Mad Hedge Biotech & Healthcare Letter
September 17, 2020
Fiat Lux
Featured Trade:
(SHOULD WE CROWN PFIZER AS COVID-19 VACCINE KING NOW?)
(PFE), (BNTX), (MRNA), (AZN)
Mad Hedge Biotech & Healthcare Letter
September 17, 2020
Fiat Lux
Featured Trade:
(SHOULD WE CROWN PFIZER AS COVID-19 VACCINE KING NOW?)
(PFE), (BNTX), (MRNA), (AZN)
Pfizer (PFE) has never been coy about playing up the potential of its COVID-19 vaccine candidate, BNT162b2, which it co-developed with German biotechnology company BioNTech (BNTX).
Now, it looks like the New York-based biopharmaceutical giant is putting its money where its mouth is.
Pfizer recently announced that it would be able to send BNT162b2 for FDA review as early as October.
More impressively, the company claims that if its COVID-19 vaccine gets approved, then it can start distribution in the US by the end of 2020.
In fact, Pfizer has already started manufacturing hundreds of thousands of doses of the vaccine.
Only a handful, if any, of the companies working on a COVID-19 vaccine are as confident as Pfizer. So far, only Moderna (MRNA) and AstraZeneca (AZN) can claim to be close rivals of the company.
Boosting the claims of Pfizer that it can produce results by October is the company’s decision to expand its Phase 3 vaccine trial. From the originally approved 30,000 participants, Pfizer seeks to add more to reach 44,000.
The expanded patient pool will include participants as young as 16 years old. Those with HIV and Hepatitis B and C will also be added to the list. Pfizer will also recruit more African Americans and Latinos. To date, the list includes 60% white and 40% people of color. Meanwhile, older participants comprise 44% of the group.
Like its fellow vaccine developers, Pfizer has also secured deals with different countries.
In July, the company secured a $1.95 billion contract with the US government. This deal will cover 100 million doses of BNT162b2, which is priced at $19.50 per dose. The contract also offers the government the option to add 500 million doses to its initial order.
BNT162b2 requires two doses, the initial shot and the booster shot. This puts the actual price for the two-dose regimen at $39.
In the same month, Pfizer also reached an agreement with the UK government to supply 30 million vaccine doses. Even Japan’s Ministry of Health reached out to the company and forged an agreement for 120 million doses.
Pfizer and BioNTech estimate that it will need to produce 100 million doses by the end of 2020 and 1.3 billion doses to cover the demand worldwide.
Pfizer expects the sales for BNT162b2 to peak this year and throughout 2021. It might even reach the early months of 2020.
After this period, the vaccine will still be able to provide a steady revenue stream thanks to regular and repeat vaccinations over the next years.
So far, Pfizer accounts for roughly 13% share of the vaccine market across the globe. This competitive advantage would make it quite convenient for the company to leverage this status to capture a minimum of 6% of the COVID-19 vaccine market.
A conservative estimate for this market size would put Pfizer’s annual earnings after the peak sales period of the vaccine at roughly $1.52 billion.
However, Pfizer’s dominance in the COVID-19 vaccine race is not confined to its widely publicized work on BNT162b2.
Unlike its competitors that fielded only one candidate each, Pfizer and BioNTech included four potential messenger RNA-based vaccines in their studies. Ultimately, they chose to move forward with BNT162b2.
While everyone is focused on how the candidate will fare in the trials, Pfizer and BioNTech quietly initiated a Phase 1 clinical study for their fifth and virtually unknown candidate: BNT162b3.
This move by Pfizer and BioNTech echoes the strategy its leaders shared in the beginning.
By having “multiple shots-on-goal,” the companies are in a great position for the “long-term catch-up vaccination, revaccination, and/or pandemic stockpiling markets."
After all, the first wave of COVID-19 vaccines that reach the market will not be the endgame.
Similar to most contagious diseases, follow-up vaccines with higher efficacy and proven to be safer than those released earlier would have the chance to attract a substantial market share.
With the fifth vaccine candidate, it is clear that Pfizer and BioNTech do not simply want to be the first to launch a COVID-19 vaccine. Both companies aim to become the most dominant players in the coronavirus vaccine market over the long run.
Overall, Pfizer has once again chosen a diversified approach in dealing with the tight competition in the COVID-19 race.
This strategic decision could be one of the most compelling reasons to bet on this big biotechnology and healthcare stock today.
Mad Hedge Biotech & Healthcare Letter
September 15, 2020
Fiat Lux
Featured Trade:
(ASTRAZENECA’S BUMP IN THE ROAD)
(MRNA), (AZN), (PFE), (MRK), (JNJ), (GSK), (SNY), (CVAC), (BNTX), (INO)
Moderna (MRNA) was the first company to test its COVID-19 vaccine candidate on humans. However, AstraZeneca (AZN) and its partner Oxford University have been setting out the most aggressive timelines.
In fact, AstraZeneca sealed deals with the promise of delivering vaccine results as early as September.
The possibility of that happening, already precariously hanging by a thread, was completely eliminated earlier this month when the company halted its COVID-19 vaccine program after a subject showed severe adverse reactions.
Needless to say, news of AstraZeneca’s suspension of its late-stage 30,000-patient trial rattled the markets.
However, it looks like investors are simply shaking off the panic as other COVID-19 vaccine stocks continue to gain momentum.
In fact, even AstraZeneca only suffered a 2% slide following the announcement.
Shares of its COVID-19 rivals Pfizer (PFE), Merck (MRK), Johnson & Johnson (JNJ) went up 1% each, while GlaxoSmithKline (GSK) and Sanofi (SNY) rose 2%.
Bigger jumps were seen in smaller biotechnology companies with Moderna and CureVac (CVAC) being 4% higher and Novavax (NVAX), Inovio (INO), and BioNTech (BNTX) climbing 6%.
Still, a lot is riding on AstraZeneca’s vaccine candidate. The company has secured more contracts compared to its rivals.
To date, AstraZeneca has disclosed deals to supply roughly 3 billion doses to different nations including the US, Europe, Australia, Japan, Brazil, Latin America, and even China.
Its leading competitors, Moderna and Pfizer, have only managed to commit a small fraction of AstraZeneca’s supply.
Although AstraZeneca’s decision would cause some delay, experts assure the public that this is a normal occurrence in the vaccine development process.
It is actually a good sign especially given the fast-tracked timelines for the COVID-19 programs.
This voluntary pause from AstraZeneca means that the standards for vaccine development are still stringently followed by the developers despite the tight deadlines and competition.
A third-party safety board was already assigned to review AstraZeneca’s case, with the company expecting results in the next weeks.
So, what happens next?
There are few possible outcomes of this scenario. The ideal result would be for the board to find that the adverse effect has no connection to AstraZeneca’s vaccine candidate.
If this is the case, then the company can restart trials as early as next week. Although it obviously suffered a delay, AstraZeneca says it is still on track and can submit efficacy data before 2020 ends.
If everything else falls into place and from a manufacturing standpoint, AstraZeneca can still deliver a vaccine by the end of the year or early 2021.
If the adverse effect is caused by the vaccine though, then it could spell trouble not only for AstraZeneca but also for some of its rivals using the same technology.
The company utilized a neutralized virus for delivery, which is the same method used by other developers like Johnson & Johnson.
In comparison, Moderna and Pfizer’s vaccine candidates used a new technique involving messenger-RNA. This method stimulates a person’s body to produce a protein, which can help build immunity against the coronavirus.
The worst-case scenario is that if the problem turns out to be an immune reaction to the coronavirus fragments.
This would set back all the COVID-19 vaccine developers because it is the common element among them.
Although the COVID-19 vaccine candidate is a high-value product, AstraZeneca remains poised to prosper no matter what happens as a result of the pandemic or even the overall financial market.
The company is consistently generating strong revenue growth. In particular, its cancer lineup of non-small cell lung cancer treatments Tagriss and Imfinzi, and ovarian cancer therapy Lynparza have been showing remarkable momentum amid the crisis.
However, it is AstraZeneca’s pipeline that makes this stock impressive.
So far, the company has 166 programs that are under clinical development. Of those, 24 have already reached late-stage trials.
What’s even more exciting is that 9 of these late-stage studies are for new drugs. Meanwhile, the remaining 15 are additional approvals for expanded indications of existing products.
AstraZeneca offers one of the most promising product portfolios and clinical pipelines in the healthcare and biotechnology industry. It also provides impressive shareholder reward programs.
Most importantly, this single COVID-19 vaccine candidate is definitely not a make-or-break type of development for the company – not by a very long shot.
Therefore, bargain hunters may want to capitalize on AstraZeneca’s shares on any weakness resulting from this trial suspension.
Mad Hedge Biotech & Healthcare Letter
September 10, 2020
Fiat Lux
Featured Trade:
(CAN CRISPR STOP THE SILENT KILLER?)
(CRSP), (VRTX), (EDIT), (NTLA)
Obesity has virtually tripled worldwide since 1975.
In 2019 alone, the World Health Organization classified 38 million children under 5 years old as overweight or obese.
More alarmingly, obesity has been dubbed as the “silent killer” because it is one of the leading factors that cause premature deaths.
In 2017, 4.7 million or 8% of global deaths were linked to this condition.
For context, the number of deaths caused by obesity is 4 times the fatality rate from road accidents and almost 5 times the number of those who died from HIV/AIDS.
Right now, 39% of adults across the globe are considered overweight and 13% are obese.
By 2030, nearly half the adult population of the United States is expected to be suffering from obesity.
Now, we might have the answer to this “silent killer:” CRISPR gene editing.
A recent Harvard study showed that CRISPR gene editing can be used to engineer cells to avoid weight gain and even potentially stop the onset of obesity-related diseases like diabetes.
The solution is straightforward.
The scientists will convert the body’s white fat, which is the “bad fat,” into brown fat or the "good fat.”
Brown fat is known as the healthy fat because it produces heat for the body by burning calories. Meanwhile, white fat tends to build up and leads to obesity.
Through CRISPR gene editing, the white fat is transformed into brown fat. This will then be burned by the body and used as an energy source, which can also result in weight loss.
So far, the technology proved to be successful in mice which were put on a high-fat diet.
What CRISPR targets is a gene for a protein called UCP1, which is distinctly found in brown fat.
The function of UCP1 is to turn chemical energy into heat.
Using the UCP1, the researchers created cells that closely resembled brown fat cells. These are called human brown-like cells or HUMBLE cells.
The manufactured HUMBLE cells are then transplanted into the mice with weakened immune systems. These mice were also fed with a high-fat diet.
Upon observation, they found that the modified cells actively helped in preventing the progression of obesity in mice and even showed improvements in the metabolic function of the animals.
Over the course of 12 weeks, the mice given white fat cells continued to gain weight while those transplanted with the HUMBLE cells showed weight loss. The latter also showed higher sensitivity to insulin, indicating that they could be protected against diabetes.
This is where it gets interesting because the technique can ultimately lead to cell therapies not only for obesity but also other metabolic disorders.
In the future, the process could evolve into something as convenient as removing a small amount of a patient’s white fat and having that engineered into brown-like fat and re-implanted to the same person’s body.
Apart from that, the HUMBLE cells also appear to send a chemical trigger to the existing brown fat stored in the mice’s own bodies, stimulating them to burn more energy.
This means that a simpler treatment method could be explored in which the experts could mimic the signal to activate the patient’s own brown fat. This will no longer require re-engineering the white fat and re-implanting it, making the entire treatment extremely straightforward.
The release of this study has profound implications to the total available market for CRISPR gene editing technology.
In the US alone, over 34 million are suffering from diabetes. The medical spending and loss of work wages linked to this is valued at roughly $327 billion annually.
If this technology proves to be effective in boosting a patient’s insulin sensitivity, then it could open an exponentially huge market.
Aside from diabetes, obesity is also considered a major risk factor in certain types of cancer, fatty liver and kidney disease, osteoarthritis, and even pregnancy problems.
This study is another example of how gene editing can be utilized to find treatments for untreatable conditions in the past years.
With this groundbreaking potential, it is no wonder investors are lining up to get their hands in biotechnology stocks in the gene editing sector.
The most widely known gene editing stock is CRISPR Therapeutics (CRSP).
With a market capitalization of $5.72 billion, this company is the only one in its field with actual treatments set for launch in the market soon.
One is a rare genetic disease treatment called CTX-001. Every year, about 60,000 people are born with this condition, causing anemia, lifelong pain, and early death. The other treatment is CTX-100, which is geared towards cancer patients.
Compared to its competitors like Editas Medicine (EDIT), which has a market capitalization of $1.82 billion, and Intellia Therapeutics (NTLA) with $1.03 billion, CRSP has a financial runway that can be reassuring to its investors.
CRSP also has minimal debt and a beneficial partnership with healthcare giant Vertex Pharmaceuticals (VRTX). This makes it one of the most attractive gene editing stocks out today.
Nonetheless, buying early stage companies, especially in the biotechnology sector, can be like oil wildcatting back in the 1930s. The key is to spread your bets broad enough to boost your chances of finding a gusher.
If this CRISPR gene editing technology works to treat obesity and even diabetes, then it could revolutionize the medical field.
While it’s still wise to exercise caution when investing in gene editing stocks, this technology undoubtedly embodies how the future of medicine looks like.
Mark your calendars because the world is about to find out whether the leading candidates of the COVID-19 vaccine race will be effective as early as October.
Other than saving lives in this pandemic, also hinged on the results is over $100 billion in investors’ money – an amount that reflects just how much value the stock market is putting on the COVID-19 vaccine candidates under development today.
One of the leading companies in the race is Johnson & Johnson (JNJ).
With a market capitalization of almost $400 billion, many believe that this biopharmaceutical giant will soon be hailed as the king of the coronavirus stock list.
What we know so far is that JNJ’s subsidiary, called Janssen Vaccines, is set to launch a massive-scale Phase 3 study of its COVID-19 vaccine candidate, A26.COV2-S, this September.
The company’s study, which will be randomized, double-blind, and placebo-controlled, is expected to involve approximately 60,000 participants suffering from moderate to severe cases of COVID-19.
The move to include 60,000 participants is seen as a competitive advantage for JNJ because this is double the usual late-stage volunteer number.
For comparison, Moderna’s (MRNA) mRNA-1273 as well as Pfizer (PFE) and BioNTech’s (BNTX) BNT162b2 will only target a maximum of 30,000 patients each in their trials.
On top of the more expansive trial coverage, JNJ has another advantage that could help it pull ahead of the pack.
During the preclinical testing of Ad26.COV2-S on primates, the vaccine candidate showed that a single dose could be enough to fight off the virus.
In contrast, the candidates from other COVID-19 vaccine developers like AstraZeneca (AZN), Pfizer, and Moderna require two doses to trigger a similar response.
While the well-being of every man, woman, and child hangs on the success of the COVID-19 trials, concerns have been raised that the assessment for these candidates might be compromised because of the upcoming US presidential election.
However, the leading COVID-19 developers assured people that it won’t be the case.
Apart from JNJ, Pfizer, Moderna, AstraZeneca, other vaccine makers like GlaxoSmithKline (GSK), Sanofi (SNY), and Regeneron (REGN) plan to issue statements that no candidate will be submitted without extensive data on its efficacy and safety.
Most investors are focused on the COVID-19 stocks these days, and who can blame them?
Sales of the vaccines in 2021 alone could reach $20 billion per company. This is massive profit even for Big Pharma standards.
In fact, this amount is higher than the projected sales of today’s current top-selling drug, Humira from AbbVie (ABBV), which is expected to clock roughly $19.6 billion in the same period.
However, the COVID-19 vaccines will only be profitable for as long as there is a pandemic. If this disease becomes a non-recurring sickness, then the vaccines will no longer be as profitable in the long run.
This is why it’s crucial to review the core operations of a company and determine its capacity to keep generating revenue and profits while also maintaining a strong balance sheet and returning value to its investors.
JNJ is a great example of this type of business.
Outside its COVID-19 efforts, the company has been diversifying its portfolio. Its latest move is the $6.5 billion acquisition of Momenta Pharmaceuticals (MNTA), marking the biopharmaceutical titan’s expansion into the immunology sector.
One of the most significant assets JNJ acquired from this deal is Nipocalimab, which is an incredibly promising first-in-class autoimmune disease treatment.
This drug could be the answer to rare and life-threatening blood disorders, such as hemolytic disease, which affects newborns and babies. To date, there are roughly 195 million individuals suffering from this condition worldwide.
Throughout its history, JNJ has proven itself to be a stable company even in the most unstable market conditions.
It has a reliable growth record and a healthy cash flow, which would be valuable in acquiring bolt-on companies, creating new drugs, and boosting the dividend every year.
JNJ has managed to increase dividends annually for 58 years now, with its most recent dividend raise reaching 6.3% just last April. Its stock currently yields 2.7%.
More importantly, JNJ offers an impressive biotechnology pipeline. With an incredible history of over 130 years, this stock is definitely one for keeps.
Mad Hedge Biotech & Healthcare Letter
September 3, 2020
Fiat Lux
Featured Trade:
(BRACE YOURSELF FOR ANOTHER PANDEMIC)
(AMGN), (NVS), (CYTK), (GILD), (RHHBY), (LLY), (SNY), (REGN)
“Anything that can go wrong will go wrong.”
It looks like Murphy’s law is about to strike again this year. The number of COVID-19 cases has reached almost 15 million worldwide, with about 4 million found in the US alone. However, the pandemic isn’t showing signs of slowing down.
Now, another deadly virus described to manifest “all the essential hallmarks of a candidate pandemic virus” has been found.
Earlier this month, a team of scientists revealed that there’s a newly discovered influenza strain, which could be a variation of the H1N1 swine flu—the same virus that triggered a global pandemic back in 2009.
That health crisis infected roughly 61 million Americans and more than 700 million people across the globe.
Although there’s still no conclusive evidence, this H1N1 influenza strain also traces its origins in China.
We witnessed how the stock market plummeted as the COVID-19 pandemic broke out. It eventually bounced back, which provided us with insights on how to deal with this potential second deadly virus.
Taking into consideration the uncertainty caused by these health and financial crises, I no longer put all my energy on near-term investments.
Instead, I train my eyes on stable and strong stocks with attractive revenue potential.
One of the companies that meet my criteria is Amgen (AMGN).
Amid the coronavirus pandemonium, Amgen has been aggressive in keeping its stronghold, particularly in its key moneymakers.
The latest win for the company is against Novartis (NVS), which challenged Amgen’s patent rights on the blockbuster anti-inflammatory treatment Enbrel.
This patent victory secured exclusivity for the top-selling rheumatoid arthritis injection, which generated $5.1 billion in sales in 2019 and could rake in at least $4.5 billion in 2020, against low-priced copycats until 2029.
Although Amgen has been struggling with biosimilar competition in the past years, the company’s first quarter earnings reports indicate that things are turning around for them.
Amgen reported an 11% year-over-year increase in revenue for the first quarter of 2020 to reach $6.2 billion, with global product sales jumping by 12%, boosted by a remarkable 15% in volume growth.
The company’s free cash flow for the first quarter also went up to $2 billion compared to the $1.7 billion it recorded in the same period in 2019.
The spike in Amgen’s numbers could be attributed to the new products in its pipeline. Apart from Enbrel, there are several other moneymakers generating solid growth for the company.
An obvious game-changer is severe plaque psoriasis medication Otezla, which Amgen acquired from Celgene for $13.4 billion in November 2019.
In the first 3 months of 2020 alone, Otezla has already raked in $479 million in sales for Amgen.
Sales of high cholesterol drug Repatha jumped by 62%, hitting $229 million.
Meanwhile, osteoporosis treatment Evenity contributed $100 million thanks to its expansion in the US and Japanese markets.
With the improvement in its performance, Amgen reiterated its revenue forecast for 2020 of $25 billion to $25.6 billion, showing off a 9.4% gain compared to 2019.
Aside from its current roster, Amgen is also waiting for regulatory approvals on some of its products this year.
The company is hoping for good news from the FDA on its multiple myeloma drug Kyprolis in November and its Rituxan biosimilar candidate in December.
Its pipeline also features 20 late-stage studies, 15 of which are for expanded indications of the company’s already-approved products.
Next to Otezla, Amgen is eyeing another blockbuster following the Fast Track designation granted to heart failure drug Omecamtiv mecarbil.
The drug, which the company is working in collaboration with Cytokinetics (CYTK), is projected to reach a jaw-dropping valuation of roughly $16 billion by 2026.
If successful, Omecamtiv mecarbil could become a close competitor of Entresto, which raked in $569 million for Novartis in the first quarter of 2020 alone.
Meanwhile, Amgen is not only focused on harnessing its growth drivers. The biotechnology giant has been active in searching for COVID-19 treatment as well.
Following the lead of Gilead Sciences (GILD), which used an already approved drug Remdesivir to come up with a treatment, Amgen is also testing its newly acquired blockbuster Otezla.
In using an anti-inflammatory drug to treat COVID-19 patients, Amgen is taking a similar approach as other biotechnology giants like Roche (RHHBY) with Actemra, Eli Lilly (LLY) with Baricitinib, and Sanofi (SNY) and Regeneron (REGN) with Kevzara.
Amgen investors currently get $1.60 in quarterly dividend payments, receiving $6.40 annually. In comparison, shareholders received $1.45 in 2019, showing off a healthy 10% hike.
With a stock price of roughly $235, this puts the company’s dividend yield to somewhere above 2.7%.
This is better than the 2% of investors earn on average from the S&P 500, indicating that Amgen pays investors with an above-average yield. Over the past 5 years, Amgen has boosted its annual dividend by nearly 103%.
Overall, Amgen is a solid long-term investment with promising growth drivers out in the market and in its pipeline.
Mad Hedge Biotech & Healthcare Letter
September 1, 2020
Fiat Lux
Featured Trade:
(RACE TO THE FINISH LINE)
(PFE), (BNTX), (MRNA), (AZN), (INO), (ZTS), (MYL)
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