Mad Hedge Biotech & Healthcare Letter
June 23, 2020
Fiat Lux
Featured Trade:
(WHY SEATTLE GENETICS IS ON FIRE)
(SEGN), (MRK), (TAK), (GSK), (BGNE), (RHHBY), (NVS), (PFE), (IMG)
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It’s not all about the Coronavirus
Though the COVID-19 pandemic has claimed the lives of over 120,000 people and is causing the suffering of almost 1.3 million patients in the United States alone, cancer and heart disease remain the leading causes of death in the country.
The American Cancer Society journal estimates that there will be around 1.8 million cancer cases this year, with 606,520 of those resulting in deaths.
Needless to say, the continuously increasing incidence of this deadly disease has prompted a number of companies in the biotechnology and healthcare sectors to invest substantially in creating and developing drugs for cancer treatment.
Buoyed by this demand, biotechnology company Seattle Genetics (SEGN) has gained 40.1% in 2020 so far primarily thanks to its cancer drugs.
In fact, Seattle Genetics welcomed 2020 with a newly approved drug called Padcev, which the company developed alongside Tokyo-based Astellas Pharma to treat the most common type of bladder cancer.
Despite the pandemic, Padcev sales have been exceeding expectations and analysts are jacking up the sales estimates for this potent bladder cancer product.
Initially pegged to rake in roughly $10 million in quarterly sales, Padcev managed to beat the estimates by four- to fivefold with $34.5 million in the first quarter of 2020.
Since then, peak sales prediction for this drug has been increased to a whopping $2 billion, with its 2020 sales target to be around $221 million.
Approximately 80,000 new bladder cancer cases are diagnosed every year in the United States. Among these patients, 90% suffer from the urothelial type -- the kind that Padcev is formulated to address.
Adding to that, Padcev’s success can also be attributed to the fact that it’s the only FDA-approved product for this particular patient set.
Riding on the momentum of Padcev’s unchallenged success in the bladder cancer field, Seattle Genetics and Astellas are now looking to expand the drug’s indication to cover an even larger patient set.
If this works out, then Padcev opens a whole new slew of possibilities to the tune of an additional $5.8 billion to its revenue.
At the moment, Padcev is also not prescribed to patients in the earlier stages of the disease - a demand that Seattle Genetics aims to address with its collaboration with Merck (MRK) via the immuno-oncology’s powerhouse drug Keytruda.
Aside from its bladder cancer drug, Seattle Genetics is also actively making a name for itself in another field.
In April 2020, Seattle Genetics received another positive news from the FDA.
The company’s breast cancer drug Tukysa, which was expected to gain approval by August this year, received the green light four months earlier instead.
Tukysa is another potential blockbuster drug for Seattle Genetics, with the product’s peak sales estimated to reach $1.2 billion by 2030.
All these are actually pretty impressive considering that Seattle Genetics was a one-product biotechnology company just a year ago.
Its single product, Hodgkin lymphoma drug Adcetris, had a specially impressive 2019 because of label expansions.
The drug posted a 32% jump in net sales to reach $627.7 million in the US and Canada. For 2020, Adcetris’ sales is expected to grow somewhere between 8% and 12%.
Apart from expanding the use of both Adcetris and Padciv, Seattle Genetics is also looking into developing new antibody treatments specifically for patients with solid tumors and lymphomas.
It currently has several candidates undergoing clinical trials, with some of these potential treatments expected to go head-to-head against active competitors in the space, including Roche (RHHBY), Novartis (NVS), Takeda Pharmaceutical (TAK), Pfizer (PFE), and Immunogen (IMG).
Prior to the approval of Padcev and Tukysa, the major growth driver that augmented Adcetris’ earnings was the company’s royalty revenue.
In the fourth quarter of 2019, the biotechnology company raked in $72.3 million in royalty revenue. This is actually triple the amount it earned in the same period in 2018.
The main source of its royalty revenue at the time is the $40 million in milestone payment it received from Takeda.
The payment was triggered by the annual net sales of Adcetris that went beyond $400 million in Takeda’s territory.
The total royalty revenue was also supplemented by a milestone payment from GlaxoSmithKline (GSK) and an upfront payment from Seattle Genetics’ work with Beijing-based company BeiGene (BGNE).
In the first quarter of 2020, royalty revenues jumped to $20 million compared to the $16 million the company earned during the same period in 2019.
Once again, this growth was attributed to Adcetris’ sales and boosted by royalties from the company’s collaboration with Roche (RHHBY) on the latter’s lymphoma drug Polivy.
Seattle Genetics has consistently grown its revenue since 2011 when its first-ever drug Adcetris received approval. With the recent additions of potential blockbusters Padcev and Tukysa, the company’s financial picture looks brighter than ever.
One of the key factors in its success is that the company addresses significant patient sets, providing its investors with the confidence that it can attract physicians and patients on board.
The Hodgkin lymphoma drug market, which Adcetris has covered, is anticipated to grow by roughly $1.24 billion from 2019 through 2023.
The urothelial cancer drug market, where Padciv is currently king, is estimated to hit $3.6 billion by 2023, with a 23% compound annual growth rate.
Tukysa addresses another patient set with high demand as well, with reports showing that the spending on HER2-positive cancer is anticipated to jump by 54% to hit $9.89 billion by 2025.
Mad Hedge Biotech & Healthcare Letter
June 2, 2020
Fiat Lux
Featured Trade:
(TEN MORE REASONS TO BUY AMGEN)
(AMGN), (CELG), (ADPT), (BGNE)
In this current coronavirus market, discovering a stock that can survive the pandemic without suffering a major hit is akin to finding the Holy Grail.
This is why I’m on the lookout for undervalued names that offer strong dividends and a stable balance sheet.
In my search, I once again came across the biotechnology pioneer Amgen (AMGN), a 40-year-old company that has continuously proven its critics wrong.
After four decades in the business, this healthcare heavyweight has yet to show any signs of slowing down. If anything, Amgen has been consistent in its efforts to show off its promising pipeline.
In 2020 alone, the company reported at least 39 drug candidates in its pipeline, with practically half already in Phase 3 trials.
As one of the founding fathers of the biotechnology sector, Amgen, which was founded by my UCLA college biochemistry professor, would be remiss to skip on the coronavirus race. If I’d only stuck with him a little longer, I would be filthy rich by now.
In April, the company announced its collaboration with Adaptive Biotechnologies (ADPT) to develop antibodies to be used for COVID-19 treatment.
While the biotechnology giant isn’t the first to jump into the fray, it has an undeniable ace up its sleeve: Amgen is known as one of the leaders in the development of antibody-based treatments. This alone makes it a strong contender.
Outside its coronavirus work, Amgen has an extensive list of prospects in its pipeline along with a number of workhorse drugs.
However, not everything is as smooth sailing as investors would hope.
Previous blockbusters, rheumatoid arthritis drug Enbrel and chemotherapy medication Neulasta, which comprised 40% of Amgen’s product sales in the first quarter of 2019, failed to move the needle during the same period in 2020. Actually, Neulasta suffered a devastating 40% drop in sales.
Other top performers like multiple myeloma treatment Xgeva and anemia drug Aranesp are having trouble as well, eking out a measly 2% in sales gains in the said period.
As for anemia injection Epogen, the bestselling drug dropped by 29%. Even the sales of hyperparathyroidism medication Cinacalcet slid by 42%.
Overall, this doesn’t sound like an auspicious beginning for Amgen this 2020.
Nonetheless, the company’s robust growth in other areas made up for the laggards.
In fact, Amgen’s total product sales increased by 12%, jumping from $5.3 billion in the first quarter of 2019 to almost $5.9 billion in the same period in 2020.
For instance, sales of osteoporosis treatment Prolia jumped by 10%, pushing the drug in the second spot among the top 10 products in Amgen’s portfolio.
Meanwhile, cholesterol drug Repatha continues to impress, showing off a 62% increase in revenue from $141 million to $229 million.
Even the newer multiple myeloma treatment Kryprolis went up by 19%, while metastatic colorectal cancer injection Vectibix registered a 19% sales gain. Sales for cancer medication Blincyto also went up by 36% year over year to hit $94 million.
Another drug surging forward is kidney treatment Parsabiv, which reported a 39% increase in sales. Newcomer postmenopausal osteoporosis drug Evenity, which was launched in the US market just last year, recorded a respectable $100 million in sales.
In terms of developments that actually pushed the needle for Amgen, the first thing that comes to mind is definitely the acquisition of psoriasis and psoriatic arthritis medication Otezla.
This blockbuster drug, which the company bought for $13.4 billion in cash from the recently acquired Celgene Corporation (CELGN), raked in $479 million in revenues for the first quarter of 2020 alone.
Amgen executives estimate a low double-digit year-over-year sales increase for Otezla up until 2024.
Another exciting development for Amgen is its deal with BeiGene (BGNE), in which the biotechnology pioneer acquired a 20.5% stake in the Chinese company.
Part of this deal is BeiGene’s efforts to commercialize select drugs from Amgen’s oncology lineup to target the expansive Chinese market.
On top of this, the two companies are slated to develop 20 new cancer drugs as well. So far, AMG 510 and tezepelumab are eyed to be launched by 2021.
Amgen is also gearing up to ride the wave of biosimilars, which has a market estimated to surpass $69 billion in the next five years. Due to its lower costs, biosimilars are projected to save consumers roughly $160 billion during the same period.
Perhaps this lucrative opportunity is what made Amgen realize that if they can’t beat them, they might as well join them. That is, the company has already worked towards becoming a major player in the biosimilar space.
In fact, Amgen has started with this plan in 2017 courtesy of the company’s first-ever approved cancer-fighting biosimilar: Mvasi.
So far, Amgen has 10 biosimilars in its current pipeline. Four of which already received FDA approval.
Looking at Amgen’s financial records, it’s safe to say that the company has a strong financial position.
It offers a yield of approximately 2.8% and a payout ratio of over 47%. The dividend coverage ratio is roughly 212%, ensuring a safe dividend and a 5-year growth rate of almost 19%.
Amgen’s profit margin is recorded to be at least 23% in 9 of the recent 10 fiscal years, with growth expected since 1 in 5 cancer patients in the United States uses Amgen medication.
The company’s free cash flow in the first quarter of 2020 rose to $2 billion from the $1.7 billion reported during the same period in 2019.
These quarterly results along with its multitude of growth prospects are proof to Amgen’s capacity to navigate through the decline in other product offerings. The biotechnology company’s numbers in the first quarter of this year demonstrate there’s a good chance it will break through resistance because of its solid sales momentum.
This makes Amgen attractive to long-term biotechnology and healthcare investors. With its strong record, promising pipeline, and decent dividend, the company will be able to sustain its status as a good buy.
