Mad Hedge Biotech & Healthcare Letter
July 22, 2021
Fiat Lux
FEATURED TRADE:
(ANOTHER STEP CLOSER TO NEURO-VICTORY)
(BAYRY), (BIIB), (LLY), (SIOX), (RHHBY), (ABBV), (MRK), (PFE), (AZN)
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First, Alzheimer’s. Now, Parkinson’s.
Companies working on neurodegenerative diseases are on a roll.
After Biogen’s (BIIB) work with Aduhelm, another biopharmaceutical company has made notable progress: Bayer (BAYRY).
Merely six weeks after DA01 landed in the clinic, Bayer’s Parkinson’s disease drug candidate is getting into the fast lane.
This marks one of the major pipeline candidates that the German company picked up from its $1 billion acquisition of Versant Ventures in 2019.
DA01 is described as a “pluripotent stem cell-derived dopaminergic neuron therapy.”
In layman’s terms, Bayer collects donor cells that have the ability to develop into any other cell type in the body.
It will then engineer these versatile cells to turn into neurons that have the capacity to produce the neurotransmitter dopamine—aka the chemical your nervous system uses to transmit messages to nerve cells.
Those engineered neurons will then be transplanted into a part of the brain, called the putamen, which is in charge of our movements and learning.
What we know so far is that the next phase of the trial will determine the safety and tolerability of the cell transplantation a year following the procedure.
This will also tell us more about the cell survival rate after the transplant and the motor effects a year or two following the procedure.
Like Biogen’s Alzheimer’s candidate, the fast-track designation with the FDA could open doors for a speedy review or even an accelerated approval for Bayer’s DA01.
Aside from transplanting engineered cells into patients’ brains, the company is also looking into other options for Parkinson’s.
In October 2020, it shelled out $2 billion upfront to acquire Asklepios BioPharmaceutical or AskBio for its gene therapy research on Parkinson’s.
Roughly 1 million people in the US are suffering from Parkinson’s disease—a number that’s greater than the combined number of patients diagnosed with Lou Gehrig’s disease, multiple sclerosis, and muscular dystrophy.
What’s worse is that this is expected to climb to 1.2 million by 2030.
In terms of treatment cost, the combined expenses for Parkinson’s, including medical bills and lost income, are estimated to reach about $52 billion annually in the US alone.
The medications alone already amount to an average of $2,500 per year, with therapeutic surgery reaching up to $100,000 per person.
This is why it comes as no surprise that several companies have been working towards figuring out a more potent treatment or even cure for Parkinson’s.
One of the frontrunners is Prevail Therapeutics, a New York-based biotechnology company that’s focused on developing a gene therapy for this disease.
Following a successful Series B financing round in 2019, in which it secured $50 million in investments, the company eventually attracted the attention of big pharma.
By December 2020, it was acquired by Eli Lilly (LLY) for $880 million with the promise to help the smaller biotech company develop three of its most promising Parkinson’s candidates.
Another Parkinson’s-centered biotech company is Axovant Gene Therapies, which has been working on a single-dose treatment for neurodegenerative disease.
Its pipeline proved to be promising, as seen in its $74.7 million public offering just last February 2020, with the company maintaining its solid footing amid the pandemic.
By November, it rebranded itself as Sio Gene Therapies (SIOX).
Outside the US is Irish biotech firm Inflazome, which is working on a unique treatment for Parkinson’s.
Unlike the other candidates, the goal of Inflazome’s drug is to directly deliver the treatment to the affected neurons. That is, it plans to pass through the blood-brain barrier.
Its research attracted the Michael J. Fox Foundation, which granted it $1 million in funding, in March 2019.
Since then, the company’s progress has attracted the attention of other major biopharmaceutical companies with Roche (RHHBY), ultimately landing the acquisition in September 2020.
Of course, talks about neurodegenerative diseases wouldn’t be complete without Biogen.
On top of its Alzheimer’s work, the Massachusetts biotechnology giant has been collaborating with San Francisco-based Parkinson’s company Denali Therapeutics.
The two have been working on the development of three small molecular drugs for $560 million in upfront payments plus $465 million in equity investment into the smaller biotech.
In addition to these, we’re still waiting on what the rest of the major biopharmaceutical companies would come up with in the future.
Given that the likes of AbbVie (ABBV), Merck (MRK), Pfizer (PFE), and AstraZeneca (AZN) have all signed up publicly via the Critical Path for Parkinson's (CPP) consortium to tackle this debilitating disease, it’s safe to say that there’s hope for the future of this sector.
First, Alzheimer’s. Now, Parkinson’s.
Companies working on neurodegenerative diseases are on a roll.
After Biogen’s (BIIB) work with Aduhelm, another biopharmaceutical company has made notable progress: Bayer (BAYRY).
Merely six weeks after DA01 landed in the clinic, Bayer’s Parkinson’s disease drug candidate is getting into the fast lane.
This marks one of the major pipeline candidates that the German company picked up from its $1 billion acquisition of Versant Ventures in 2019.
DA01 is described as a “pluripotent stem cell-derived dopaminergic neuron therapy.”
In layman’s terms, Bayer collects donor cells that have the ability to develop into any other cell type in the body.
It will then engineer these versatile cells to turn into neurons that have the capacity to produce the neurotransmitter dopamine—aka the chemical your nervous system uses to transmit messages to nerve cells.
Those engineered neurons will then be transplanted into a part of the brain, called the putamen, which is in charge of our movements and learning.
What we know so far is that the next phase of the trial will determine the safety and tolerability of the cell transplantation a year following the procedure.
This will also tell us more about the cell survival rate after the transplant and the motor effects a year or two following the procedure.
Like Biogen’s Alzheimer’s candidate, the fast-track designation with the FDA could open doors for a speedy review or even an accelerated approval for Bayer’s DA01.
Aside from transplanting engineered cells into patients’ brains, the company is also looking into other options for Parkinson’s.
In October 2020, it shelled out $2 billion upfront to acquire Asklepios BioPharmaceutical or AskBio for its gene therapy research on Parkinson’s.
Roughly 1 million people in the US are suffering from Parkinson’s disease—a number that’s greater than the combined number of patients diagnosed with Lou Gehrig’s disease, multiple sclerosis, and muscular dystrophy.
What’s worse is that this is expected to climb to 1.2 million by 2030.
In terms of treatment cost, the combined expenses for Parkinson’s, including medical bills and lost income, are estimated to reach about $52 billion annually in the US alone.
The medications alone already amount to an average of $2,500 per year, with therapeutic surgery reaching up to $100,000 per person.
This is why it comes as no surprise that several companies have been working towards figuring out a more potent treatment or even cure for Parkinson’s.
One of the frontrunners is Prevail Therapeutics, a New York-based biotechnology company that’s focused on developing a gene therapy for this disease.
Following a successful Series B financing round in 2019, in which it secured $50 million in investments, the company eventually attracted the attention of big pharma.
By December 2020, it was acquired by Eli Lilly (LLY) for $880 million with the promise to help the smaller biotech company develop three of its most promising Parkinson’s candidates.
Another Parkinson’s-centered biotech company is Axovant Gene Therapies, which has been working on a single-dose treatment for neurodegenerative disease.
Its pipeline proved to be promising, as seen in its $74.7 million public offering just last February 2020, with the company maintaining its solid footing amid the pandemic.
By November, it rebranded itself as Sio Gene Therapies (SIOX).
Outside the US is Irish biotech firm Inflazome, which is working on a unique treatment for Parkinson’s.
Unlike the other candidates, the goal of Inflazome’s drug is to directly deliver the treatment to the affected neurons. That is, it plans to pass through the blood-brain barrier.
Its research attracted the Michael J. Fox Foundation, which granted it $1 million in funding, in March 2019.
Since then, the company’s progress has attracted the attention of other major biopharmaceutical companies with Roche (RHHBY), ultimately landing the acquisition in September 2020.
Of course, talks about neurodegenerative diseases wouldn’t be complete without Biogen.
On top of its Alzheimer’s work, the Massachusetts biotechnology giant has been collaborating with San Francisco-based Parkinson’s company Denali Therapeutics.
The two have been working on the development of three small molecular drugs for $560 million in upfront payments plus $465 million in equity investment into the smaller biotech.
In addition to these, we’re still waiting on what the rest of the major biopharmaceutical companies would come up with in the future.
Given that the likes of AbbVie (ABBV), Merck (MRK), Pfizer (PFE), and AstraZeneca (AZN) have all signed up publicly via the Critical Path for Parkinson's (CPP) consortium to tackle this debilitating disease, it’s safe to say that there’s hope for the future of this sector.
Mad Hedge Biotech & Healthcare Letter
July 15, 2021
Fiat Lux
FEATURED TRADE:
(A SAFE STOCK TO BUOY UP YOUR PORTFOLIO)
(LLY), (NVO), (BIIB), (RHHBY)
More than halfway into 2021, and so much has transpired in the investing world.
We witnessed a historical short squeeze, the unprecedented rise of cryptocurrencies, and even the battle among billionaires on who would get to explore outer space first.
The stock market has been quite volatile over the past months, and the fears that we’re barreling towards another downturn, as fueled partly by concerns on inflation, continue to haunt us.
Amid the noise and the chaos, it’s critical to bear in mind one of the most important rules of investing: Buying and holding shares of stable companies for a long period usually reaps great returns.
While no one knows what the rest of 2021 holds, there are still remarkable companies that are worth buying and holding through the course of the next few months.
One such company is Eli Lilly (LLY).
The greatest strength of Eli Lilly is the way it handles its diverse pipeline. While it continues to expand its reach to cover more and more markets, the company also ensures that it doesn’t neglect its well-established niches.
For instance, Eli Lilly continues to boost its diabetes and obesity sector. One of the company’s most promising projects is a new drug called Tirzepatide, which targets these health conditions.
This is now undergoing Phase 3 clinical trials, and if successful, could rake in $7.8 billion in sales for Eli Lilly.
It’s also developing a once-a-week insulin, called Basal Insulin Fc, which would be administered to patients with Type 2 diabetes.
If approved, this would be a massive breakthrough considering that the patients typically need to take insulin daily.
Another effort to shore up its diabetes franchise is Eli Lilly’s decision to buy a next-generation biotechnology company called Protomer for a whopping $1 billion.
Although Protomer has only been in operations for six years, the private company has already developed incredible technology in the diabetes sector.
The most remarkable achievement it has so far is a platform that can create glucose-response insulins, which can sense the body’s sugar levels and then get activated automatically throughout the day.
Although this is still in its early stages, this technology could drastically reduce the risk of hypo- and hyperglycemia among diabetes patients.
Eli Lilly’s deal with Protomer follows in the footsteps of the leading diabetes company worldwide, Novo Nordisk (NVO), which also struck a similar agreement worth $800 million with another biotech startup in 2018.
Aside from diabetes and obesity, Eli Lilly has also been working on dominating in the Alzheimer’s disease space.
When the FDA granted Biogen’s (BIIB) Alzheimer candidate Aduhelm with accelerated approval, it also opened a door for Eli Lilly.
Even prior to this approval, Eli Lilly has already been working on its own candidates, Donanemab. What the Biogen approval provides is a higher chance of positive review for Eli Lilly’s candidate.
In fact, mere weeks after Aduhelm’s accelerated approval, Eli Lilly announced that it would submit an application for the same authorization by the end of 2021.
At this point, the treatment holds a Breakthrough Therapy designation from the FDA.
Given this, it’s presumably a shoo-in for approval soon, thereby adding a new growth driver to the company’s extensive arsenal.
Other than the two, Roche (RHHBY) is also expected to throw its hat in the ring with its Alzheimer’s candidate Gantenerumab.
Eli Lilly’s current lineup of products is definitely worth mentioning as well.
In the first quarter of 2021, the company’s revenue climbed by 16% year over year to hit $6.9 billion.
One of its top performers is its diabetes drug Trulicity, which recorded an 18% jump in sales to reach $1.5 billion.
In terms of its bottom line, Eli Lilly projects its adjusted earnings to increase between 15% and 18% year over year in 2021.
Looking at its financials, it’s clear that Eli Lilly’s current portfolio and pipeline are favorably positioned to deliver strong financial results year after year.
Although the company hasn’t exactly catapulted to unprecedented heights, it has shown stable and consistent growth as well as notable gross margins of over 70%.
It has consistently outperformed the markets in the past five years, climbing close to 200%.
This is the reason why regardless of the ups and downs of the market, investors can easily count on this stock to climb continuously in the long run.
Mad Hedge Biotech & Healthcare Letter
June 8, 2021
Fiat Lux
FEATURED TRADE:
(THE BIGGEST NEWS IN BIOTECH TODAY)
(BIIB), (ESALY), (LLY), (RHHBY), (DNLI), (SRPT), (IONS), (ICPT), (SAVA), (ANVS), (CI), (CVS)
It’s not typical for stock market news to alter the lives of millions of people across the globe, but this is what Biogen (BIIB) managed to accomplish this week.
The company received accelerated approval from the US Food and Drug Administration (FDA) for its controversial Alzheimer’s disease treatment, Aducanumab.
The drug, which is now marketed as Aduhelm, marks a potential breakthrough medication for over 6 million Americans suffering from the debilitating illness and to possibly billions all worldwide.
Basically, Aduhelm targets what Biogen calls “a defining pathology of the disease” by decreasing the amyloid beta plaque levels in the brains of patients suffering from Alzheimer’s disease.
Biogen shares spiked by roughly 60% following the Aduhelm news, with the pop in the biotechnology stock even more impressive than what was initially predicted.
This latest FDA approval also brings a ray of hope for the biotechnology industry.
Biotech shares have been in a slump this year, with the SPDR S&P Biotech ETF (XBI) falling by 9.2% thus far.
Potential second-order effects of the Biogen win can easily be seen in other developers of Alzheimer’s disease treatments.
Although the moves may not be as dramatic as Biogen’s, several biotech companies benefited from the good news.
Directly benefiting from it is Japanese drugmaker Eisai (ESALY), which has been working with Biogen on Alzheimer’s disease treatment. This company’s American depository receipts climbed by 48.2% after the news broke.
Eli Lilly (LLY), which is also working on its own Alzheimer’s therapy, saw its shares go up 9.3%.
Even Roche (RHHBY), which is still in the early stages of its development of a similar treatment, enjoyed a 1.6% increase, while an under-the-radar biotech company, Denali Therapeutics (DNLI), experienced a 7.8% increase.
Other smaller companies that benefited from Biogen’s news include Sarepta Therapeutics (SRPT), Ionis Pharmaceuticals (IONS), Intercept Pharmaceuticals (ICPT), Cassava Sciences (SAVA), and Annovis Bio (ANVS).
In terms of pricing, Aduhelm is estimated to cost $56,000 per year.
Although there is still no definite number in terms of how much Aduhelm could generate in sales for the company, there have been early estimates prior to this news.
Before this accelerated approval, Aduhelm was projected to add at least $16 billion in market capitalization to Biogen.
If successful, the drug can contribute a minimum of $10 billion in sales annually—a performance that would make Aduhelm one of the best-selling drugs of all time.
At this price point as well, the drug could peak at $5.7 billion by 2027.
Understanding that the cost is too high for some, Biogen has been working on establishing partnerships with healthcare and insurance companies to help patients cover the expenses.
So far, Biogen has been negotiating with Cigna (CI) to come up with terms to make Aduhelm available to Alzheimer’s patients via a value-based contract.
That is, the pricing will be assessed based on how responsive the patient will be to the treatment.
Biogen has also been working on collaborating with CVS Health (CVS) to develop more efficient ways to implement cognitive screenings in urban markets.
The two companies have been looking into boosting testing within underserved communities to improve early diagnosis, with the project commencing by September.
Some cities included in this initiative are Washington, D.C., Los Angeles, Dallas, Chicago, South Carolina, Atlanta, New York, Detroit, and Philadelphia.
Biogen has finally regained its momentum thanks to this accelerated and unprecedented approval.
That means we can expect Biogen to leverage this massive revenue stream to round out the rest of its programs and boost its R&D, as well as possibly compensating its shareholders with share buybacks and even dividends in the second half of this decade.
Mad Hedge Biotech & Healthcare Letter
April 15, 2021
Fiat Lux
FEATURED TRADE:
(BET ON THIS BIOTECH STALWART)
(BIIB), (LLY), (RHHBY), (SAGE)
Biogen’s (BIIB) move to develop the first approved treatment for Alzheimer’s disease remains the biggest story in the biotechnology industry.
Now, we’re down to the waiting part of the process as the US Food and Drug Administration reviews the drug, Aducanumab.
If successful, then Aducanumab could generate a whopping $12 billion in peak sales.
The approval could also push Biogen stock up to $400. Meanwhile, a failure could let it spiral to $200.
Aside from the United States, Biogen has also applied for approval in Europe and Japan.
Apart from Aducanumab, Biogen has another Alzheimer’s disease treatment candidate, Gosuranemab.
For comparison, Aducanumab targets the amyloid plaque in the brain while Gosuranemab targets another kind of brain protein, called tau. This candidate is currently undergoing a Phase 2 trial, with results expected to be released by June this year.
While there’s still not much to go on in terms of the efficacy of Gosuranemab, positive data from its study is estimated to push Biogen stock to reach into the $350 ballpark if we base it on previous movements involving Aducanumab.
Although Biogen is definitely the face of the race to find an approved treatment for Alzheimer’s disease, it’s not alone.
To date, its strongest competitors are Eli Lilly (LLY) with Donanemab and Roche (RHHBY) with Gantenerumab.
Outside its Alzheimer’s disease programs, Biogen has been working with Sage Therapeutics (SAGE) on another potential blockbuster.
The two companies have been developing a depression drug, Zuranolone, and the data so far have offered promising results.
Like Gosuranemab, Biogen expects data on the study in the first half of 2021 as well.
If the study on Zuranolone turns out positive results, then Biogen shares are projected to jump by as much as $72.
While all these are promising, less aggressive investors may not find Biogen a suitable investment at this point. Evidently, the stock brings with it a lot of risks.
Aside from the uncertainty of its Alzheimer’s programs, there’s also the ongoing patent battle involving one of its top-selling drugs, multiple sclerosis treatment Tecfidera.
When the company lost its patent exclusivity, the FDA started to approve generic versions of Tecfidera.
This is a major concern for Biogen since Tecfidera is a substantial revenue source.
For context, this drug generated $4.4 billion in sales in the US in 2019 alone. By 2020, sales dropped to $2.6 billion.
Now, sales for this drug are estimated to reach only $1.6 billion in 2021.
While Biogen appealed its loss of patent exclusivity, the company has already taken steps to continue benefiting from Tecfidera’s success.
An obvious effort is the launch of a newer and more potent multiple sclerosis drug, Vumerity.
To attract patients and retain its customers, Biogen has been marketing Vumerity as a more powerful and effective version of Tecfidera.
In terms of the uncertainty brought by Aducanumab, it’s true that gaining FDA approval would have the Biogen stock skyrocketing.
However, rejection won’t be as devastating to the stock. While shares are expected to fall if that happens, the suffering would be short-term.
In the long run, Vumerity will gradually gain traction and eventually reach the level of success of Tecfidera, while the rest of Biogen’s pipeline programs hold the potential to add to the company’s revenue stream.
After all, Biogen is one of the first names that comes to mind when you hear the word “biotech.”
Founded in 1978, this biotechnology company has amassed a market capitalization of more than $40 billion and multiplied its annual profit to over 200%.
While its gamble on finding a treatment for Alzheimer’s disease is a risk that not a lot of investors would be willing to take, Biogen still holds one of the most promising pipeline programs in the industry and a portfolio of existing drugs with notable potential.
Going forward, approval for Aducanumab would mean a massive year for shareholders of Biogen.
If not, then this is still a respectable company with strong rewards and worth investing in, especially if you buy the dips.
Mad Hedge Biotech & Healthcare Letter
March 2, 2021
Fiat Lux
FEATURED TRADE:
(ANOTHER PLAYER JOINS THE ALZHEIMER’S DISEASE DRUG RACE)
(SAVA), (PFE), (HLUYY), (LLY), (AVXL), (CRTX), (BIIB), (GILD)
Over 5.8 million people in the United States live with Alzheimer’s disease, and there are at least 487,000 new cases recorded every year.
Sadly, there has been no new treatment approved for this condition since 2003.
It isn’t for the lack of trying though.
In fact, large-cap biotechnology companies like Pfizer (PFE), H Lundbeck A/S (HLUYY), and Eli Lilly (LLY) have tried their hands at coming up with a drug to treat Alzheimer’s disease.
Unfortunately, none of them succeeded.
Amid the failure of these industry giants to develop a cure, a small-cap biotechnology company based in Austin, Texas has emerged with a potential answer to the problem.
Cassava Sciences (SAVA), which has a market capitalization of $2 billion, is offering investors a different direction—and its efforts haven’t gone unnoticed.
Over the past 12 months, Cassava stock rose by a whopping 668%.
The overwhelming interest in the stock is understandable.
In February, Cassava released promising reports about its own Alzheimer’s drug candidate, Simufilam.
Patients who took Simufilam for six months showed 10% improvement on their cognition tests, while their dementia-related behavior improved by 29%.
The next stage would be for Cassava to go through Phase 3 of the study for Simufilam.
Interestingly, the success of Simufilam’s trials has not only benefited Cassava but also several smaller biotechnology companies working on Alzheimer’s disease treatments.
Specifically, Anavex Life Sciences (AVXL), which only has a market capitalization of almost $900 million, gained an impressive 129.4% boost.
Meanwhile, Cortexyme (CRTX), which has a market capitalization of $1.07 billion, rose by 57.8% this year following the positive data release.
While Cassava’s results are definitely worth looking into, it’s critical to understand the limits of the data the company has provided the public thus far.
My caution against Cassava at this point is not based on the belief that its Alzheimer’s disease program will fail.
Rather, I’m wary of the stock because its value right now is heavily based on the misunderstood perception that Simufilam has already succeeded.
Looking at the current data from the company, I believe that the skyrocketing price at this point remains unjustified.
It’s important to keep in mind that the FDA will not grant approval to a drug unless it shows satisfactory effectiveness in Phase 3 clinical trial.
A fairly recent example of a cautionary tale is the fanfare generated by Biogen (BIIB) when it released promising data for its own Alzheimer’s drug, Aducanumab.
However, this isn’t to say that Simufilam won’t make it, or that it will experience the same issues faced by Biogen.
This simply means that valuing this stock requires a more sober assessment. It’s challenging to determine its actual value right now with all the speculative fever surrounding it.
Remember, clinical trials for Alzheimer’s disease would set a company back roughly $1.8 billion on average.
It also typically takes more than four years to complete. At this point, Cassava only has approximately $94.3 million in cash.
This means it would need to either land a development partner to help shoulder the expenses or sell additional stock to come up with additional funds.
The Alzheimer’s drug market is massive, which is a clear indicator of the dire need in this space because there remain no reliable drugs available.
On the low end of the estimate, the global Alzheimer’s drug sales is projected to be $3.5 billion back in 2018.
On the high end, the number could reach $4.9 billion in 2013 to over $13.3 billion by 2023.
What are the prospects of an effective Alzheimer’s disease drug? Let’s go back to Biogen.
Its Aducanumab, which never managed to release impressive data, still estimated peak sales of roughly $4.2 billion.
Back of the envelope math says that an approved, safe, and effective treatment would undoubtedly generate blockbuster multi-billion dollar sales.
After all, large-cap companies pay a premium for exclusive rights to promising drugs.
To use an approved exclusive drug as an example, let’s take a look at the September 2020 deal between Immunomedics and Gilead Sciences (GILD).
Prior to the deal, Immunomedics developed an exclusive and promising chemotherapy drug called Trodelvy.
Like Aducanumab, that treatment was valued to rake in $4 to $5 billion in peak sales.
Seeing the potential, Gilead Sciences bought out Immunomedics to get Trodelvy.
The deal? It was worth $21 billion, or approximately 100x where Cassava trades when 2021 started.
Although it’s difficult to determine how much Cassava would eventually be valued, the sales for its Alzheimer’s drug should project better numbers than the regularly doubted Aducanumab.
The bottomline is this: Cassava is a promising stock that offers an Alzheimer’s disease drug candidate that reported better results than what the big players in the industry achieved so far.
Investors should expect volatility from this company in the next few months or even years as it enters a crucial stage: the Phase 3 trials, otherwise known as the drug development graveyard.
