Mad Hedge Biotech and Healthcare Letter
November 30, 2023
Fiat Lux
Featured Trade:
(A SLEEPER HIT IN THE BIOPHARMA WORLD)
(PFE), (LLY), (VTRS), (BNTX), (SEGN)
Eli Lilly's (LLY) recent strides in the weight-loss treatment market have made headlines, especially with Mounjaro, their diabetes drug doubling as a weight-loss medication. The real buzz began when Zepbound, another of Lilly’s offerings, got the green light for weight management.
These developments have propelled Lilly into a potentially profitable orbit, but let's not get carried away just yet. While this company’s stock has been climbing the ladder, partly priced in with the latest news, it's worth casting a wider net.
In the world of pharmaceuticals, opportunities abound, and sometimes the best catches are not the shiniest. Enter Pfizer (PFE), a familiar name that’s been a bit under the weather, stock-wise.
Pfizer's shares have taken a 40% hit this year, a response to the waning demand for their COVID-19 vaccine and treatment.
But let's not forget that we're shifting gears to a post-pandemic era, and such shifts in demand are part of the course. Add to this the impending loss of exclusivity on some of their key products, and you've got a recipe for some financial heartburn.
In 2023, Pfizer’s performance didn’t quite match up to the market, a stark contrast to its 2021 and 2022 glory days, driven by its COVID-19 portfolio. However, looking at Pfizer through the narrow lens of recent performance alone is like judging a book by its last chapter.
Let's rewind a bit. Pfizer took some bold steps in recent years, steps that have shaped its current narrative.
The big move was shedding its consumer health and off-patent drug business, Upjohn, which led to the creation of Viatris (VTRS). The goal? To sharpen focus on innovative pharmaceuticals.
Then came the historic collaboration with BioNTech (BNTX) on a COVID-19 vaccine, marking the first U.S. authorization for an mRNA-based vaccine and bringing in substantial revenue in 2021 and 2022.
Fast forward to 2023, and Pfizer's investment fruits are beginning to ripen. This year alone, it has launched seven new products, from Litfulo for alopecia areata to the RSV vaccine Abrysvo.
Pfizer's non-COVID revenue forecast is promising, projecting up to $84 billion by 2023.
But the plot thickens. Pfizer recently announced a $43 billion acquisition of Seagen (SEGN), an oncology-focused biotech. This isn’t just a new chapter for Pfizer; it’s a whole new book, potentially leading to groundbreaking developments in cancer treatment.
With these in mind, it’s reasonable to believe that Pfizer’s current stock-market blues are but a temporary cloud.
With 83 candidates in development and a robust pipeline, partly fueled by its COVID-19 success, a rebound is on the horizon.
The dividend yield, sitting pretty at 5.5%, along with a decade-long streak of increasing payouts, adds to Pfizer's charm as a long-term investment.
So, investors should see Pfizer’s current price not as a red flag but as a golden ticket – an opportunity to get in on the ground floor before the elevator goes up. Its revenue forecast doesn’t even include its COVID-19 products, which could continue to generate significant revenue, especially during flu season.
Now, back to Eli Lilly. Yes, its revenue has seen double-digit growth recently, and it has been facing the same headwinds as Pfizer. It’s important to note, though, that its valuation makes sense in the context of its current earnings and potential growth. That makes it difficult to truly make a fair comparison at this point.
But, if we're talking opportunity, Pfizer is the one that's looking like a hidden gem. To put it simply, it's all about opportunity cost.
Pfizer, at present, is the underdog with untapped potential. Investing in Pfizer now could mean reaping substantial rewards down the line.
I’m talking about a company with a proven track record, a solid pipeline, and a knack for innovation. And for its current valuation, Pfizer is a deal that's hard to pass up.
For investors willing to play the long game, this could be the moment to seize an opportunity that could pay dividends in the future.
Mad Hedge Biotech and Healthcare Letter
November 28, 2023
Fiat Lux
Featured Trade:
(A MILLIONAIRE MAKER IN THE MAKING)
(ABBV), (ABT)
In the high-stakes game of investment, where the dream is to turn a modest sum into a cool million, savvy players are constantly on the hunt for that one stock with the Midas touch.
Enter the scene: AbbVie (ABBV), a heavyweight in the healthcare arena, boasts a revenue growth of over $20 billion since 2019.
Let's cut through the noise and see if AbbVie is the golden goose for your portfolio, capable of outpacing the market and padding your account with those sought-after seven figures.
Since its spinoff from Abbott Labs (ABT) in 2013, AbbVie has been flexing its muscles in the dividend world.
I’m not talking about just keeping up with the Joneses here; AbbVie's dividend payout has skyrocketed by an impressive 270% through late 2023. This isn't just inheritance; it's multiplication.
Now, let's address the elephant in the room: Humira, AbbVie’s blockbuster drug, which is set to lose its patent shield in 2023.
This anti-inflammatory drug has been a cash cow for AbbVie, spanning a wide range of treatments from rheumatoid arthritis to Crohn's disease. But the party can't last forever. As the patent protection fades, so does a chunk of AbbVie’s revenue stream.
However, don't think AbbVie's been caught off guard. They've been prepping for this moment with Rinvoq and Skyrizi, two new immunology drugs poised to pick up the slack and maybe, just maybe, outshine their predecessor by 2027.
Dig into the latest quarter, and you'll find Rinvoq and Skyrizi raking in the cash with double-digit sales growth, eyeing to breach the $11 billion mark in annual revenue.
AbbVie's strategy? Cover all bases Humira did, and then some.
But that's not all in AbbVie's arsenal. With over 50 programs chugging along in development, the odds are in favor of a few big wins that could give the biopharma top and bottom lines a healthy boost.
Besides the promising Rinvoq and Skyrizi, AbbVie has other aces up its sleeve. Take bipolar disorder treatment Vraylar, with its potential to hit $4 billion in peak annual revenue, or acute migraine drug Ubrelvy, eyeing at least $1 billion.
While transition phases are tricky, especially since AbbVie's shift from Humira to the likes of Skyrizi and Rinvoq is no walk in the park, it's the other elements in play that add to AbbVie's potential.
For instance, here's another factor that makes the company attractive for growth investors: AbbVie's stock is currently undervalued, trading at a mere 12 times its estimated future earnings, a bargain compared to the sector's average. This could be your ticket to get on board for the long haul, eyeing those hefty returns down the road.
Now, what about the financials? After all, a company's muscle is measured by its monetary might. Well, AbbVie's operating profit of $15.8 billion on $55.1 billion in revenue in the past 12 months is nothing to sneeze at.
Now, let's talk free cash flow (FCF) – aka the real indicator of financial fitness. AbbVie's sitting pretty with $24.7 billion in FCF over four quarters. That's not pocket change; it's a war chest, part of which is already earmarked for a generous 4.5% dividend yield.
So, is AbbVie the magic bean that grows into a million-dollar beanstalk? Let’s give it more context.
To morph a $30,000 investment into $1 million, AbbVie's market cap would need to balloon over 30 times its current size, a Herculean feat that translates to a market valuation of over $7.3 trillion.
It's a long shot but not beyond the realms of possibility, especially considering the long-run average return of the S&P 500.
Overall, AbbVie is more than just a contender in the investment arena. With its solid track record, robust pipeline, and undervalued stock, it's a heavyweight with a puncher's chance of turning your investment into a million-dollar dream. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
November 21, 2023
Fiat Lux
Featured Trade:
(A PRESCRIPTION FOR CAUTION)
(VTRS), (PFE), (JNJ), (LLY), (BMY), (TEVA), (ABBV), (CVS)
In the rollercoaster world of pharmaceutical stocks, 2023 has been like riding the Cyclone at Coney Island – thrilling for some, nauseating for others.
Take Pfizer (PFE), for instance. It’s seen its stock take a nosedive by 43.4%. That’s the kind of drop that makes you check if your wallet’s still there. Then there’s Johnson & Johnson (JNJ), trailing behind with a 16.4% decline. Not as dramatic, but still enough to make your stomach lurch.
Meanwhile, there’s Eli Lilly (LLY), playing the hero as it rockets up by an extraordinary 66.8%, thanks to its new weight-loss drugs. At this point, investors are practically throwing ticker-tape parades.
However, even with Eli Lilly’s star performance, the S&P 500 Pharmaceuticals index still shows a downturn of 2.3%.
Now, as we've seen earnings reports trickle in, a trend has started to stick out: positive results aren’t shielding drugmakers from a sell-off. Look at Pfizer and Bristol Myers Squibb (BMY), both hovering near their 52-week lows.
Still, investors are giving the biotechnology and healthcare stocks the side-eye for several reasons.
The new Medicare drug-price negotiation program is like a strict parent setting a curfew – it’s potentially restricting pricing power for certain medications. Plus, as interest rates climb, the allure of high dividend yields is diminishing faster than my motivation to hit the gym.
In this skeptical market, however, there are some optimistic investors who are digging through the bargain bin, hoping to strike gold.
Enter Viatris (VTRS), trading at just 3.3 times earnings and boasting a 5.1% dividend yield. It sounds promising, but only a few brave souls are recommending a buy.
Basically, this situation with Viatris is pretty much like finding a designer shirt at a discount store – sure, it’s cheap, but will it fall apart after two washes? Let’s take a closer look.
Viatris’s backstory is a bit of a soap opera. Born from the merger of Mylan and Pfizer's Upjohn unit, it carries the baggage of Mylan's EpiPen pricing scandal.
Since rebranding, Viatris has been trying to find its footing. Despite a shiny new business plan, which involves selling off assets for a potential $9 billion, investor confidence remains shaky at best.
Notably, its decision to exit the biosimilars market, where heavy hitters like Teva Pharmaceutical Industries (TEVA) and AbbVie (ABBV) play ball, has been seen as a bold move. Considering the potential of that market, it felt like leaving a high-stakes poker game just when the chips were starting to stack up. And with CVS Health (CVS) eyeing this lucrative space, Viatris might find itself wishing it had stayed at the table.
These past months, investors have been capturing this drama through a meme – comparing 'adjusted Ebitda' to 'free cash flow' with images of Jennifer Aniston and Iggy Pop. It’s a cheeky way of saying that Viatris’s financial projections might be wearing rose-colored glasses.
Looking ahead, Viatris is aiming for $2.3 billion in free cash flow next year, buoyed by recent sales. But the big question is: can it turn these assets into growth, or will it continue its high-wire act?
Reviewing its recent moves and their effects on the market, the Viatris saga has turned into a cautionary tale for investors in the pharma world – it’s a reminder that sometimes the threat of a nosedive is as real as the thrill of a skyrocket.
So, what’s the takeaway for those of us with skin in the game?
It seems wise to keep our eyes peeled and not jump on any bandwagons too hastily. Viatris, amidst its strategic transformations and market challenges, is worth watching with a careful eye. While its cash flow looks steady through 2027, thanks to planned asset sales, the long-term picture is as clear as mud.
As we navigate the unpredictable waves of the pharmaceutical market this year, let’s remember – it’s not just about holding on for the ride. It’s about knowing when to get on, when to get off, and maybe, just maybe, when to enjoy the view from the sidelines with some popcorn in hand. I say hold off from buying Viatris shares at the moment.
Mad Hedge Biotech and Healthcare Letter
November 16, 2023
Fiat Lux
Featured Trade:
(A GENE GENIE AGAINST CHOLESTEROL)
(VERV), (CRSP), (BEAM), (NVO), (AMGN), (REGN)
CRISPR technology, long heralded as a game-changer in genomics, stands on the brink of a major leap forward. For years, its potential has simmered, but now, it's poised to ignite, promising scientific breakthroughs and significant investment opportunities.
Several pioneering companies employing CRISPR for editing human genomes are at the forefront of this revolution. Their goal? To treat, and potentially cure, a range of genetic diseases. The approaches are twofold: ex vivo, where genes are edited outside the body, and in vivo, with modifications made directly within the body.
Investing in CRISPR gene-editing stocks, however, is not for the faint-hearted. These stocks are characterized by high risk and volatility, demanding a specific investor profile: one that is aggressive and comfortable with risk. For such investors, a company worth considering is Verve Therapeutics (VERV).
Verve stands out, partly due to its relatively modest size with a market capitalization of $732 million. This contrasts sharply with industry peers like CRISPR Therapeutics (CRSP) and Beam Therapeutics (BEAM), valued at $4.47 billion and over $2 billion, respectively. The reason behind Verve's smaller scale is its developmental stage, which lags behind its counterparts.
Established in 2018, Verve has been hailed as a potential leader in next-generation gene therapy, particularly base editing.
You can think of base editing as using a fine-tipped pen to precisely change just one letter in the DNA sequence, without cutting the DNA strand.
In our DNA, there are four "letters" (bases) – A, T, C, and G. Base editing lets scientists directly convert one letter to another (like changing an 'A' to a 'G') without cutting the DNA. This is like fixing a typo in a sentence by carefully erasing one letter and writing in the correct one.
This method is often more precise than CRISPR and less likely to introduce errors because it doesn't involve cutting the DNA strand.
Verve has capitalized on this technology, in-licensed from base-editing pioneer Beam Therapeutics. The company's flagship candidate, VERVE-101, targets heterozygous familial hypercholesterolemia (HeFH), a rare cholesterol disorder.
Needless to say, the stakes are high. The HeFH market is projected to balloon to nearly $60 billion by 2033, positioning VERVE-101 as a potential one-time functional cure and a standard of care in this lucrative market.
Recently, Verve announced that there was a substantial reduction in patients' high cholesterol levels in the first human test of base editing. Despite this, the stock experienced a sharp 41% drop, possibly a misinterpretation of the positive news in an unfriendly biotech market.
The data presented showed Verve's treatment leading to a 40%-55% decrease in harmful LDL cholesterol levels in patients with genetically high cholesterol levels. Verve's approach targets and inactivates the defective gene responsible for high cholesterol levels.
The treatment, however, faced challenges. Two of the Verve-101 trial participants suffered heart attacks, one of which was fatal.
It's crucial to note that the trial specifically included older patients with advanced heart disease, who were already at a heightened risk for cardiac events. The overall safety measures in the study were satisfactory, though, so the FDA has since authorized an expansion of the Phase 1 trial.
Notably, Eli Lilly (LLY) reviewed the trial's results before deciding to buy an option to partner on the Verve treatment. Lilly's decision on teaming up on the cholesterol treatment is expected next year, following the completion of Phase 1 trials.
Additionally, Verve plans to initiate trials for another base-edited therapy, VERVE-102, in the first half of 2024, potentially offering enhanced patient outcomes.
Verve’s trial results match that seen with established medications such as Novartis' Leqvio (NVS), Amgen's Repatha (AMGN), and Regeneron Pharmaceuticals' Praluent (REGN), which are all approved long-term drug therapies.
However, despite the availability of statins and new treatments, a significant portion of these patients fail to maintain healthy cholesterol levels due to cost, treatment adherence issues, or inconsistent healthcare access.
This is where the biotech company’s solution shines. Verve's ultimate goal is to develop a one-and-done treatment to lower cholesterol in the 50 million adults at risk for cardiovascular disease.
While Verve remains a preclinical-stage biotech, its prospects are promising. Its market cap, though modest compared to the commercial opportunity of a functional cure for HeFH, hints at significant growth potential.
With Lilly's track record in developing drugs for underserved conditions, Verve emerges as a compelling investment for those with a high tolerance for risk and an eye on future biotech breakthroughs. I suggest you put this stock on your watchlist.
Mad Hedge Biotech and Healthcare Letter
November 14, 2023
Fiat Lux
Featured Trade:
(REWRITING BIOPHARMA’S TRADITIONAL SCRIPT)
(AZN), (JNJ), (BMY), (NVO)
In the high-stakes game of pharmaceutical innovation, AstraZeneca (AZN) isn't just playing to win; it's rewriting the rulebook.
A century-old company, born in the quiet labs of 1913 Sweden, AstraZeneca has become a linchpin in today’s cutting-edge medical advances. This isn't merely a story of corporate survival; it's a journey of transformation, emblematic of how old-world tenacity meets new-world innovation.
As we navigate the intricate world of biotechnology and healthcare, where even giants like Johnson & Johnson (JNJ) and Bristol Myers Squibb (BMY) wobble despite outperforming estimates, AstraZeneca emerges as a study in strategic agility.
Picture this: a company whose shares have seen a 5.7% dip this year, yet it stands as a beacon of opportunity for the discerning investor.
Trading at 15.6 times expected earnings over the next 12 months, it beckons with a valuation that whispers promise, floating below its five-year average.
Needless to say, these aren’t only financial figures but signposts pointing towards a rare investment opportunity in a volatile marketplace.
Let’s delve into the heart of AstraZeneca’s financial anatomy.
Twelve medicines in its arsenal are each marching towards the $1 billion revenue mark this 2023. Tagrisso, its flagship drug, contributes a mere 13.1% to its first-half revenue, showcasing a diversified portfolio that's resilient and well-balanced.
However, innovation isn't without its hurdles.
AstraZeneca faced a 16% decline in Soliris revenue due to patient transitions to newer treatments.
Here lies a lesson in the pursuit of progress – commitment to innovation and affordability can sometimes be a double-edged sword, affecting short-term gains but setting the stage for long-term sustainability. Still, AstraZeneca isn’t one to dwell on its losses for long.
Now, let's turn the page to AstraZeneca's audacious new chapter: entering the fiercely competitive arena of weight-loss medication.
Through a licensing agreement with China’s Eccogene, it's poised to develop an oral medication in the same class as Novo Nordisk’s (NVO) Wegovy drug.
But, the key factor that distinguishes AstraZeneca’s efforts is the pricing, which the company aims to be roughly half the current cost today.
To put things in perspective, Wegovy is priced at $1,349.02 per package. This figure unfolds into a weekly cost of $269.80. When extended over the span of a year, the drug becomes a more substantial financial commitment at $16,188.24.
Notably, the success of Wegovy has catalyzed Novo Nordisk's shares to soar by almost 50% this year.
Given the demand and AstraZeneca’s plan to adjust the price point, this is more than a simple business move for AstraZeneca; it's a venture that could redefine the accessibility of treatments for conditions like diabetes and obesity, impacting over 1 billion people globally.
In the crucible of the pandemic, AstraZeneca partnered with Oxford University to forge a path in the global health crisis, delivering over 3.5 billion doses of a COVID-19 vaccine worldwide.
Looking ahead, AstraZeneca’s leaders view obesity as another pandemic, signaling a strategic shift that melds business acumen with a commitment to global health.
Meanwhile, the latest earnings report from AstraZeneca is proof of its resilient business model.
Amid a 5.7% dip in its shares, the company's outlook is bullish, with an expectation of a low-teens percentage increase in total revenue excluding COVID-19 drugs.
This projection, backed by a 6% year-over-year revenue growth to $22.3 billion and an adjusted core EPS increase of 13% to $4.07, isn't only impressive; it's a narrative of sustained growth amidst adversity.
In conclusion, AstraZeneca's journey isn’t confined to financial returns; it's about being part of a narrative that’s shaping the future of healthcare innovation. I recommend you buy the dip.
