Mad Hedge Biotech & Healthcare Letter
October 8, 2019
Fiat Lux
Featured Trade:
(GET ON THE CELGENE BANDWAGON),
(CELG), (BMY), (GSK), (AMGN), (RHHBY), (ROG), (GMAB), (MOR)
Posts
If you’re looking for a biotech stock that just relentlessly grinds up every day, Celgene Corporation (CELG) has to be at the top of your list, one of the most dominant players in the industry today.
Thanks to its $74 billion merger with Bristol-Myers Squibb (BMY), the combined companies are expected to push out Amgen in the top spot by 2020. Perhaps a positive indicator that things are looking up is the 50.9% rise in Celgene stock this year.
While the deal with Bristol has been predictably riddled with setbacks and delays, the sale of blockbuster arthritis drug Otezla to Amgen last month over antitrust concerns has finally pushed the merger forward.
While waiting for the merger with (BMY) to be finalized by the end of 2019, Celgene has been busy coming up with ways to attract more investors.
One of the exciting efforts of the biotech giant is its recent collaboration with Immatics Biotechnologies. Celgene joins GlaxoSmithKline (GSK) in the T-cell treatment market. With these two behemoths providing resources for this field, researchers are hopeful that a breakthrough drug will be discovered soon.
This partnership with Immatics saw Celgene shell out $75 million to gain access to three of the smaller firm’s anti-cancer adoptive cell therapies. With Immatics’ focus on T-cell treatments, the collaboration with Immatics will provide Celgene a wider pool of candidates for their solid tumor programs.
Aside from the $75 million upfront payment, Immatics will also receive $505 million in milestone payments for every licensed drug if Celgene decides to exercise the option. That means Celgene will have the opportunity to pay for the full or partial rights on selected assets developed from the T-cell therapies.
Ideally, Immatics would earn over $1.5 billion from the collaboration plus tiered royalties on net profits. As for Celgene, the biotech company will share the rewards with Bristol-Myers.
This collaboration marks the biggest upfront payment received by Immatics since its creation in 2000. The company, which is a spinoff of Germany’s University of Tübingen, adds Celgene to its growing number of partners including Amgen (AMGN), Roche Holding Ltd.(RHHBY), Genussscheine (ROG), Genmab (GMAB), and Morphosys (MOR).
The Munich company’s work on adoptive cell treatments and bispecific antibodies also generated interest from the cancer center of the University of Texas.
Since its creation, Immatics has managed to raise $220 million in venture capital plus roughly $130 million in non-dilutive funding. The Celgene deal puts the company’s total capital at $420 million.
So far, Celgene has reported three quarters of consistently accelerating earnings per share increase and a quarter of notable sales growth. However, the Bristol-Myers deal has yet to be completed. More importantly, some blockbuster products face uncertain futures due to rival copycats.
One major factor contributing to the doubts surrounding the company’s future is the recent sale of Otezla. Since this drug has been Celgene’s major moneymaker for years, it remains to be seen how the company will cope with its loss.
Aside from Otezla, another Celgene blockbuster facing pressure is blood cancer treatment Revlimid. While the multiple myeloma drug reported an 11.4% jump in its second quarter sales this year, the company has yet to fully safeguard it from the patent challenges aiming to end its reign in the market.
While the effects of the Immatics collaboration and the recent developments on the Bristol-Myers merger have yet to concretely manifest themselves, Celgene is expected to display strength when the next earnings release of 2019 draws nearer.
In the third quarter report, the company is projected to post an earnings per share of $2.73. This would indicate a 19.21% year-over-year increase. Meanwhile, its earnings per share for the full year of 2019 is expected to rise by over 23% to reach $10.91. As for its revenue, Celgene is estimated to earn $17.44 billion this year, marking a 14.11% rise from 2018.
In terms of its merger with Bristol-Myers, the two pharmaceutical giants are anticipated to have a combined total of 10 drugs already in the late-stage testing phase and six drugs ready to be released soon.
Additionally, the companies disclosed that they have roughly 50 drugs slated for early and mid-stage testing. Among those, 21 are reported to be focused on oncology treatments.
Buy Celgene on the next 5% dip in the shares. It seems to be on a tear.
Global Market Comments
October 3, 2019
Fiat Lux
Featured Trade:
(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)
(AI AND THE NEW HEALTHCARE),
(XLV), (BMY), (AMGN)
The first major industry to be fundamentally disrupted by artificial intelligence will be healthcare, America’s last 19th-century industry.
Major diseases are being cured at such a dramatic pace that if you can survive the next decade, chances are you can live forever.
DNA is the software of life and spending $3 billion to decode it by 2003 was the best investment the U.S. government ever made.
These are the opinions expressed by longtime friend Dr. Ray Kurzweil. These ideas may seem like the ravings of a mad lunatic. However, Kurzweil long ago became used to such criticisms. The funny thing is, his very long-term predictions have a nasty habit of coming true.
For Kurzweil is the head of engineering at Google (GOOG), the co-founder of the Singularity University, and an early AI evangelist.
The outer shell of the human brain, the neocortex, is where we do all of our higher thinking, problem-solving and imagining. It first appeared in our pre-mammalian ancestors some 200 million years ago.
The neocortex enjoyed a sudden growth spurt 2 million years ago for reasons no one understands. Maybe that’s when we came out of the trees. This gave homo sapiens a huge advantage over all other life forms on earth.
The next step in our intellectual evolution will be carried out by AI. By connecting our neocortex to the Internet, we will improve our intelligence by a billion-fold. Imagine everyone you come in contact with is a billion times smarter than they are today.
Ironically, such advances in human bionic connections have been greatly advanced by our recent wars in the Middle East, which created large numbers of quadriplegic veterans desperate for contact with the outside world.
Defense research dollars have poured in to meet this need. Last year, I saw a classified video of a disabled soldier operating a computer just by thinking about keystrokes.
Kurzweil calls such a connection the Singularity, where humans and computers become one. He envisions this taking place on a large scale by the mid-2040s.
We already know how this will affect civilization because the billion-fold improvement in intelligence is already available in our hand in the form of a smartphone. All that is missing is the human/machine connection.
Over the past 1,000 years, human life expectancy has improved fourfold, from 19 to 80. As a result, a raft of new diseases has appeared only in the past century that show up late in life, such as cancer, diabetes, arthritis, Parkinson’s disease, and dementia.
The problem with this is that a millennium is but a nanosecond in the course of human evolution. Human T-cells have not had the time to evolve to fend off an attack from a cancer cell, which is why the disease is ravaging the human race today. Cancer rates are up exponentially from the 19th century.
Fortunately, there is a way to speed up the evolutionary process. Microscopic nanobots the size of red blood cells can be designed to go after specific cancers, and then injected in swarms in your bloodstream to attack them.
Such technologies require precise manufacturing at the atomic level and will be available in the early 2030s. I have seen pictures of such nanobots myself under an electron microscope in the scientific literature.
Alternatively, with some diseases, such as diabetes, all we need to do is to reprogram our software (DNA) to produce more insulin. This can be done with monoclonal antibodies, whereby a length of bad DNA is excised and a good one installed.
By the end of 2017, the Food and Drug Administration had approved nearly 100 such molecules to deal with a whole range of genetic diseases. Click here for the list.
Such advances will soon lead to what Kurzweil calls “Longevity Escape Velocity,” where advances in medical research are taking place faster than the natural aging process. Then we will only have to deal with senescence cells, which are internally programmed to turn themselves off at a certain age. Presumably, monoclonal antibodies will be able to turn these back on as well.
Of course, the investment implications of all of this will be prodigious. Perhaps, that’s why the shares of the entire healthcare sector (XLV) and big pharma (XPH) have been on an absolute tear for the past two years.
I believe that technology and healthcare stocks will overwhelmingly be the major outperformers over the next two decades. We are seeing the profits from these revolutionary advances sill into companies such as Pfizer (PFE), Bristol Myers Squibb (BMY), and Merck (MRK).
However, all the healthcare advances in the world are not going to help you if you keep eating cheeseburger for lunch every day. One study I always like to cite took place during WWII when the global food supply shrank dramatically, and everyone was put on a strict mandatory diet. The incidence of every major disease fell by 30%.
At the end of the day, plenty of sleep, healthy eating, and exercise will always remain the greatest life extenders. Kurzweil himself has been an ardent vegetarian for most of his life.
As for me, I rather have a good steak once a month and settle for living only to 120.
Keep renewing those newsletter subscriptions!
The Next Cancer Cure?
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)
You can’t watch a game without a program, and the lineup for biotech and healthcare is truly astonishing. No surprise then that the fields account for more or less than 17% of US GPD.
Here is a listing of the biggest $100 billion plus products you have never heard of. The good news is that you have just stumbled across a sector that will generate no less than a staggering $1.4 trillion in sales over the next five years.
That means it’s certainly worth your time getting to know this field. With this amount at stake, it’s no wonder companies manufacturing these blockbuster drugs are sparing no expense to fight off patent vultures.
A good example is Amgen (AMGN), which recently won its case to extend the patent life of rheumatoid arthritis biological Enbrel against Novartis AG’s (NOVN) biosimilar arm Sandoz. Since each extra hour added to patent life means millions of dollars (and sometimes billions) in sales, the additional 10 years of exclusivity for Enbrel is a massive victory for Amgen.
In a recent study released by Evaluate Pharma, Enbrel was ranked third in the top 10 biggest sellers up to 2024. The forward-looking consensus projection anticipates Amgen’s golden goose to hit roughly $140 billion in total revenues in five years – a truly impressive performance particularly for a drug that has been around for more than 20 years. However, Enbrel’s longevity pales in comparison to the other behemoths in the biopharma realm.
Up until 2018, Pfizer’s (PFE) Lipitor held the title of earning the highest lifetime sales in the industry. Since its launch in 1997, the cholesterol drug has raked in $164.4 billion in revenues so far with the number estimated to reach $180 billion by 2024. Lipitor’s success is highlighted more by the fact that it's under a small molecule status and holds approval for a very narrow indication.
Overtaking Lipitor to take the top spot is AbbVie’s (ABBV) rheumatoid arthritis treatment Humira, which closed with $20 billion in sales in 2018 alone. While some AbbVie investors frown upon the over-reliance of the company on Humira, it appears that the efforts to protect the drug has paid off big time.
With patent protection (132 approved patents!) safeguarding its exclusivity in the market, Humira is projected to reach a total of $240 billion in revenues by 2024. Clearly, the rewards they’ve been reaping show no signs of abating anytime soon.
More importantly, Humira’s robust sales, which makes up almost 70% of the company’s profits, has provided AbbVie with the financial capacity to finally get out of the shadow of parent company Abbott Laboratories (ABT) and come up with its own pipeline. As it happens, AbbVie’s efforts towards this direction have already started with the massive purchase of Allergan (AGN) for $63 billion this year.
Apart from Lipitor, Humira, and Enbrel, there are three more blockbuster products with sales that hit the $100 billion mark as of 2018 -- a figure that would make Ecuador proud to claim as their annual GDP. These are Roche Holding Ltd. Genussscheine’s (ROG) chemotherapy drug Rituxan, Amgen’s anemia treatment Epogen, and GlaxoSmithKline’s (GSK) asthma medication Advair.
One biopharma bestseller that leapfrogged a lot of other drugs in the market is multiple myeloma medication Revlimid -- aka the drug that built Celgene (CELG). With an entry date of 2008, this drug is the newest one on the list. While Revlimid’s sales are impressive, what’s actually quite exciting is the fact that its projected revenues easily outstrip its already notable sales of $53.69 billion.
By 2024, this Celgene blockbuster is estimated to reach $123.64 billion in sales. There’s a caveat to this though as Revlimid’s success in the years to come is dependent on how Celgene plans to deal with generic competition chomping at the bit and ready to attack once the drug reaches its 2022 patent expiration date.
Another big-ticket drug that might see a bit of a decline in sales soon is from Johnson & Johnson (JNJ). While the company has always been aggressive when it comes to dominating the market for its Crohn's Disease drug Remicade, an investigation by the Federal Trade Commission (FTC) might put a damper on things soon. According to recent reports, JNJ has been suspected of contracting payers to ensure market control and stave off competitors.
Meanwhile, the three horsemen of Roche, namely, Rituxan, cancer and eye disease medication Avastin, and breast cancer treatment Herceptin, reached a collective amount of $365 billion in total sales. These three are anticipated to stay put on top of the industry in the next five years as well, thanks to their competitive pricing and aggressive strategies to protect their patents.
Rounding out the list is Amgen’s Epogen, which is expected to add $107.90 billion to the already astounding $115.87 billion it generated for the company. Meanwhile, GSK’s Advair, which brought in $113.61 billion, is expected to pour in an additional $104.20 billion by 2024.
Interestingly, the majority of the top 10 franchise drugs are biologics except for Sanofi’s (SAN) ulcer treatment Zantac, Bristol-Myers Squibb Co’s (BMY) heart medication Plavix, Advair, and of course, Lipitor. In fact, this is considered as the primary reason for their capability to fight off potential copycats for years.
In some cases, their monopoly of the market has allowed them to expand to include various other indications in their coverage. The massive sales of biologics are also rooted in their ability to demand big-ticket reimbursements. Unlike their generic competitors, brand recognition alone makes it more convenient for patients to ask for compensation.
Needless to say, the success stories of these drugs make it quite obvious why these biopharma companies employ a battalion of legal experts to fend off the rise of generics. While the onslaught of biosimilars cannot be helped, these lawyers ensure that patients opting for these versions of the medication would find it incredibly difficult to ask for biosimilar reimbursements.
The Winner So Far
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
July 17, 2019
Fiat Lux
SPECIAL BIOTECH ISSUE
Featured Trade:
(FIVE BIOTECH STOCKS TO BUY AT THE BOTTOM),
(SPY), (VRTX), (JNJ), (ISRG), (CELG), (BMY), (AMGN), (ILMN)
No sector has been beaten, maligned, and abused more than the biotech sector in recent years. However, some of them are so bad they’ve become good, which piques my interest.
Investing in biotech stocks is not for the faint of heart. The road to developing and commercializing new drugs is long and riddled with hard battles, and an anxious investor won’t be able to sleep at night.
However, the returns offer incredible gains when everything falls into place. In this sector you’re almost buying lottery tickets rather than investing in shares.
In 1919, the term "biotechnology" was coined by a Hungarian agricultural engineer named Karl Ereky to define the merging of two industries: biology and technology. Almost a century later, Ereky's vision has been realized with thousands of products and services available in the biotech market today.
Despite the advancements of this industry though, the majority of the buy-and-hold investors choose to steer clear of biotech stocks -- and for sensible reasons.
It's no secret that investing in biotechnology firms can be unnervingly risky. Since its advent, investors have been regaled with horror stories of costly stage three drug trials going bust or plummeting stock prices due to the expiration of critical patents. Needless to say, these stories have soured would-be investors on the whole biotech world.
However, inadequate information and a lack of understanding of how the biotech industry really operates along with reliance on the performance of only a handful of biotech stocks may have caused investors to miss out on attractive risk-reward relationships. Not all biotech investments lead to disastrous results.
You may be surprised to learn that shares of the biotech industry has collectively gone up by approximately 70% in the past five years. This proves just how much these biotech companies rewarded their enduring. Success in biotech investing is simply a matter of buckling down to do your homework and applying a tad of common sense.
Throughout this decade, one sector has managed to outperform the S&P 500 index (SPY) in terms of total return annually: the healthcare sector. While there's no guarantee that healthcare stocks will go on to beat the S&P 500 in the years to come, the fact remains that people will continue to need medicines as well as healthcare services regardless of the country's economic status. The increasing reliance of the healthcare industry on technology has put the biotech industry smack dab in the center of all these demands.
I’ll give you some of my favorite plays in the sector.
Vertex Pharmaceuticals (VRTX)
Big-cap pharmaceutical company Vertex Pharmaceuticals Inc currently has the monopoly on the treatment of cystic fibrosis (CF) with three approved drugs out in the market, Kalydeco, Orkambi, and Symdeko, along with several promising products in the pipeline to target other auto-immune diseases.
In June, Vertex turned its sights on the genetic therapy part of the business via an expansion of its ongoing collaboration with CRISPR Therapeutics (CSPR). Vertex also purchased gene therapy firm Exonics Therapeutics to strengthen its foothold in this revolutionary technology.
Given the spectacular success of Vertex with CF treatments, its work with gene therapy is projected to bring in another blockbuster deal to the company. To ensure its monopoly in the CF market, Vertex has been aggressively seeking additional regulatory approvals to cater to younger CF patients. If the company succeeds, its target market of 75,000 CF patients would gain an additional 44,000.
Vertex is not limiting its efforts in this field though. To seal its position as the leader in CF treatments, the company is looking at developing triple-drug therapies as the next big development in their treatment plans. It has been performing clinical trials on three varying triple-drug combinations. If approved, these therapies would be able to address approximately 90% of the total number of CF patients.
As for the remaining 10% with no operational CF treatment, Vertex aims to address this via its work on gene editing alongside CRISPR Therapeutics. Aside from CF, the two companies have commenced clinical studies on applying gene-editing therapies to treat rare blood diseases and sickle cell disease.
Overall, Vertex is a certified outperformer in the world of big-cap biotech and provides good value to its shareholders.
Johnson & Johnson(JNJ)
Johnson & Johnson (JNJ) is one of the most attractive names in the biotech space. While the lawsuits against it involving alleged toxic baby powder endanger (JNJ)’s equity, the company is still hailed as one of the most notable innovators in the healthcare ecosystem.
The company recently disclosed its progress in developing an AIDS vaccine. Although the negative headlines about the company can be a cause of concern to some, it could turn out to be a win-win situation for long-term investors who can then take advantage of the bargain basement stock price.
(JNJ) has reinforced its stronghold in the fields of neuroscience, oncology, and immunology with these three areas generating over 72% of the company’s drug sales in the first quarter. In fact, (JNJ) recently received an FDA approval on its myeloma drug Dexamethasone. Its collaborative work on cancer treatment with Celgene’s (CELG) Revlimid and its own Darzalex received the FDA’s green light as well.
Apart from developing new treatments and medications, (JNJ) is also moving forward in the development of its robotic sector. Earlier this year, the company purchased robotic surgery firm Auris Health for $3.4 billion in an effort to dethrone the current sector leader Intuitive Surgical (ISRG).
With all that is in its drug and services pipeline along with its earlier successes, (JNJ) raised its 2019 outlook despite its legal woes. The biopharma giant now anticipates a sales growth of 2.5% to 3.5%. Meanwhile, its adjusted earnings per share now stands somewhere in the range of $8.53 and $8.63 per share.
Celgene (CELG)
Celgene (CELG) is one biotech stock that you can get on the cheap. It offers shares trading at only 7.4 times expected earnings.
With its shares trading well below the total book value courtesy of the pending acquisition by Bristol-Myers Squibb (BMY), investors would be hard-pressed not to take advantage of the opportunity to add a company leading in the development of treatments for cancer, blood disorders, and immunological conditions.
Aside from the looming acquisition, another reason for Celgene’s dirt-cheap stock involves the decision to sell blockbuster immunology drug Otezla to allow Bristol-Myers Squibb to appease the Federal Trade Commission’s concerns over the deal. Nonetheless, Celgene’s remaining drugs still perform well in the market.
Its blood cancer drugs, Revlimid and Pomalyst, are the leading go-to drug for multiple myeloma. Revlimid has been approved to treat two additional rare blood diseases, myelodysplastic syndromes and mantle cell lymphoma. Another winner in Celgene’s lineup is its solid tumor drug Abraxane, which has been approved for advanced breast cancer treatment along with non-small-cell lung cancer and advanced pancreatic cancer.
Celgene’s pipeline is loaded with promising winners as well, with myelofibrosis drug Fedratinib and multiple sclerosis treatment Ozanimod up for FDA approval this year. Three additional blood disease drugs including Luspatercept are also in the works along with a cell therapy called Liso-cel, which engineers the body’s immune cells to target particular types of cancer. Celgene’s work with Bluebird Bio is expected to bring another cell therapy procedure called bb2121, which is anticipated to bolster the biopharma firm’s dominance on the multiple myeloma market.
Amgen (AMGN)
With its ability to flex its financial muscles at will, Amgen (AMGN) has accumulated nearly $30 billion in cash and investments. In the past four years, it has recorded an average annual net profit of roughly $6 billion.
The company has achieved tremendous success in developing groundbreaking technology and edging out its competition courtesy of its innovative treatments like the post-chemo therapy called Neulasta. Its cholesterol drug Repatha and arthritis medication Enbrel are both impressive performers in the market as well.
Despite its aggressive drive to acquire small biopharma firms, Amgen is actually a pretty safe investment. Throughout the years, the company has made a conscious effort to diversify its portfolio to steer clear of dependence on a single product.
In fact, no single drug provides more than one-fourth of Amgen’s total income. Among its products, only two drugs generate over a tenth of its revenue. This pattern of revenue diversity doesn’t stop here either as Amgen’s pipeline has nine Phase 3 trials and an additional five Phase 2 trials.
Illumina (ILMN)
One of the incredible developments in healthcare involves the unlocking of the secrets of the human genome – and Illumina (ILMN) has been widely recognized as the leader in this field. In fact, this company has performed more than 90% of all gene sequencing procedures ever recorded.
Branded as the “gold standard” for gene sequencing, Illumina’s highly accurate technology has turned the company into one of the leaders in the biotech space. Illumina is projected to dominate the industry for a very long time.
More importantly, Illumina has managed to make these treatments affordable. Using Illumina’s technology, the cost of human genome therapy has been remarkably cut from a staggering $100 million back in 2002 to an affordable $1,000 today.
Despite its potential, Illumina released lower-than-expected revenue guidance for this year. However, its track record indicates that the company has the tendency to underpromise but overdeliver.
Its revolutionary gene sequencing equipment NovaSeq has made remarkable progress since its availability in 2017 and has yet to reach its peak. Illumina has been on the lookout for high-growth markets currently in their infancy in an effort to become a pioneering force in other fields.
A good example of this is Illumina’s move on noninvasive prenatal testing (NIPT), which has recently gained popularity among patients. The company released an updated and more powerful version of its fetal genome detector system VeriSeq this year. This technology offers the quickest processing time compared to its rivals.
Illumina is also looking to utilize gene sequencing to bolster cancer research efforts and screening through its TruSight Oncology 500, which is a molecular test used to detect lung cancer. Since its release in 2018, the company has been seeking ways to expand TruSight’s application to include blood tests capable of detecting the very early stages of several types of cancer.
Another significant growth driver for Illumina is population genomics, with the United States, France, Singapore, England, and other countries already utilizing the company’s technology. Consumer genomics also shows a promising fiscal advancement for Illumina. To date, the company has been catering to major providers including Ancestry and 23andMe. Illumina even created its own genealogical spinoff called Helix.
Global Market Comments
June 12, 2019
Fiat Lux
Featured Trade:
(MONDAY, JUNE 24 MELBOURNE, AUSTRALIA STRATEGY LUNCHEON)
(AMGEN’S BIG LUNG CANCER BREAKTHROUGH),
(AMGN), (GSK), (MRTX)
