Mad Hedge Biotech and Healthcare Letter
September 19, 2023
Fiat Lux
Featured Trade:
(A SHOT AT HOPE)
(MRNA), (IMTX), (MRK), (PFE), (BMY), (GH), (ILMN), (NVS), (RHHBY), (BGNE), (AZN)
In a quaint Boston lab, as the first rays of dawn broke, a team of scientists, led by Moderna (MRNA), embarked on a mission. Their goal? To craft a solution to one of humanity's most persistent adversaries: cancer.
The grim reality remains that cancer is a leading cause of death in the United States. The statistics are daunting, with over 1.9 million new cases anticipated in 2023 and a projected death toll exceeding 600,000. The financial implications mirror this gravity, with costs expected to soar from $156 billion in 2018 to a staggering $246 billion by 2030.
As the world watched with bated breath, Moderna, already a household name for its COVID-19 vaccine, was silently weaving a narrative that could redefine the future of oncology.
Needless to say, the biotechnology sector, a realm of ceaseless innovation, has been abuzz with Moderna's latest venture. Earlier this month, the biotech announced its agreement with the German drug developer Immatics (IMTX) to develop cancer vaccines and therapies. As part of the deal, Moderna will pay $120 million in cash and will also make additional milestone payments.
This collaboration is not just about the financials; it's a beacon of hope for millions.
The partnership is set to merge Moderna's mRNA technology with Immatics’s T-cell receptor platform, focusing on various therapeutic modalities such as bispecifics, cell therapies, and cancer vaccines. Their combined research aims to leverage mRNA technology for in vivo expression of Immatics's half-life extended TCR bispecifics targeting cancer-specific HLA-presented peptides, among other innovative approaches.
With an upfront investment of $120 million, Moderna has made it clear: they're in it to win it. And the stakes? Potentially life-changing cancer vaccines.
However, this isn’t Moderna’s first foray into the realm of cancer treatments.
Building on the momentum of the technology of its highly potent COVID-19 shots, Moderna announced a partnership with Merck (MRK) earlier this year, combining their efforts to come up with treatments that can drastically reduce the spread of skin cancer. By leveraging Merck's Keytruda with its own innovative vaccine, Moderna has showcased the potential of such collaborations in advancing cancer treatment.
After all, the global community oncology services market is not just growing; it's clearly thriving.
From $47.95 billion in 2022 to a projected $53.79 billion in 2023, the numbers speak for themselves. By 2027, this figure is set to skyrocket to $81.33 billion. Such exponential growth underscores the immense potential and critical importance of advancements in oncology.
Yet, as expected, Moderna isn't the only player on the field.
Giants like Novartis (NVS) and Roche (RHHBY) have also thrown their hats in the ring, collaborating with known international cancer organizations to democratize access to cancer medicines. Among the myriad of promising stocks these days, though, Moderna, China’s BeiGene, Ltd. (BGNE), and the UK’s AstraZeneca PLC (AZN) shine the brightest.
Other notable contributors to the fight against cancer include Bristol Myers Squibb (BMY), Guardant Health (GH), Illumina (ILMN), and Pfizer (PFE). Their diverse portfolios and relentless pursuit of innovation are set to shape the future of oncology.
But as the curtains draw on this narrative, the spotlight remains firmly on Moderna. Their success with the COVID-19 vaccine has already etched their name in the annals of medical history. With their sights now set on cancer vaccines, the world waits with eager anticipation.
In the grand tapestry of medical advancements, Moderna's endeavors in the cancer vaccine domain promise to be a golden thread. Their journey, fraught with challenges and uncertainties, is proof of human resilience and ingenuity. As investors, we're not left standing on the sidelines watching history unfold; we're granted an active role in it.
The potential of Moderna's innovations in oncology beckons a promising horizon. For those looking to make a mark in the annals of medical investments, this biotech offers a gateway to the future of oncology. Act now, and be part of this groundbreaking narrative.
Mad Hedge Biotech and Healthcare Letter
September 14, 2023
Fiat Lux
Featured Trade:
(A PIGGYBACK RIDE TO THE FUTURE)
(BMY), (NVS), (PFE), (MDT), (ABT), (TMO), (HCA), (UHS), (DGX), (LH)
As I walked the sterile, fluorescent-lit hallways of a leading biotechnological institute last summer, I overheard snippets of a conversation that immediately piqued my interest: “human-pig kidney,” “game-changer,” and “investor's goldmine.”
We often think of medical advancements in terms of their immediate patient benefits. Yet, in this chance encounter, the talk of the town was how these breakthroughs could cascade into lucrative opportunities in the stock market.
But how close are we to realizing this future?
Imagine a world where organ shortages, a grim reality for over 106,000 hopeful recipients in the U.S., could become a thing of the past. This isn’t a whimsical daydream but a tangible reality we're inching towards.
The mastermind behind this evolution? Kidneys grown inside pig embryos with a human cell composition ranging between 50% to 70%. This meticulous procedure, entailing 1,820 genetically modified pig embryos transplanted into 13 surrogate mothers, brought forth five specimens that met research criteria.
Switching our perspective, from a purely financial lens, the world of biotechnology is ripe with promise. But with the emergence of this organ transplant technology, investors should sit up and pay attention.
Consider giants like Bristol Myers Squibb (BMY), Novartis AG (NVS), and Pfizer Inc. (PFE). Their R&D teams are burning the midnight oil to roll out immunosuppressive drugs, pivotal for post-transplant procedures. Influenced by such groundbreaking endeavors, their stock trajectory could be a sight to behold in 2023.
Transitioning to medical equipment, Medtronic plc (MDT), Abbott Laboratories (ABT), and Thermo Fisher Scientific Inc. (TMO) aren't just names in the medical devices sphere. They represent the zenith of innovation, manufacturing state-of-the-art equipment integral to organ transplant procedures. If this biotechnological marvel scales, they stand at the precipice of unprecedented growth.
Moving onto healthcare, HCA Healthcare, Inc. (HCA) and Universal Health Services, Inc. (UHS) are the custodians of transplant centers. Their potential upswing is directly proportional to the success of human-pig kidney transplantations. And not to be overlooked, Quest Diagnostics Incorporated (DGX) and LabCorp (LH) are at the heart of organ compatibility diagnostics. As this transplant technology forges ahead, they are poised for a meteoric rise as well.
However, a word of caution is due.
While the financial forecasts appear rosy, any discerning investor is well aware of the need to balance enthusiasm with caution. The stock market's volatile nature, coupled with regulatory shifts and unpredictable research outcomes, can be game-changers. It is extremely crucial to keep your finger on the pulse of the sector and maybe even conduct more in-depth research on the potential of each company before making investment decisions.
Also, beyond finance, it would be remiss not to address the elephant in the room. The melding of human cells into pig embryos has raised eyebrows and ethical concerns. With human cells found in the embryos' brains and spinal cords, it prompts uneasy questions about the potential integration into the pigs' cognitive or reproductive systems. How the scientific community and regulators address these concerns will undoubtedly influence both the pace and direction of research, as well as investor sentiment.
Looking back, my chance encounter in that research institute was an omen of the times to come. On the brink of a scientific revolution, we are witnesses to a watershed moment in healthcare. But for the astute observer, it’s not just about saving lives. It's about understanding how such advancements can recalibrate the entire financial landscape.
To encapsulate the mood, let me leave you with this quote from the infamous Marie Curie: "Nothing in life is to be feared; it is only to be understood. Now is the time to understand more so that we may fear less.”
Mad Hedge Biotech and Healthcare Letter
September 12, 2023
Fiat Lux
Featured Trade:
(A STAR PERFORMER IN THE BIOTECH UNIVERSE)
(GILD)
In the ever-evolving world of biotechnology, only a few names consistently stand out.
For years, Gilead Sciences (GILD) has stood out as more than just another player; it has consistently taken center stage as a star performer. This distinction is not based on superficial glitz but on Gilead's profound impact on the healthcare industry, particularly within the competitive HIV drug marketplace.
Biktarvy, Descovy for PrEP, and Sunlenca are more than mere pharmaceutical labels. Each represents a breakthrough, a monumental feat in a domain where every scientific discovery is not just valuable but potentially transformative. These aren't just drugs; they're the culmination of relentless research, dedication, and innovation.
Yet, even stars face challenges.
The recent pandemic cast an unexpected shadow over Gilead's illustrious record. The fallout? A notable drop in HIV diagnoses and prescriptions. While many companies might buckle under such pressure, Gilead's history tells a story of resilience and adaptability.
True to form, Gilead rose from the pandemic's challenges, focusing on an area of vast potential: oncology. Though the oncology division currently represents only a fraction of its total revenue, the rate at which it’s growing is astounding. In fact, its current pace outpaces most other sectors in Gilead's portfolio.
But let's step back for a moment and consider the broader picture.
Gilead is more than its product lineup. It's an embodiment of innovation. With a portfolio boasting over 60 active research programs, Gilead is a veritable treasure trove for investors hungry for dividends.
The numbers speak for themselves: a 31.6% dividend growth over the last five years, punctuated by an impressive 3.84% yield. For investors, this isn’t just a statistic; it's a promise of consistent returns.
The story of "Veklury" (remdesivir) is particularly noteworthy, providing a glimpse into Gilead’s financial agility and foresight. Introduced as a beacon of hope in the fight against COVID-19, Veklury saw sales soar to unprecedented heights.
When market murmurs hinted at a potential sales slump for the drug, Gilead pivoted, securing FDA approval to expand Veklury's application to a broader range of liver conditions. Consider the magnitude of this move: over 100 million Americans are grappling with liver diseases.
With this demographic being particularly susceptible to COVID-19, the market potential for Veklury is undeniable. However, the narrative of global health is as fluid as it is unpredictable. While COVID-19 might not dominate every headline as it once did, its presence is still felt worldwide. A recent surge in hospitalizations in the U.S. is a stark reminder of the virus's lingering threat.
Now, if we dive deeper into the financial intricacies of Gilead over the past five years, a pattern of resilience emerges.
The company boasts a 22.9% growth in revenue, accompanied by a 12.8% increase in free cash flow. And while Veklury’s contributions are significant, removing its influence paints a broader picture of a firm that’s consistently navigated both favorable winds and stormy seas.
Their adaptability shines through in the numbers. Gilead's oncology segment saw a remarkable 38% YoY growth in Q2 2023, generating $728 million in revenue. If these figures are any indicator of the future, the oncology division may soon be a powerhouse in Gilead’s financial framework, potentially contributing up to $10 billion.
Pivotal to Gilead’s revenue story are Biktarvy and Descovy. Their H1 2023 sales figures stand at $5.65 billion and $965 million, respectively. Predicting stratospheric growth rates might be ambitious, but data suggests that steady, upward progress isn’t just probable—it's expected.
The stock market is known for its whims, but seasoned analysts believe Gilead might currently be undervalued. The biotech industry is a roller-coaster, full of unexpected turns, but with Gilead at the helm, the ride promises to be exhilarating.
Mad Hedge Biotech and Healthcare Letter
September 7, 2023
Fiat Lux
Featured Trade:
(SUGAR, SPICE, AND EVERYTHING NICE)
(NVO), (LLY), (MRK), (JNJ), (AZN), (LVMH)
If the weight-loss drug market is a tide, Novo Nordisk (NVO) stands at its crest. As investors, when we seek promising ventures, we look for history, market presence, and future potential–and this Danish pharmaceutical powerhouse seems to tick all these boxes.
Dive into the annals of Novo Nordisk's story, and you'll find a century-old legacy predominantly immersed in diabetes treatment. This enterprise, with Eli Lilly (LLY) and Sanofi (SNY), once commanded an impressive 90% insulin market share.
But things changed when Sanofi made its exit in 2019, setting the stage for Novo Nordisk's next significant act. Though others such as Merck (MRK), Johnson & Johnson (JNJ), and AstraZeneca (AZN) are present in the diabetes space, they operate in unique niches, focusing primarily on small molecules.
So, what is Novo Nordisk's contemporary claim to fame? It’s none other than the weight-loss drug, Wegovy.
As of its recent U.K. debut, Wegovy is now associated with the National Health Service. This was a strategic move that saw the company's value soar, comfortably eclipsing the luxury behemoth Louis Vuitton (LVMH).
The numbers speak for themselves: Novo Nordisk's stock surged 40% this year, pushing its market cap to an enviable $428 billion.
If they were based stateside, this positions them as the 14th most valuable entity in the S&P 500.
What's truly jaw-dropping is the scale of Novo Nordisk's success. It achieved European market leadership with Wegovy's debut in just five significant markets: Denmark, Norway, Germany, the U.S., and the U.K. The demand seems to be exploding every time the drug lands in a new market.
Meanwhile, their main competitor, Eli Lilly, isn't actually that far behind. Bolstered by their Mounjaro drug, they've seen a stock uptick of 52% this year.
Novo Nordisk's current revenue is approximately $26 billion, predominantly from its diabetes drugs lineup. However, by 2030, forecasts predict the obesity market could range from $30 billion to even $100 billion.
And only a few major players are in line to capitalize on this. Notably, Novo Nordisk and Eli Lilly are poised to dominate this space, with a combined projected market share of 82%.
Furthermore, whispers in the pharmaceutical sector suggest that Novo's golden molecule, semaglutide, has broader applications. Beyond diabetes and obesity, it might target three substantial markets in the coming decade.
Firstly, the cardiovascular space, valued at $162 billion in 2022, presents significant potential. Early indications reveal that semaglutide might offer protective benefits against cardiovascular threats. If Novo gains the necessary approvals, its market share could rise substantially.
Secondly, non-alcoholic steatohepatitis (NASH) affects nearly 30 million Americans. Market evaluations for this condition vary, with some projections reaching $62 billion by 2031.
Novo Nordisk is already deep into phase 3 clinical trials, and if semaglutide proves effective here, it would be another feather in the company's cap.
Lastly, the treatment of addiction disorders could be an untapped market for semaglutide. Preliminary research shows promise, but real-world human trials are still in their infancy. If validated, this could open another revenue stream for Novo Nordisk in the years to come.
Overall, Novo Nordisk is more than just a pharmaceutical company; it's a saga of consistent growth, innovation, and potential.
If you had invested in its shares between 2017 and 2019, today's valuation would offer substantial returns.
Admittedly, the current valuation is on the higher side. Still, context matters.
In light of the above, my advice is two-fold. For those eyeing short-term gains, a 'Hold' might be the best strategy for Novo Nordisk. But if you're in it for the long haul, with a decade or more in view, this is a definitive 'Buy.'
Mad Hedge Biotech and Healthcare Letter
August 31, 2023
Fiat Lux
Featured Trade:
(A ‘FRESH FACE’ IN THE DIVIDEND ARISTOCRATS INDEX)
(KVUE), (JNJ)
The S&P 500 Dividend Aristocrats Index has recently added a significant name to its ranks: Kenvue (KVUE).
Though referring to Kenvue as a 'newcomer' might seem paradoxical, given its impressive roster of iconic brands such as Tylenol and Band-Aid. This company has a remarkable 135-year history to its credit.
Brought to the market through a strategic spinout by Johnson & Johnson (JNJ), Kenvue debuted on the NYSE this past May, proudly showcasing a market capitalization nearing $79 billion. This masterstroke funneled a substantial $13.2 billion into JNJ's reservoir, an outcome of both debt offerings and the subsequent IPO.
The move emphasizes the strategic rationale behind the future plans of both companies: prioritizing agility, enhancing flexibility, and ensuring concentrated success.
It's then no coincidence that Kenvue soon found itself part of the portfolio of noteworthy ETFs such as ProShares S&P 500 Dividend Aristocrats (NOBL) and FT Cboe Vest S&P 500 Dividend Aristocrats (KNG). This recognition aligns with JNJ's established reputation as a dividend aristocrat.
A critical insight from S&P Global (SPGI), the guardian of this index, indicates an intriguing approach for the next two years: dividends from both parent JNJ and offspring Kenvue will be combined to determine their collective eligibility for this esteemed group. Post this period, while the specifics of S&P’s plan remain under wraps, indicators point towards Kenvue maintaining its prestigious position, especially if its revenue trajectory remains positive.
Meanwhile, Kenvue announced a promising 20-cent per share dividend as its introduction. Meanwhile, with JNJ's anticipated $1.11 quarterly payout and a bullish forecast for its 2024 free cash flow pegged at an impressive $26 billion, the emphasis on consistent, growing dividends is clear. JNJ's recent dividend of $1.19 per share, reflecting its progressive trend, further cements this.
Moreover, Kenvue's current dividend yield stands at 3.5%, impressively outperforming the average aristocrat yield of 2.5%.
In the valuation spectrum, Kenvue's shares are positioned at 17.9 times the projected 2024 earnings. While some might express skepticism over its valuation due to its newcomer status, Kenvue's robust financials and upward cash flow trajectory suggest a poised path for significant growth in the future.
Looking into its trajectory, it’s safe to say that the stock is reasonably priced. However, a thorough analysis mandates acknowledging potential headwinds.
Consider the challenges posed by an exceptionally strong 2022 cold and flu season. Moreover, we can't ignore the looming legal complications tied to talcum powder disputes.
A sigh of relief, though, is that the brunt of these talc-related litigations rests with JNJ, evident from its near-$9 billion settlement in April. Thus, concerns over Kenvue's liquidity and cash flow might be somewhat overblown.
JNJ's recent financial projections indicate an optimistic 12.5% growth in its 2023 adjusted earnings per share, year-on-year. They've also strategically classified their consumer health segment as "discontinued operations," anticipating a robust $20 billion boost in Q3, courtesy of the spinoff.
Evidently, this stock isn't just turning heads because of its dividend - though that's certainly a feather in its cap.
With a stable and progressively growing income stream, Kenvue stands resilient against economic headwinds and the erratic dance of market volatility. In the vast sea of the consumer healthcare industry, Kenvue is sailing strong. The currents are in its favor: an aging global population and a swelling demand for self-care products are the tailwinds pushing it forward.
To sum it up, Kenvue is presenting an intriguing cocktail of value, consistent income, and potential growth. For those with an eye on both income and value, Kenvue should certainly be on the radar.
