Mad Hedge Biotech & Healthcare Letter
August 31, 2021
Fiat Lux
FEATURED TRADE:
(A CANCER PIONEER FOR THE BOOKS)
(SEGN), (MRK), (BMY), (PFE), (GILD), (RHHBY), (TAK), (GMAB)
Posts
When choosing a biotechnology company to invest in, a good sign to look out for is when management continuously looks for ways to expand its technology.
This means you’re looking at a stock that’s likely to appreciate multiple folds.
Seagen (SEGN) does this in spades.
Since it was founded in 1997, Seagen (SEGN) has reached almost $30.67 billion in market capitalization.
Reviewing its growth story, I think its powerful growth strategy is one of the key elements that help the company with its advancements.
That is, Seagen is aggressively developing and expanding its different labels for the approved drugs in its portfolio while also actively discovering innovative and new treatments and molecules.
Simply put, Seagen’s growth and expansion can be likened to a tree that keeps forming new additional branches.
Over the years, the company has experienced a remarkable transformation from a single-product firm to a diversified and ever-expanding player, particularly in the oncology medication market—a strategy that paid off.
After all, the market for cancer drugs isn’t the type to stand still.
This sector is renowned for its fast-paced demands and rapid growth. If you look at how much has been done, remember that several types of cancer that seemed incurable a mere 10 years ago are now no longer considered death sentences thanks to the innovative therapies discovered.
If roughly 15 years ago, the standard cancer treatment only involved chemotherapy and surgery, the recent years have granted us access to newer technologies like targeted therapy and immunotherapy.
Lately, CAR-T therapy has been hailed as the most effective means of treating blood cancer. Meanwhile, the likes of Merck’s (MRK) Keytruda and Bristol-Myers Squibb (BMY) Opdivo have made chemotherapy and surgery more effective as well.
So, it wouldn’t be a surprise anymore if the technology in the oncology sector advances further in the years to come.
Another relatively fresh innovation is the antibody-drug conjugate (ADC) technology.
This takes and combines all the positive effects of chemotherapy and targeted therapy while simultaneously eliminating the adverse effects of chemotherapy on the patient’s body.
Unlike chemotherapy, ADCs specifically target and eliminate tumor cells and works to spare the healthy ones. Once the tumor cells are detected, a toxic drug is released to kill them.
Basically, it works like a “smart bomb” in that it annihilates only the enemies and protects the allies.
The first drug to be approved based on ADCs is Mylotarg from Pfizer (PFE), which was 20 years ago.
However, it was only in recent years that this technology finally gained traction and attracted commercial success.
So far, roughly 56 pharmaceutical companies are working on developing ADCs.
Aside from Pfizer, another pioneer in ADCs is Seagen. Unlike Pfizer, this company has chosen to continue focusing on the development of the treatment.
Other companies working on ADC technology include Immunomedics, which Gilead Sciences (GILD) acquired, and Roche (RHHBY).
However, Seagen’s work looks to be the most promising in this segment.
Its first ADC drug is Adcetris, which was approved in 2011 for Hodgkin’s lymphoma and made in cooperation with Takeda Pharmaceutical (TAK).
Its indication was later expanded to cover another white blood cell disease, Peripheral T-cell lymphoma (PTCL).
Seagen already holds roughly 45% of the market share in the Hodgkin’s lymphoma segment alone, and this is expected to rise to 50% by 2026.
In terms of projected sales in the US, Adceris is estimated to generate about $1.7 billion by 2026.
On top of that, Seagen also rakes in royalties from Adceris sales outside the US thanks to its Takeda partnership.
Riding the momentum of Adceris, Seagen expanded its ADC pipeline and later gained approval for Padcev in 2019.
This drug received the go signal to treat a fairly common disease in the oncology space: metastatic bladder cancer.
In the US, the average number of new cases of metastatic bladder cancer is 83,000. Given its market size and potential to become part of a combination therapy with the ever-popular Keytruda, Padcev is expected to generate at least $2.6 billion in sales by 2026.
Gaining more confidence in its expertise in the oncology sector, Seagen continued its expansion and gained regulatory approval for breast cancer treatment Tukysa.
Tukysa is expected to bring roughly $1 billion in annual sales in the US and European markets. This figure is projected to rise when it eventually also gains approval for colorectal cancer.
Another notable drug in Seagen’s pipeline is Tisotumab Vedotin (TV), which is a collaboration with Genmab (GMAB). TV is a cervical cancer treatment and is expected to gain approval by the end of 2021.
Shifting gears, let’s take a look at the upcoming growth of Seagen. Initially, its 2021 guidance put its annual sales at $1.28 billion for all the products.
However, Seagen has already exceeded expectations, with Adceris reporting $700 million in sales for a single quarter this year. Actually, both Adceris and Padcev are well on their way into becoming blockbusters in a year or two, thanks to their continuously expanding applications.
Overall, Seagen is an excellent long-term investment.
Aside from its work with giant biopharmaceutical companies like Merck and BMY, its current portfolio of treatments and pipeline programs present a myriad of opportunities for Seagen.
Moreover, its ability to develop powerful treatments and leverage the science of ADCs make Seagen one of the most promising oncology stocks in the market today.
Mad Hedge Biotech & Healthcare Letter
August 24, 2021
Fiat Lux
FEATURED TRADE:
A GENE EDITING PURE PLAY UP FOR GRABS
(MRNA), (EDIT), (CRSP), (NTLA), (VRTX), (REGN), (BMY),
(BLUE), (NVO), (GRTS), (INBX), (BEAM), (VERV), (SGMO)
Moderna (MRNA) is faced with a dilemma. And it’s a pretty good problem to face at this point.
The biotechnology company has a flourishing cash stockpile courtesy of the increasing demand for its COVID-19 vaccine, and it needs to find something to do with its overflowing cash.
As of the end of the second quarter, the company has already reported a cash position of over $12 billion—a figure that offers Moderna the flexibility to go on a bit of a shopping spree.
So far, Moderna has set its sights on expanding its internal R&D programs on top of the $1 billion share repurchase program approved by its board of directors.
However, the most exciting news is the company’s plans to potentially make acquisitions soon.
This is where Editas Medicine (EDIT) enters the picture.
Moderna has not been shy in declaring that it wants to add gene editing therapies to its growing pipeline along with nucleic acid technologies and mRNA.
While Moderna did not specifically mention Editas in its plans, the smaller biotechnology company looks to be the most promising candidate for acquisition, especially if the COVID-19 vaccine leader plans to jump right into the action in the gene editing space.
After all, there are only three companies in this segment with therapies under clinical testing: CRISPR Therapeutics (CRSP), Intellia Therapeutics (NTLA), and Editas.
CRISPR Therapeutics is practically joined at the hip with Vertex Pharmaceuticals (VRTX). Meanwhile, Intellia has a strong ongoing partnership with Regeneron (REGN).
That leaves Editas, which currently has no partner for its lead program, making it a prime buyout candidate for Moderna.
Editas is also the cheapest by far among all three clinical-stage biotech with $4.12 billion in market capitalization.
In comparison, CRISPR Therapeutics has a market cap of $8.93 billion, while Intellia has a market cap of $10.97 billion.
Moderna could find Editas’ lower market capitalization as an add-on, as it would allow the bigger biotech to not spend all its cash on the acquisition.
Moreover, Editas has another advantage.
While both CRISPR Therapeutics and Intellia only focus on CRISPR-Cas9, which is a way to locate and bind targeted genes, Editas has developed another option platform to do that.
Its alternative option, called Cas12, could boost the company’s capacity to develop gene editing treatments.
Simply put, its rivals only have one weapon in their arsenal, while Editas has come up with a dual-option CRISPR platform to double its chances of succeeding in gene therapy development.
If, for instance, Moderna does not acquire Editas, there are still a lot of options available for the bigger company.
One possibility is with Juno Therapeutics, which is part of Bristol-Myers Squibb (BMY), as the company is already collaborating with Editas on the development of genetically modified T-cells to come up with a powerful cancer therapy.
Meanwhile, if Editas’ pipeline and portfolio do not quite cut it with Moderna, another potential buyout candidate for this biotechnology giant is bluebird bio (BLUE).
While it’s not as advanced as CRISPR Therapeutics, Intellia, and Editas, bluebird bio has ongoing work with the likes of Bristol-Myers Squibb, Regeneron, Novo Nordisk (NVO), Gritstone Oncology (GRTS), and Inhibrx (INBX).
Other candidates that Moderna could take into consideration include Beam Therapeutics (BEAM), Verve Therapeutics (VERV), and Sangamo Therapeutics (SGMO).
Regardless of Moderna’s future decisions, its announcements that it plans to expand on the gene editing space could potentially spur other huge biopharmaceutical companies to explore their own business development agreements with up-and-coming biotechnology firms.
In fact, even if Moderna ends up not calling, there’s a big possibility that Editas could easily find others who will be interested in acquiring this pure play gene editing frontrunner.
Global Market Comments
August 19, 2021
Fiat Lux
Featured Trade:
(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CRSP), (FB), (PYPL), (GOOGL), (AAPL), (AMZN), (SQ), (JPM), (BAC), (MS), (GS), (BABA), (EEM), (FXA), (FCX), (GLD), (SLV), (TLT)
I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on February 2, 2021. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.
For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing and you don’t want to remain glued to a screen all day, these are the investments you can make. Then don’t touch them until you start drawing down your retirement funds at age 72.
For some of you, that is not for another 50 years. For others, it was yesterday.
There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.
Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red on the spreadsheet.
To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, the click on the “Long Term Portfolio” button, then “Download.”
Changes
Biotech
Pfizer (PFE) has nearly doubled in six months, while Crisper Therapeutics (CRSP) has almost halved. Since the pandemic, which Pfizer made fortunes on, is peaking and we are still at the dawn of the CRISPR gene editing revolution, the natural switch here is to take profits in (PFE) and double up on (CRSP).
Technology
I am maintaining my 20% in technology which are all close to all-time highs. I believe that Apple (AAPL), (Amazon (AMZN), Google (GOOGL), and Square (SQ) have a double or more over the next three years, so I am keeping all of them.
Banks
I am also keeping my weighting in banks at 20%. Interest rates are imminently going to rise, with a Fed taper just over the horizon, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, keep Morgan Stanley (MS), Goldman Sachs (GS), JP Morgan (JPM), and Bank of America, which will profit enormously from a continuing bull market in stocks. They are also a key part of my” barbell” portfolio.
International
China has been a disaster this year, with Alibaba (BABA) dropping by half, while emerging markets (EEM) have gone nowhere. I am keeping my positions because it makes no sense to sell down here. There is a limit to how much the Middle Kingdom will destroy its technology crown jewels. Emerging markets are a call option on a global synchronized recovery which will take place next year.
Bonds
Along the same vein, I am keeping 10% of my portfolio in a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis so go read Global Trading Dispatch. Eventually, massive over-issuance of bonds by the US government will destroy this entire sector.
Foreign Exchange
I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). Eventually, the US dollar will become toast and could be your next decade-long trade. The Aussie will be the best performing currency against the US dollar.
Australia will be a leveraged beneficiary of the synchronized global economic recovery through strong commodity prices which have already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.
Precious Metals
As for precious metals, I’m keeping my 0% holding in gold (GLD). From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.
I am keeping a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles. The arithmetic is simple. EV production will rocket from 700,000 in 2020 to 25 million in 2030 and each one needs two ounces of silver.
Energy
As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.
The Economy
My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade after this year’s superheated 7% performance.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 700% or more from 35,000 to 240,000 in the coming decade. The American coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.
You won’t believe what’s coming your way!
I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again. If I forget, please remind me.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Biotech & Healthcare Letter
July 13, 2021
Fiat Lux
FEATURED TRADE:
(SPINOFF STOCKS POISED FOR LONG-TERM GROWTH)
(VTRS), (OGN), (PFE), (MRK), (JNJ), (LLY), (ABBV),
(AZN), (GSK), (BMY), (GILD), (REGN), (PYPL), (EBAY), (CARR), (UTC)
Spinoffs have historically been known to deliver healthy returns for their investors.
A good example is PayPal (PYPL), which grew sevenfold since 2015 following its spinoff from eBay (EBAY).
A more recent example is Carrier Global (CARR), which tripled its shares amid the pandemic after its spinoff from United Technologies (UTC) last year.
Basically, spinoffs allow smaller segments of companies to thrive on their own or push high-growth divisions to expand faster.
Over the past months, the cheapest stocks found in the S&P 500 have recently spun off pharmaceutical companies: Viatris (VTRS) and Organon (OGN).
Viatris is a spinoff of Pfizer (PFE), which merged with Mylan, while Merck (MRK) jettisoned Organon (OGN) just last month.
Both are brand new and still under the radar, particularly among investors who don’t follow healthcare updates.
While these two have yet to impress the market, both exhibit potential that could make them promising long-term prospects.
Viatris holds an extensive portfolio of drugs courtesy of Pfizer’s Upjohn unit and Mylan’s pipeline.
The list includes the previously top-selling Lipitor, Viagra, Lyrica, and even Norvasc from Pfizer. It also has Mylan’s income-generating EpiPen along with the company’s HIV/AIDS therapies and 7,500 marketed products across the globe.
To date, Viatris has fallen roughly 30% from its average price target. It’s not for the subpar performance of its products though. This is mostly attributed to the lack of attention from investors and possibly a bit of skepticism from some analysts.
However, Viatris has a really good value proposition.
The main goal of the biggest names in the biopharmaceutical sector, such as Johnson & Johnson (JNJ), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca (AZN), GlaxoSmithKline (GSK), Bristol-Myers Squibb (BMY), and Gilead Sciences (GILD), is to develop and launch the best-in-class treatments to market.
To achieve that, these industry giants are granted a set period to exclusively sell and market each new drug that gains approval.
This would allow them to command a premium price, which in turn would give them the money to fund the next round of research and development needed to come with the next generation of newer and improved versions of the treatment.
However, not everyone can afford those premium prices.
So when the periods of exclusivity end, there are companies like Mylan—now Viatris—that are allowed to manufacture generic versions of those branded drugs and sell them at lower prices.
The list of drugs with soon-to-expire patents for which Viatris has been working on creating biosimilars or generic versions include Humira from AbbVie, which recorded peak sales at $20 billion; Eylea from Regeneron (REGN), which peaked at $7.5 billion; and even Allergan’s Botox, which peaked at $5 billion.
Viatris is also working on biosimilars for Roche’s (RHHBY) cancer treatments Avastin, which had peak sales of $7 billion, and Perjeta, which peaked at $5 billion.
Obviously, Viatris will not reach the same height of success as the companies that created those branded drugs.
But, if it manages to achieve even only 10% of those numbers, then it can generate roughly $4 to $5 billion in sales—and that’s just the tip of the iceberg.
So far, Viatris owns at least 1,400 approved molecules applicable in roughly 10 therapeutic segments.
It has roughly 350 products in its pipeline at the moment, with each item estimated to generate approximately $100 million to $500 million in sales.
With its current performance and access to 165 countries and territories, Viatris is expected to generate roughly $224 billion in global sales annually.
With all these in mind, Viatris’ value proposition looks impressively strong to me.
More importantly, this Pfizer spinoff has the capacity to become the world’s first dominant generic and biosimilar drug manufacturer, with its revenues potentially becoming comparable to major pharmaceutical companies at some point.
The same value proposition could be behind Organon, as this newly spun-off company markets Merck’s off-patent drugs.
While the move to separate from its parent company has yet to show tangible results, Organon is projected to rake $6.1 billion to $6.4 billion in revenue for 2021, with annual sales expected to rise in mid-single digits and dividends anticipated to be about 3%.
The biosimilars market is still relatively young, with only 60 biosimilars approved in the EU and 29 in the US thus far. In total, those represent a market worth approximately $17 billion.
Conservative estimates project that the global biosimilars market will be worth $692 billion by 2027, considerably outpacing the mainstream pharmaceutical sector.
Given their potential and prospect for future gains, the low prices for companies like Viatris and Organon present rare opportunities to grab long-term investments.
Mad Hedge Biotech & Healthcare Letter
May 20, 2021
Fiat Lux
FEATURED TRADE:
(REGENERATED REGENERON)
(REGN), (PFE), (JNJ), (AMGN), (BMY), (GILD), (MRK), (LLY), (SNY), (BAYRY), (NVS), (RHHBY)
The biotechnology and healthcare sectors have become attractive investment targets for investors who recognize the value and essence of these industries along with the possible risks associated with them.
While not all companies in these areas are great investments, some offer remarkable growth opportunities.
One company worth considering is Regeneron (REGN), with its strong and stable investment thesis and steady organic growth.
Regeneron joins the ranks of Pfizer (PFE) and Johnson & Johnson (JNJ) as one of the handful of biopharmaceutical companies to release solid first quarter results this 2021 compared to other big names in the industry, including Amgen (AMGN), Bristol Myers Squibb (BMY), Gilead Sciences (GILD), Merck (MRK), and Eli Lilly (LLY).
The New York-based company reported a 38% boost in its revenue compared to the same period in 2020, reaching $2.5 billion for the first quarter of 2021 alone.
Virtually all of Regeneron’s products generated solid growth during this period, with the company’s COVID-19 antibody cocktail REGEN-COV delivering the highest sales at $262 million.
To underscore just how significant REGEN-COV is to Regeneron this quarter, its absence from the roster would take away 18% from the company’s overall revenue growth.
Riding the momentum of its COVID-19 program, Regeneron has developed Inmazeb, which is a treatment for Ebola virus infection.
Aside from its COVID-19 antibody cocktail, Regeneron also saw an impressive boost in the performance of its atopic dermatitis drug Dupixent.
Dupixent, which Regeneron sells in partnership with Sanofi (SNY), generated $1.26 billion in sales in the first quarter, showing off a notable 48% increase from its 2020 report.
Although Dupixent is a shared product with Sanofi, this dermatitis drug holds incredible promise for Regeneron.
To date, only 6% of eligible patients are being treated with Dupixent. This indicates a massive space that is yet to be explored by both companies.
Taking into consideration the pace at which Dupixent has been growing so far, this drug is projected to peak at roughly $12.5 billion in sales in the coming years.
Another high-selling drug for Regeneron is wet age-related macular degeneration (AMD) treatment Eylea.
Sales for this drug, which was developed in collaboration with Bayer (BAYRY), went up from $1.2 billion in the first quarter of 2020 to $1.3 billion this year.
The increase in sales for Eylea is a welcome surprise for both Regeneron and Bayer, especially since more and more competitors are attempting to topple the drug as the top product in the niche.
Cornering the AMD segment is an attractive venture for any biopharmaceutical company.
After all, Eylea generated $4.9 billion in sales in 2020 from the US market alone.
Thus far, two main competitors have come forward as the strongest.
One is Novartis (NVS), which released Beovu in 2019.
The second, and possibly the stronger competitor between the two, is Roche (RHHBY) with Faricimab.
To ensure its dominance in the AMD market, Regeneron has been expanding the use of Eylea.
The latest development is the drug’s enrollment in the Phase 3 program, which would allow extended periods in between treatments but still deliver the same level of efficacy and safety.
Aside from these, Regeneron is looking into additional revenue streams ahead.
One growth segment is its oncology program, particularly its cancer drug Libtayo, which may soon be marketed to cover a fourth type of cancer.
Regeneron aims to submit Libtayo for review as a treatment for advanced cervical cancer.
On top of this, the drug is also a strong contender in the development of several antibody treatments.
Thus far, the company has 12 oncology antibodies under clinical development.
Overall, Regeneron’s strong results for the first quarter of 2021 highlighted its continuous evolution into a company carrying multiple and diverse portfolios of products and pipeline programs that address an extensive range of serious diseases, from COVID-19 and rare diseases to cancer.
