Mad Hedge Biotech & Healthcare Letter
December 1, 2020
Fiat Lux
FEATURED TRADE:
(BET LIKE WARREN BUFFETT)
(MRK), (BRK.A), (AAPL), (JPM), (GILD), (PFE), (ABBV)
Warren Buffett’s moves via Berkshire Hathaway (BRK.A) showed some telling signs this third quarter.
For one, the Oracle of Omaha has surprisingly trimmed his holdings in Apple (AAPL) and even JPMorgan Chase (JPM).
Another telltale sign that change is coming can be seen in his positions in biopharmaceutical titans.
Let’s take a closer look at one of the three biggest biopharma investments of Berkshire to date: Merck.
While the New Jersey-based pharmaceutical titan has not been as widely reported as its counterparts in the COVID-19 race, Merck has actually been working on a promising coronavirus program.
In fact, the company is part of the first five COVID-19 programs included in Donald Trump’s Operation Warp Speed.
Just last week, the company added another promising COVID-19 treatment to its pipeline via the $425 million cash acquisition of Oncolmmune—a move that would give Merck access to the privately-owned company’s COVID-19 treatment, called CD24Fc.
If successful, CD24Fc will be a powerful treatment for mild to severe cases of COVID-19.
To date, only Gilead Sciences’ (GILD) Veklury has received FDA approval and even that treatment failed to address all the health concerns.
In comparison, CD24Fc is expected to undergo a smooth sailing journey from clinical trials to its market launch in 2021.
Meanwhile, Merck may have another ace in the hole with its COVID-19 program.
While the company is already months behind the frontrunners, Merck has a competitive advantage over the COVID-19 vaccine candidates submitted by Pfizer (PFE), Moderna (MRNA), and even AstraZeneca (AZN).
Its experimental COVID-19 vaccine does not require any freezing.
This means that unlike the candidates of Pfizer and Moderna, Merck’s vaccine does not need ultra-special handling and transportation.
On top of that significant advantage, Merck has been working with the nonprofit organization International AIDS Vaccine Initiative to develop a COVID-19 vaccine that only requires a single dose.
In contrast, the leading candidates today require two shots of their vaccines to become effective.
Apart from betting big on its COVID-19 program, Merck is also upping the stakes in its oncology pipeline.
Its recent move is the $2.75 billion acquisition of VelosBio—a partnership that adds another potent arrow to Merck’s already powerful quiver of cancer drugs.
This deal with VelosBio provides Merck with access to cancer treatments under development. Most of these home in on the deadly cancer cells but manage to spare the patients from several horrible side effects.
Prior to this, Merck shelled out $1 billion to gain an equity stake in Seagen (SGEN). The deal also grants Merck access to an extensive antibody drugs pipeline.
Aside from its oncology-related acquisitions—all of which have been home runs for its investors—Merck’s existing cancer pipeline has been consistent moneymakers.
Apart from lung cancer treatment Keytruda, which generated a whopping $11.9 billion in sales in 2019 alone, Merck has a virtually unbeatable arsenal against cancer.
In fact, its thyroid cancer drug Lenvima, which was initially approved for thyroid cancer in 2015, already expanded its indications to cover renal cell carcinoma and potentially even melanoma, endometrial cancer, NSCLC, and bladder cancer.
This could bring Keytruda-like success for Merck in the future.
Aside from Merck, Warren Buffett also invested in biopharmaceutical titans Pfizer and AbbVie.
As of September, Berkshire Hathaway holds 3.7 million Pfizer shares, 21.3 million AbbVie shares, and 22.4 million Merck shares.
These moves are especially noteworthy since the company has not owned any of these biopharma giants at the end of June.
Looking at the profile of these companies, there is no obvious connection or theme.
As discussed, Merck is heavily investing in its oncology pipeline.
AbbVie has been busy diversifying and building a pipeline independent from its megablockbuster Humira.
In fact, this biopharmaceutical giant has delved into dermatology with its massive acquisition of Allergan, aka the Botox-maker.
Meanwhile, Pfizer has been in the news thanks to its COVID-19 vaccine.
Aside from its coronavirus program, Pfizer has been focused on completing the merger between its Upjohn unit and generic drugmaker Mylan (MYL) to form a new company, called Viatris.
Analyzing all three closely though, one thing becomes clear: They are trading off their all-time highs and have been doing it for the entire 2020.
Do you know what that means?
Warren Buffett has been bargain shopping.
Mad Hedge Biotech & Healthcare Letter
November 24, 2020
Fiat Lux
FEATURED TRADE:
(WATCH OUT FOR BIONTECH’S HOCKEY STICK GROWTH)
(BNTX), (PFE), (AZN), (MRNA), (JNJ), (REGN), (DNA)
BioNTech (BNTX) is the perfect example of an old saying, “Timing is everything.”
Coming from its humble IPO in 2019, this biotechnology company now sports a $25 billion market capitalization—a number that could still go up once its COVID-19 vaccine candidate with Pfizer (PFE) receives US and EU nods.
What we know so far is that their COVID-19 vaccine candidate could secure an emergency approval as early as December and start delivery before Christmas.
Although it’s still not available in the market, the effect of its COVID-19 vaccine candidate, called BNT162, has made itself known in BioNTech’s earnings report.
The company reported roughly $80 million in revenue in the third quarter of 2020 alone—an impressive 135% jump from its previous performance in the same period last year.
To date, BioNTech and Pfizer are estimated to supply roughly 1.3 billion doses by the end of 2021.
Additional orders could still come in though, which is why the two companies have been busy scaling their manufacturing capacities.
If all goes according to plan, then the expected returns from their COVID-19 vaccine sales could come sooner than initially thought.
Recent reports reveal that Moderna’s (MRNA) COVID-19 vaccine candidate also showed over 90% efficacy. Even AstraZeneca’s (AZN) candidate with Oxford University disclosed promising results.
However, BioNTech and Pfizer’s candidate has a couple of competitive advantages.
The first would be its 95% efficacy, which gives the two companies the commanding position and effectively relegates the rest as second grade options.
Their candidate showed no safety concerns—a major issue for AstraZeneca and Johnson & Johnson’s (JNJ) candidates.
Third, the partners have been able to reassure their capability to manufacture at scale—an issue that would pose problems for other developers like Moderna.
In fact, BioNTech acquired a vaccine manufacturing plan in Germany just last September to meet the demand for 250 million doses by mid-2021 and another 80 million doses monthly thereafter.
In terms of manufacturing capacities, the two potential competitors of BioNTech and Pfizer here are AstraZeneca and JNJ. Both have already paused their trials and are now falling behind in terms of the rigid schedule.
As for the other COVID-19 vaccine leader, Moderna has yet to prove that it can manufacture at scale.
BioNTech and Pfizer even shut down the red herring about the cooling and storage of their COVID-19 vaccine candidate. The two companies released their plans for distribution and detailed a strategy that’s not only feasible but also cheap.
Since the vaccine requires extremely low temperatures to maintain its efficacy, Pfizer and BioNTech will ship them from centralized warehouses via a thermal shipper.
This will ensure that the temperature is maintained for 10 days without the need to re-ice and up to 15 days with re-icing. A GPS will be used to monitor and track the integrity of the vaccine in real-time.
The impact of its sales from the COVID-19 vaccine would dwarf practically everything else in BioNTech’s financial statements.
However, this does not mean the biotechnology company will revert to its 2019 status once the peak of its COVID-19 vaccinations is over.
Instead, BioNTech will be in possession of an extremely valuable IP of an effective and working mRNA vaccine platform.
This will allow the company to apply the technology to other infectious diseases.
If it continues with its partnership with Pfizer, it can even develop vaccines for farm animals and domestic pets and market those under the bigger company’s animal healthcare spinoff, Zoetis (ZTS).
Here’s a bit of background on BioNTech.
Founded in 2008, BioNTech was created to develop hyper-personalized medicine and treatments.
At the center of its mission, the company’s basic idea is that the tumor found in each cancer patient is one of a kind.
To help find a cure or treatment, the company analyzes the tumor for its genetic signature.
Once they identify this unique element, they would develop gene-based therapies to limit the spread or even put an end to that particular occurrence of cancer.
If you think this is a lofty goal for a small biotechnology company, then you’d be surprised to find out that BioNTech proved their theories in 2017.
At the time, all 13 patients who underwent the analysis and received injections for genetically personalized therapies for their advanced-stage cancers.
Essentially, the cancer patients developed immunity from their own cancer.
Apart from COVID-19 and cancer treatments, BioNTech is also working on treatments for tuberculosis, HIV, and several rare diseases.
Outside its partnership with Pfizer, it has been partnering with Regeneron (REGN) and Genentech (DNA).
Biotechnology stocks have the tendency to move when the companies release updates about their treatments under development.
For momentum investors, it’s crucial to be prepared for whatever happens in the aftermath.
Looking at the developments and other updates, BioNTech’s COVID-19 vaccine work could send this stock to the moon.
After all, its partnership with Pfizer resulted in what could be the most effective and efficient candidate to battle the pandemic.
This means that the demand for the vaccine would exponentially exceed the supply in the near future, with the majority of what can be manufactured getting pre-sold or call option reserved.
To date, BioNTech stock is trading at roughly $104 per share. However, I estimate that it could reach a target price of $600 by the first quarter of 2021.
Mad Hedge Biotech & Healthcare Letter
November 19, 2020
Fiat Lux
FEATURED TRADE:
(A STOCK FOR ALL AGES)
(JNJ), (PFE), (BNTX), (MRNA), (BRK-A) (BRK-B)
November has been an action-packed month so far.
The US election has concluded, and on top of the political drama, Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA) have released COVID-19 vaccine trial data that look extremely promising.
Since Pfizer and BioNTech (BNTX) announced that their vaccine BNT162b2 offers roughly 95% efficacy, the development resulted in a market-wide rally, particularly in value stocks, with investors starting to anticipate the economy to show signs of meaningful recovery and bounce back to pre-pandemic levels.
Hence, it makes sense to position your portfolio in a manner that reflects these macro developments.
However, the coming months could still push the markets to be even more volatile.
That’s why my advice is to hold investments that have been historically proven to be dependable even in the most uncertain times.
One of the most reliable stocks in today’s tumultuous financial climate is Johnson & Johnson (JNJ).
Aside from Pfizer and Moderna, JNJ has also joined the ranks of COVID-19 vaccine developers brandishing their success.
In the latest update, the company announced that JNJ-78436735 could be ready for FDA approval by February 2021.
Although JNJ is months behind Pfizer and Moderna, JNJ-78436735 holds a huge advantage: it’s a one-jab vaccine.
In comparison, both Moderna and Pfizer require booster shots for their COVID-19 vaccine candidates. The second shots for these are expected to be given roughly a month after the first shot.
Despite not being the first in the market, JNJ still stands to reap the benefits from the recent developments, as the promising COVID-19 vaccine report could boost the company’s sales for its medical devices and consumer health products—a projection that is already coming into shape as JNJ stock gained over 7% since Pfizer’s announcement.
For the third quarter of 2020, JNJ raked in $21.1 billion in global sales, recording a 1.7% increase from the same period in 2019.
While this growth rate is not as exciting as previous reports, it signified a substantial improvement from the year-over-year sales decline in the second quarter, which was at 10.8%.
Sales for its pharmaceutical chapters rose by 4.7%, while its consumer health sector climbed by 3.1%.
More impressively, JNJ raised its 2020 sales guidance by $1 billion.
The company’s revenue guidance is now up to be somewhere in the range of $81.2 billion to $82 billion from its initial forecast of $79.9 billion to $81.4 billion.
Thanks to the diversity in its product portfolio, broad geographic reach, and of course, brand power, JNJ has been able to thrive despite the pandemic.
After all, JNJ has been in business since 1886, which indicates the company’s resilience and capacity to survive crises.
Historically, this company has been known as a safe stock primarily due to its growing dividends.
In fact, Warren Buffett’s Berkshire Hathaway (BRK-A) (BRK-B) has held on to JNJ stock for the past 14 years.
For context, JNJ reported $74.3 billion in sales back in 2014. By 2019, this Dividend Aristocrat’s top line has jumped to reach $82.1 billion. Even more impressively, JNJ has recorded a profit margin of at least 18%.
As a longstanding member of the S&P Dividend Kings, which lists companies that managed to boost their dividends for at least 50 consecutive years, JNJ offers an impressive dividend yield of 2.8%—significantly higher than the S&P 500’s average at 1.8%—translating to roughly $4.04 per share.
JNJ is a good long-term stock to hold.
Although it is admittedly not cheap, its valuation is still reasonable, especially if you think about the dearth of high-quality and safe assets available in today’s extremely volatile market.
So whether you’re a budding investor or a veteran of the market, I advise that you buy JNJ stock on the next dip at its share price to be one of the dividend investors enjoying this company’s revenue.
Mad Hedge Biotech & Healthcare Letter
November 17, 2020
Fiat Lux
FEATURED TRADE:
(WHY TELADOC IS A WIN-WIN-WIN STOCK)
(TDOC), (GOOG), (GOOGL), (AAPL)
Digital health was a struggling sector before COVID-19, but the pandemic changed the game, driving customers and even providers to embrace digital health solutions.
As expected, frontrunner Teladoc Health (TDOC) surfaced as a major beneficiary of this booming industry, reporting a record high in the number of virtual care visits during the ongoing health and financial crisis.
While there are concerns that these rewards could be fleeting, COVID-19 appears to have contributed longer-lasting changes, particularly in consumer behavior.
More and more users are opting for digital health solutions, with total virtual care visits up by 206% to hit 2.8 million in the third quarter of 2020 alone.
A noticeable change in Teladoc’s portfolio is the diversity of diseases they handle.
Previously accounting for only a third of its total care visits in 2019, non-infectious conditions like hypertension, depression, anxiety, and back pain now account for half.
As for the virtual care visits for dermatology and behavioral health in their business-to-business transactions, the company enjoyed a 500% boost year over year.
For context, the total number of virtual visits to Teladoc in 2019 was only 4.1 million.
Since the year 2020 started, though, the company has already recorded almost twice that number at 7.6 million—and the fourth quarter is projected to become its best-performing period yet.
The shift was also evident in the third-quarter earnings report of Teladoc, which showed that the company’s top line jumped by 109% year over year to reach $289 million.
This marks the company’s highest quarterly top-line growth rate.
In fact, this growth rate exceeded even the company's expectations.
When Teladoc released its second-quarter earnings, its Q3 projections were only somewhere between $275 million and $285 million.
As the number of COVID-19 cases continues to climb, it is highly possible that the company will once again deliver much better results than the forecasted numbers in the fourth quarter.
In terms of its fourth-quarter projections, Teladoc is expected to reach roughly 3 million virtual visits in the last months of 2020.
The conservative estimate for Teladoc’s total virtual visits this year is at 10 million.
So far, Teladoc shares are up 133% year-to-date, with the company expected to cross the $1 billion revenue mark in 2020—an almost 100% increase from its 2019 projection.
In terms of future growth, Teladoc recently completed an $18.5 billion mega-merger with Livongo Health (LVGO), making it a one-stop-shop for every virtual care need.
As a combined unit, the Teladoc-Livongo partnership is hailed as the next-generation virtual care provider. Simply put, this newly formed company is the future of the healthcare industry in America.
This means that while Teladoc has more than doubled this 2020, the stock is still expected to continue soaring thanks to its recent merger with Livongo.
Here’s a brief background of Livongo.
This company gathers data and sends reminders to its users suffering from chronic diseases to encourage them to implement lifestyle and even behavioral changes that would improve their health.
Prior to its cash-and-stock merger with Teladoc, Livongo was doubling its membership, particularly among diabetes patients.
This deal is anticipated to elevate virtual care and push Teladoc front and center of the $121 billion digital health market in the United States alone—a number that is projected to grow at a rate of 16.9% until 2025.
Needless to say, Teladoc has set itself up to control a huge part of that total value.
So far, the most notable competitors of Teladoc in this space are technology giants like Google (GOOG) via its parent company Alphabet (GOOGL) and Apple (AAPL).
With all the opportunities and even with the challenges of new competitors in the market, Teladoc remains the leader in this explosive digital health industry, making it extremely attractive for investors to ignore.
Looking at its risk-reward proposition, the company is clearly a solid growth pick.
After all, telemedicine offers a long-term win-win-win situation for everyone in the healthcare industry.
It is a win for doctors because they can see more patients.
It’s a win for patients because they get to see doctors with ease and convenience.
Finally, it is a win for insurance agencies because they generally pay lower bills for virtual visits.
Mad Hedge Biotech & Healthcare Letter
November 12, 2020
Fiat Lux
FEATURED TRADE:
(GILEAD IS THE CHOSEN ONE)
(GILD), (REGN), (LLY), (PFE), (AZN), (MRNA), (BNTX), (IMMU)
The fight against the coronavirus reached a major milestone when the US Food and Drug Administration (FDA) approved the first ever treatment for this deadly disease.
Unsurprisingly, the chosen leader for COVID-19 treatment to cross the full approval finish line is the same company that has been supplying the medication since the pandemic started: Gilead Sciences (GILD).
While Gilead’s Remdesivir has been widely used since January to treat severe cases of COVID-19, this FDA approval makes it official—a welcome piece of good news that pushed the stock up by 4% upon announcement.
Now, Gilead can broadly market Remdesivir under its official drug name, Veklury, to doctors and patients.
That means that other than the elderly and severe cases, Veklury can be marketed to COVID-19 patients as young as 12 years old.
Since Veklury gained approval, the drug has generated roughly $873 million in revenues.
Despite its limited market, this COVID-19 treatment actually ranked as Gilead’s second highest-selling drug in the third quarter of 2020—only behind the blockbuster HIV medication Biktarvy, which rose by 8% to contribute $4.55 billion.
As expected, Veklury’s popularity boosted Gilead’s 2020 performance.
Gilead’s total sales for the third quarter alone reached $6.5 billion, with $873 million coming from its brand new just-approved COVID-19 treatment Veklury.
For context, the company’s sales for the third quarter was only projected to grow by 2%. Veklury sales boosted this number to generate an 18% jump in revenue instead.
Clearly, Veklury injects a ray of hope in the declining sales for some of previous Gilead’s money makers like its hepatitis lineup, which saw a $210 million slide in revenue this quarter.
With this approval, Gilead is expected to pocket billions in Veklury sales as the company announced its plan to ramp up production to meet the global demand.
After all, governments are expected to stockpile the drug to be ready for future outbreaks.
In terms of its sustainability, Gilead is estimated to enjoy Veklury’s lucrative profits for a year or two until a COVID-19 vaccine gets fully approved or when herd immunity eventually kicks in.
Apart from Gilead, there are also other companies looking to cash in on this demand.
One of them is Regeneron Pharmaceuticals (REGN), which gained popularity after being used to fast track the COVID-19 recovery of Donald Trump during the campaign period. Another is Eli Lilly, which also applied for an emergency authorization for its antibody cocktail.
Most importantly, Veklury sets a promising precedent for other COVID-19 programs, particularly the vaccines.
If the ongoing trials yield positive results, then the vaccines of Pfizer (PFE), AstraZeneca (AZN), Moderna (MRNA), and BioNTech (BNTX) could quickly receive emergency authorizations.
Meanwhile, Veklury is not the only pandemic-defying achievement of Gilead this year.
Even before the pandemic broke, Gilead’s strategy has consistently centered on acquisitions.
This plan was kickstarted with its $12 billion acquisition of Kite Pharma in 2017.
This investment has been paying off as the company continues growth in Asia, specifically in China.
By 2022, Gilead is projected to generate over $1 billion in sales from its Hepatitis B lineup in this region alone.
While 2020 has not been the best year for mergers and even acquisitions particularly in the biopharmaceutical sector, Gilead seems to not be letting the pandemic ruin its plans.
In March, Gilead completed its $4.9 billion acquisition of Forty-Seven in an effort to own the rights to a blockbuster cancer drug called Magrolimab. This product is anticipated to bring more than $3 billion in annual sales.
Recently, the company announced yet another massive $21 billion deal to acquire Immunomedics (IMMU)—a value that is nearly 30% of Gilead’s $70.4 billion market capitalization.
Gilead’s deal with Immunomedics adds another potential blockbuster drug in its oncology lineup: Trodelvy.
Once approved, Trodelvy is expected to rake in $4 billion annually—a profit that would eventually pay off the $21 billion that Gilead shelled out to acquire Immunomedics.
Looking at profits from its recent acquisitions, Gilead can rake in roughly $2 billion in quarterly revenue just for Trodelvy and Magrolimab alone.
Overall, Gilead’s product lineup has clearly shown significant growth.
Its core portfolio has been consistently strong, and the full FDA approval of Remdesivir offered the company a short-term boost.
In terms of long-term growth, Gilead maintains the capacity to provide significant cash flow for its shareholders.
