Mad Hedge Biotech and Healthcare Letter
January 24, 2023
Fiat Lux
Featured Trade:
(A MARKET-BEATING HEALTHCARE STOCK)
(LLY), (ABBV), (AMGN), (BMY), (GILD), (JNJ), (MRK), (PFE), (MRNA)
Posts
The previous year was horrible for the stock market, with the S&P 500 dropping in value by roughly 19%, marking its first decline since 2018 and only the second time it sank since the 2008 financial crisis.
It was an even more horrid year for the biotechnology industry, with the flagship SPDR S&P Biotech ETF (XBI) sinking by 26% following its more than 20% decline in 2020—a catastrophic blow for such a promising index which delivered an impressive over 30% gains in 6 of the last 10 years.
Meanwhile, the stock prices in the large-cap pharmaceutical segment generally stayed buoyant. The “Big 8,” in particular—AbbVie (ABBV), Amgen (AMGN), Bristol Myers Squibb (BMY), Eli Lilly (LLY), Gilead Sciences (GILD), Johnson & Johnson (JNJ), Merck & Co (MRK), and Pfizer (PFE)—reported an average share price gains of roughly 15%.
Among the names in this list, Eli Lilly has become one of the go-to “safe” stocks during these turbulent times.
In contrast to the broader market, the company has performed exceptionally well in the last 12 months, with its share prices climbing by 12% within the timeframe.
One of the critical reasons that propelled Eli Lilly’s performance was the regulatory approval it obtained for Mounjaro, a diabetes treatment, in May 2022. Although this pharma giant has been hailed as the leader in the diabetes care segment for decades, Mounjaro is a game changer.
This newly approved diabetes treatment could blow any competitor out of the water, with peak sales estimated to hit $25 billion.
Besides diabetes, Mounjaro is also under review as a potential obesity treatment, signifying label expansions for this drug.
If this pushes through, then Eli Lilly would become one of the first movers in the diabetes and obesity markets, with only Novo Nordisk (NVO) standing as a realistic challenger. Based on the market size and the lack of competitors, the profit margins for these segments could be likened to those recorded by Pfizer and Moderna (MRNA) for the COVID-19 vaccines.
There are also other promising candidates in Eli Lilly’s portfolio. One is Donanemab, which is a potential treatment for Alzheimer’s disease. According to the company's Phase 3 study, its candidate delivered better results than Biogen’s (BIIB) approved Alzheimer’s treatment, Aduhelm.
Eli Lilly recently sent its atopic dermatitis treatment candidate, Lebrikizumab, for regulatory review in both the US and Europe. This marks another potential blockbuster for the company, with many treatments queued for review and possible approval by the end of 2023.
As for the company’s current portfolio, most of its products still report good results. For instance, sales of its cancer drug Verzenio rose by 84% year over year to record $617.7 million in the third quarter of 2022. Revenue for the diabetes treatment Trulicity climbed 16% year over year to reach $1.9 billion.
Another factor that makes Eli Lilly attractive is its dividend. Over the past five years, the company has doubled its payout. In 2022, the company disclosed a 15% hike to its dividend payouts. This marked the fifth consecutive year Eli Lilly implemented.
In December 2022, Eli Lilly shared its updated guidance for 2023. For 2022, the company projected that its top line would be between $28.5 billion and $29 billion. That represents a modest growth rate. Eli Lilly shareholders can anticipate better performance this year.
For 2023, the company estimates sales to climb to $30.8 billion. While that amount may appear underwhelming, it’s essential to keep in mind that this is a very conservative estimate. Eli Lilly is taking into account several concerns that may affect its growth, such as patent exclusivity losses and a decline in its COVID-19 sales.
Overall, Eli Lilly has proven itself to be a good and solid business that looks in excellent shape to continue delivering market-beating returns.
With a market capitalization of over $350 billion and several candidates in its pipeline, this company has a strong potential to be worth much more in the following years. Also, it’s critical to bear in mind that since 2020, Eli Lilly shares have skyrocketed by 176%, dwarfing the S&P 500’s 20%—a trend I expect to continue. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
January 12, 2023
Fiat Lux
Featured Trade:
(ALL HAIL THE KINGS)
(ABBV), (JNJ), (ABT), (BDX), (SNY), (BMY)
What is the most exclusive category of dividend stocks? The first answer that comes to mind is the Dividend Aristocrats. These are S&P 500 members that have boosted their dividends consecutively for 25 years.
However, there is another more elite category of dividend stocks that gets less attention: the Dividend Kings.
Although they do not need to be part of the S&P 500, Dividend Kings gain this title by achieving an ultramarathon-like streak—a minimum of 50 years of consecutive payout growth.
However, buying shares of Dividend Kings is not a move for some types of investors. Several of these stocks tend to deliver relatively low growth. Some of these Dividend Kings have been underperforming in the past 10 years.
So, why should you consider investing in Dividend Kings?
Companies under this elite category can be an excellent component of any investor’s retirement portfolio or for those looking for reliable sources of income. Truth be told, most of these businesses offer dividend yields that are notably higher than the average dividend yield recorded by members of the S&P 500.
The consistency and dependability of these Dividend Kings in terms of paying out and boosting their dividend payouts also offer a certain degree of confidence for investors relying on income generated by the dividend stocks they added to their portfolio.
Only a few businesses make it to this category. Two segments comprise a significant part of the Dividend Kings category: the consumer goods sector, with 12 companies, and the industrial sector, with 14. Five utility stocks made it to the list as well.
Rounding up the list are four names from the healthcare industry: Johnson & Johnson (JNJ), Abbott Laboratories (ABT), Becton, Dickinson & Co. (BDX), and AbbVie (ABBV).
AbbVie only recently celebrated its 10th birthday after its monumental spinoff from Abbott back in 2013. In each of the past 10 years, this healthcare giant has hiked its dividend.
To date, the payout has risen by a whopping 270%, all but guaranteeing its standing as a Dividend King—a title it inherited from Abbott.
At the moment, the forward dividend yield of AbbVie is somewhere north of 3.6%, paying out approximately 73.7% of its earnings as dividends.
As expected, this relatively high payout ratio has some investors anxious over the wisdom of sustained hikes. After all, a sharp downturn in earnings could easily demand the company to pay out more in terms of dividends compared to how much its earnings rake in.
Nonetheless, it is critical to put everything in the proper context.
The competitors of the company, such as JNJ, Bristol Myers Squibb (BMY), and Sanofi (SNY), all have reported payout ratios of over 60%. That means AbbVie is hardly alone in this strategy of having a somewhat limited overhead to sustain its decision to continue hiking dividends even in the absence of earnings growth.
Apart from the $57.8 billion in revenue the company generated in the trailing 12 months, AbbVie estimates that two of its newer treatments, Skyrizi and Rinvoq, would rake in more than $15 billion in annual sales by 2025. With nine more candidates submitted for regulatory approval for 2023 alone, it is clear that AbbVie has been working hard to ensure that it creates additional new revenue streams in the near term.
As long as AbbVie continues to commercialize new products and work to develop and broaden the approved indications for its existing treatments to expand the reach of its addressable markets, then it is reasonable to believe that the company’s earnings will continue to climb.
It’s highly likely that most of the Dividend Kings will remain on the list this 2023. For one, there is immense pressure on businesses that have boosted their dividends for 50-plus years to sustain the streak. Besides, no CEO would want to be known as the leader who broke an impressive track record.
As for AbbVie, this stock is an excellent addition to the portfolio of long-investors and those searching for more sources of income. Buy the dip.
Global Market Comments
November 3, 2022
Fiat Lux
Featured Trade:
(LONG TERM PORTFOLIO UPDATE)
(BMY), (AMGN), (CRSP), (LLY), (EEM), (BABA),
(GOOGL), (AAPL), (AMZN), (SQ), (TBT), (JNK), (JPM),
(BAC), (MS), (GS), (FXA), (FXC), (SLV)
Mad Hedge Biotech and Healthcare Letter
November 1, 2022
Fiat Lux
Featured Trade:
(BARGAIN DEAL FOR A QUALITY STOCK)
(ABBV), (ABT), (RGNX), (JNJ), (MRK), (GILD), (AMGN), (LLY), (BMY), (PFE)
Uncertainty. That’s the prevalent sentiment in the investment community these days.
Investors have been hesitant to buy stocks because they believe the bear market isn’t over yet.
Moreover, investors are anxious over the possibility that the stocks will keep falling as issues like higher inflation continue to hound the market.
However, it’s critical to remember that although today’s situation is challenging, it’s only temporary. This means that businesses with solid track records and promising prospects still make excellent buys.
One of the companies outperforming the market this year but which has fallen out of investors’ favor recently, is AbbVie (ABBV).
AbbVie stock has been declining in value lately following an underwhelming third-quarter earnings report. On top of that, the looming patent expiration of its top-selling drug Humira remains a significant concern among investors.
While the Humira situation is clearly not good news for the company, the reality is that AbbVie has impressively preserved the medication’s exclusivity for almost a decade longer than initially expected. Plus, the company has been boosting Humira pricing every year to cope with the declining revenues in the EU, where it already lost patent protection in 2018.
Hence, it’s acceptable for Humira’s chapter in AbbVie’s story to end. After all, the drug has given the company so much. It has been primarily responsible for the more than 325% climb in the company’s share price since 2012 when AbbVie was spun out of Abbott Laboratories (ABT).
Nonetheless, Humira’s impending patent loss doesn’t mean that AbbVie will simply abandon its roots.
The company has since developed potential successors of Humira, namely, Skyrizi and Rinvoq.
So far, the two auto-immune drugs have delivered promising results and are on track to keep the company in tip-top shape in its post-Humira era.
These newer immunology drugs are showing impressive growth potential, with Rinvoq recording a 56% increase in revenue in the third quarter of 2022 and Skyrizi revenue soaring by 85%.
Both are also on track to beat Humira’s peak sales, with joint peak sales from Skyrizi and Rinvoq initially estimated to reach roughly $15 billion.
However, recent revenue reports show that the two could surpass the estimate and completely eclipse Humira’s more than $20 billion annual return.
Obviously, AbbVie would require more than its immunology segment if it plans to sustain a good top and bottom-line growth trajectory.
Other than the more than 10 neuroscience, hematology, immunology, and oncology candidates in its pipeline, which are projected to be ready for market launches in the three to five years, AbbVie has been diving into the aesthetics and eye care markets.
Its eye care program, specifically RGX-314, which is currently being developed in partnership with Regenxbio (RGNX), is an interesting wildcard. For context, the eye care segments for wet and dry advanced macular degeneration are roughly worth over $10 billion to $20 billion annually.
With its Humira chapter closing, AbbVie could be ushering in a new era where products from its Allergan acquisition take the lead.
For example, its Botox franchise consistently delivers impressive results. Even its Botox for migraine line has been recording double-digit revenue growth in the third quarter, indicating gains in AbbVie’s neuroscience segment.
As for the aesthetic indications of Botox, this particular portfolio could be a key driver in the company’s future growth.
Aside from Botox, AbbVie also gained access to the widely used dermal filler Juvederm. With the facial aesthetics industry pegged to experience a compound annual growth rate yearly at 14%, the market is estimated to hit $15.2 billion by 2028.
This trend of AbbVie dominating the market is likely to continue as the company is confident that competitors would be unable to develop biosimilars of Botox. That means its Botox line could keep adding to its top-line growth for an extended period.
Overall, AbbVie is a solid bet among the “Big 8” in the pharmaceutical world, which includes Johnson & Johnson (JNJ), Merck (MRK), Gilead Sciences (GILD), Amgen (AMGN), Eli Lilly (LLY), Bristol Myers Squibb (BMY), and Pfizer (PFE).
Moreover, this is an excellent time to hunt for deals as several quality stocks continue to decline, affected negatively partly by the momentum of the broader market. Among stocks to consider, AbbVie should be at the top of your list.
Mad Hedge Biotech and Healthcare Letter
October 27, 2022
Fiat Lux
Featured Trade:
(A HIDDEN TREASURE IN THESE TURBULENT TIMES)
(BMY), (AMGN)
Biotechnology and healthcare companies are not exactly the thrilling investments that tech stocks or other growth-centered businesses tend to be described as.
Nonetheless, one of the reasons I find this sector attractive is that the companies can offer steady growth in extensively diverse markets.
From biopharmaceutical treatments to household items, the products these businesses develop are the kinds people tend to need and use regularly constantly.
While the biotechnology and healthcare sector doesn’t always beat the general market, the combo of steady growth, resilient returns, and reliable dividends generally make it an incredibly attractive option for investors.
Among the companies in this segment, one of the names you can buy and hold in the long run is Bristol Myers Squibb (BMY).
BMY is hailed as the seventh-biggest biopharmaceutical company across the globe in terms of sales. In 2021, the business recorded $46.4 billion in total revenue, which was up by 9% from 2020.
More than half of BMY’s revenue last year was generated from sales of three of its best-selling treatments: multiple myeloma drug Revlimid, Eliquis, and cancer treatment Opdivo.
The full-year revenue for all three drugs jumped that year, with Revlimid climbing by 6% to reach $12.8 billion, blood thinning medication Eliquis rising by 17% to hit $10.8 billion, and Opdivo increasing by 8% to record $7.5 billion.
Despite the impressive performance of these top-selling products, BMY has been diversifying its portfolio to cover a vast lineup of candidates in the fields of immunology, hematology, and, of course, oncology.
The healthcare giant has also grown, in part, through acquisitions, and part of its 2021 revenue of $46 billion, which was twice more than its 2018 revenue of $23 billion, came from these efforts. Moreover, BMY has reported a free cash flow of roughly $13 billion for two consecutive years.
In 2022, BMY reported a lackluster third-quarter performance. While the company’s revenue slid by 3% to $11.2 billion, the stock still climbed 2.31%.
This could be attributed to the fact that BMY managed to beat expectations as analysts predicted a more significant drop due to foreign exchange impacts.
Aside from these, Revlimid has been dealing with increased competition worldwide in the past months. Specifically, this bone marrow cancer drug has been facing “generic erosion” thanks to the emergence of cheaper alternatives in the market.
Picking up the slack from Revlimid is Eliquis, which has become the company’s top performer in terms of revenue and projected growth. Sales for this drug rose by 10% in the third quarter to reach $2.66 billion.
Meanwhile, sales of BMY’s newly launched products jumped 61% to record $553 million.
Future growth is anticipated to be led by Sotyktu, an oral drug for moderate to severe plaque psoriasis that recently gained FDA approval.
In the US alone, roughly 7.5 million individuals suffer from psoriasis. This is a promising market for BMY, which has been aggressively searching for products to rejuvenate its portfolio.
Since it was only recently approved, Sotyktu’s contribution to BMY’s revenue has yet to be proven. However, the drug recorded better results than Amgen’s (AMGN) blockbuster drug Otezla, which raked in $2.25 billion in sales in 2021.
Given the released data, target market, and more promising results from Sotyktu, BMY’s drug is estimated to reach peak sales at $4.2 billion by 2028.
Overall, BMY is an excellent bet during these turbulent times. In the past 10 years, the company has generated total returns, including dividends, of 190%.
This isn’t far from the 223% returns recorded by the S&P 500. Moreover, if BMY sustains its recent performance, then it’s only a matter of time before it successfully shrinks that gap. I suggest that long-term investors buy the dip.
Mad Hedge Biotech and Healthcare Letter
September 27, 2022
Fiat Lux
Featured Trade:
(LAST CHANCE AT SALVATION)
(BIIB), (ESALY), (RHHBY), (LLY), (NVS), (AMGN), (REGN), (BMY), (ABBV), (MRK), (PFE)
