoms.
With Adaptive’s system though, the doctors will be able to hack into the immune system of the patient and discover what the body is reacting to. This will allow the doctors to diagnose any disease as early as possible regardless of the appearance of symptoms.
Armed with the information from Adaptive’s test, the doctors will be able to prescribe the right treatments and drugs to boost the patient’s immune system and eventually cure the disease.
Needless to say, Adaptive’s innovative technology would be particularly useful in the fight against COVID-19.
Meanwhile, Amgen seems to be sailing through the economic crisis smoothly.
In fact, this giant biotech even recorded a 1.5% gain in March despite the historic beating suffered by the broader market.
To put things in perspective, the S&P 500, the Dow Jones Industrial Average, and the NASDAQ Composite Index all lost over 10% of their value last month.
In comparison, Amgen was one of the handful of blue-chip stocks to wrap up March on a positive note.
Several factors contributed to Amgen’s resilience amid the pandemic and economic crisis.
One is the company’s newer drugs in the market such as cholesterol treatment Repatha and postmenopausal drug Prolia. Both recorded a double-digit increase in sales for the first quarter of 2020.
Amgen is also banking on the expansion of its blockbuster psoriasis treatment Otezla, which represents a profitable growth space for the company. The worldwide psoriasis market is projected to reach roughly $46.6 billion by 2022.
Apart from these, Amgen has approximately 40 drugs queued in its pipeline with half already in their Phase 3 trials. Obviously, that’s promising news, especially for long-term investors.
The company has been quite optimistic about its performance this year, estimating a minimum 6.8% increase in annual revenue to fall somewhere between $25 billion and $25.6 billion.
Finally, Amgen has been steadily increasing its dividend every year. Just last year, the company paid a yearly dividend worth $5.80 for each share, showing a 10% jump from 2018.
So far, Amgen has proven itself as one of the stocks immune to the COVID-19 threats and even the widely feared economic crisis.
Since the pandemic isn’t anticipated to peter out in the next months, investors will definitely be on the lookout for high-quality businesses capable of paying solid dividends and can still earn despite the ongoing crisis. Amgen manages to tick off both of these crucial boxes.
Mad Hedge Biotech & Healthcare Letter
April 3, 2020
Fiat Lux
Featured Trade:
(THE BIOGEN PARTNERSHIP THAT MAY SAVE YOUR LIFE)
(BIIB, (VIR)
The global economy has been dealt a massive blow because of the coronavirus disease (COVID-19), which has now spread across 181 countries -- and it’s showing no signs of stopping anytime soon.
The recent situation report reveals that COVID-19 has caused over 53,975 deaths and more than 1,030,000 confirmed cases worldwide.
To add to that, the International Monetary Fund recently disclosed their concerns that the pandemic could push the world economy on the brink of a depression. What’s worse is that the fear brought by this possibility is already mirrored by major stock indexes across the globe.
Amid the economic turmoil, the Trump administration came up with an emergency package worth $2 trillion in an effort to help companies particularly in the aviation and healthcare sectors.
However, that won’t be enough in the long run, not even by a little bit.
This is why several biotechnology companies have been scrambling to find a vaccine and a treatment for this quickly spreading disease.
In March, Biogen (BIIB) announced its decision to team up with Vir Biotechnology (VIR) to join the race in looking for a cure for COVID-19.
Due to the urgency of the situation, both companies took an unusual move to simply start working together before even finalizing the details of the agreement. What they only have at the moment is a signed letter of intent.
What we know so far is that Biogen will take charge of the cell line and process development along with the manufacturing of Vir’s monoclonal antibodies.
Vir is a biotech company developing treatment for infectious diseases; its partnership with Biogen will help the smaller biotech to manufacture its COVID-19 drug candidate on a bigger scale. It’s also interesting that the company’s current CEO served as Biogen’s CEO up until 2016.
Prior to this deal, Vir has long been regarded as a biotech company with a strong financial position.
In the third quarter of 2019, the company raked in $320.2 million in cash, cash equivalents, as well as short-term investments. Vir’s balance sheet shows roughly $22.5 million in terms of long-term liabilities. Its recorded $1.4 million in revenue for the quarter.
In terms of its COVID-19 efforts, the company started working on a potential cure in January. Basically, Vir is looking into its library of antibodies to find which one could be used to neutralize the novel coronavirus.
This is actually promising since the company already succeeded in utilizing the same technique for Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS), which are also caused by coronaviruses.
Apart from its COVID-19 efforts, Vir’s pipeline includes a number of potential vaccines and treatments for tuberculosis, HIV, and Hepatitis B Virus (HBV).
If you’re planning to buy this stock, make sure to do so before its lock-up period expires on April 8 to maximize your money’s worth.
Between the two companies though, Biogen has been gaining more attention as a more attractive investment since it’s a blue-chip stock selling for cheap these days.
Biogen is a frontrunner in the multiple sclerosis and spinal muscular atrophy space. The giant biotech is also a leader in the development and manufacturing of biosimilars, which are cheaper versions of biologically based therapies.
Its pipeline also has a number of high-value clinical assets particularly for hard-to-treat neurodegenerative diseases like Alzheimer’s and Parkinson’s.
Its acquisition of Nightstar Therapeutics and recent partnership with Sangamo Therapeutics (SGMO) have also transformed Biogen into one of the red-hot players in the emerging gene therapy market.
Biogen is also sitting on $4.5 billion in cash with a relatively reasonable debt-to-equity ratio of 48.2.
Hence, this giant biotech has no issues paying a dividend and can also be considered more or less immune to the threats of COVID-19. This makes it a stock capable of weathering the ongoing pandemic and even the resulting economic crisis.
Looking at the pipeline of the company, Biogen currently has over 25 drug candidates. Five are already in Phase 3. Meanwhile, its win against Mylan’s (MYL) for its blockbuster Tecfidera ensures that Biogen won’t face competition for this moneymaker until 2028.
However, all eyes are focused on its Alzheimer’s drug Aducanumab.
Since the company’s announcement of this treatment, investors have been on a rollercoaster ride with Biogen withdrawing and eventually going back in.
If it gains approval, Biogen shares will definitely soar. If the drug gets rejected, then the stock will suffer from short-term losses.
According to the Alzheimer’s Association, there are 5.8 million people afflicted by the disease in the United States alone. Needless to say, this represents a lucrative market for Biogen.
With a healthy balance sheet overall and a steady near-term outlook, Biogen is an attractive stock for bargain hunters looking to add a pretty cheap large biotech stock in their portfolio.
The indiscriminate wave of selling brought about by the pandemic has clearly opened a once-in-a-lifetime opportunity, particularly for patient investors. The fact that Biogen is part of Buffett’s own portfolio doesn’t hurt its case either.
Mad Hedge Biotech & Healthcare Letter
March 31, 2020
Fiat Lux
Featured Trade:
(MORE PLAYERS ENTER THE RACE FOR A CORONA CURE)
(MRNA), (ARCT), (JNJ), (SNY), (GOVX), (ALT), (NVAX), (GSK), (GNBT), (VXL.V), (INO), (APDN), (CADILAHC)
Special issue on COVID-19 vaccines: Moderna Inc (MRNA), Arcturus (ARCT), Johnson & Johnson (JNJ), Sanofi (SNY), GeoVax (GOVX), Altimmune (ALT), Novavax (NVAX), GlaxoSmithKline (GSK), Generex (GNBT), Vaxil Bio (VXL.V), Inovio Pharmaceuticals (INO), Applied DNA Sciences (APDN), Zydus Cadila (CADILAHC)
The hunt is definitely underway for potential treatments to fight COVID-19 but coming up with vaccines will take a much longer time.
Since we already have the genetic code of the novel coronavirus (click here for the link), researchers can now use the complete blueprint to come up with ways to defeat this disease.
With code in hand, it takes a supercomputer just three hours to create model vaccines. Then it is just a question of how fast you can make them, if at all. Many proposed models are far beyond our existing technology.
To date, there are roughly 35 companies and academic organizations actively seeking ways to come up with a COVID-19 vaccine. While the process will still take time, there are several promising prospects.
Among the companies working on this, Moderna Inc (MRNA) has been recognized as the first biotechnology company to conduct human trials to test its COVID-19 vaccine in March. The trial includes 45 males and non-pregnant females aged 18 to 55.
Moderna’s vaccine utilizes the genetic sequence of the novel coronavirus. Basically, the goal is to build a vaccine out of messenger RNA.
Aside from Moderna, another biotech company called Curevac has been at the forefront of this cutting-edge technology.
In China, RNACure Biopharma has been working with Fudan University and Shanghai JiaoTong University on using the same technique to come up with a vaccine as well.
China’s CDC along with Tongji University and Stermina as well as Duke-NUS in partnership with Arcturus (ARCT) are also using a similar approach.
Although Moderna’s vaccine reached Phase 1 in record time, authorities cautioned that the development time frame is somewhere between 12 and 18 months — and this is even dubbed as an “overly optimistic” timeline.
Meanwhile, there are companies like Sanofi Pasteur (SNY) elected to use previously deployed vaccine platforms in earlier epidemics like SARS.
Johnson & Johnson (JNJ) also decided to employ the same strategy using its Ebola vaccine platform. In fact, JNJ shared that it’ll be ready to conduct human testing of its non-replicating viral vector by November.
Aside from JNJ, another biotechnology company in China called CanSino Biologics (HKG: 6185) in collaboration with the Academy of Military Medical Sciences is utilizing the same technology.
Just last week, Chinese authorities approved CanSino’s Phase 1 clinical trials.
Apart from JNJ and CanSino, other biotechnology companies are also working on a vaccine using the same non-replicating viral vector technology.
The list includes Wuhan’s BravoVax along with GeoVax (GOVX), Altimmune (ALT), Vaxart (VXRT), Greffex, and the University of Oxford.
Another strategy is employed by Novavax (NVAX), which is to construct a “recombinant” vaccine.
In a nutshell, this strategy entails extraction of the genetic code for the protein found on the Sars-CoV-2. This is a part of the virus that can trigger the immune system. This will then be pasted into the genome of a bacterium or yeast.
In effect, this vaccine will force the microorganisms to produce huge quantities of the protein to be able to fight off the virus.
Big biotechnology companies like Sanofi and GlaxoSmithKline (GSK) are following the same technique.
Smaller firms are also in on the action including Generex Biotechnology Corporation (GNBT), Vaxil Bio (VXL.V), EpiVax, and Clover Biopharmaceuticals.
The University of Georgia, Baylor College of Medicine, and the University of Miami are pursuing the same lead as well.
On top of these, several biotechnology companies use a DNA-based approach to come up with a vaccine.
Last March 12, the Bill & Melinda Gates Foundation provided a $5 million grant to Pennsylvania-based biotech firm Inovio Pharmaceuticals (INO) to help the company speed up the tests needed for its DNA vaccine called INO-4800.
This is on top of the roughly $9 million in funding it received from the Coalition for Epidemic Preparedness Innovations earlier.
At the moment, INO-4800 is in preclinical studies with plans to push it to Phase 1 clinical trials by April.
Aside from Inovio, Applied DNA Sciences (APDN), Zydus Cadila (CADILAHC), Takis, and Evivax are also pursuing the same strategy.
Despite implementing the most effective and even draconian measures to contain COVID-19, these tactics only managed to slow down the spread of the virus.
With the World Health Organization tagging this situation as a pandemic, everyone has become more desperate in the search for a vaccine because only a vaccine can stop people from getting sick.
However, even the unprecedented speeds afforded, the biotechnology companies couldn’t change the fact that developing a vaccine requires at least a year. It’s crucial to not make mistakes along the way especially since the product could potentially be injected into most of the world’s population.
After all, there’s only a single thing that can be considered worse than a bad virus — and that is a bad vaccine.
