Mad Hedge Biotech and Healthcare Letter
March 7, 2024
Fiat Lux
Featured Trade:
(RALLY CAPS ON)
(VKTX), (LLY), (NVO), (AKRO), (GILD), (BMY), (AMGN), (PFE)
Posts
The biotech sector just flipped its rally cap inside out. After a brutal losing streak, it's clawing its way back. The SPDR S&P Biotech (XBI) exchange-traded fund, a barometer for the sector, started to show signs of life when it soared by 5.7% last month, cresting over $100 a share for the first time in two whole years.
While champagne might be premature, this comeback is heating up, and whispers of a full-fledged rally are echoing through Wall Street.
After a rough patch that kicked off in early 2021, seeing the fund take a nosedive of over 60% by late October 2023, the tide began to turn last fall. Initially, whispers of lower interest rates in 2024 sparked interest across small-cap indexes, including our biotech heroes.
Yet, lately, the buzz is all about biotech's own merits — think breakthrough medical trials and the juicy prospect of big pharma playing Pac-Man with smaller but promising biotech firms to beef up their drug pipelines.
And let me tell you, if the current rally's got legs, we might just be witnessing the most thrilling biotech comeback in over half a decade. Especially if the merger and acquisition scene stays hot, we could see biotech stocks climbing even higher.
Take everything that happened in the sector in February as an example. Viking Therapeutics (VKTX) threw down the gauntlet with promising data on its weight loss drug, VK2735, making investors sit up and take notice.
Actually, this candidate is shaping up to be a formidable rival to obesity treatments from Eli Lilly (LLY) and Novo Nordisk (NVO), sending Viking's shares skyward by a jaw-dropping 121% in a single day.
And it's not just Viking stealing the spotlight. Another biotech named Akero Therapeutics (AKRO) also bounced back with some impressive data of its own, challenging the doom and gloom that settled over biotech firms following Eli Lilly's bombshell MASH trial results.
Akero's mid-stage study showed that their drug, efruxifermin, could significantly roll back liver fibrosis in MASH patients — putting a whopping 75% of high-dose recipients on the mend, a stark contrast to the 24% placebo group.
This revelation was a game-changer, especially after Lilly's tirzepatide threw the sector for a loop, hinting at a potential endgame for MASH-specific treatments. But while Lilly's announcement left many details to the imagination, Akero's clear-cut results have reignited excitement over what might be the best MASH treatment yet seen.
As expected, in the midst of this resurgence, the likes of Viking and Akero are catching eyes not just for their groundbreaking treatments but also as tantalizing acquisition targets. Heavyweights like Gilead Sciences (GILD), Bristol Myers Squibb (BMY), Amgen (AMGN), and Pfizer (PFE) are said to be circling, each eyeing a slice of the biotech pie.
As for the biotech investment landscape in general, it's buzzing with renewed vigor. The early months of 2024 have welcomed a smattering of biotech IPOs, a refreshing change after a long drought. CG Oncology's late January debut practically set the market ablaze, doubling in value on its first trading day.
Moreover, public biotechs have found a lifeline in PIPE deals, sidestepping the regulatory hoops of secondary offerings. For instance, Denali Therapeutics' (DNLI) recent PIPE deal, expected to rake in $500 million, is proof of the sector's warming investment climate.
So, dust off those rally caps because the biotech sector isn't just back in the game – it's swinging for the fences.
Breakthrough treatments, a sizzling M&A market, and investors throwing their support behind innovation — this rally has all the ingredients to paint a bright future for the industry. While there will be bumps along the road, one thing's for sure: the biotech sector is poised for a season no one wants to miss.
Mad Hedge Biotech and Healthcare Letter
February 15, 2024
Fiat Lux
Featured Trade:
(TACKLING THE BIG C)
(PFE), (BNTX), (BMY), (ABBV), (AZN)
Super Bowl Sunday: not just a day for football fanatics but a golden opportunity for brands to shine brighter than the halftime show, captivating over 100 million pairs of eyes.
Amid the usual suspects of beers, cars, and fizzy drinks, an unexpected name popped up on the screen: Pfizer (PFE). The Big Pharma titan threw its hat in the ring with a multimillion-dollar message that could be summed up as a toast to science itself.
Here’s how Pfizer’s ad went: animated legends of science — from Newton to Einstein, alongside Rosalind Franklin and Katalin Karikó — belting out an ode to medical milestones to the tune of Queen’s “Don’t Stop Me Now.” Add a dash of whimsy with a cameo from penicillin and a crooning tardigrade, culminating in the heartwarming sight of a young cancer survivor leaving the hospital to applause.
This cinematic piece wasn’t just about selling a product; it was about selling a dream, one where science leads the charge against cancer, underscored by Pfizer’s new rallying cry, "Outdo Yesterday," and a nudge towards LetsOutdoCancer.com.
Shrouded in mystery is the exact price Pfizer paid for this 60-second spectacle — shortened from its original 90-second glory.
But, my sources say that the pharma giant shelled out around $6.5 million to $7 million for half that time, making Pfizer’s splurge no drop in the bucket, especially juxtaposed against a recent $15 million pledge to the American Cancer Society.
This grand gesture comes at an important milestone, marking Pfizer’s 175th year and a concerted push to cast a vibrant, forward-looking shadow across its brand, appealing to the public, investors, and its own ranks alike.
After all, it’s an open secret that Pfizer’s looking to weather a storm, with its COVID-19 vaccine sales dwindling.
Despite riding high on the COVID-19 vaccine wave in partnership with BioNTech (BNTX), raking in roughly $57 billion across 2021 and 2022, Pfizer's financial seas have been anything but calm. The stock’s dramatic descent from its late 2021 peak paints a picture of uncertainty, rooted in the sobering performance of its COVID-19 titans, Comirnaty and Paxlovid.
Yet, as we can see, Pfizer’s narrative isn’t one of gloom. Stripping away the pandemic’s shadow reveals a company in robust health, with a 7% operational growth and a record seven FDA nods in 2023 alone.
Speaking of making it rain, Pfizer's not just throwing its COVID-earned billions around for kicks. For example, they've laid down a cool $43 billion on the table to bring oncology biotech Seagen into the fold.
This acquisition isn't your everyday shopping spree either. It's a move designed to transform Pfizer into the leader of the antibody-drug conjugate (ADC) movement in cancer therapy, potentially beating the likes of Bristol Myers Squibb (BMY), AbbVie (ABBV), and AstraZeneca (AZN).
Think of this move as the biopharma eyeing Seagen's $3 billion in 2023 revenue and saying, "Let's crank this up to $10 billion by 2030." Ambitious? Absolutely. But if anyone's got the blueprint to make it happen, it's Pfizer.
The pivot to cancer isn’t just a strategic shift but a play for the heartstrings of a global audience. With cancer touching lives universally, Pfizer’s Super Bowl gambit seeks to transcend its COVID-19 narrative, aiming for a connection that’s both deeper and more universal. The deliberate omission of its vaccine from the ad speaks volumes, aiming to bridge divides in a viewership as diverse as the Super Bowl’s.
Still, the true measure of its Super Bowl splash — beyond the ad’s immediate sparkle — may lie in subtler indicators, from stock movements to talent retention and a potential surge in interest around its cancer-fighting mission.
Whether this move translates into a long-term win for Big Pharma titan remains to be seen, but for now, the spotlight isn’t just on the Chiefs’ victory but on Pfizer’s leap into the hearts and minds of millions, championed by science and the indomitable spirit of innovation. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
January 30, 2024
Fiat Lux
Featured Trade:
(BRAIN GAINS)
(BIIB), (ESALY) (LLY), (REGN), (ALNY), (MRK), (AMGN), (PFE), (BMY)
Let's talk about a golden opportunity knocking at our doors – the booming market of Alzheimer's disease treatments in biopharma. We're not just talking about a small uptick here. With a slew of new meds on the horizon, this market is gearing up for some serious growth, and you might want to grab a piece of this pie.
The dominant name on our radar is Biogen (BIIB), ticking at $260 per share with a market cap that's flirting with $39 billion.
Now, with a solid $10 billion in sales and trading at a nifty 16 times its 2024 estimated earnings, Biogen's got some serious mojo. I've been eyeing it since last year, but boy, have things changed since then.
A critical game-changer was Chris Viehbacher, the new CEO since November 2022. He's already played a couple of aces – slicing $800 million in costs (which, by the way, could pump up earnings by $5 a share by 2025) and wrapping up the acquisition of Reata Pharmaceuticals in September 2023.
This new addition to Biogen’s portfolio has a hot ticket item, Skyclarys, for treating Friedreich’s ataxia. It's a rare find, but it could add a cool $5 per share in earnings in a few years.
But the most exciting name in Biogen’s arsenal is Leqembi, the company’s Alzheimer’s treatment. They're splitting the pot with Eisai (ESALY), and this drug is a little like turning back the clock on cognitive decline – think a two-year rewind button.
The big bucks talk here: we're eyeballing $2 billion in revenue by 2028 and maybe a whopping $4 billion by 2033. And hey, there might even be more where that came from.
Let's chew on a few things here. Biogen has the potential to snag a 60% market share against Eli Lilly’s (LLY) donanemab – the only worthy opponent in the market so far. And given Leqembi's safety creds, this might be playing it safe.
Aside from Eli Lilly, there’s Roche (RHHBY), with candidates in Phase 2 and Phase 1 trials, but they're not quite hitting the jackpot yet. As for other competitors in the space like Regeneron (REGN) and Alnylam (ALNY)? Well, they're cooking up something different in Phase 1, but it's a bit early to call.
Meanwhile, Biogen's got another trick – a home-use version of Leqembi coming this fall. And get this: doctors are buzzing about nipping Alzheimer’s in the bud, way before it crashes the party. Imagine getting a jab of Leqembi as part of your routine check-up when you're only 50. If this works, then we could be kissing Alzheimer’s goodbye by 2040.
For the longest time, Biogen was like that one-hit wonder with its multiple sclerosis treatments. But now, they're swinging for the fences with the largest unmet health need out there. If Leqembi hits it big, and I mean really big, we could be talking about sales far beyond that $4 billion mark by 2033.
But let's not get ahead of ourselves. The big pharma world is about to hit a few speed bumps with a wave of patent cliffs from 2025 to 2029. That’s a headache for the likes of Merck (MRK), Amgen (AMGN), Pfizer (PFE), and Bristol Myers Squibb (BMY).
Biogen, though, is sitting pretty with two growth products and a pipeline that’s got pizzazz. Plus, they're a hot catch for any big pharma looking for a dance partner without stepping on regulatory toes.
As we roll into the next decade, keep your eyes peeled for investment opportunities popping up like daisies. And don't feel like you've got to jump on the first bandwagon that rolls by. This market's just stretching its legs, and today's champs might just be tomorrow's old news.
So, what's the smart play here? Spread your bets across a few horses in the Alzheimer's race, and make sure they're not one-trick ponies.
Eli Lilly, for instance, is more than just an Alzheimer's bet – they're making waves in diabetes and soon, obesity treatments. Biogen, despite its Alzheimer's experience, is a bit of a gamble, especially after its first drug's rocky start.
Remember, investing in Alzheimer's treatments now is like catching the early wave – it's riskier, sure, but the potential for a big payoff is there. This is an emerging market, and it's revving up for an exciting ride. I suggest you add these names to your watchlist.
Mad Hedge Biotech and Healthcare Letter
January 2, 2024
Fiat Lux
Featured Trade:
(FROM LIMPING TO LEAPING)
(LLY), (NVO), (PFE), (AMGN), (VRTX), (BMY), (CRSP), (NTLA)
The year 2023 in the biotechnology and healthcare world has been a rollercoaster with more dips than peaks.
While Eli Lilly (LLY) and Novo Nordisk (NVO) are hitting the jackpot with their new weight loss drugs, the rest of the healthcare sector is limping behind.
By year's end, the S&P 500 Health Care index had slipped by 0.4% since the start of the year, starkly contrasting the broader S&P 500's robust 24% growth.
That’s not just a minor setback; it's the sector's most significant underperformance in 30 years.
Fast forward to 2024. Conventional wisdom suggests healthcare stocks might lag in an election year. Why? Presidential candidates love to shake things up with healthcare reform promises, usually sending investors into a sell-off frenzy.
But this time around, the air is tinged with an unexpected optimism. After a year of hefty sell-offs, healthcare valuations have become irresistibly low, presenting a fertile ground for investment opportunities.
Plus, there's less regulatory uncertainty now, with major acquisitions like Amgen's (AMGN) of Horizon Therapeutics and Pfizer's (PFE) of Seagen sailing through without a hitch. And let's not forget the anticipated interest rate cuts could be a game-changer for the sector.
Interestingly, the typical election-year healthcare jitters might be less intense in 2024. After all, the likely presidential candidates are familiar faces, and the healthcare changes they've made (or not made) are well known.
Trump’s healthcare impact was minimal, and Biden has already pushed through significant drug pricing reform with the Medicare drug price negotiation program. This program, despite legal hurdles, is moving forward and has been priced into the market's expectations.
In a surprising turn of events, the Biden administration's recent move to potentially invalidate patents of some high-priced drugs didn't send investors running for the hills like it might have in previous years. It seems the fear of drug price regulation may be losing its sting.
Now, let's take a closer look at some of the healthcare sectors that are drawing attention.
Biotech has been in a slump since 2020, but things are starting to look up. The sector's last three-year downturn was in 1992, followed by a significant rebound.
Despite challenges like high capital-raising costs and a deluge of IPOs, biotech is showing signs of life. As these pandemic-era companies mature and produce valuable data, they offer both buying and selling opportunities.
M&A activity in biotech is also on the rise, and if interest rates fall, the sector's prospects look even brighter.
Keep an eye on Vertex Pharmaceuticals (VRTX), which is set to reveal more data on its experimental pain drug, and Amgen, which is awaiting data on its new obesity pill. CRISPR Therapeutics (CRSP) and Intellia Therapeutics (NTLA) should be on your watchlist, too.
Over in MedTech, the hype around GLP-1 weight loss drugs led to a sector-wide selloff.
The iShares Medical Devices ETF took a hit, dropping 13.9% by the end of October, but it started to recover in the last two months of the year. The GLP-1 concerns might continue to cast a shadow, but there's a growing sense that their impact might be more long-term, especially if interest rates fall.
In the pharma world, 2023 was a tale of two halves: Eli Lilly and Novo Nordisk on one side, with their successful weight-loss drugs and the rest trailing behind.
While the S&P 500 Pharmaceuticals index slightly declined, Lilly and Novo surged ahead with 56% and over 45% gains, respectively.
But 2024 might bring new challenges, especially for Lilly, as it rolls out Zepbound, its highly anticipated weight-loss drug.
For Novo, the focus will be on how Ozempic fares under Medicare's new drug pricing negotiations set to take effect in 2027.
The key to success in pharma now is finding companies with innovative drugs that promise revenue acceleration without the looming threat of patent cliffs. Pfizer and Bristol Myers Squibb (BMY), for instance, are under the microscope as they navigate impending patent expirations and strive to reassure investors.
In 2023, the healthcare market was a stock picker's paradise, especially given its complexity. The year ahead promises more of the same. Investors should be on the lookout for opportunities among stocks that underperformed last year but have solid fundamentals.
Despite the unpredictability of election years and the bumpy ride of 2023, the healthcare sector, buoyed by low valuations and potential rate cuts, is gearing up for what could be a significant turnaround this 2024. For savvy investors, this could be an opportunity not to be missed.
Mad Hedge Biotech and Healthcare Letter
November 21, 2023
Fiat Lux
Featured Trade:
(A PRESCRIPTION FOR CAUTION)
(VTRS), (PFE), (JNJ), (LLY), (BMY), (TEVA), (ABBV), (CVS)
In the rollercoaster world of pharmaceutical stocks, 2023 has been like riding the Cyclone at Coney Island – thrilling for some, nauseating for others.
Take Pfizer (PFE), for instance. It’s seen its stock take a nosedive by 43.4%. That’s the kind of drop that makes you check if your wallet’s still there. Then there’s Johnson & Johnson (JNJ), trailing behind with a 16.4% decline. Not as dramatic, but still enough to make your stomach lurch.
Meanwhile, there’s Eli Lilly (LLY), playing the hero as it rockets up by an extraordinary 66.8%, thanks to its new weight-loss drugs. At this point, investors are practically throwing ticker-tape parades.
However, even with Eli Lilly’s star performance, the S&P 500 Pharmaceuticals index still shows a downturn of 2.3%.
Now, as we've seen earnings reports trickle in, a trend has started to stick out: positive results aren’t shielding drugmakers from a sell-off. Look at Pfizer and Bristol Myers Squibb (BMY), both hovering near their 52-week lows.
Still, investors are giving the biotechnology and healthcare stocks the side-eye for several reasons.
The new Medicare drug-price negotiation program is like a strict parent setting a curfew – it’s potentially restricting pricing power for certain medications. Plus, as interest rates climb, the allure of high dividend yields is diminishing faster than my motivation to hit the gym.
In this skeptical market, however, there are some optimistic investors who are digging through the bargain bin, hoping to strike gold.
Enter Viatris (VTRS), trading at just 3.3 times earnings and boasting a 5.1% dividend yield. It sounds promising, but only a few brave souls are recommending a buy.
Basically, this situation with Viatris is pretty much like finding a designer shirt at a discount store – sure, it’s cheap, but will it fall apart after two washes? Let’s take a closer look.
Viatris’s backstory is a bit of a soap opera. Born from the merger of Mylan and Pfizer's Upjohn unit, it carries the baggage of Mylan's EpiPen pricing scandal.
Since rebranding, Viatris has been trying to find its footing. Despite a shiny new business plan, which involves selling off assets for a potential $9 billion, investor confidence remains shaky at best.
Notably, its decision to exit the biosimilars market, where heavy hitters like Teva Pharmaceutical Industries (TEVA) and AbbVie (ABBV) play ball, has been seen as a bold move. Considering the potential of that market, it felt like leaving a high-stakes poker game just when the chips were starting to stack up. And with CVS Health (CVS) eyeing this lucrative space, Viatris might find itself wishing it had stayed at the table.
These past months, investors have been capturing this drama through a meme – comparing 'adjusted Ebitda' to 'free cash flow' with images of Jennifer Aniston and Iggy Pop. It’s a cheeky way of saying that Viatris’s financial projections might be wearing rose-colored glasses.
Looking ahead, Viatris is aiming for $2.3 billion in free cash flow next year, buoyed by recent sales. But the big question is: can it turn these assets into growth, or will it continue its high-wire act?
Reviewing its recent moves and their effects on the market, the Viatris saga has turned into a cautionary tale for investors in the pharma world – it’s a reminder that sometimes the threat of a nosedive is as real as the thrill of a skyrocket.
So, what’s the takeaway for those of us with skin in the game?
It seems wise to keep our eyes peeled and not jump on any bandwagons too hastily. Viatris, amidst its strategic transformations and market challenges, is worth watching with a careful eye. While its cash flow looks steady through 2027, thanks to planned asset sales, the long-term picture is as clear as mud.
As we navigate the unpredictable waves of the pharmaceutical market this year, let’s remember – it’s not just about holding on for the ride. It’s about knowing when to get on, when to get off, and maybe, just maybe, when to enjoy the view from the sidelines with some popcorn in hand. I say hold off from buying Viatris shares at the moment.
