Mad Hedge Biotech & Healthcare Letter
December 12, 2019
Fiat Lux
Featured Trade:
(THE STAMPEDE INTO BIOSIMILAR DRUGS),
(BIIB), (NOVN), (REGN), (ALXN), (NITE), (PFE), (AMGN), (MRK)
Posts
It’s been roughly a year since Biogen (BIIB) tightened its partnership with Samsung Bioepis and the Massachusetts-based biotech giant handed over an additional $100 million to funnel new programs to its own growing biosimilars pipeline.
On top of the upfront payment, the South Korean company is also eligible to gain up to $210 million depending on milestones achieved plus a $60 million fee if Biogen chooses to exercise its option in Europe. This comes in the heels of the $700 million it paid Bioepis in 2018 in an effort to boost its stake to 49.9% in their joint venture in the biosimilar space.
How has that gone?
In return, Biogen brought home two new ophthalmology biosimilars. One is a knockoff of Novartis AG’s (NOVN) prized Lucentis and the other is Regeneron Pharmaceuticals’ (REGN) top-selling Eylea. The terms of the recent deal give Biogen the exclusive commercialization rights worldwide.
Here’s a quick summary of the differences between biosimilars and generics.
Generics are identical versions of brand name products that lose patent protection. Biosimilars are considered as brand name products. However, these are highly similar to those existing branded drugs available in the market. The competitive edge of biosimilars against the “original” brand name products is the fact that they can deliver equivalent results at cheaper alternatives.
This latest update on Biogen’s partnership with Bioepis is dubbed as the “second wave” of biosimilar candidates joining the Biogen lineup. Aside from the Lucentis and Eylea biosimilars, Alexion Pharmaceuticals (ALXN) red blood cell treatment Soliris is also expected to join this batch.
Apart from that, the company can also commercialize a number of anti-tumor necrosis factor drugs in China with the list including plaque psoriasis drug Imraldi, rheumatoid arthritis treatment Benepali, and Crohn's disease medication Flicabi. Both companies have left their options open to potentially expand their current agreement in Europe for an additional five years.
Biogen’s first aggressive foray in the eye diseases sector was signified by its acquisition of clinical-stage gene therapy company Nightstar Therapeutics (NITE) earlier this year. At the time, the smaller company has already attracted attention for their research on rare retinal disorders.
Despite the promising announcements though, some investors remain wary of this growth direction Biogen has decided to pursue.
A commonly voiced concern is the issue of the production timeline, especially since neither biosimilar drug from the new deal has actually completed clinical trials to prove their efficacy compared to the reference drugs. At this point, the Lucentis biosimilar is in Phase 3 testing while the Eylea copycat is still in the preclinical phase. Patent issues are notable roadblocks as well.
Regardless of the issues, Biogen appears to be set on this track. Even before the “second wave” was implemented, the company has already presented a convincing lineup of biosimilars. A look at its third quarter earnings report showed that the biosimilars lineup managed to generate almost $184 million during that period alone, with copycat versions of Enbrel, Remicade, and Humira taking the lead in sales.
The biosimilars movement remains strong among biotech and pharmaceutical companies. Unlike in the generic drug sector, the leaders of the biosimilar movement are also the big names in the “branded” products market.
In fact, biotech heavyweights eagerly jumped at the opportunity to become frontrunners in the move to cut down on the staggering costs of branded medicine. Novartis has quickly developed its biosimilars arm, with Sandoz AG quickly taking over the European market.
Pfizer’s (PFE) partnership with South Korean biosimilar developer Celltrion Healthcare as well as its $17 billion acquisition of generic injectable pharmaceuticals producer Hospira in 2015 signify its plans to emerge as a strong contender in this sector. Even Amgen (AMGN) and Merck & Co. (MRK) have cranked up notable biosimilar development programs to join the race.
Needless to say, the biosimilar rush is all the rage right now. Big biotech companies have already learned their lesson on how the generic drugs business practically took over the pharmaceutical market, growing to almost 90% of overall prescriptions filled but only accounting for less than 30% of the total expenses. Plus, it’s also clear that big money is being made from blockbuster biologics.
Mad Hedge Biotech & Healthcare Letter
December 5, 2019
Fiat Lux
Featured Trade:
(WHY 1 + 1 = 4 WITH THE BRISTOL MYERS/CELGENE MERGER),
(BMY), (CELG), (AMGN)
The treasure trove of Bristol-Myers Squibb’s (BMY) growth products expanded considerably following the completion of its $74 billion merger with Celgene (CELG). This deal marks the end of a long chapter in the industry’s history, as Celgene, founded way back in 1986, was one of the first biotech companies created.
From a financial standpoint, the combined company is hailed as one of the most exciting powerhouses of profitability until at least 2023. As things stand, the newly minted biotech behemoth is trading at roughly nine times forward earnings.
The current company also offers an attractive dividend yield of 2.9% -- and that’s not even the best part of the news. The most exciting part of the deal is the fact that the new company now owns one of the most valuable oncology franchises in the biotech sector.
Under the terms, Celgene shareholders got the following for every share: 1.00 share of BMY common, cash worth $50 without interest, and one Contingent Value Right (CVR) they can trade. If they choose to not trade it, then the Celgene shareholder will receive payment of $9 in cash depending on future milestones achieved. As for (BMY), the company received $13.4 billion following Celgene’s sale of blockbuster psoriasis and psoriatic arthritis drug Otezla to Amgen (AMGN) as part of regulatory requirements.
The CVRs are contingent on three drugs in Celgene’s pipeline. One is the multiple sclerosis treatment Ozanimod. Another is a liso-cel lymphoma drug, which is expected to get the green light by December 31, 2020. The third is multiple myeloma treatment bb2121, which is eyed for approval by March 31, 2021.
Ozanimod actually has a high chance of winning an FDA approval by early 2020. The drug’s peak annual sales is expected to be in the ballpark of $5 billion. Meanwhile, Celgene’s liso-cel treatments are anticipated to rake in an additional $4 billion or so in annual sales. The company’s recently approved Reblozyl is also estimated to tack on another $2 billion in peak sales.
Celgene’s CelMOD treatments, which are in their early-stage clinical studies, could be massive moneymakers as well. Another cell therapy under development with Massachusetts-based gene therapy developer bluebird bio (BLUE), bb21217, is also projected as a big winner.
While the Celgene cancer pipeline is promising, the company came into this union with a number of already top-selling oncology drugs like multiple myeloma medication Revlimid as well as blood cancer treatments Inrebic and Pomalyst.
As for BMY, the biopharma giant also has its own high-profile lineup led by leukemia target therapy Sprycel, atrial fibrillation treatment Eliquis, advanced stage lung cancer injection Opdivo, and metastatic melanoma treatment Yervoy.
In fact, Opdivo and Eliquis are projected to rank as among the highest-selling drugs globally in the succeeding years.
Although some BMY investors are voicing concerns over the impending sales decline for Revlimid courtesy of generic rivals by 2022, Celgene’s new candidates and already top-performing drugs could still give the combined company a firm growth runway.
Hence, BMY and Celgene have effectively built a prodigious economic moat that practically eliminates any fear of competition in several crucial areas. This is not to say that particular products won’t experience the usual rise and fall in sales. It simply means that BMY’s overall oncology portfolio wouldn’t exactly encounter major problems when it comes to income generation and growth in the years to come.
In a broader sense, the newly formed company should be able to withstand any slowing down in the economy. Cancer patients need continuous medication, and it’s highly unlikely that they would choose to put a stop to their treatment simply because the economy is taking a downturn. Consequently, this makes BMY one of the safest plays in the market right now.
Keep buying (BMY) on dips. There is far to go.
Since I first recommended this stock two months ago, it has risen a ballistic 35%. In fact, so have most of our other Biotech and Healthcare recommendations.
Vertex Pharmaceuticals Inc. (VRTX) is the unequivocal king of the genetically rare lung condition cystic fibrosis (CF). To further prove its stronghold of the market, the company recently received FDA approval for its fourth CF treatment called Trikafta — five full months ahead of schedule and merely three months following the company’s application.
In a few weeks, the drug will be available in pharmacies carrying a price tag of $311,000. This puts Trikafta somewhere in the range of another prized Vertex CF treatment, Kalydeco. Sales of this newest drug is estimated to reach $4.6 billion by 2023 and more than $6.6 billion by 2025, with the drug projected to hit its peak at $10 billion by the second half of 2020.
Hence, this latest addition to Vertex’s pipeline practically guarantees the company’s supremacy over the lucrative multi-billion-dollar sector for the next decade or so. More importantly, sales from this CF drug could — at the very least — double the annual revenue of Vertex.
The projected earnings of Trikafta places it in the blockbuster tier as early as 2020, with the drug anticipated to be marketed as a treatment with a “whole new level” of efficacy compared to the earlier CF medications released by Vertex. With this new addition, the company can now reach 90% of CF patients in the United States — a huge leap from 50% it’s currently allowed to treat.
However, the launch of Trikafta is a bittersweet deal with Vertex as sales of older CF treatments are anticipated to weaken. In particular, the company expects Symdeko and Orkambi to eventually fade away from the market as more and more patients opt for the newer and more potent Trikafta.
Despite the impending success of Trikafta, it appears that Vertex has no intention of letting up. Since its CF products have translated into healthy profits in the past four quarters and a whopping $950 million in the third quarter alone, it’s no wonder the company continues to work on new offerings for this market.
Even with the weakening sales of Symdeko, the performance of CF drugs in the most recent earnings report showed a 21% jump over the same period in 2018. To date, the company has three additional treatments submitted for Phase II trials.
Beyond the CF realm, Vertex has also been looking to expand in other sectors. One of its exciting partnerships is with gene-editing company CRISPR Therapeutics (CRSP), another one of our core recommendations. (CRSP) has only doubled since September.
The two companies have been working closely to come up with game-changing treatments that could pioneer therapies for rare conditions like sickle cell disease, Duchenne muscular dystrophy, and beta thalassemia. All three of these orphan designation drugs have the potential to turn into blockbuster treatments.
For 2019, Vertex projects a product revenue somewhere between $3.70 billion to $3.75 billion. Meanwhile, its full-year earnings per share is estimated to be $4.77, which is a 17% increase from last year’s report.
A clear downside of Vertex is the fact that it’s one of the most highly valued stocks in the biotech industry at 31.1 times forward earnings. Nonetheless, a long-term study of the company’s performance would show that the shares are actually grossly undervalued even at their present-day levels.
After all, this biotech stock has the potential to triple or even quadruple its yearly revenue over the next five years or so especially if its partnership with CRISPR Therapeutics comes into fruition.
Overall, the growth and profitability profile of Vertex makes it an attractive stock to own. Add to that its promising pipeline and you have one of the most attractive names in the biotech sector. Hence, now is the ideal time for investors to buy Vertex shares as you can confidently bet on its dominance on the CF market as well as its exciting gene-editing ventures and potential revenue stream.
Keep buying both (VRTX) AND (CRSP) on the next substantial dip.
Mad Hedge Biotech & Health Care Letter
November 28, 2019
Fiat Lux
Featured Trade:
(THE BATTLE FOR YOUR HEART IS ON),
(NOVN), (MDCO), (SNY), (AMGN), (TAK)
The rumors are confirmed. Novartis AG (NOVN) has no plans of sitting out the lucrative heart treatment race. The Swiss biopharma giant made its presence known via a $9.7 billion takeover of The Medicine Company (MDCO), putting Sanofi SA (SNY), Amgen (AMGN), and Regeneron Pharmaceuticals (REGN) on high alert for some major league rivalry.
This takeover signifies the latest attempt by Novartis to redirect the future of the company, which currently has a market value of $203 billion through a number of takeovers, mergers, and disposals.
Novartis will be paying $85 in cash for every share, marking a 24% premium over The Medicine Co.’s recent closing price. In return, Novartis will gain control of the smaller biotech’s experimental cholesterol-lowering injection Inclisiran. This breakthrough treatment is currently being prepared for US approval by the end of 2019. Meanwhile, the company will mark the first quarter of 2020 with an EU filing for the treatment.
The pricey bid puts Novartis at the forefront of a market where at least one drug, high cholesterol treatment Repatha, is projected to give Amgen another blockbuster by 2021. Another similar challenger is Sanofi and Regeneron’s joint cholesterol-lowering drug Praluent. So far, these companies have been pounding away to carve out markets with steep prices.
Unfortunately, payer resistance fueled by the estimated patient population affected has been dragging their sales revenue. To add to that, prices for both medications have been limited to somewhere around $6,000 annually.
This is where Novartis’ partnership with The Medicines Company comes in handy.
To be effective, Inclisiran is only needed to be injected twice yearly to patients. This is a far cry from the 26-injection procedure required by both Amgen’s Repatha and Sanofi and Regeneron’s Praluent. The key to Inclisiran’s potency is a technology involving gene silencing or RNA interference, which basically limits “bad cholesterol” production.
Needless to say, Novartis offers an attractive option to over 58 million patients in the United States alone who cannot keep their “bad cholesterol” at bay given the current standard of care. If it gains approval, the company is looking at annual peak sales of roughly $4 billion, with Inclisiran expected to start contributing to their revenue by 2021.
Apart from that, Inclisiran is anticipated to complement Novartis’ existing combination heart failure drug Entresto, which topped the $1 billion yearly revenue threshold in 2018.
Entresto isn’t the only foray of Novartis in the cardiovascular market. Prior to this blockbuster drug, the company led the sector with high blood pressure medication Diovan, which used to rake in $6 billion annually until 2012 when it lost its patent protection.
Now, Novartis appears to be ensuring that history does not repeat itself. That is, the company has been actively seeking acquisitions in an effort to bolster its drug pipeline and portfolio with promising products and groundbreaking technologies.
While this latest deal with The Medicines Company sounds promising, Novartis remains on guard as it looks for alternatives, especially with the upcoming patent expirations of some of its main moneymakers like eye medication Lucentis, genetic blood disorder drug Exjade, and multiple sclerosis treatment Gilenya.
This deal with The Medicines Co fits hand-in-glove with the type of diversification and development projects that Novartis has been pursuing as of late. These deals include the $8.7 billion AveXis (AVXS) agreement, which allowed Novartis access to a landmark gene therapy for spinal muscular atrophy.
Prior to that, the giant biopharma acquired nuclear medicines business Advanced Accelerator Applications (AAAP) for $3.9 billion in 2017. A $2.1 billion deal with target cancer therapy maker Endocyte (ECYT) followed in 2018. Earlier this year, Novartis completed its $5.3 billion acquisition of dry eye treatment Xiidra from Takeda Pharmaceutical (TAK). So far, the Swiss giant has already spent $27.5 billion in its deal spree -- and the company isn’t going to stop anytime soon.
I know I’ve said this already, but keep buying (NOVN) on dips.
Mad Hedge Biotech & Health Care Letter
October 22, 2019
Fiat Lux
Featured Trade:
(SPECIAL CANCER ISSUE - PART 1)
(BMY), (MRK), (CELG), (AMGN), (ROG), (MRTX), (INCY)
Multiple times every year, leading oncology researchers gather to share and discuss the latest developments in the field. During these events, biotech companies actively seek ways to snatch top billing, hoping to amp up their value not only within the industry but also to the public.
Needless to say, company stock prices tend to fluctuate dramatically based on the data and whether or not the companies lived up to the hype of their studies. Hence, these events have turned into must-attend conferences among the healthcare industry leaders and even institutional investors.
For everyday investors though, it’s too impractical to even consider the possibility of attending these grand shindigs. This is why we’re sharing with you a list of companies that are currently making strides or are anticipated to dominate the cancer research and treatment market in 2019 and in the years to come.
Bristol-Myers Squibb (BMY)
As always, no other field has been watched more intensely than the lung cancer market -- an area considered as the most lucrative in the immuno-oncology circle. In the recently concluded European Society for Medical Oncology Congress in Barcelona, all eyes were on the up-and-coming Opdivo/Yervoy combo of Bristol-Myers Squibb (BMY).
In the recent data it presented, Bristol disclosed that the combination of its cancer drugs Opdivo and Yervoy provided promising results to melanoma patients. According to their study, over 50% of melanoma patients survived after five years which is a huge leap from the 5% survival rate recorded over the same period prior to the introduction of immunotherapies.
With the company’s recent moves to beef up its cancer portfolio, the Opdivo/Yervoy combo is anticipated to turn into a strong competitor of Roche Holding Ltd. Genussscheine’s (ROG) Tecentriq. This combo also reinvigorates the ongoing rivalry between Bristol and Merck & Co. (MRK), with Opdivo/Yervoy aiming to dethrone the latter’s major moneymaker Keytruda.
However, this isn’t exactly the first time Bristol showed interest in dominating the oncology market. Wielding the power of its $81.05 billion market value, Bristol has signified its aggressive stance in pushing for the expansion of its cancer department.
The most highly publicized news from this front came in January this year courtesy of its announcement involving a $74 billion merger with Celgene Corporation (CELG). Now, it appears that we’re seeing the first of Bristol’s efforts to bolster its cancer drug lineup.
Although Bristol has been underperforming compared to its competitors for the majority of 2019, the stock has actually surpassed its rivals by roughly 5% in September. Following its 52-week low in July, the company has performed steadily higher to currently trading 6.5% below its 2019 high.
Hence, traders should be vigilant as a dip to a short-term trendline in the next weeks could offer a suitable entry point to eventually take advantage of the upside momentum.
Amgen (AMGN)
Another oncology frontrunner is Amgen (AMGN). The biotech giant recently presented its data on experimental treatments AMG 510 and AMG 160, which target some forms of colorectal cancer. So far, AMG 510 has provided higher response rates at 3% for patients across all levels of dosage.
These drugs form part of the rising trend of precision medicines, which zero in on particular gene mutations. This method is anticipated to be able to ward off cancer cells regardless of the organ where the disease originated.
In September, Amgen shared that the drug managed to shrink tumors by almost 50% during the trial period for advanced non-small lung cancer patients. Meanwhile, the drug’s disease control rate was recorded at 92%, with patients capable of tolerating AMG 510 without any dose-limiting toxicities.
These results prompted the FDA to send AMG 510 for “fast track” review. Aside from their own study, Amgen is also looking at a possible combination with Merck’s Keytruda in an effort to bolster its foothold in the lung cancer front.
If Amgen succeeds in the application of AMG 510 to colorectal cancer patients, the drug will be the first-ever approved treatment to target a mutated form of a gene commonly referred to as KRAS. This particular mutation called KRASG12C is prevalent in approximately 13% of non-small cell lung cancers, 3% to 5% of colorectal cancers, and almost 2% of solid tumor cancers.
In terms of revenue, the success of AMG 510 could lead to annual sales of $3 billion in the United States alone and $6.4 billion internationally. Aside from Amgen, Mirati Therapeutics Inc. (MRTX) has been actively pursuing treatments that aim to treat KRAS mutations as well.
Incyte Corporation (INCY)
At first blush, Incyte (INCY) is regarded as simply another young company striving to make a name for itself in the massive biotech market. Despite the success of bone marrow disorder drug Jakafi, a lot of investors still believe that the company only managed to stumble its way to growth. In fact, even those who actually started to invest in this biopharma firm still somehow see it as a company with an extremely limited potential.
Unfortunately for these investors, they’re missing out on a crucial detail. Although Incyte’s trajectory isn’t exactly moving at a blistering pace, the steady revenue growth of the company in 2019 is a strong indicator of meaningful profits in the succeeding years.
This growth would eventually land the company in the watchlist of every biotech investor, with the company stock already gaining 18% this year alone to boost its $16.10 billion market value.
One of the most exciting developments from Incyte is its bile duct cancer research which led to a potential oncology blockbuster drug Pemigatinib. So far, 36% of its test patients saw their tumors shrink with a preliminary median overall survival of 21.1 months.
Despite the promising results though, the company cautions on the modesty of its projected revenue as Pemigatinib specifically targets cholangiocarcinoma, which is a rare type of bile duct cancer. Incyte plans to submit the drug for review to the FDA before the year ends.
For now, Incyte is focused on the commercialization and development of its existing moneymakers. Aside from Jakafi, the company is also making waves in the rheumatoid arthritis market with Olumiant. Its myeloid leukemia treatment Iclusig is another potential golden goose on the rise as well.
So far, Incyte’s share price has been trading at approximately $15 range since April. The past two months showed a pullback though, with the stock finding key support from the lower trendline of the trading range at $72. For investors who intend to open a long position within these levels, you should set your take-profit order somewhere near $88. However, simply cut your losses if Incyte stock fails to hold $72 support.
Global Market Comments
October 17, 2019
Fiat Lux
Featured Trade:
(UPDATING THE MAD HEDGE LONG TERM MODEL PORTFOLIO),
(USO), (XLV), (CI), (CELG), (BIIB), (AMGN), (CRSP), (IBM), (PYPL), (SQ), (JPM), (BAC), (EEM), (DXJ), (FCX), (GLD)
