Mad Hedge Biotech and Healthcare Letter
December 21, 2023
Fiat Lux
Featured Trade:
(UNLEASHING THE UNDERDOGS)
(NVS), (LLY), (PNT), (RYZB), (MRK), (ABBV)
Posts
Grab your notebooks because class is in session, and today's topic is radiopharmaceuticals.
Yes, you heard it right - radiopharmaceuticals. It’s not your everyday cocktail party topic, but it's certainly the buzzword in the biotech investing world. And let me tell you, the numbers are sizzling.
Venture capital deals in this sector have shot up by an eye-watering 550% to $408 million this year. Back in 2017, this figure was a mere $63 million. Talk about going from zero to hero.
The global market for these radioactive wonders zoomed past $5.2 billion in 2022 and is now racing towards an estimated $13.67 billion by 2032. That's a CAGR of 10.2% for the statisticians among us.
So, what's cooking in the radiopharmaceutical kitchen? Well, a lot, apparently.
Leading the pack are the heavyweights – Novartis (NVS) and Eli Lilly (LLY). Novartis has thrown its hat into the ring, making radiopharmaceuticals a showstopper in its oncology lineup. With stars like Lutathera and Pluvicto, they're not just playing; they're here to dominate.
As for Eli Lilly, they're playing catch-up but with style. They laid down a cool $1.4 billion for Point Biopharma Global — a biotech gem focusing on radioligand therapies. Notably, Point investors are playing hardball, waiting for a Phase 3 reveal.
Meanwhile, Eli Lilly's also buddied up with Mariana Oncology and its $175 million Series B – these guys are eyeing small cell lung cancer with a glint in their eye.
So, what does this mean for the investor universe? Well, in a nutshell, it's party time. Early-stage companies, especially those with their lab coats on in discovery and preclinical stages, are like magnets to investors right now.
There’s POINT Biopharma, which hails from Indianapolis, that went public on Nasdaq as of July 1, 2021. Remember the ticker symbol “PNT”? That's them, and they currently have roughly $1.33 billion in market cap.
Another promising option is Mallinckrodt Pharmaceuticals. These folks are into everything from specialty pharmaceuticals to, you guessed it, radiopharmaceuticals—an American-Irish charm, if I may say so.
Abdera Therapeutics, a Canadian startup (eh!), is also in the running. This company is all about precision radiotherapeutics. They're eyeing small-cell lung cancer, and they've got the funds to back it up.
And then there’s ARTBIO, with an impressive $90 million Series A six months post-launch.
There’s also RayzeBio (RYZB), which is based in sunny California. They're not just turning heads; they're opening wallets. This company raised a whopping $160 million in Series D last year and then sprinted towards a dazzling $311 million IPO just last September.
Between 2018 and 2023, US-based radiopharmaceutical companies attracted a hefty $1.2 billion in venture financing. The peak? A cool $262 million in 2021. And guess what? Most of this dough was for preclinical and discovery shenanigans.
But let's not forget the hurdles, particularly the supply challenges and overwhelming demand. Yet, despite these hiccups, the sector remains hotter than a summer in the Sahara.
Prior to this, ADCs (Antibody Drug Conjugates) dominated the conversation.
We witnessed Merck (MRK) confidently investing $4 billion in Daiichi Sankyo for their ADC prospects. Lilly was busy forming a cozy partnership with Mablink Bioscience. And let's not forget AbbVie (ABBV), which generously splurged $10.1 billion on ImmunoGen's Elahere.
To this day, ADCs are still the talk of the town. But here's the thing: radiotherapeutics might be the underdog next to ADCs, but they're catching up. Fast.
This sector is bubbling with potential, simmering with innovation. For investors and pharma bigwigs, radiopharmaceuticals are more than just a fad. They're the future.
So, what's the takeaway? Radiotherapeutics might not be grabbing the spotlight like ADCs, but they’re like that quiet kid in class who ends up acing the test.
Mark my words. This is one space in oncology that's set to make some serious noise in the coming years.
Mad Hedge Biotech and Healthcare Letter
November 28, 2023
Fiat Lux
Featured Trade:
(A MILLIONAIRE MAKER IN THE MAKING)
(ABBV), (ABT)
In the high-stakes game of investment, where the dream is to turn a modest sum into a cool million, savvy players are constantly on the hunt for that one stock with the Midas touch.
Enter the scene: AbbVie (ABBV), a heavyweight in the healthcare arena, boasts a revenue growth of over $20 billion since 2019.
Let's cut through the noise and see if AbbVie is the golden goose for your portfolio, capable of outpacing the market and padding your account with those sought-after seven figures.
Since its spinoff from Abbott Labs (ABT) in 2013, AbbVie has been flexing its muscles in the dividend world.
I’m not talking about just keeping up with the Joneses here; AbbVie's dividend payout has skyrocketed by an impressive 270% through late 2023. This isn't just inheritance; it's multiplication.
Now, let's address the elephant in the room: Humira, AbbVie’s blockbuster drug, which is set to lose its patent shield in 2023.
This anti-inflammatory drug has been a cash cow for AbbVie, spanning a wide range of treatments from rheumatoid arthritis to Crohn's disease. But the party can't last forever. As the patent protection fades, so does a chunk of AbbVie’s revenue stream.
However, don't think AbbVie's been caught off guard. They've been prepping for this moment with Rinvoq and Skyrizi, two new immunology drugs poised to pick up the slack and maybe, just maybe, outshine their predecessor by 2027.
Dig into the latest quarter, and you'll find Rinvoq and Skyrizi raking in the cash with double-digit sales growth, eyeing to breach the $11 billion mark in annual revenue.
AbbVie's strategy? Cover all bases Humira did, and then some.
But that's not all in AbbVie's arsenal. With over 50 programs chugging along in development, the odds are in favor of a few big wins that could give the biopharma top and bottom lines a healthy boost.
Besides the promising Rinvoq and Skyrizi, AbbVie has other aces up its sleeve. Take bipolar disorder treatment Vraylar, with its potential to hit $4 billion in peak annual revenue, or acute migraine drug Ubrelvy, eyeing at least $1 billion.
While transition phases are tricky, especially since AbbVie's shift from Humira to the likes of Skyrizi and Rinvoq is no walk in the park, it's the other elements in play that add to AbbVie's potential.
For instance, here's another factor that makes the company attractive for growth investors: AbbVie's stock is currently undervalued, trading at a mere 12 times its estimated future earnings, a bargain compared to the sector's average. This could be your ticket to get on board for the long haul, eyeing those hefty returns down the road.
Now, what about the financials? After all, a company's muscle is measured by its monetary might. Well, AbbVie's operating profit of $15.8 billion on $55.1 billion in revenue in the past 12 months is nothing to sneeze at.
Now, let's talk free cash flow (FCF) – aka the real indicator of financial fitness. AbbVie's sitting pretty with $24.7 billion in FCF over four quarters. That's not pocket change; it's a war chest, part of which is already earmarked for a generous 4.5% dividend yield.
So, is AbbVie the magic bean that grows into a million-dollar beanstalk? Let’s give it more context.
To morph a $30,000 investment into $1 million, AbbVie's market cap would need to balloon over 30 times its current size, a Herculean feat that translates to a market valuation of over $7.3 trillion.
It's a long shot but not beyond the realms of possibility, especially considering the long-run average return of the S&P 500.
Overall, AbbVie is more than just a contender in the investment arena. With its solid track record, robust pipeline, and undervalued stock, it's a heavyweight with a puncher's chance of turning your investment into a million-dollar dream. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
November 21, 2023
Fiat Lux
Featured Trade:
(A PRESCRIPTION FOR CAUTION)
(VTRS), (PFE), (JNJ), (LLY), (BMY), (TEVA), (ABBV), (CVS)
In the rollercoaster world of pharmaceutical stocks, 2023 has been like riding the Cyclone at Coney Island – thrilling for some, nauseating for others.
Take Pfizer (PFE), for instance. It’s seen its stock take a nosedive by 43.4%. That’s the kind of drop that makes you check if your wallet’s still there. Then there’s Johnson & Johnson (JNJ), trailing behind with a 16.4% decline. Not as dramatic, but still enough to make your stomach lurch.
Meanwhile, there’s Eli Lilly (LLY), playing the hero as it rockets up by an extraordinary 66.8%, thanks to its new weight-loss drugs. At this point, investors are practically throwing ticker-tape parades.
However, even with Eli Lilly’s star performance, the S&P 500 Pharmaceuticals index still shows a downturn of 2.3%.
Now, as we've seen earnings reports trickle in, a trend has started to stick out: positive results aren’t shielding drugmakers from a sell-off. Look at Pfizer and Bristol Myers Squibb (BMY), both hovering near their 52-week lows.
Still, investors are giving the biotechnology and healthcare stocks the side-eye for several reasons.
The new Medicare drug-price negotiation program is like a strict parent setting a curfew – it’s potentially restricting pricing power for certain medications. Plus, as interest rates climb, the allure of high dividend yields is diminishing faster than my motivation to hit the gym.
In this skeptical market, however, there are some optimistic investors who are digging through the bargain bin, hoping to strike gold.
Enter Viatris (VTRS), trading at just 3.3 times earnings and boasting a 5.1% dividend yield. It sounds promising, but only a few brave souls are recommending a buy.
Basically, this situation with Viatris is pretty much like finding a designer shirt at a discount store – sure, it’s cheap, but will it fall apart after two washes? Let’s take a closer look.
Viatris’s backstory is a bit of a soap opera. Born from the merger of Mylan and Pfizer's Upjohn unit, it carries the baggage of Mylan's EpiPen pricing scandal.
Since rebranding, Viatris has been trying to find its footing. Despite a shiny new business plan, which involves selling off assets for a potential $9 billion, investor confidence remains shaky at best.
Notably, its decision to exit the biosimilars market, where heavy hitters like Teva Pharmaceutical Industries (TEVA) and AbbVie (ABBV) play ball, has been seen as a bold move. Considering the potential of that market, it felt like leaving a high-stakes poker game just when the chips were starting to stack up. And with CVS Health (CVS) eyeing this lucrative space, Viatris might find itself wishing it had stayed at the table.
These past months, investors have been capturing this drama through a meme – comparing 'adjusted Ebitda' to 'free cash flow' with images of Jennifer Aniston and Iggy Pop. It’s a cheeky way of saying that Viatris’s financial projections might be wearing rose-colored glasses.
Looking ahead, Viatris is aiming for $2.3 billion in free cash flow next year, buoyed by recent sales. But the big question is: can it turn these assets into growth, or will it continue its high-wire act?
Reviewing its recent moves and their effects on the market, the Viatris saga has turned into a cautionary tale for investors in the pharma world – it’s a reminder that sometimes the threat of a nosedive is as real as the thrill of a skyrocket.
So, what’s the takeaway for those of us with skin in the game?
It seems wise to keep our eyes peeled and not jump on any bandwagons too hastily. Viatris, amidst its strategic transformations and market challenges, is worth watching with a careful eye. While its cash flow looks steady through 2027, thanks to planned asset sales, the long-term picture is as clear as mud.
As we navigate the unpredictable waves of the pharmaceutical market this year, let’s remember – it’s not just about holding on for the ride. It’s about knowing when to get on, when to get off, and maybe, just maybe, when to enjoy the view from the sidelines with some popcorn in hand. I say hold off from buying Viatris shares at the moment.
Mad Hedge Biotech and Healthcare Letter
October 24, 2023
Fiat Lux
Featured Trade:
(INNOVATION OVER EXPIRATION)
(ABBV), (ALPMY), (PFE), (BAX)
In the current investment landscape, with the nearly 5% annualized yield from the 10-year U.S. Treasury bond casting a formidable shadow, making a case for investing in stocks might seem like an uphill battle. Especially so when one considers the sluggish performance of several stocks over the past two years, excluding those in niches like artificial intelligence and weight loss.
Yet, history teaches us a vital lesson: high-quality dividend stocks, especially in the biotech sector, tend to outpace most other asset classes in the long run. While the broader market has seen fluctuations and shifts towards safer options like CDs, dividend magnates in the biotech space, like AbbVie (ABBV), command attention for value and income investors.
Ever since its spin-off from Abbott Laboratories in 2013, AbbVie has carved a niche for itself. The sheer numbers are a testament to this: an eye-catching 270% growth in its dividend payouts over the last decade.
This performance positions it with a current yield of 3.99%, making it one of the most attractive propositions within the biopharma dividend landscape.
Further sweetening the pot is its moderate cash payout ratio of 42%, indicating a strong potential for more generous dividend increases in the foreseeable future.
Still, as with any investment, it's paramount to factor in the challenges ahead. AbbVie's journey with Humira, the anti-inflammatory drug, serves as a case in point.
Commanding a price tag of $50,000 annually, Humira wasn't just another drug in the market; it was a pharmaceutical marvel that earned the accolade of being the highest-grossing drug in history. But the winds of change are inevitable.
AbbVie's U.S. patent protection for Humira has expired, signaling an era where the company has to look beyond this blockbuster drug for its revenue streams.
The spotlight now is on Skyrizi and Rinvoq, AbbVie's next-gen immunology therapies. These drugs have shown commendable performance since their introduction to the market. However, the looming question is whether they can step into Humira's colossal shoes.
While some analysts remain skeptical about Skyrizi and Rinvoq matching up to Humira's performance benchmarks before 2030, AbbVie's internal projections are more bullish, eyeing a turnaround by 2025.
But amidst these contrasting forecasts, there's a silver lining that both skeptics and optimists agree upon: buoyed by its robust cash flows, AbbVie is expected to sustain, if not enhance, its dividends for at least the next decade.
Pivoting slightly and shining a light on its innovative pursuits, AbbVie unveiled promising results for Rinvoq in a mid-stage trial for vitiligo treatment.
For the uninitiated, vitiligo is a condition where individuals experience a loss of skin pigment, affecting varied parts of the body. The potential market for vitiligo treatments is substantial, with current valuations at $410.5 million, projected to burgeon to $625.8 million by 2031.
The increasing number of vitiligo cases globally plays a significant role in this growth trajectory. To put things in perspective, the Global Vitiligo Foundation in 2021 estimated that nearly 70 million people worldwide are affected by this condition, with a sizable fraction being children.
Navigating this emerging and competitive landscape is no small feat. Powerhouses like Astellas Pharma (ALPMY), Pfizer (PFE), and Baxter (BAX) are just a few of the giants that dot this arena. Every move by AbbVie, especially its endeavors with Rinvoq, is more than just corporate strategy; it's a tango in a fiercely competitive ballroom.
Now, coming full circle to the heart of the matter: What does this all mean for an investor with a keen eye on biotech dividends? AbbVie's journey is both a testament to its past prowess and an indicative nod to its future trajectory. While Humira's glory days might be seeing a horizon, the dawn of Skyrizi and Rinvoq offers a fresh chapter filled with both risks and rewards.
For those already holding AbbVie stocks, the prudent strategy might be a blend of patience and perseverance, enjoying the dividends while staying attuned to the market's pulse. Investments, after all, are as much about the art of patience as they are about the science of numbers. Today's challenges could well be the stepping stones to tomorrow's successes. I suggest you wait for a better entry point and buy the dip.
Mad Hedge Biotech and Healthcare Letter
October 17, 2023
Fiat Lux
Featured Trade:
(AN EXCELLENT BLUEPRINT FOR SUCCESS)
(AMGN), (ABBV), (BMY)
Dividends, the consistent source of passive income, have long anchored many investment portfolios. For stock market investors, particularly those with an eye on the biotechnology and healthcare sector, dividends offer both stability and potential growth.
However, the landscape of dividends is not without its pitfalls. A significant concern for investors is when a company decides to cut or suspend these payouts. So, how can one navigate this challenge? The key is to pinpoint corporations that not only offer dividends but are also poised for sustained growth.
This brings us to a prime example: Amgen (AMGN).
Amgen, in recent times, has grappled with challenges that are not uncommon in the pharmaceutical world. The competitive landscape has chipped away at the market share of some of its flagship drugs, leading to a stagnation in revenue growth.
New therapies, like the asthma treatment Tezspire, have received approval but have yet to be the sales catalysts the company might have hoped for. However, it's crucial to understand that in the pharmaceutical industry, stagnation is not a death sentence but a call to innovate and adapt.
Recognizing the need for strategic growth, Amgen unveiled its plans to acquire Horizon Therapeutics for $28.3 billion in cash.
Horizon, specializing in rare autoimmune diseases, offers a rich pipeline of over 20 programs and an array of approved products. This move is not just an expansion; it's a strategic enhancement of Amgen's portfolio.
After some initial regulatory challenges, the acquisition was sealed on October 6, 2023, at $116.50 per share in cash, amounting to an equity value of $27.8 billion.
Now, let's delve into the numbers. Horizon reported a revenue of $3.6 billion for the year ending June 30, 2023, and an operating income of $513 million. When we juxtapose these figures against Amgen's performance, projections suggest that Horizon could amplify Amgen's annual revenue by a notable 12% to 14%.
As of October 9, 2023, Amgen's equity value stood at approximately $143 billion, translating to an equity value to an annual revenue ratio of 5.3x. In comparison, Horizon's ratio is 7.9x.
For the discerning investor, these figures hint at Amgen's belief in Horizon's potential to be a significant revenue generator.
But Amgen's story doesn't end with Horizon. The company's resilience is evident in its global strategies.
The inclusion of Repatha on China’s National Reimbursement Drug List as of January 1, 2022, bore fruit, with sales jumping from $388 million in the first quarter of this year to $424 million by the second quarter.
Even drugs like Enbrel and XGEVA, which faced concerns about increased competition, have shown promising sales trajectories. By the second quarter of 2023, Amgen's total product sales touched $6,683 million, a 14% leap from the previous quarter.
With a global footprint and encouraging data for drugs like Tarlatamab and LUMAKRAS, Amgen's revenue projections of $26.6 billion to $27.4 billion for 2023 seem well within reach.
Diversification is another feather in Amgen's cap. Beyond acquisitions, the company is nurturing a robust pipeline with numerous programs in development.
Venturing into the biosimilar market, Amgen is crafting alternatives to blockbuster drugs to compete with the more expensive options offered by the likes of Bristol Myers Squibb (BMY) and AbbVie (ABBV). In an era where affordable healthcare is not just a demand but a necessity, this strategy could further cement Amgen's position in the market.
In the intricate world of biotech investing, adaptability is the rhythm, and forward-thinking is the step. Challenges, while inevitable, are also opportunities in disguise. Strategic decisions, exemplified by Amgen's acquisition of Horizon, can chart the path for sustained growth.
For investors, the numbers are compelling. A dividend growth of 61% over five years, a competitive yield of 3.26%, and a forward P/E ratio of 14.3 paint a picture of stability and promise.
Ultimately, Amgen's journey in the biotech sector underscores the significance of adaptability, innovation, and strategic growth. In an industry marked by rapid changes and high stakes, the company emerges as a symbol of resilience.
For investors with an eye on biotechnology and healthcare, Amgen offers not just dividends but a vision of sustained growth and stability, making it an investment worth considering. I suggest you buy the dip.
