Mad Hedge Biotech and Healthcare Letter
October 24, 2023
Fiat Lux
Featured Trade:
(INNOVATION OVER EXPIRATION)
(ABBV), (ALPMY), (PFE), (BAX)
Posts
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
June 8, 2023
Fiat Lux
Featured Trade:
(THE AI INFUSION)
(MDT), (NVDA), (GEHC), (LLY)
Mad Hedge Biotech and Healthcare Letter
June 6, 2023
Fiat Lux
Featured Trade:
(SCRUBBING AWAY DOUBTS)
(STE), (JNJ), (MMM), (BAX), (BSX)
Warren Buffett has showcased his value-based financial philosophy through his notable investment in Wrigley's gum.
This strategic move allowed him to secure a consistent and dependable cash flow by acquiring a company that produces an evergreen product with high demand and straightforward production processes. It's a testament to Buffett's ability to identify enduring value in the market.
Similarly, in the healthcare sector, there are notable names that align with this philosophy.
Take Steris (STE), a Dublin-based company specializing in sterilization. In the world of healthcare, nothing can replace the importance of a pristine operating room, and Steris plays a critical role in ensuring the cleanliness and safety of these environments.
While our personal use of disinfectant products might have changed over the years, hospitals remain hyper-vigilant in their disinfection protocols.
Steris is a trusted provider, as hospitals understand the significance of maintaining sterile conditions to combat antibiotic-resistant superbugs and ensure successful surgeries. The company's focus on sterilization and related products positions it as a preferred choice among healthcare providers.
Some argue that Steris stock is on the pricier side, trading at 22.3 times 12-month forward earnings compared to the S&P 500 index's 18.3 times. However, the value it offers makes the price reasonable.
As hospital procedures return to pre-Covid levels and supply chains normalize, Steris stands to benefit significantly. Additionally, a substantial portion of its revenue comes from recurring sources, as hospitals consistently require sterilization chemicals and disinfectants.
Despite being a stable company, Steris has recently taken investors on a thrilling rollercoaster ride.
In February, its stock faced a setback when it lowered its full-year revenue guidance. However, the drop was mainly due to ongoing supply-chain challenges, not internal issues or client withdrawal.
The company's resilience became evident in mid-May when Steris delivered impressive fiscal fourth-quarter results. Surpassing expectations both in terms of top- and bottom-line figures, it also provided a conservative yet appealing forecast for fiscal 2024.
Interestingly, despite these positive developments, the stock has dipped around 5% since the May earnings surge. Meanwhile, for fiscal 2024, Steris is projected to achieve earnings per share of $8.66, representing over a 5% year-over-year increase, with revenue expected to climb by more than 7% to $5.33 billion.
These figures would set new record highs for the company, which has consistently achieved double-digit compound annual growth rates over the past five years.
One contributing factor to Steris' success is its ability to maintain stable pricing.
Unlike other healthcare companies that experience negative pricing trends, Steris has the advantage of commanding higher prices due to the unique nature of its sterilization services, which aren't typically targeted for cost-cutting measures.
In fact, Steris has already increased prices by 3.3% in the previous quarter to keep pace with inflation.
Furthermore, Steris' recent acquisition of Cantel Medical has significantly bolstered its operations in the dental industry.
With Cantel's valuable assets, Steris has expanded its expertise in a growing market fueled by technological advancements.
Notably, the company boasts an impressive number of patents, totaling over 2,346 in 2022, highlighting its commitment to innovation.
Although it’s not as exciting as other segments, fierce competition unfolds among industry giants vying for prominence in this vital sector.
Think of the juggernauts like 3M (MMM), Baxter International (BAX), and Boston Scientific (BSX), each flexing their innovative muscles to claim a larger slice of this healthcare pie.
Curiously, despite being the largest player in the U.S. medical sterilization and services market, Steris maintains a modest market capitalization of only $20 billion. This is considerably smaller than healthcare giants like Johnson & Johnson (JNJ).
This aspect, combined with the possibility of being a takeover target, albeit not currently under discussion, serves as additional support for the stock.
Overall, Steris has found a stable position in the market by establishing itself as a provider of essential cleaning products in hospitals and research labs.
Once these relationships are established, Steris continues to generate sales through ongoing demand for its trusted solutions. In times of market volatility, Steris is a reliable investment, offering a safe haven for investors navigating uncertain waters.
Just as Warren Buffett sought enduring value in his investments, Steris represents a company with a strong foundation in a critical sector. If you also want a slice of the pie, I suggest you buy the dip.
Mad Hedge Biotech & Healthcare Letter
June 10, 2021
Fiat Lux
FEATURED TRADE:
(IN THE RIGHT PLACE AT THE RIGHT TIME)
(MRNA), (PFE), (BNTX), (NVAX), (CVAC), (SNY), (TMO), (CTLT), (BAX), (INO)
Before the COVID-19 pandemic, only a handful of people had actually heard of messenger RNA (mRNA).
Now, this technology has become a household term thanks to the success of the COVID-19 vaccine programs of Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA).
Aside from these three names, other players in the mRNA arena include Novavax (NVAX) and an under-the-radar stock called CureVac (CVAC), which has been collaborating with Bayer (BAYRY).
Even Sanofi joined the list recently with its acquisition of mRNA-focused biotechnology company Tidal Therapeutics.
Amid the growing number of mRNA-focused companies, however, the world has come to associate the technology most with Moderna.
This is apparent in the increasing demand for Moderna’s COVID-19 vaccine, which has been pushing the biotech company to quickly expand its manufacturing capacity.
One of the steps it took to meet the supply expectations is to partner with Thermo Fisher (TMO), specifically for fill-finish, labeling, and packaging.
For orders outside the United States, Moderna established a partnership with South Korea’s renowned Samsung Biologics (KRX: 207940) to keep up with the demand.
While TMO and Samsung Biologics are the two major forces helping Moderna in its manufacturing concerns, other companies are also pitching in, including Catalent (CTLT), Sanofi, and Baxter BioPharma Solutions (BAX).
With the assistance of these companies, along with the major expansion of its own manufacturing site, Moderna anticipates that it can supply at least 3 billion doses of its COVID-19 vaccine annually by 2022.
This is promising news, particularly in light of another massive market that Moderna can conquer next: India.
While the United States has managed to turn the corner in the COVID-19 battle, India has been struggling to fight back against the virus. To this day, the country continues to grapple with the increasing number of COVID-19 cases.
Low and sluggish vaccination rates are considered the major contributing factor to this problem, with a measly 3.3% of India’s citizens getting fully vaccinated so far.
With a population of approximately 1.39 billion, this offers a massive opportunity for vaccine developers.
Thus far, only 228 million doses of the COVID-19 vaccines have been shipped to India. That leaves about 1.16 billion people in this huge country to receive a vaccine.
Since India is a developing nation, vaccine makers are expected to charge the low end of their range.
For Moderna, that would be roughly $25 per dose, while Pfizer would probably charge $19.50 per dose.
However, these prices could still go lower depending on the contract negotiated by the Indian government.
Even at the low end of the price point though, the Indian market represents approximately $28 billion in revenue for COVID-19 vaccine developers.
Taking advantage of this momentum, Moderna has been working on booster candidates for its COVID-19 vaccine. In fact, one candidate may be ready by fall.
Of course, competitors are looking into the new variants as well. Aside from Pfizer, smaller companies like Inovio Pharmaceuticals (INO) have started with clinical trials this year.
Moderna is also investing heavily in artificial intelligence (AI) in an effort to become a step ahead of future diseases.
Through AI and machine learning, Moderna aims to predict strains that evade protection provided by their roster of vaccines.
Based on the data, the company will be able to develop next-generation vaccines and boosters before the situation becomes as critical as what happened in 2020.
These efforts are essential for Moderna to sustain its position as the leader in mRNA technology.
Despite its earlier issues with production, Moderna is still set to generate roughly $19.2 billion in revenue for its COVID-19 vaccine thanks to advance purchase agreements.
The potential availability of a booster this year would definitely get the ball rolling in terms of handling newer variants.
The biotechnology industry is favored among investors on the lookout for companies with incredibly strong growth potential.
While it’s a risky environment filled with businesses flaming out practically year after year, winners in this field can come out with extremely impressive results.
In recent months, Moderna has become one of the most successful examples that demonstrated the potential of a biotech when it finds itself with cutting-edge technology at an ideal time.
