Mad Hedge Biotech & Healthcare Letter
July 2, 2020
Fiat Lux
Featured Trade:
(FIVE BIOTECH STOCKS TO BUY AT THE MARKET TOP)
(REGN), (GILD), (PFE), (ABBV)
Posts
No, this is not a typo, a misprint, nor an alcohol-induced departure from reality. I only buy stocks at market tops when I believe that newer, higher market tops are imminent. That is certainly the case with the entire biotech sector.
That’s why I moved this morning into a very aggressive triple weighting to the sector.
As the world grapples with the COVID-19 pandemic, Regeneron (REGN) has been hailed as one of the “miracle stocks” in the biotechnology sector.
Although late to the party, Regeneron quickly became a frontrunner in the race to find a COVID-19 treatment in June when the company entered clinical trials with its COVID-19 treatment candidate. The New York biotechnology company has already started manufacturing, with the company expecting trial results to be released later this summer.
Regeneron followed the lead of other biotechnology companies repurposing seasoned medicines to treat this deadly disease, such as Gilead Sciences (GILD) and Pfizer (PFE).
Prior to developing it to target SARS-CoV-2, Regeneron’s antibody cocktail had been used to treat Ebola.
In response to Regeneron’s promising progress on the COVID-19 treatment, the market showed its appreciation by pushing the company’s shares up over 60% year-to-date.
Needless to say, Regeneron has been heavily outperforming the broad biotechnology indexes and even the broader market.
However, Regeneron’s success these days isn’t only attributed to its COVID-19 efforts. In fact, Regeneron’s annual revenue has been consistently increasing for more than a decade now.
Prior to starting its coronavirus program, the company has already lined up several candidates that can serve as catalysts for growth.
One of the catalysts for Regeneron’s growth is skin cancer injection Libtayo.
At present, Libtayo dominates the advanced cutaneous squamous cell carcinoma market as seen in the 179% jump in its sales to hit $75 million in the first quarter of 2020.
Riding on the momentum of Libtayo’s current sales, Regeneron is also looking to expand its coverage to include non-small cell lung cancer and basal cell carcinoma.
This means that Libtayo still has a long way to go before it reaches its peak.
To give this drug’s potential some context, keep in mind that roughly 9,500 individuals in the United States alone get a skin cancer diagnosis every day. Meanwhile, over 3 million Americans are diagnosed with either basal cell carcinoma or squamous cell carcinoma each year.
As for non-small cell lung cancer, this disease accounts for 84% of over 228,000 cases of lung cancer in the US annually.
Combined, the market size of Libtayo could reach roughly 3.2 million patients.
Libtayo is priced at $9,100 to cover a three-week treatment course. Patients are advised to regularly take the infusion every three weeks. This puts the annual cost of Libtayo treatment somewhere around $158,000.
With this annual treatment cost and the projected total market size in mind, it’s safe to say that Libtayo can yield profits of well over 12 figures. This is the best-case scenario, though.
If we go for the least likely scenario, where Regeneron only reaches 10,000 patients for all the diseases mentioned, then the company can still generate an annual revenue exceeding $1.5 billion.
As for the other products in Regeneron’s pipeline, the company’s recent earnings report showed that sales in the first quarter were only marginally impacted by the pandemic.
For instance, Eylea’s annual growth rate was only at 6%. Nonetheless, this wet macular degeneration and metastatic colorectal cancer medication’s first quarter sales still reached a decent $1.9 billion.
Moreover, there’s a growing market that can substantially boost Eylea’s performance in the coming years.
Studies show that the global market for wet age-related macular degeneration is projected to rise at an annual rate of 7.1%. By 2024, this market could reach $10.4 billion.
Aside from Eylea, Regeneron’s eczema biologic Dupixent sales have been soaring as well. This drug went up by an impressive 124% year-over year, generating $855 million in revenue.
Dubbed as Regeneron’s “pipeline in a product,” the company is looking to transform Dupixent into a mega-blockbuster drug like AbbVie’s (ABBV) Humira.
So far, Dupixent is being studied to determine if it can also be marketed to asthma patients and recently gained approval to be cover atopic dermatitis as well.
Overall, Regeneron merits a closer look, especially among biotechnology investors searching for a dependable stock with a lot more room to grow.
Not only does the company have over $7.2 billion in cash and have minimal debt, it also has a remarkable profit growth.
In the first quarter of 2020 alone, Regeneron’s bottom line jumped by a whopping 48% year over year to reach $771 million or $6.60 per share.
Looking at its annualized rate, Regeneron stock is actually trading for roughly 22 times earnings -- a reasonable price to pay for a well-rounded blue chip company that offers such impressive growth and a strong track record.
Mad Hedge Biotech & Healthcare Letter
June 18, 2020
Fiat Lux
Featured Trade:
(ABBVIE JOINS THE CORONA FRAY),
(ABBV), (REGN), (LLY), (GMAB), (RHHBY), (AMGN), (JNJ), (NVS), (GSK), (MRK), (AZN), (SNY), (AGN), (PFE)
Mad Hedge Biotech & Healthcare Letter
June 11, 2020
Fiat Lux
Featured Trade:
(THE BIOTECH MERGER BOOM ACCELERATES)
(AZN), (GILD), (BMY), (ABBV), (AGN), (TAK), (CI), (SNY), (JNJ), (UNH), (RHHBY), (LLY)
Nothing can ever be absolutely shocking in the biotechnology and healthcare world.
I’ll admit though that the reports on AstraZeneca’s (AZN) interest in acquiring Gilead Sciences (GILD) surprised me.
The two companies touched base last month on a potential acquisition deal.
If this rumor turns into a reality, then we’re looking at what could be the biggest healthcare deal to date.
That’s saying something considering the massive mergers we’ve seen in the past years.
So far, the biggest biotechnology and healthcare deal is the $87.6 billion acquisition of Celgene (CELG) by Bristol-Myers Squibb (BMY) in 2019.
In the same year, AbbVie (ABBV) acquired Allergan (AGN) for a whopping $83.8 billion, making it the third biggest deal in the healthcare sector to date.
The year 2018 paved the way for two more massive deals in the form of Takeda’s (TAK) $81 billion acquisition of Shire, which ranks fourth overall, and Cigna’s (CI) $68.4 billion deal with Express Scripts (ESRX) in seventh place.
Fifth on the list is by Sanofi’s (SNY) $73.5 billion deal with Aventis in 2004.
Although it has been two decades since it happened, the $72.5 billion merger of Glaxo and SmithKline Beecham in 2000 still counts as one of the biggest deals in the industry. This agreement gave birth to GlaxoSmithKline (GSK).
Prior to Bristol-Myers Squibb and Celgene deal, it was Pfizer’s (PFE) $87.3 billion acquisition of Warner-Lambert in 1999 that topped the list.
AstraZeneca’s current market capitalization is roughly $140 billion. Meanwhile, Gilead Science’s market cap stands at approximately $96 billion.
With all these in mind, the AstraZeneca-Gilead Sciences merger is estimated to reach roughly $250 billion on top of the significant synergies expected throughout the years.
If these two health industry heavyweights merge, then their newly formed company would become the third biggest healthcare company in the world behind Johnson & Johnson (JNJ), which has a market cap of $384.55 billion, and UnitedHealth Group (UNH) with $293.85 billion.
Looking at this potential merger in the context of the coronavirus race, it’s safe to say that the combined efforts of AstraZeneca and Gilead would create a COVID-19 titan.
AstraZeneca’s partnership with the University of Oxford resulted in a COVID-19 vaccine candidate that was recently selected as one of the top five candidates worthy of US government support through Trump’s Operation Warp Speed program.
Meanwhile, Gilead’s antiviral medication Remdesivir has been constantly hailed as the standard of care for COVID-19 treatment since the pandemic broke.
The drug which was previously marketed as an HIV medication is now expected to generate $2 billion in sales as a COVID-19 treatment in 2020 alone.
In 2022, Remdesivir is estimated to rake in roughly $7.7 billion in sales. After that, the antiviral drug is projected to generate annual sales somewhere between $6 billion and $7 billion.
Although everything is hypothetical, let’s take a quick look at where each company stands at the moment outside their COVID-19 efforts.
AstraZeneca has been a consistent strong stock market performer throughout the years.
In the first quarter of 2020, sales improved in practically all of AstraZeneca’s territories. Although it has a diversified portfolio of drugs and a robust pipeline, the company’s hottest segment is its oncology business.
A good example of this is non-small cell lung cancer treatment Tagrisso, which is starting to live up to expectations as the next mega-blockbuster for AstraZeneca.
The cancer drug’s first quarter sales reached an impressive $982 million, showing off a 56% jump year over year.
This is promising considering that its competitors include Roche’s (RHHBY) Tarceva and Eli Lilly’s (LLY) Cyramza.
As for its 2020 revenue forecast, AstraZeneca is reported to rake in $25 billion, from which it will generate approximately $7.5 billion in operating profit.
On the other hand, Gilead also has an impressive portfolio that it can bring to the table.
In the first quarter of 2020, the company earned $5.47 billion in revenue compared to the $5.20 billion it generated in the same period last year.
Despite the decline in its hepatitis products from $790 million in the first quarter of 2019 to $729 in the same period of 2020, Gilead’s HIV line made up for the loss by bringing in over $4 billion in sales compared to the $3.6 billion it earned last year.
Not only that, some of Gilead’s other candidates are exciting.
For example, rheumatoid arthritis drug Filgotinib is expected to become another blockbuster and generate $5 billion in revenue annually.
Meanwhile, the anti-tumor treatment Magrolimab is estimated to rake in $3 billion in peak sales.
With the company’s older drugs still capable of generating strong revenue and its new candidates showing their potential for revenue expansion, Gilead can be assured of a continued cash flow well into the 2030s.
Regardless of whether this rumored mega-merger pushes through, both Gilead and AstraZeneca are attractive stocks worthy of their premium valuations.
Mad Hedge Biotech & Healthcare Letter
February 4, 2020
Fiat Lux
Featured Trade:
(ABBVIE’S BIG CORONA VIRUS PLAY)
(ABBV), (RHHBY), (GILD)
Two major issues are in the root of the panic caused by every new infectious disease.
The first is because of the uncontrollable spread of the virus, affecting thousands of people in a short span of time. This consequently pushes the public to question the capacity of their government to provide the proper healthcare to every patient, causing further confusion, alarm, and eventually, economic upheaval.
The second is the overpowering uncertainty that looms over not only the people directly affected by the disease but also the rest of the world as we feel like sitting ducks, wondering who the virus will infect next.
Both effects have become apparent with the news of a new coronavirus, known as 2019-nCoV, which originated in Wuhan, China.
The public’s reaction has come so close to mass hysteria, especially since the virus has already taken over 400 lives and infected more than 20,000 people worldwide.
The speed by which the disease is spreading is also alarming. The 2019-nCoV getting transmitted from one person to another almost as fast as the highly transmissible flu, which was not the case for its slower-moving cousins Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS).
In response to this alarming situation, the Chinese government along with the medical community has turned to unconventional means to find a cure — and giant biotechnology company AbbVie (ABBV) is at the forefront of these efforts today.
One measure taken by the health experts is using AbbVie’s off-label HIV drug, called Kaletra (aka Aluvia), to treat 2019-nCoV patients.
Kaletra has two components valuable in battling the coronavirus: lopinavir and ritonavir. Both have the capacity to block HIV viral replication.
The twice-a-day Kaletra regimen comprises taking the HIV drug and undergoing infusions of interferon, a protein that triggers the immune system.
Although the AbbVie drug has yet to be officially declared as an approved cure for the 2019-nCoV, more and more health experts in China are already using it.
The belief on this treatment’s efficacy stemmed from the statement of the head at Peking University First Hospital, who shared that he contracted 2019-nCoV but cured himself by taking Kaletra.
This Chinese doctor is currently part of the national team of experts sent by the Chinese government to tend to those in Wuhan. Aside from him, Shanghai authorities disclosed that they have already adopted the HIV treatment in handling their own patients.
However, this isn’t the first time that Kaletra was deployed as a treatment against a coronavirus.
In 2004, Kaletra was used to cure the patients of SARS-CoV. This is promising since SARS, which is also caused by a coronavirus, bears a close resemblance to the 2019-nCoV. Experts tested the drug to help treat MERS patients as well.
A roadblock for the Kaletra cure is the scarcity of the drug in China.
A lot of health professionals disclosed that they have been struggling to get their hands on the AbbVie off-patent product. In response, AbbVie donated approximately $1.5 million worth of Kaletra to help contain the 2019-nCoV.
Other biotechnology behemoths have followed AbbVie’s lead of donating funds to help with the research in China. The list includes Roche Holding (RHHBY) and Gilead Sciences (GILD).
Meanwhile, this piece of promising news is not lost in the market. In fact, AbbVie shares pushed higher the moment Kaletra’s efficacy against the 2019-nCoV was revealed.
Apart from that, this development has reminded investors of AbbVie’s promising growth lately.
Unfortunately, most of the company’s growth came from acquisitions — a path where AbbVie has an abysmal track record. More often than not, investors fear that the company overpays in deals that fail to reap the promised rewards.
Case in point: AbbVie’s hefty $63 billion acquisition of Botox maker Allergan, which is due to be finalized early 2020.
In moving to acquire a company that only has one consistent blockbuster product, experts believe that AbbVie might have pulled the trigger too soon without considering other options.
While this high-profile agreement has been such a hot topic in the investing community, I think it’s a good move towards diversifying AbbVie’s sales and injecting additional growth.
Remember, AbbVie is in desperate need for a new outlet in light of the dwindling Humira sales. Adding a high-selling and established industry leader like Botox to the mix would make AbbVie more diversified than ever, making it safer.
More importantly, AbbVie ensured that the $63 billion acquisition doesn’t run the company to the ground — and its precautionary measures showed.
The company has been consistent in its net income, reporting over $5 billion annually in the past three years. It also raked in $12.8 billion in free cash flow in 2018, proving that AbbVie is well-positioned to acquire more companies and be more creative in looking for growth targets.
Hence, I view this biotechnology stock as an underrated buy that would appeal to bargain hunters willing to hang onto it for the years to come.
Mad Hedge Biotech & Health Care Letter
October 17, 2019
Fiat Lux
Featured Trade:
(DUMPSTER-DIVING IN BIOTECH),
(ABBV)
AbbVie Inc (ABBV) has transformed into one of the industry leaders in the biotech world, showing off a notable top-line growth and providing competitive dividends ever since its launch as an Abbott Laboratories (ABT) spinoff in 2013.
Despite its growth, AbbVie’s shares fell by a crushing 20% in the past year. This caused the company’s net value to trade at less than eight times forward earnings making it a blue-chip biopharma stock that could be bought for next to nothing!
What could be causing investors to sidestep this leading biotech?
The primary reason is the dwindling sales of AbbVie’s longstanding blockbuster drug, Humira. Despite its dominance in the market today, this arthritis medication is nearing its twilight years and is anticipated to eventually succumb to competition.
The threat to Humira’s dominance in the market is a huge deal for AbbVie particularly because of its heavy dependence on the drug’s revenue. In 2018 alone, the arthritis medication contributed approximately $20 billion to the $32.7 billion annual sales of the entire company.
Humira’s status in the United States is secure until its patent expires in 2023. Unfortunately, the drug doesn’t enjoy similar protection in international markets as biosimilar competition has already challenged its presence in the European Union. This has actually hit AbbVie’s performance as global sales showed a 28% decline in the past year.
Meanwhile, AbbVie’s blood cancer treatment Imbruvica is fighting off aggressive competitors in the market. At the moment though, investors remain optimistic about Imbruvica. The drug has been reported to achieve strong growth rates, generating roughly $4 billion in yearly revenue.
With this performance, Imbruvica is projected to hit a peak of $7 billion in sales. Although the medication is projected to perform well in the hematology space, the growing number of programs geared towards creating a similar treatment remains an ongoing threat to the company.
On a positive note, AbbVie has been active in beefing up its product portfolio. So far, three promising mega blockbusters are anticipated to boost the declining sales of the company, namely, psoriasis drug Skyrizi, uterine fibroids medication Orilissa, and rheumatoid arthritis treatment Rinvoq. All three have been recently approved and are expected to be the new growth products that could keep AbbVie on top of its game.
So far, Skyrizi has only contributed $48 million in sales. However, the psoriasis treatment is expected to reach $5 billion in profits in the coming years. Pitching in to boost AbbVie’s immunology assets is Upadacitinib, a drug that the company hopes to market as the next Humira and has been submitted for priority review. If all goes well, Upadacitinib is projected to rake in as much as $6 billion in peak sales.
While these treatments are pegged as promising additions to AbbVie drug portfolio, the biotech firm took another major step towards the expansion of its product line through its acquisition of Allergan (AGN) earlier this year. Although this move ensures that more products are queued to its pipeline, the deal with the Botox-maker could pose concerns for AbbVie’s balance sheet as the terms include the absorption of Allergan’s long-term debt worth $19.6 billion.
Nonetheless, AbbVie is still an interesting stock for a lot of investors. Perhaps one of the reasons for the lingering interest in the biotech company is its current dividend yield of 6.51% -- an impressive number especially if you consider the fact that AbbVie is still in its growth phase. Since 2017, its dividend showed an increase from $0.64 quarterly to reach $1.07 quarterly in 2019.
Another reason could be its valuation. As of this writing, the stock is trading at $75.83. Taking into account its adjusted earnings per share in 2018 of $7.91 and a P/E ratio of 8.2, this is already a pretty low price for any company that’s not experiencing a decline in revenue but extremely cheap for a company that has the potential to hit a 15% profit growth and 41% increase in adjusted earnings per share.
Overall, AbbVie is really a tempting stock for investors particularly dividend investors due to its high dividend yield and growth rates. However, the decline of Humira sales remains worrisome especially if you consider how dependent the company is on the drug.
Either way, AbbVie stock is really cheap at the moment and from a valuation perspective, there’s no substantial growth estimate priced in the stock to date. Basically, it all boils down to how much trust you want to put on a company with a proven track record but with high debt levels.
Mad Hedge Biotech & Healthcare Letter
October 1, 2019
Fiat Lux
Featured Trade:
(THE PLAYERS GUIDE TO BIOTECH INVESTING)
(AMGN), (PFE), (NOVN), (ABBV), (ABT),
(AGN), (ROG), (GSK), (CELG), (JNJ), (BMY)
