Mad Hedge Biotech and Healthcare Letter
March 10, 2022
Fiat Lux
Featured Trade:
(COULD THIS BE THE NEXT BIOTECH BUYOUT CANDIDATE?)
(BLUE), (AZN), (ABBV), (BMY), (VRTX), (CRSP)
Posts
What is the common denominator of giant drugmakers AstraZeneca (AZN), AbbVie (ABBV), and Bristol Myers Squibb (BMY)?
Aside from being three of the biggest healthcare companies across the globe, all three have also completed high-profile acquisitions amid the pandemic.
AstraZeneca acquired Alexion Pharmaceuticals for $39 billion in December 2020.
Meanwhile, AbbVie wrapped up its whopping $63 billion acquisition of Allergan in May 2020.
As for BMY, this biopharma titan followed its jaw-dropping $74 billion acquisition of Celgene with a $13 billion merger with MyoKordia.
Since then, these deals have bolstered the lineups and deepened the pipelines of all three drugmakers, helping them secure their dominance in the healthcare space.
As for the acquirees, they also benefited from the transactions, particularly those struggling to get through tough situations prior to getting bought out.
With that in mind, it looks like the biotechnology and healthcare sector has another potential high-profile acquisition candidate: Bluebird Bio (BLUE).
Bluebird Bio has recently fallen from investors’ grace following multiple setbacks.
The biotechnology company, once considered a trail-blazer in the gene therapy space, now finds itself without a CFO and left behind by competitors.
Its peers, who were initially eons away in terms of pipeline development, have figured out ways to work around Bluebird’s patents and even managed to outpace the company in launching new gene therapies to market.
Given all these factors, it is no surprise that investing in Bluebird bio has become synonymous with a recycler searching for value in random scraps and parts.
Over the last three years, Bluebird Bio’s shares have plummeted by more than 90%. From a $1.39 billion market capitalization, it is now at roughly $330 million.
That is a horrible performance based on any metric.
Bluebird bio has faced several headwinds that caused its stocks to fall apart.
One problem is the delay in the company’s Biologics License Application in the US for its transfusion-dependent beta-thalassemia treatment, LentiGlobin.
Bluebird Bio initially planned to complete this rare blood disorder therapy’s application by the second half of 2020. However, the company failed to submit some information requested by the FDA.
Another LentiGlobin-related issue is the temporary pause on the clinical trial for sickle cell disease treatment. Eventually, the suspension was lifted, but not before investors scurried away from the stock, following back-to-back concerns over the same treatment.
Other aggravating factors include Bluebird’s move to exit the European market following disagreements over the pricing of some of its gene therapies.
These issues saw Bluebird’s market cap sink, positioning it lower than rival gene-editing companies today.
Needless to say, this deeply discounted value could attract a bigger and expanding biopharma seeking to dip its toes in the gene-editing space.
While Bluebird might be struggling these days, it remains a promising company thanks to its candidates.
This becomes even more exciting since the company announced its plans to concentrate on severe genetic diseases. Although this is a small niche, there’s massive potential in this market.
A strong candidate in its roster is Zynteglo, which gained regulatory approval in 2019 and has yet to reach blockbuster status.
Patients with beta-thalassaemia normally have no other choice but to get blood transfusions regularly. Zynteglo drastically challenges this standard by offering a one-time curative treatment. In fact, saying that this is a life-changing breakthrough is an understatement.
Another potential blockbuster is Skysona, a treatment for a pediatric neurodegenerative disorder called cerebral adrenoleukodystrophy. This neurological disease is extremely rare, affecting only 50 patients in the US annually.
As for its pipeline, Bluebird has three major candidates nearing FDA approval in the US. This means 2022 and 2023 will be critical years for the company.
The first product is Lenti-D, which is similar to Skysona. If things go according to plan, then this treatment might receive the green light by August 2022.
Another product is Beti-cel, which was initially launched as Zynteglo. When this successfully penetrates the US market, this first-ever gene therapy option for beta-thalassemia will rake in roughly $1.87 billion by 2024.
Considering the potential of this market, Beti-cel inevitably finds itself facing off strong competitors in the space.
Thus far, the strongest is Vertex Pharmaceuticals (VRTX), which recently announced an additional $900 million investment in its collaboration with CRISPR Therapeutics (CRSP).
The third candidate is Lovo-cel, which is a sickle cell disease treatment.
This could be a major product for Bluebird, given the over 100,000 patients in the US alone that the company can target.
The goal is to finish the validation process by 2022 and submit Lovo-cel for approval by the first quarter of 2023.
Outside its pipeline candidates and approved products, Bluebird's manageable debt is another thing that makes it attractive for a potential buyout.
After all, cash is king, especially when it comes to biotechnology companies.
At the moment, Bluebird still holds roughly $442 million in the bank, and $46 million of this is restricted.
This indicates unrestricted liquid assets of approximately $396 million—an amount higher than its current market cap.
Consequently, this will allow Bluebird to comfortably weather at least the rest of the year until 2023.
It possesses a relatively solid secure position to hold itself together until its pending candidates start raking in revenues on their own.
Admittedly, Bluebird Bio has had several challenging years. There will still be uncertainties ahead, but it’s undeniable just how promising the company is at this point.
Overall, this stock is worth serious consideration, particularly for companies looking to get a head start in the gene-editing sector.
Mad Hedge Biotech and Healthcare Letter
February 10, 2022
Fiat Lux
Featured Trade:
(A HEALTHCARE ENIGMA TO ADD TO YOUR WATCHLIST)
(GILD), (JNJ), (PFE), (ABBV), (LLY), (MRK), (BMY),
(AMGN), (MRNA), (AZN), (REGN), (BNTX), (NVAX)
The top names in the biopharmaceutical world based on their market capitalization include Johnson & Johnson (JNJ), Pfizer (PFE), AbbVie (ABBV), Eli Lilly (LLY), Merck (MRK), Bristol Myers Squibb (BMY), Amgen (AMGN), and Gilead Sciences (GILD).
Among these names, Gilead is often viewed as an enigma, given its history and the challenge in predicting its share price trajectory.
Over the past months, Gilead has been testing the patience of investors. In fact, the company is projected to experience a fall in revenues this year from $27 billion in 2021 to $24.05 billion in 2022.
The latest news that added to their anxiety was the pause on clinical trials for its cancer therapy, Magrolimab.
This came after its short-lived dominance in the Hepatitis C segment.
At that time, the sales of its leading drug Sovaldi skyrocketed from $140 million in 2013 to a jaw-dropping $10.2 billion by 2014.
Meanwhile, another Hepatitis C treatment, Harvoni, single handedly raked in $13.8 billion in sales in 2015, pushing the entire company’s revenues to an impressive $32.6 billion.
Unfortunately for Gilead, it became the victim of its own staggering success.
Its Hepatitis C treatments, Sovaldi and Harvoni, were incredibly effective and managed to cure the patients within months. The demand for these drugs fell because the patient pool gradually ran dry.
By 2019, the Hepatitis C franchise of the company had declined and managed to scrape $2.9 billion in combined sales.
Since then, though, the company has been struggling to regain investors' faith.
Nevertheless, these recent developments are not enough reasons to panic. If anything, Gilead has simply become even more attractively priced due to the fallout.
In 2020, Gilead managed to report its first year-on-year increase in revenues since its glory days in 2015.
As the COVID-19 pandemic started to take hold of the world, it was Gilead’s Veklury (Remdesivir) that secured the first-ever Emergency Use Authorization from the FDA.
While Veklury was eventually overshadowed by COVID-19 vaccines from Pfizer, Moderna (MRNA), JNJ, and AstraZeneca (AZN), as well as other treatments and antibody cocktails from Eli Lilly, Regeneron (REGN), and Merck, Gilead’s candidate managed a comeback by the fourth quarter of 2021 after experts declared it to be effective against the Omicron strain.
In effect, Veklury had a major impact on the company’s 2021 performance, recording $5.6 billion in annual sales.
Although this is not as illustrious or groundbreaking as its Hepatitis C treatments, the reemergence of Gilead as a frontrunner in the pandemic is proof that the company has not lost its knack for discovering and developing a winning formula for blockbuster treatments.
Another avenue that Gilead has been exploring is actively acquiring assets to expand its portfolio.
One notable move in that direction is its $11.9 billion acquisition of Kite Pharma, a leader in the cell therapy space, in 2017. Thus far, this agreement has yielded two drugs: Yescarta and Tecartus.
Since oncology is one of Gilead’s major areas of concentration, the commercialization of these two treatments conveys a promising future.
While both are yet to become blockbusters, the field of cell therapy has been rapidly expanding and turning into a critical therapeutic option for certain patient categories.
Yescarta is projected to rake in $1.5 billion in revenues if it receives the FDA green light for large B-cell lymphoma
Considering that its last trial data showed off a 60% improvement with Yescarta compared to standard of care in terms of halting the disease’s progression or even death, there’s a huge possibility that Gilead will be delivering good news soon.
As for Tecartus, this treatment received approval for acute lymphoblastic leukemia last year and is aiming to expand to cover mantle cell lymphoma by July 2022.
With its list price of $373,000, this CAR-T therapy is projected to reach blockbuster status in the following months as well.
Another oncology drug anticipated to reach blockbuster status soon is metastatic triple-negative breast cancer treatment Trodelvy, which Gilead gained access to following a $21 billion deal with Immunomedics in 2020.
Given its current approved indications and the queued trials to expand its coverage, Trodelvy is projected to reach $4.7 billion in peak sales.
Going back to the 2022 revenue forecast for Gilead, I think the change is from the company’s anticipated decline in Veklury sales.
Since Pfizer, BioNTech (BNTX), Novavax (NVAX), and Moderna have been actively working on Omicron-focused vaccines and treatments, Gilead expects its Veklury revenues to shrink as well.
Overall, Gilead still presents an excellent opportunity for long-term investors.
Despite its setbacks, the company has proven that it still holds the knack of rolling out remarkable and effective best-in-class treatments.
Moreover, its pipeline is filled with promising candidates poised to deliver in the years to come. So, don’t be too quick to write off Gilead just yet.
Mad Hedge Biotech and Healthcare Letter
February 1, 2022
Fiat Lux
Featured Trade:
(A SHIFT IN NEUROSCIENCE BIOTECH)
(BIIB), (AXSM), (PFE), (BMY), (MRK), (NVS), (ABBV), (GSK), (JNJ), (LLY), (RHHBY), (TAK)
Industry experts typically describe mergers and acquisitions as the life force that propels the biotechnology and healthcare sector forward.
Based on that description, it’s safe to say that the segment’s health has plummeted, considering the sluggishness observed last year.
In 2021, the M&A of this industry had fallen to one of its lowest recorded levels in history.
During this period, the deals only amounted to $108 billion for the entire year. This number was approximately 40% of the total recorded in 2019.
Despite the sluggishness in 2021 and the relatively slow start in 2022, this year is still projected to push the would-be buyers into more aggressive action.
After all, several key products are facing patent expiration before this decade ends.
The list includes Big Pharma players like Pfizer (PFE), Bristol Myers Squibb (BMY), Merck (MRK), and Novartis (NVS).
This means that a massive deal might be on the horizon, pretty much when AbbVie (ABBV) executed its jaw-dropping $63 bill acquisition of Allergan in 2019 following its problems with generics competing against its blockbuster drug Humira.
Aside from patent protection concerns, another factor in play is the intense competition in lucrative research sectors such as immunology, neurology, rare diseases, and oncology.
Add to this the constant pressure of Congress to pull down drug prices, and it becomes apparent why companies—big or small—turn to mergers and acquisitions for survival.
Simply put, biotech and healthcare companies have no other choice but to be aggressive in looking for external innovation to secure the continuous transformation of their businesses.
On that note, I think there could be major acquisitions to be announced in 2022.
One deal I’m looking forward to is Biogen’s (BIIB) potential acquisition of Axsome Therapeutics (AXSM).
To remain competitive in the neuro stage, Biogen must keep up with the times—and a deal with Axsome might just be the solution.
Axsome’s size and price, with a market capitalization of $992 million, appear to be just the right fit for Biogen to gobble up.
More importantly, its portfolio is an excellent fit for Biogen. Both focus on neurological diseases, making their pipelines complementary to each other.
So far, Axsome has several leading candidates in the clinical stages.
One is AXS-05, which is a treatment for major depressive disorder (MDD).
Apart from MDD, this candidate is under late-stage review to target Alzheimer’s disease agitation.
In addition, Axsome is looking to advance AXS-05 in late-stage trials for smoking cessation therapy.
Needless to say, AXS-05 would go hand in hand with Biogen’s own approved, albeit controversial, Alzheimer’s drug Aduhelm.
Another promising candidate is AXS-07, a potential competitor of Pfizer and Novartis’ migraine medication. This drug has been submitted for FDA approval and might be launched by the second quarter of 2022.
There’s also AXS-12, which is a narcolepsy treatment candidate, and AXS-14, which is geared towards fibromyalgia. Both candidates are slated for FDA review by the third or fourth quarter of 2022.
For over 20 years, even the biggest and most powerful drug companies have stayed away from working on treatments specifically for the brain and central nervous system (CNS).
That’s not surprising considering the sheer number of failed programs in neuroscience, pushing drugmakers to believe that we still don’t have sufficient data on the subject, so the money might be better spent elsewhere.
Nowadays, though, the CNS landscape is starting to shift.
GlaxoSmithKline (GSK) recently embarked on reviving its CNS program by striking a $700 million deal with a smaller biotechnology company called Alector.
Meanwhile, Pfizer and Novartis reached an agreement with Biohaven Pharmaceuticals for the latter’s migraine treatment and Parkinson’s drug.
Aside from these, Johnson & Johnson (JNJ), Eli Lilly (LLY), Roche (RHHBY), and Takeda (TAK) are anticipated to secure CNS-centered deals soon.
Despite the lower number of M&A deals last year, the volume of strategic collaborations in the neuroscience sector climbed by about 50% in 2021 compared to its 2020 performance.
By 2022, this space is projected to become even more investable, considering the number of biotechnology companies focusing on CNS. Watch out for blockbuster deals in this sector.
Mad Hedge Biotech and Healthcare Letter
January 27, 2022
Fiat Lux
Featured Trade:
(A BLUE-CHIP STOCK POISED FOR MORE GROWTH)
(BMY), (SGEN), (IPSC), (PFE)
What I’m about to share with you isn’t the most pleasant news, but it’s the truth.
You need to prepare for a stock market crash or a steep correction in the near future.
Since the early 1950s, the S&P 500 benchmark has experienced a total of 38 double-digit percentage declines.
While Wall Street doesn’t necessarily follow these trends, it’s vital to understand and accept that crashes and corrections will always be staples of the investing cycle.
On the flip side, these kinds of dips in the market also offer remarkable opportunities to buy high-quality businesses at a discount.
One of the wisest decisions you can make if the stock market does crash soon is to pick up shares of biopharmaceutical company Bristol Myers Squibb (BMY).
The allure of most healthcare and biotechnology stocks is that they make for good defensive investments.
We can never really fully control or even predict when we’ll get sick or what kinds of diseases we’ll develop.
That means that the volatility of the stock market or even the broader economy tends to have minimal effect on the demand for prescription treatments, medical devices, and healthcare plans.
This type of assurance offers a steady cash flow to the likes of BMY.
However, the healthcare industry continues to evolve. That also requires adjustments from companies regardless of their size and history.
Recently, there have been talks of BMY acquiring Seagen (SGEN), with investors hoping this could lead to an added revenue stream. After all, company executives have been hinting at plans to do some “shopping” this year.
While BMY has never shied away from massive acquisitions, it looks like it plans to expand its portfolio more conservatively as opposed to making splashy deals.
The latest move from BMY towards that direction is its licensing agreement with Century Therapeutics (IPSC).
According to the agreement, BMY will pay Century $100 million upfront and invest an additional $50 million to gain access to four of the smaller company’s off-the-shelf cancer therapies.
Potentially, Century could receive up to $3 billion from BMY in milestone payments on top of double-digit royalties.
Although not a splurge by any means, this deal would actually be an excellent addition to BMY’s cell therapy portfolio.
One potential treatment that would benefit from this licensing agreement is lymphoma therapy Breyanzi, which is estimated to get a list price of $410,000 and peak sales of roughly $3 billion.
Another is multiple myeloma treatment Abeam, which is expected to be listed at $419,500 and reach peak sales of approximately $1 billion.
Besides being a top-quality defensive play, BMY is excelling at taking advantage of its plan to combine organic with acquisition-based expansions.
In terms of organic growth, a good example is its blood-thinning treatment Eliquis, which BMY developed with Pfizer (PFE). In 2021, this drug raked in an impressive $10 billion in sales.
Another example is its cancer treatment Opdivo, which contributed $7 billion in 2020 and holds the potential to exceed $10 billion in annual sales given the continuous expansion of its applications.
In terms of acquisitions, BMY’s last huge acquisitions are the $13.1 billion deal with MyoKardia and, of course, the jaw-dropping $74 billion agreement with Celgene.
Looking at how the acquisitions helped BMY, saying that the company landed a whale when it acquired Celgene is an understatement.
Considering that Celgene’s Revlimid is the highest-grossing drug in BMY’s portfolio today, it’s apparent that these deals have proven to be a fast, albeit costly, strategy to guarantee that the company will continue to hold a diverse lineup of proven products with the capacity to provide consistent revenues and boost R&D.
Since that 2019 deal, the company has enjoyed the perks of Celgene’s blockbuster drugs like Revlimid, which has a proven track record of double-digit growth in annual sales and has recorded $15 billion in yearly revenue.
More importantly, Revlimid is protected from generics until 2026, offering BMY a lot of elbow room to take more advantage of the cash flow coming from this drug
Celgene has also provided an extremely valuable lineup of pipeline assets, apart from its blockbusters.
For instance, beta-thalassemia treatment Reblozyl holds the potential to bring in $2 to $4 billion in annual sales, while autoimmune medication Zeposia is projected to add $3 billion in yearly sales.
To date, it’s clear to see that BMY welcomed 2022 with promising momentum, and the healthcare stock should be anticipated to perform well in the first six months of the year.
Given its track record and projected trajectory, it won’t come as a surprise if this blue-chip stock soars above its competition this year.
Mad Hedge Biotech and Healthcare Letter
January 4, 2022
Fiat Lux
Featured Trade:
(A BIOTECH DIAMOND IN THE ROUGH)
(BDSI), (TEVA)
Small-cap names tend to have a terrible reputation. However, the possibility of discovering a diamond in the rough pulls traders back in the game over and over.
Fortunately, applying a bit of critical thinking in sifting through the seemingly endless lists of small-cap companies can yield a handful of names worth consideration.
In the biotechnology and healthcare sector, one name that holds the potential is BioDelivery Sciences International (BDSI).
While it’s understandable if you’ve never even heard of BDSI, this company has actually been making waves in the field of severe pain management.
To date, it has three drugs out in the market and holds the patent for a slow-release biofilm technology used to administer these medications. Simply, BDSI is proving to be a profitable and fast-growing company.
The company’s main product is Belbuca, an opioid medication targeting chronic severe pain.
The competitive edge of Belbuca against other drugs is that it’s not an oral pill. Instead, it’s a tiny film that patients keep in their cheeks. This film then slowly dissolves, offering more potent pain relief over time.
Moreover, Belbuca is more difficult to abuse, making it a more attractive option for physicians to prescribe.
At the moment, Belbuca has a 4.7% market share of the long-acting opioid treatment segment.
While that sounds like an unimpressive number, this achievement becomes more pronounced when you find out that Belbuca only held 0.5% of the market when it launched in the fourth quarter of 2017.
By the first quarter of 2021, its market share expanded by 25% year over year, indicating that segment penetration is moving forward swimmingly despite the pandemic.
In fact, Belbuca’s revenues increased by over 95% in the last 3 years.
It also reported that its trailing-12-month earnings since the first quarter of 2020 have skyrocketed to a jaw-dropping 233%.
More excitingly, BDSI successfully defended its patent exclusivity against competitors.
Recently, it managed to ward off attempts from more prominent names like Teva Pharmaceuticals (TEVA), which hoped to gain access to BDSI’s slow-release biofilm technology.
Bolstering its hold on the pain management market, BDSI has also been successful in marketing Symproic.
This prescription medication, which targets opioid-induced constipation therapies, has seen a steady rise in market share over the past 2 years.
By the first quarter of 2021, Symproic has managed to take hold of 12.6% market share, making it a promising partner to the company’s major growth driver, Belbuca.
Highly aware of the growing competition in the opioid market, BDSI has decided to venture into other segments as well.
In September 2021, the company acquired the rights to acute migraine pain medication Elyxyb for $15 million.
Elyxyb is the first-ever FDA-approved, ready-to-use oral drug aimed to treat acute migraine. In terms of peak sales, BDSI is projected to rake in $350 million to $400 million from this acquisition.
BDSI plans to launch its own take on Elyxyb by the first quarter of 2022, with the goal of adding another catalyst in its growth story and a new revenue stream.
Looking at its history and trajectory, it’s evident that things are heading towards a bright future with BDSI.
This small-cap company managed to sustain the expansion of its market share and boost its sales growth despite the pandemic and the patent challenges from bigger rivals.
Moreover, its balance sheet looks solid. Its margins and cash flow have been exhibiting notable improvements as well.
Simply, there remains no identifiable business concern that might cause it to tumble in the future.
Overall, BDSI’s long-term risk-reward outlook still appears to be attractive regardless of the market’s less-than-stellar reaction to the stock in 2021.
Needless to say, BDSI’s remarkable performance hasn’t been convincing enough for investors to believe that the stock is worth their money.
That turns this promising $315.16 million market cap biotechnology company into an exciting opportunity for deep-value investors searching for diamonds in the rough and an astoundingly cheap growth play.
