Mad Hedge Biotech and Healthcare Letter
March 29, 2022
Fiat Lux
Featured Trade:
(A DURABLE AND ENDURING STOCK IN THESE TROUBLING TIMES)
(AMGN), (JNJ), (AZN), (ABBV)
Tag Archive for: (ABBV)
The latest market sell-off has motivated me to take a closer look at blue-chip businesses with solid track records of bringing value to shareholders regardless of the economic conditions.
After all, an insistence on putting money only in the highest quality stocks is key to long-term success in investing.
And when investing in the biotechnology and healthcare industry, it’s vital to choose stocks with robust drug portfolios and promising pipelines of candidates. This ensures continuous solid growth in the near and long run.
Amgen (AMGN) fits that description.
Over the years, Amgen has risen as one of, if not the most prominent biotechnology company. This company is one of the largest and possibly longest-running biotechnology businesses in the world.
It is a leader in various sectors, including oncology, blood disorders, cardiology, inflammation, and immunology. It has also expanded in other segments, with “King of Biologics” as the latest moniker for this biotech titan.
Amgen has been consistently profitable throughout its history, sustaining industry-leading margins that boost both its top and bottom-line growth.
Founded in 1980, it has steadily made a name for itself following the approval of its first drug —anemia treatment Epogen — in 1989.
Since then, this biotechnology stalwart has evolved into a significant player in the industry with a market capitalization of roughly $130 billion and an enterprise value of approximately $156 billion.
This translates to the company demonstrating a solid balance sheet on top of a robust repurchase program and an impressive track record of increasing its dividends.
Amid the sluggish economic climate in 2021, Amgen pulled $26 billion in total revenue to record a 6% climb year-over-year in adjusted EPS.
This improvement in its performance was fueled by its remarkable portfolio of branded drugs and biosimilars.
Naturally, the next question is whether the company can sustain this growth.
For 2022, Amgen announced a guided total revenue within the range of $25.4 billion and $26.5 billion.
In 2023, the company anticipates an accelerating growth primarily due to the US launch of the all-around immunology injection Amgevita, the expansion of psoriasis and psoriatic arthritis Otezla’s label, and additional momentum from future blockbusters severe asthma treatment Tezspire and non-small cell lung cancer oral therapy Lumakras.
Looking at the track record, the company estimates potential mid-single-digit growth in revenues from these products and over double-digit increase in EPS.
Moreover, the company has an impressive pipeline of roughly 40 innovative candidates. The programs include 10 cutting-edge molecules advancing through mid- and late-stage trials.
Among these are biosimilars for blockbuster products such as Johnson & Johnson’s (JNJ) Crohn’s disease treatment Stelara, and AstraZeneca’s (AZN) blood disorder drug Soliris.
If these get the green light, then each biosimilar could siphon hundreds of millions of dollars in yearly revenue from these competitors.
In particular, Amgen’s work on a biosimilar for AbbVie’s (ABBV) severe rheumatoid arthritis treatment Humira could generate substantial sales for the company.
Its burgeoning biosimilars programs and other pipeline candidates contribute to predictions that Amgen could record at least 7% in annual earnings growth over the next five years.
More importantly, Amgen offers a market-beating 3.3% dividend yield, making it an attractive investment with incredible growth potential.
As the market continues to make sense of the effects of inflation, the continuing conflict between Ukraine and Russia, and the constant threat of rate hikes, it has become essential to come up with a list of top quality companies that can offer steady growth and a healthy dividend.
Thus far, Amgen has been excellent at delivering on both counts.
It’s a great biotechnology company with a very solid history and, judging from its pipeline candidates, an even more solid future.
Mad Hedge Biotech and Healthcare Letter
March 17, 2022
Fiat Lux
Featured Trade:
(A SECURE STOCK TO ASSUAGE YOUR FEARS)
(NVS), (INCY), (ABBV), (VYGR), (PFE), (BNTX), (CVAC), (RHHBY)
The year 2022 marked the time fear made a comeback to Wall Street.
Since the year began, we’ve been plagued with fears over Russia’s invasion of Ukraine, constant threats of high inflation, and the possibility of a recession.
There’s even the fear of major corrections among overheated stocks that could drag the entire market along with it.
Nevertheless, it’s critical to bear in mind that what we have is a market of stocks rather than a stock market.
Although the S&P has been unstable and the Nasdaq continues to be riddled with corrections, we can still be confident that value stocks and, of course, dividend stocks are faring much better.
Truth be told, that’s hardly surprising since value stocks typically outperform the market even in the most challenging periods.
Moreover, the highest-quality stocks tend to deliver the best performance.
When it comes to high-value stocks, one of the defensive, low volatility names that constantly crops up is Novartis (NVS).
To date, Novartis is considered as one of the Big Pharma companies globally, with a staggering market capitalization of $224 billion.
Recently, Novartis has become more aggressive in diversifying its lineup—a strategy that showed tremendous payoffs.
After all, one of the competitive edges of Novartis is its solid profitability compared to its peers, which is primarily driven by the company’s well-balanced portfolio.
For years, the company has been widely known for its oncology treatment portfolio, which was strengthened by its eventual collaboration with Incyte (INCY).
Apart from cancer, it has so far succeeded in developing treatments for cardiovascular, immunology, and even blood disorders.
Its current portfolio of drugs generated impressive revenue despite the economic slowdown over the past months.
For example, psoriatic arthritis drug Cosentyx, which is AbbVie’s (ABBV) top-selling Humira’s biggest competitor, raked in $3.5 billion in sales last year, showing off a 20% increase year-over-year, while myelofibrosis treatment Jakavi reported a 23% jump to reach $1.2 billion.
Meanwhile, heart failure treatment Entresto recorded an impressive 46% climb year-over-year to reach roughly $3 billion.
Aside from these, Novartis has a promising pipeline. Thus far, it has 54 programs queued for Phase 3 trials.
Even if we assume that the company only achieves a 50% success rate, these new products could still add substantial revenue streams within the next few years.
Further leveraging its size and capital, Novartis has been searching for avenues to expand its in the biotechnology market.
Its latest move towards this direction is a license option agreement with Voyager Therapeutics (VYGR).
Novartis has long been on a perennial search for revolutionary therapies to take under its wing, and this deal with Voyager appears to be an excellent opportunity for both companies.
In a nutshell, the two companies have agreed to collaborate on gene therapy programs for adeno-associated virus capsids.
This biobucks deal sees Novartis paying Voyager $54 million upfront, with the possibility of shelling out up to $1.7 billion in several milestone payments and royalties.
The agreement covers three programs targeting the central nervous system plus potentially two more after 12 months.
In addition, Novartis will be granted access to Voyager’s proprietary RNA-based screening platform used to deliver the payload in gene therapy-based treatments.
Another biotechnology-related venture for Novartis is its deal with Carisma Therapeutics.
Following its success with the COVID-19 vaccine production for Pfizer (PFE) and BioNTech (BNTX), the Big Pharma company entered another contract manufacturing agreement with Carisma Therapeutics.
In this deal, Novartis will handle the manufacture of Carisma’s HER2-targeted CAR-M cell therapy, which is under development for the treatment of solid tumors and is slated to be submitted for approval in 2023.
Other than Carisma, Novartis also signed an initial manufacturing deal with CureVac (CVAC) and Roche (RHHBY) in 2021.
Overall, this makes Novartis a relatively safe and low-risk play in the biotechnology and healthcare sector.
Mad Hedge Biotech and Healthcare Letter
March 10, 2022
Fiat Lux
Featured Trade:
(COULD THIS BE THE NEXT BIOTECH BUYOUT CANDIDATE?)
(BLUE), (AZN), (ABBV), (BMY), (VRTX), (CRSP)
What is the common denominator of giant drugmakers AstraZeneca (AZN), AbbVie (ABBV), and Bristol Myers Squibb (BMY)?
Aside from being three of the biggest healthcare companies across the globe, all three have also completed high-profile acquisitions amid the pandemic.
AstraZeneca acquired Alexion Pharmaceuticals for $39 billion in December 2020.
Meanwhile, AbbVie wrapped up its whopping $63 billion acquisition of Allergan in May 2020.
As for BMY, this biopharma titan followed its jaw-dropping $74 billion acquisition of Celgene with a $13 billion merger with MyoKordia.
Since then, these deals have bolstered the lineups and deepened the pipelines of all three drugmakers, helping them secure their dominance in the healthcare space.
As for the acquirees, they also benefited from the transactions, particularly those struggling to get through tough situations prior to getting bought out.
With that in mind, it looks like the biotechnology and healthcare sector has another potential high-profile acquisition candidate: Bluebird Bio (BLUE).
Bluebird Bio has recently fallen from investors’ grace following multiple setbacks.
The biotechnology company, once considered a trail-blazer in the gene therapy space, now finds itself without a CFO and left behind by competitors.
Its peers, who were initially eons away in terms of pipeline development, have figured out ways to work around Bluebird’s patents and even managed to outpace the company in launching new gene therapies to market.
Given all these factors, it is no surprise that investing in Bluebird bio has become synonymous with a recycler searching for value in random scraps and parts.
Over the last three years, Bluebird Bio’s shares have plummeted by more than 90%. From a $1.39 billion market capitalization, it is now at roughly $330 million.
That is a horrible performance based on any metric.
Bluebird bio has faced several headwinds that caused its stocks to fall apart.
One problem is the delay in the company’s Biologics License Application in the US for its transfusion-dependent beta-thalassemia treatment, LentiGlobin.
Bluebird Bio initially planned to complete this rare blood disorder therapy’s application by the second half of 2020. However, the company failed to submit some information requested by the FDA.
Another LentiGlobin-related issue is the temporary pause on the clinical trial for sickle cell disease treatment. Eventually, the suspension was lifted, but not before investors scurried away from the stock, following back-to-back concerns over the same treatment.
Other aggravating factors include Bluebird’s move to exit the European market following disagreements over the pricing of some of its gene therapies.
These issues saw Bluebird’s market cap sink, positioning it lower than rival gene-editing companies today.
Needless to say, this deeply discounted value could attract a bigger and expanding biopharma seeking to dip its toes in the gene-editing space.
While Bluebird might be struggling these days, it remains a promising company thanks to its candidates.
This becomes even more exciting since the company announced its plans to concentrate on severe genetic diseases. Although this is a small niche, there’s massive potential in this market.
A strong candidate in its roster is Zynteglo, which gained regulatory approval in 2019 and has yet to reach blockbuster status.
Patients with beta-thalassaemia normally have no other choice but to get blood transfusions regularly. Zynteglo drastically challenges this standard by offering a one-time curative treatment. In fact, saying that this is a life-changing breakthrough is an understatement.
Another potential blockbuster is Skysona, a treatment for a pediatric neurodegenerative disorder called cerebral adrenoleukodystrophy. This neurological disease is extremely rare, affecting only 50 patients in the US annually.
As for its pipeline, Bluebird has three major candidates nearing FDA approval in the US. This means 2022 and 2023 will be critical years for the company.
The first product is Lenti-D, which is similar to Skysona. If things go according to plan, then this treatment might receive the green light by August 2022.
Another product is Beti-cel, which was initially launched as Zynteglo. When this successfully penetrates the US market, this first-ever gene therapy option for beta-thalassemia will rake in roughly $1.87 billion by 2024.
Considering the potential of this market, Beti-cel inevitably finds itself facing off strong competitors in the space.
Thus far, the strongest is Vertex Pharmaceuticals (VRTX), which recently announced an additional $900 million investment in its collaboration with CRISPR Therapeutics (CRSP).
The third candidate is Lovo-cel, which is a sickle cell disease treatment.
This could be a major product for Bluebird, given the over 100,000 patients in the US alone that the company can target.
The goal is to finish the validation process by 2022 and submit Lovo-cel for approval by the first quarter of 2023.
Outside its pipeline candidates and approved products, Bluebird's manageable debt is another thing that makes it attractive for a potential buyout.
After all, cash is king, especially when it comes to biotechnology companies.
At the moment, Bluebird still holds roughly $442 million in the bank, and $46 million of this is restricted.
This indicates unrestricted liquid assets of approximately $396 million—an amount higher than its current market cap.
Consequently, this will allow Bluebird to comfortably weather at least the rest of the year until 2023.
It possesses a relatively solid secure position to hold itself together until its pending candidates start raking in revenues on their own.
Admittedly, Bluebird Bio has had several challenging years. There will still be uncertainties ahead, but it’s undeniable just how promising the company is at this point.
Overall, this stock is worth serious consideration, particularly for companies looking to get a head start in the gene-editing sector.
Mad Hedge Biotech and Healthcare Letter
March 8, 2022
Fiat Lux
Featured Trade:
(A BIOTECHNOLOGY AND HEALTHCARE TRIFECTA STOCK)
(ABBV), (NVO), (CPH), (LLY)
A myriad of macroeconomic problems has thrown the stock market and the economy off balance.
Major US indices have been down since 2022, with some like the Nasdaq slipping by over 10% year-to-date due to volatile trading.
Meanwhile, there are businesses on a tear amid the issues.
One of them is AbbVie (ABBV), which gained more than 20% over the past six months.
This growth reinforced AbbVie’s reputation as a rock-solid investment that investors can rely on during uncertain periods.
Looking at its performance, AbbVie can be considered an investor’s trifecta primarily because of the benefits the company offers, namely, high yield, promising growth potential, and solid dividend growth.
AbbVie came off 2021 with 30% growth in its shares despite the global economic slowdown.
During that period, AbbVie reported a 13.4% year-over-year increase in its adjusted EPS at $3.31 and a 7.4% jump for its revenues at $14.9 billion.
This notable performance is mainly due to Humira’s sales, but this won’t be the case in the following years.
In 2018, AbbVie lost patent protection for Humira in Europe and is slated to lose exclusivity in the US by 2023.
For the longest time, AbbVie has depended mainly on Humira as its most vital source of revenue stream.
Nowadays, the company has been taking on a more diversified tactic instead of solely relying on the top-selling drug. The effects can be seen in its fourth-quarter report.
The company’s oncology sector grew by 4.6% to reach $1.9 billion. As for its neuroscience branch, it reported $1.7 billion in revenues or an impressive 19% climb from last year.
While AbbVie has been honing its diversification plans, the company still hasn’t forgotten where its true strength lies: immunology treatments.
Its immunology segment, where Humira is filed under, raked in $6.7 billion in revenues, showing a 13.2% increase compared to the same period.
To keep the momentum and preserve its spot as the leader in this segment, AbbVie introduced two successors to Humira: Skyrizi and Rinvoq.
In the same report, it can be seen that Humira still brought in the bulk of AbbVie’s immunology revenues at $5.33 billion, indicating a 3.5% increase in its previous revenues.
However, Skyrizi and Rinvoq also showed promising results.
Skyrizi sales carried on with its upward trajectory, as seen in the whopping 70.5% jump it recorded to contribute $895 million to the company.
As for Rinvoq, this treatment recorded an even higher jump at 84.4% to reach $517 million.
Throughout 2021, Skyrizi generated $2.94 billion while Rinvoq contributed $1.65 billion in sales. This indicated an 85% growth for Skyrizi and an over 100% year increase for Rinvoq.
Considering their performance, these two immunology successors to Humira are anticipated to move forward at a strong clip as AbbVie bags more FDA approvals for additional uses.
If things go as planned, Skyrizi and Rinvoq can quickly reach a combined revenue of $15 billion by 2025.
Outside its immunology sector, oncology treatment Imbruvica is projected to become another blockbuster.
To date, this drug ranks second to Humira in terms of sales, with roughly $5.41 billion in total in 2021.
Meanwhile, AbbVie has also been busy boosting its neurosciences division.
The company recently acquired Belgium-based Syndesi Therapeutics for approximately $1 billion.
Offering an upfront payment of $130 million, Syndesi granted AbbVie access to its portfolio of novel modulators of the synaptic vesicle protein 2A (SV2A). Among the products in development, the most prized treatment is Syndesi’s lead molecule SDI 118.
This mechanism is currently under Phase 1b trials for its potential use to treat cognitive impairment and other conditions linked to various neuropsychiatric and neurodegenerative diseases. These include Alzheimer’s disease and major depressive disorder.
Basically, SDI-118 targets a patient’s nerve terminals to boost synaptic efficiency.
This would complement the bigger company’s existing neuroscience efforts since AbbVie believes that synaptic dysfunction is an underlying problem when it comes to cognitive impairment associated with several disorders.
Launched in 2017, Syndesi is a biotechnology company backed by Novo Holdings, which owns controlling shares in global companies Novo Nordisk (NVO) and Novozymes (CPH).
Apart from its remarkable performance and growing pipeline, AbbVie’s stock dividend also serves as a strong pull for investors.
AbbVie stands at $1.41 per quarter or $5.64 per year.
Since its inception in 2013, the company has consistently increased its dividend annually.
In fact, AbbVie’s dividend yield of 3.87% remains a key attraction to investors despite the stock’s rising price.
No matter what metrics you use, AbbVie has managed to securely position itself at the top of the healthcare and biotechnology sector.
Over the course of the more than 9 years since AbbVie became a publicly-traded company, only Eli Lilly (LLY) has raked in higher total returns.
While the general market continues to bring uncertainty, AbbVie has been executing all the right moves to provide shareholders a haven to invest their hard-earned cash and earn a steady and rising return.
Mad Hedge Biotech and Healthcare Letter
February 22, 2022
Fiat Lux
Featured Trade:
(AN ATTRACTIVELY VALUED BIOTECH ON THE VERGE OF BREAKTHROUGHS)
(VRTX), (IBB), (ABBV), (CRSP)
Some stocks bring quick and easy gains, and those are thrilling. However, a key strategy behind a successful portfolio is always including solid players that deliver excellent returns in the long run.
One of the things I appreciate about investing in the healthcare sector is that this industry is primed to perform well no matter what happens to the market.
After all, people will continue to depend on their products and services regardless of the situation in the financial and economic world.
In the biotechnology and healthcare sector, an excellent way to ensure this is to evaluate a company’s pipeline.
This serves as a good indicator of whether the business has the capacity and potential to generate revenue in the years to come. It’s also advisable to check out a company’s general financial picture and, of course, its strategy. Those elements play critical roles in tomorrow’s performance.
With these criteria in mind, one of the biotechnology names that stand out in the field is Vertex Pharmaceuticals (VRTX).
With a market capitalization of $58.45 billion, Vertex is considered one of the biggest biotechnology companies in the world.
To date, it is included in the Top 5 list of iShares Nasdaq Biotechnology ETF (IBB). Over the years, the company has primarily concentrated on the cystic fibrosis (CF) field.
With its leading CF treatment, Trikafta, gaining approval for a triple combination back in 2019, Vertex has cornered practically 90% of the market.
Unfortunately, Vertex’s share price has remained relatively unchanged for the past two years.
This stagnant performance could be attributed to the disappointing Phase 2 results of its rare liver disease treatment VX-814 in October 2020 and respiratory medication VX-864 in June 2021.
Due to the setbacks from these studies, investors have started to question Vertex’s ability to come up with a marketable treatment outside its CF portfolio.
Vertex posted revenue increases in its recent reports despite these disappointing results.
In the fourth quarter of 2021, the company reported $2.073 billion in revenues, indicating a 27% increase year-over-year, along with an impressive 31% profit growth.
As expected, the revenue boost was courtesy of Trikafta, which recorded a 55% increase in its annual sales.
For the entire 2021 fiscal year, Vertex raked in $7.57 billion in revenues and $3.38 billion in profits, showing off a notable 45% net margin.
Prior to this report, Vertex’s initial guidance for its 2021 revenues was at $6.8 billion.
At that time, experts already believed that the company might be overestimating its capacity, especially considering the setbacks of the trials.
However, it managed to exceed expectations.
Surprisingly, Vertex disclosed an even higher fiscal outlook for 2022 at $8.5 billion. Considering that the company tends to be conservative in its estimates, the following months would definitely bring exciting breakthroughs for Vertex.
In fact, if we look at its track record, there’s a very good chance that the $8.5 billion annual revenue estimate would reach $8.8 billion or even hit $9 billion by the end of 2022.
In terms of its pipeline, Vertex has been working on strengthening its hold in the CF market. This becomes even more necessary with AbbVie (ABBV) hot on its heels with its own version of a triple combination CF therapy expected to rival Trikafta.
Outside its CF program, there are roughly 10 assets queued in various stages of clinical trials.
So far, the most advanced is its mRNA-based cell therapy collaboration with CRISPR Therapeutics (CRSP). The treatment, called CTX001, is being developed to target sickle cell disease and beta-thalassemia.
To date, CTX001 is already in Phase 3. It’s slated for regulatory submission to the FDA sometime in the third or fourth quarter of 2022. In terms of profits, CTX001’s peak sales is projected at $1.3 billion.
Another promising candidate is kidney disease treatment VX-147, which is in Phase 2.
Two more candidates are in Phase 2, diabetes cell therapy VX-880 and potential opioid substitute VX-548. While additional trials are still needed, both are anticipated to become blockbuster treatments and game-changers when they enter the market.
Looking at Vertex’s pipeline and the progress of its candidates, it’s safe to say that the company has the capacity to come up with blockbusters outside its CF program.
Moreover, Vertex has an outstanding investment ability due to its high cash balance worth more than $7.5 billion and an impressive balance sheet.
This means that Vertex has the capability to participate in a significant acquisition in the following years in an effort to bolster its pipeline. In this vein, an obvious and alluring candidate would be CRISPR Therapeutics, which is currently valued at $4.49 billion.
Overall, Vertex is a remarkable biotechnology company that has specialized in a lucrative niche for several years, equipping it with the ability to successfully monopolize the sector.
Although market volatility has recently affected it, Vertex still managed to report revenue growth and promising data from its trials. With its relative financial strength and excellent pipeline, I believe this makes the stock a good investment in the long term.
