Mad Hedge Biotech and Healthcare Letter
February 10, 2022
Fiat Lux
Featured Trade:
(A HEALTHCARE ENIGMA TO ADD TO YOUR WATCHLIST)
(GILD), (JNJ), (PFE), (ABBV), (LLY), (MRK), (BMY),
(AMGN), (MRNA), (AZN), (REGN), (BNTX), (NVAX)
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The top names in the biopharmaceutical world based on their market capitalization include Johnson & Johnson (JNJ), Pfizer (PFE), AbbVie (ABBV), Eli Lilly (LLY), Merck (MRK), Bristol Myers Squibb (BMY), Amgen (AMGN), and Gilead Sciences (GILD).
Among these names, Gilead is often viewed as an enigma, given its history and the challenge in predicting its share price trajectory.
Over the past months, Gilead has been testing the patience of investors. In fact, the company is projected to experience a fall in revenues this year from $27 billion in 2021 to $24.05 billion in 2022.
The latest news that added to their anxiety was the pause on clinical trials for its cancer therapy, Magrolimab.
This came after its short-lived dominance in the Hepatitis C segment.
At that time, the sales of its leading drug Sovaldi skyrocketed from $140 million in 2013 to a jaw-dropping $10.2 billion by 2014.
Meanwhile, another Hepatitis C treatment, Harvoni, single handedly raked in $13.8 billion in sales in 2015, pushing the entire company’s revenues to an impressive $32.6 billion.
Unfortunately for Gilead, it became the victim of its own staggering success.
Its Hepatitis C treatments, Sovaldi and Harvoni, were incredibly effective and managed to cure the patients within months. The demand for these drugs fell because the patient pool gradually ran dry.
By 2019, the Hepatitis C franchise of the company had declined and managed to scrape $2.9 billion in combined sales.
Since then, though, the company has been struggling to regain investors' faith.
Nevertheless, these recent developments are not enough reasons to panic. If anything, Gilead has simply become even more attractively priced due to the fallout.
In 2020, Gilead managed to report its first year-on-year increase in revenues since its glory days in 2015.
As the COVID-19 pandemic started to take hold of the world, it was Gilead’s Veklury (Remdesivir) that secured the first-ever Emergency Use Authorization from the FDA.
While Veklury was eventually overshadowed by COVID-19 vaccines from Pfizer, Moderna (MRNA), JNJ, and AstraZeneca (AZN), as well as other treatments and antibody cocktails from Eli Lilly, Regeneron (REGN), and Merck, Gilead’s candidate managed a comeback by the fourth quarter of 2021 after experts declared it to be effective against the Omicron strain.
In effect, Veklury had a major impact on the company’s 2021 performance, recording $5.6 billion in annual sales.
Although this is not as illustrious or groundbreaking as its Hepatitis C treatments, the reemergence of Gilead as a frontrunner in the pandemic is proof that the company has not lost its knack for discovering and developing a winning formula for blockbuster treatments.
Another avenue that Gilead has been exploring is actively acquiring assets to expand its portfolio.
One notable move in that direction is its $11.9 billion acquisition of Kite Pharma, a leader in the cell therapy space, in 2017. Thus far, this agreement has yielded two drugs: Yescarta and Tecartus.
Since oncology is one of Gilead’s major areas of concentration, the commercialization of these two treatments conveys a promising future.
While both are yet to become blockbusters, the field of cell therapy has been rapidly expanding and turning into a critical therapeutic option for certain patient categories.
Yescarta is projected to rake in $1.5 billion in revenues if it receives the FDA green light for large B-cell lymphoma
Considering that its last trial data showed off a 60% improvement with Yescarta compared to standard of care in terms of halting the disease’s progression or even death, there’s a huge possibility that Gilead will be delivering good news soon.
As for Tecartus, this treatment received approval for acute lymphoblastic leukemia last year and is aiming to expand to cover mantle cell lymphoma by July 2022.
With its list price of $373,000, this CAR-T therapy is projected to reach blockbuster status in the following months as well.
Another oncology drug anticipated to reach blockbuster status soon is metastatic triple-negative breast cancer treatment Trodelvy, which Gilead gained access to following a $21 billion deal with Immunomedics in 2020.
Given its current approved indications and the queued trials to expand its coverage, Trodelvy is projected to reach $4.7 billion in peak sales.
Going back to the 2022 revenue forecast for Gilead, I think the change is from the company’s anticipated decline in Veklury sales.
Since Pfizer, BioNTech (BNTX), Novavax (NVAX), and Moderna have been actively working on Omicron-focused vaccines and treatments, Gilead expects its Veklury revenues to shrink as well.
Overall, Gilead still presents an excellent opportunity for long-term investors.
Despite its setbacks, the company has proven that it still holds the knack of rolling out remarkable and effective best-in-class treatments.
Moreover, its pipeline is filled with promising candidates poised to deliver in the years to come. So, don’t be too quick to write off Gilead just yet.
Mad Hedge Biotech and Healthcare Letter
January 20, 2022
Fiat Lux
Featured Trade:
(A NO-BRAINER DIVIDEND CONTENDER UP FOR GRABS)
(AMGN), (ABBV), (GILD), (REGN), (JNJ)
To say that biotechnology stocks haven’t been performing well as of late is an understatement.
Over the past 12 months, the SPDR S&P Biotech Exchange Traded Fund (XBI) has recorded an over 30% loss and is anticipated to reach its 52-week low soon.
Investors have been pulling back from biotechnology stocks for several reasons like threats of drug pricing reforms in the US, the ever-increasing interest rates, and of course, the lure of rapid-growth assets such as cryptocurrencies.
Nevertheless, all is still not lost for the biotechnology sector.
The industry, in its entirety, continues to move forward with unprecedented innovations.
These groundbreaking discoveries, in turn, offer a myriad of untapped, top-value markets that will bode well for long-term investors.
This means that savvy investors would do well to make the most of this broad selloff in a highly promising segment.
One way to determine quality names in this volatile sector is to choose dividend-paying stocks.
After all, dividends are excellent sources of passive income. Apart from that, these can easily boost your portfolio if you plan to reinvest your money.
Basically, regardless of your investment strategy, choosing dividend-paying businesses can be really helpful in reaching your goals.
Among the names in the biotech industry, one that looks promising these days is Amgen (AMGN).
While Amgen’s dividend yield isn’t as high as the likes of AbbVie (ABBV) and Gilead Sciences (GILD), this pioneering biotechnology company is still a promising investment.
Recently, Amgen reported another dividend increase of 10.2%, indicating a rise from $1.76 to reach $1.94 per quarter, with the subsequent dividend expected to be payable by March 2022.
This results in an annual dividend of $7.76 and a respectable dividend yield of 3.41%.
More impressively, Amgen has been paying out dividends since 2011 and boosted its dividend not only annually but with an 11.97% in CAGR over the past 5 years.
Given the company’s history and growth trajectory, Amgen’s earnings growth rate annually in the next 5 years is estimated to be 6%, while its yearly dividend hike rate is projected at 7%.
At first glance, it’s easy to dismiss Amgen’s current standing.
In the third quarter of 2021, the company’s total revenue only reached $6.7 billion, indicating a measly 4% rise year-over-year.
A potential reason for this underwhelming growth is the pending patent cliff for some of its key products and the threat of biosimilars taking over Amgen’s target markets.
For example, cancer medication Neulasta reported a 25% decline in its sales year-over-year to contribute only $415 million in the third quarter.
Needless to say, this kind of disheartening top-line growth is partly responsible for the stock’s sluggish performance in the market lately.
However, other products in the company’s portfolio have reported much better performances than Neulasta.
There’s osteoporosis treatment Prolia, which rose by 15% year-over-year to contribute $803 million in the same period.
Even cholesterol drug Repatha showed off a 33% growth to record $272 million, while arthritis medication Otezla’s sales climbed by 13% to rake in $609 million.
On top of these, Amgen has also succeeded in developing new products that can easily provide additional revenue streams.
One of the most promising recently approved products is advanced non-small-cell lung cancer (NSCLC) treatment Lumakras, which received the US FDA green light last year.
Although there are many approved drugs for this condition, Lumakaras is the first and only treatment that targets specific mutations among non-squamous NSCLC patients.
This translates to 13% of patients suffering from that particular condition.
This is a massive market for Amgen.
Back in 2019, lung cancer was identified as the leading cause of cancer deaths in the United States.
At that time, the total was 139,603 individuals, which made up 23% of all the deaths attributed to the condition. Among the lung cancer deaths, 84% were identified to be of the NSCLC category.
So, if you put everything in perspective, the 13% patient population that Amgen exclusively holds equates to a big opportunity.
In addition, the European Union already approved Lumakras as well. This opens up yet another massive market for the treatment.
In the third quarter of 2021, Lumakras only delivered $36 million in sales. With the recent approvals and broadening of markets, this drug’s revenue is projected to rise quickly.
Aside from these products, Amgen has been working on expanding its pipeline. To date, the company has over 20 ongoing Phase 3 clinical trials.
Moreover, Amgen has decided to take a page out of the books of biosimilar developers.
As the company witnessed its own products get pummeled by biosimilars in the market, Amgen has opted to cannibalize sales of a wide range of treatments that lost their patent exclusivities.
This strategy has already delivered rewards, with the company reporting at least $2 billion in annual sales from its biosimilars in 2021.
For 2022, Amgen has three more biosimilars under development and is looking into poaching the likes of Regeneron’s (REGN) Eylea and Johnson & Johnson’s (JNJ) Stelara as well.
Despite the pandemic, Amgen has managed to extend its dividend growth streak to reach 11 consecutive years. This makes this biotechnology company an impressive Dividend Contender.
Overall, I consider this company a solid buy and an excellent long-term investment. It’s not simply an undervalued pick for value investors but also an outstanding choice for dividend investors.
Mad Hedge Biotech and Healthcare Letter
January 6, 2022
Fiat Lux
Featured Trade:
(A WONDERFUL COMPANY AT A FAIR PRICE)
(ABBV), (BRK.B), (GILD), (AMGN), (PFE)
Another year, another set of challenges and opportunities for investors. How can you make sure that you’re starting the year right?
If you’re looking to dip your toe in the biotechnology and healthcare sector, it won’t hurt to look at what the experts, such as Warren Buffett, are doing.
With a 55-year track record of 21% in annual returns for its Berkshire (BRK.B) investors, I’d say the Oracle of Omaha definitely knows his craft.
One of his most famous pieces of advice is to buy “wonderful companies at fair prices,” and I think this pearl of wisdom perfectly fits Buffett’s favored high-yield aristocrat: AbbVie (ABBV).
More interestingly, AbbVie is currently undervalued primarily due to overblown fears of patent loss for its top-selling drug Humira in 2023 and another in 2026 for Imbruvica.
Admittedly, the anxiety of investors is not entirely unfounded.
After all, AbbVie must replenish roughly $20 billion worth of annual revenue from Humira alone in the following years as the drug loses its patents and faces declining sales.
Obviously, losing revenue from a primary growth driver could be a massive problem for any company.
It could even lead to stagnating numbers in the next couple of years — a situation that the likes of Gilead Sciences (GILD), despite its $90.58 market capitalization, have become all too familiar.
Nevertheless, AbbVie isn’t simply twiddling its thumbs, waiting for the inevitable patent loss to happen.
The company has been busy preparing for the Humira and Imbruvica patent cliffs. In fact, it has been working to diversify its portfolio steadily.
One of the steps it undertook was to leverage its cash flow and $238.35 billion market capitalization to boost its R&D.
This led to AbbVie holding one of the industry’s most robust pipelines to date.
Some of the most promising products in its portfolio are Humira successors Skyrizi and Rinvoq.
Together, these two treatments are estimated to generate more than $15 billion in sales by 2025.
And AbbVie isn’t done yet.
Following its wildly successful formula in Humira, AbbVie is also looking into expanding the indications for the drug’s successors.
So far, Rinvoq has been able to deliver on this promise. Recently, this Humira successor has received FDA approval as a second-line treatment for psoriatic arthritis.
With this second indication, more and more investors are starting to believe that AbbVie has yet another blockbuster in the making.
Let’s look at the market for Rinvoq’s latest indication.
In the US alone, there are approximately 1 million to 2 million patients of psoriatic arthritis. For simplicity’s sake, let’s just say that there are 1.5 million patients in the US.
Generally, the first-line of treatment typically fails for 20% of psoriatic arthritis patients. That leads to roughly 300,000 patients who would be in need of second-line treatment.
For the sake of accuracy, it’s vital to point out that there are already a number of psoriatic arthritis treatments available in the US, such as Otezla and Enbrel from Amgen (AMGN). Moreover, JAK inhibitors are still facing potential restrictions from the FDA, thanks to the issue with Pfizer (PFE).
So, we can conservatively say that AbbVie’s Rinvoq might only be able to capture an estimated 7% of the psoriatic arthritis market share.
This translates to approximately 21,000. The annual list price for Rinvoq is at $63,000.
Taking into consideration the negotiation tactics of health insurers for price adjustments, the drug might go down to an annual list price of $44,000 instead.
Based on these conservative assumptions, Rinvoq would rake in sales of over $900 million—falling only slightly below the $1 billion blockbuster mark.
While this only hits less than 2% of AbbVie’s anticipated $56.2 billion annual revenue, this trajectory is a massive success for Rinvoq.
Bear in mind that this Humira successor has been on track to generate over $1.5 billion in sales in 2021.
Hence, adding $900 million from its psoriatic arthritis indication would offer a whopping more than 60% jump in its annual revenue.
Considering its history and trajectory, AbbVie is expected to continue to outshine its rivals in the industry.
Actually, the growth consensus for this stock is at 4% to 6.5%.
While that does not sound very impressive, it’s important to remember that the long-term growth rate for the whole industry is only 4%.
That easily puts AbbVie ahead of at least 63% of its peers in terms of growth.
Aside from the fact that this blue-chip stock is an excellent way to enjoy a solid 4.3% yield these days, the company is proving to be effective in ensuring that it delivers market-beating returns in the long run.
Needless to say, AbbVie qualifies as a classic “wonderful company at a fair price.”
Mad Hedge Biotech and Healthcare Letter
December 16, 2021
Fiat Lux
Featured Trade:
(TIME TO LOOK AT ONE OF THE LEAST FAVORED BIOTECHS)
(AMGN), (RHHBY), (PFE), (MRK), (GSK), (JNJ), (AZN)
Value investing shouldn’t be an ordeal. It definitely doesn’t have to entail scouring for a needle in a haystack. The truth is, several quality discount stocks are hiding in plain sight. Unfortunately, these have fallen out of favor with investors recently.
While the market has performed quite well in 2021, the technology sector served as the primary driving force behind this positive performance.
In comparison, the healthcare sector has been besieged with negative updates throughout the year. This resulted in a number of excellent biotech healthcare names getting undervalued, and one of them is Amgen (AMGN).
Amgen is widely known as one of the biotechnology and pharmaceutical sector pioneers, alongside Genentech, which has since been acquired by Roche (RHHBY). The company focuses on specialty biologics in the fields of blood disorders, cancer, and immunology.
To date, Amgen has a market capitalization of $119 billion and has generated $25.8 billion in revenue in the past 12 months.
This biotechnology company also holds a relatively solid and steady track record of growth, having grown its revenue by roughly 65% in the past 10 years.
Amgen has also virtually not experienced any significant dip in its sales over the same period—an impressive feat considering the slowly crowding and often tumultuous biotech space.
Looking at its EBITDA margin, or earnings before interest, taxes, depreciation, and amortization, Amgen also emerges as a superior stock compared to others in the industry.
In the past five years, Amgen’s EBITDA margin has consistently been within the 50% range. This is higher than its peers, such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), and Johnson & Johnson (JNJ), which only reached 30%, while Sanofi (SNY) recorded roughly 20%.
In addition, Amgen declared a dividend worth $1.76 per share each quarter in October. This represents a 10% jump year over year.
Then, the company opened in December with another dividend increase to reach $1.94 per share by the first quarter of 2022, showing off a 10.2% increase year-over-year.
Since 2011, Amgen has been consistent in increasing its dividend payout annually—a guarantee of the company’s robust and stable business performance.
Moreover, Amgen’s dividend yield is higher than other industry leaders as well. At present, the company offers a 3.5% dividend yield. In comparison, Pfizer gives out 2.9%, while JNJ offers 2.7%.
To sustain its momentum, Amgen has been busy bolstering its pipeline.
Thus far, the company has 58 programs under development. Of these, there are 34 queued in Phase2/3 clinical trials, while there are others submitted for regulatory approval.
One of the promising programs is its collaboration with JNJ, which combines Amgen’s Kyprolis and the latter’s Darzalex Faspro.
Just this December, the US FDA approved this combination treatment for patients suffering from multiple myeloma, a rare type of blood cancer.
In terms of profitability, Kyprolis generated $1.065 billion, and Darzalex Faspro raked in $4.19 billion in sales in 2020.
The high revenues recorded for these drugs last year are indicative of the strong demand from the healthcare industry.
This means that the approval of the combination treatment could lead to a more lucrative payout for both companies moving forward.
Another promising program for Amgen is Tezepelumab, which is a severe asthma therapy it developed with AstraZeneca (AZN).
In July, this treatment was approved for Priority Review by the US FDA. The two companies expect to submit Tezepelumab for approval to the US FDA by the first quarter of 2022.
Meanwhile, Amgen is also working on its first RNA-based treatment, called Olpasiran or AMG 890. This project is for myocardial infarction patients and will work the same way as gene therapies.
Basically, its goal is to target the relevant gene to prevent any damage. Looking at its timeline, Amgen expects Phase 2 results within 6 months.
If this RNA-based project succeeds, Amgen plans to expand its portfolio to include more than 25 first-in-class therapies and three more biosimilars based on this technology.
Doing so will equip the company with a steady revenue runway while also reinforcing its position as one of the top biotechnology companies in the world.
Overall, Amgen looks extremely undervalued these days, making it attractive given how profitable this biotech is and its prospects moving forward.
Mad Hedge Biotech & Healthcare Letter
October 5, 2021
Fiat Lux
FEATURED TRADE:
(A BIOTECH STOCK THAT LETS YOU SLEEP THROUGH THE NIGHT)
(AMGN), (AZN), (GSK), (REGN), (SNY), (MRK)
Great investors have learned that the critical element when it comes to long-term investing is concentrating on stocks that hold a profound presence in their fields and that will continue to grow in the decades to come.
In terms of trends, the best thing to do is to determine something that will affect the world by generating millions—if not billions—of steady customers.
Among the stocks in the biotech industry today, one stands out to benefit from solid future demand for its products: Amgen (AMGN).
Amgen is one of the biggest biopharmaceutical companies across the globe, holding an equity market capitalization of roughly $127 billion. Despite its size, it simply can’t quite catch a break, with its share price continuing to slide in the past week.
While short-term investors may see this as a weakness, it’s moments like these that distinguish genuine value investors from the rest.
Let’s take a look at a company that has been thrown in the bargain bin for no apparent reason, and understand why this could be our opportunity.
A recent promising addition to Amgen’s pipeline is its experimental asthma drug, Tezepelumab, which it’s co-developing with AstraZeneca (AZN).
There are approximately 2.5 million patients worldwide who suffer from severe, uncontrolled asthma, accounting for almost 50% of all asthma-related expenses in the healthcare system.
This is because the majority of the 439,000 asthma-related hospitalizations, as well as 1.3 million emergency room visits annually in the US alone, are caused by severe, uncontrolled asthma.
Moreover, it was found that 1 in 5 severe asthma patients tend to develop a benign growth called nasal polyps in the sinuses of their noses. These can end up blocking their nasal passages, worsening their breathing problems, and diminishing their sense of smell.
This is the very market that Amgen’s Tezepelumab targets to help.
Tezepelumab is the first and only treatment that focuses on the symptoms of severe, uncontrolled asthma patients.
Considering the positive results of its late-stage trials, Amgen and AstraZeneca are confident that Tezepelumab will receive regulatory approval from the US FDA by the first quarter of 2022.
When that happens, this will mark Amgen’s first-ever foray into the asthma treatment sector—and it’s entering the market with a potential blockbuster to boot.
The global asthma market is projected to grow from $20.6 billion in 2020 to $37.3 billion in revenue by 2030.
So far, the other names aiming to dominate this segment include GlaxoSmithKline (GSK), Regeneron (REGN), and Sanofi (SNY).
Considering the competition, a modest estimate is to expect Tezepelumab to seize at least 5% of the market share following its approval.
That would work out to roughly $1.9 billion in yearly revenue, divided between AstraZeneca and Amgen.
Taking into account that Amgen is forecasting its 2021 revenue to be within the range of $25.8 billion and $26.6 billion, the addition of $1 billion annually would surely move the needle.
Moreover, the cherry on top is that Tezepelumab is a clear indicator of the company’s efforts to diversify its revenue base and enter a market that it has yet to establish its presence.
Apart from Tezepelumab, Amgen has also been working on expanding its blockbuster lung cancer drug Lumakras, which generated $2.5 billion in annual sales.
To date, Lumakras is expected to emerge as a solid contender to unseat Merck’s (MRK) Keytruda in the lung cancer segment.
In addition, the company is studying how to utilize Lumakras as a potential treatment for colorectal cancer.
Amgen has also been expanding its pipeline of biosimilar candidates.
The most exciting candidates include its biologic version of Johnson & Johnson’s (JNJ) psoriatic arthritis and psoriasis medication Stelara, Regeneron’s chronic eye disease drug Eylea, and AstraZeneca’s rare disease treatment Soliris.
Even AbbVie’s (ABBV) impending loss of exclusivity for its top-selling rheumatoid arthritis drug Humira is under the company’s radar, with Amgen already prepared to launch its own biosimilar domestically in the form of Amjevita by 2023.
Getting the regulatory green light for these treatments would allow Amgen to poach on hundreds of millions, if not billions, in annual revenue from its competitors.
Apart from its pipeline candidates and strong performance in niche segments, Amgen has demonstrated a solid track record when it comes to capital returns via share buybacks.
In the second quarter of 2021 alone, the company has splurged on 6.5 million in shares repurchases. Amgen expects to reach a total of $3 billion to $5 billion in total repurchases throughout the year.
This strategy has pushed Amgen in its goal to continuously deliver market-beating returns in the past decade, as shown by its 451% total—overtaking the 384% return of the S&P 500.
Buying shares of a company when it’s declining can be an excellent step to set yourself up for future gains when the stock bounces back.
However, not all struggling stocks can recover.
So, it’s crucial to determine the reason for their fall. If the business itself is stable and solid, a decline in value might just be the opportunity you need to invest.
The truth is, nothing has actually changed when it comes to Amgen’s long-term stock growth prospects. It's still the company with a slew of top-selling products and more pipeline candidates expected to become blockbusters in the coming years.
All told, Amgen holds roughly 20 revenue-generating products in its diverse portfolio, and not a single drug accounts for over 20% of the company’s continuously rising top line.
Overall, I think Amgen is an A-rated company with a reasonable yield and a promising upside.
