Mad Hedge Biotech & Healthcare Letter
May 4, 2021
Fiat Lux
FEATURED TRADE:
(A BAD NEWS BUY STOCK)
(AZN), (PFE), (BNTX), (MRNA), (JNJ)
Posts
Along with Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA), one of the biggest potential winners in the COVID-19 vaccine race is AstraZeneca (AZN).
While the company did manage to develop a vaccine nearly as fast as the others, its product is now suffering the same fate as Johnson & Johnson’s (JNJ) candidate and is getting bogged down by blood clotting issues.
As if that isn’t enough, AstraZeneca’s plan to use its diabetes drug Farxiga as another potential COVID-19 treatment also flopped.
Needless to say, it looks like not a lot of things are going well for AstraZeneca in the past months.
Looking at its fundamentals though, it’s worth noting that AstraZeneca stock might just be one of those rare prime candidates for being bad news buys.
After all, the company never really had plans to profit from its COVID-19 vaccine venture. In fact, AstraZeneca has long announced that it would sell its vaccine at cost. Hence, any bad news from the vaccine won’t really affect the company’s sales.
For years, AstraZeneca has been focused on creating a hyper-growth product lineup in several of the pharmaceutical industry’s most profitable submarkets.
In fact, the Phase 3 advanced pipeline candidates of the company are some of the most promising candidates in the industry, with these soon-to-be-launched drugs already generating 24% growth in revenue as early as 2017.
Not including cancer, there are at least 2.1 billion people globally who suffer from various chronic diseases. That accounts for over 25% of the entire human population, thereby representing a massive and lucrative addressable market--the very same market that AstraZeneca has been targeting.
In the years to come, AstraZeneca is projected to release at least six blockbuster drugs—each one of them estimated to rake in more than $1.3 billion in sales annually.
At the moment, one of the company’s major growth drivers is its oncology franchise, which has an early-stage pipeline anticipated to rake in roughly $1.3 billion each year by 2026.
In particular, AstraZeneca’s recently released cancer drugs Imfinzi and Tagrisso are well-positioned to dominate the segment thanks to their leading efficacy when it comes to hard-to-treat cancer types.
Meanwhile, other sub-sectors are expected to contribute $2.65 billion annually.
So far, AstraZeneca operates in more than 70 countries, ensuring its presence in practically all potential addressable markets.
In China alone, the company’s new product sales have risen by 68%, while the rest of the emerging markets recorded 56% growth.
Despite the negative publicity of its COVID-19 vaccine recently, AstraZeneca still managed to report positive data for its first quarter earnings.
Within this period, the company generated $7.2 billion in revenue, which is 15% more than its earnings during the same time last year. Its earnings per share rose by 100% to reach $1.19, while its core earnings were up 55%.
This is a welcome surprise, especially since analysts predicted $0.75 per share for the company.
The rise in AstraZeneca’s stock performance was driven mostly by its best-selling drugs, including Tagrisso with $1.15 billion in sales in the first quarter of 2021 alone and showing off a 17% jump year-over-year.
Even with the failed COVID-19 treatment, the diabetes drug Fargixa soared this quarter with $625 million, indicating a 54% increase from its previous performance during the same period.
More importantly, AstraZeneca has been consistently paying investors a dividend since it started doing it 20 years ago—a trend that’s expected to continue since the company is poised to become one of the fastest growing businesses in the world with 15% growth annually.
Given its pipeline programs and current portfolio of products, AstraZeneca is on track to continue its hypergrowth through 2023. At this pace, we can expect an estimated 105% in total returns and compound annual growth rate returns at 30.2%.
Currently, AstraZeneca stock is experiencing some turbulence due to the bad news linked to its COVID-19 vaccine. Now would be the best time to buy the dips on the bad news.
Mad Hedge Biotech & Healthcare Letter
March 30, 2021
Fiat Lux
FEATURED TRADE:
(A PURE PLAY STOCK SELLING AT A BARGAIN)
(PFE), (BNTX), (MRNA), (AZN), (JNJ), (NVAX), (MRK), (VTRS), (LLY), (REGN)
It’s virtually impossible to find a period in history when drug development gained the unmitigated attention of the whole world.
Yet, this is exactly what happened in 2020 when we all waited with bated breath for the results of COVID-19 trials from the likes of Pfizer (PFE), BioNTech (BNTX), Moderna (MRNA), AstraZeneca (AZN), Johnson & Johnson (JNJ), and Novavax (NVAX).
Despite this, it is astounding that biopharmaceutical stocks are cheaper than they have ever been in the past 20 years.
Given the fact that its collaboration with BioNTech made a central figure in the COVID-19 vaccine race, I think it’s best to put a spotlight on Pfizer today.
Pfizer was the first biopharmaceutical company to successfully market a COVID-19 vaccine, BNT162b2.
Recently, Pfizer received another good news. The FDA is no longer demanding that the company transport BNT162b2 at ultra-low temperatures.
When Pfizer revealed its strong results last year, the world was impressed and no one barely noticed the ultra-cold storage requirement that the achievement entailed.
But with competitors already gaining approvals as well, this particular requirement started to pose noticeable challenges to Pfizer’s vaccine supply chain and made it extremely challenging transporting the much-needed vaccines to remote areas.
These challenges highlight the significance of the recent FDA announcement regarding BNT162b2.
In terms of market share, Pfizer holds a significant advantage over the others.
As of the year-end of 2020, the company supplied 65 million doses to developed markets.
Meanwhile, the 2021 forecast for this product is at nearly 2 billion doses. This is estimated to rake in roughly $15 billion in revenue for Pfizer.
In comparison, Moderna’s advanced purchase deals are estimated to be worth $18 billion.
To sustain immunity, there’s the possibility that the vaccine would be needed annually.
This could lead to substantial demand for doses, with a two-dose vaccine like BNT162b2 projected to reach about 10 billion doses every year.
Realistically, the rising need for doses and the manufacturing requirements will obviously pressure profit margins.
However, if the vaccine does turn out to be an annual necessity, then it could become a valuable asset.
The entire COVID-19 market is estimated at $39 billion in 2021 and $23 billion in 2022.
Pfizer and even Moderna’s first mover advantage can easily help them dominate the market this year.
This means that the competition will heat up by 2022.
To ensure that it keeps the lead, Pfizer has commenced the Phase 1 trial for a COVID-19 pill.
Pfizer’s pill, dubbed PF-07321332, aims to inhibit the enzymes that cause the SARS-CoV-2 virus to replicate. The goal is to create an antiviral drug that works pretty much the same way as the one developed for HIV and Hepatitis C.
If the trials generate positive results, then PF-07321332 could be taken at the first sign of infection.
So far, lab results have shown the pill’s potent capacity to prevent the SARS-CoV-2 virus and other coronaviruses from replicating.
Pfizer isn’t the only one that came up with the idea of a COVID-19 pill. Merck (MRK), Eli Lilly (LLY), and Regeneron (REGN) have been conducting tests for their own version of the antiviral.
However, Pfizer is more than its COVID-19 programs.
In the past, investors wondered about the long-term growth potential of this company. Some questions are linked to its Upjohn unit, which included several products that lost patent exclusivity.
This segment clouded Pfizer’s pure play revenue and even its earnings growth. However, these questions were put to an end last year when Upjohn’s finally separated from Pfizer and formed a new company, Viatris (VTRS), with Mylan.
The effect of this move showed an amplified growth for Pfizer almost immediately.
In the fourth quarter alone of 2020, the company reported $11.68 billion in revenue, indicating a 12% increase year-over-year. If we exclude the sales from the COVID-19 vaccine, Pfizer’s revenue was still up by 8%.
Every key product segment in the company recorded revenue growth, which is remarkable considering the effects of the pandemic.
Revenue for its oncology sector went up 23% to reach $3 billion, with breast cancer treatment Ibrance leading the charge with an 11% boost to its sales to hit $1.4 billion.
To ensure that it corners the market, Pfizer also launched biosimilars Zirabev and Ruxience in the same quarter. Both generated $171 million in total.
Outside its COVID-19 program, other products in Pfizer’s vaccine segment significantly contributed to the 17% increase in revenue to reach $2 billion.
For example, the pneumonia vaccine Prevnar generated $1.8 billion thanks to the 10% boost in its revenue year-over-year.
As for Pfizer’s rare disease unit, revenue went up 24% to reach $865 million.
The segment leader so far is cardiomyopathy treatment Vyndagel, which achieved a jaw dropping 96% year-over-year boost in its revenue to generate $429 million. This product won’t face patent loss until 2026, so Pfizer still has a few more years to take advantage of it.
Pfizer’s revenues in 2020 were up 2% at $41.9 billion. Considering that it still managed to boost sales despite the pandemic, there’s a good chance that 2021 will be a better year for the company.
In fact, Pfizer estimates that it would reach nearly $60 billion in revenue, with an annualized EPS of roughly $3.15 in 2021.
Global sales in the biotechnology and healthcare industry are projected to be worth $1.2 trillion annually. This is a massive market that is all but guaranteed.
The S&P 500 trades at nearly 21.5x forward earnings, with pharmaceutical companies trading at only 13.2x. That’s a whopping 60% discount.
Considering that drug stocks have historically traded at roughly the same level as the S&P 500, the current situation still offers an unmistakable promise even if nothing else happens.
Continuous development in the sector not only advances our quality of life but also offers reasonable returns to investors.
Mad Hedge Biotech & Healthcare Letter
March 25, 2021
Fiat Lux
FEATURED TRADE:
DON’T MISS THE BOAT ON THIS BEST OF BREED BIOTECHNOLOGY STOCK
(AMGN), (MRNA), (PFE), (BNTX), (JNJ), (LLY), (ABBV), (BMY), (FPRX), (BGNE)
The past few weeks have been hectic for the healthcare industry, with Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), and even Johnson & Johnson (JNJ) working hard to manufacture and distribute their COVID-19 vaccines all over the world.
There’s one major player in the healthcare industry that has been out of the spotlight for quite some time: Amgen (AMGN).
While Amgen has been doing its part from the sidelines by helping out companies like Eli Lilly (LLY) with the manufacturing of their COVID-19 drugs, it looks like investors are flocking towards businesses that allocate more resources toward fighting off the pandemic.
In fact, JNJ recently reached a new high at $170 per share.
Nonetheless, I think investors are missing out on a great opportunity by ignoring Amgen these days.
The biotech world, which basically involves formulating drugs and treatments for living organisms, was somewhat limited back in 1980.
Over the past decades, however, this industry has shifted and managed to successfully launch groundbreaking drugs commercially.
Before, only a handful of legacy companies had occupied this space. Now, so many up-and-coming companies try to conquer the biotech world.
For context, an FDA report in 2019 showed that 64% of drugs approved in the previous year were developed by biotech companies.
Moving forward, it’s reasonable to say that the biotech industry will continue to come up with breakthrough treatments for rare and complex conditions compared to our traditional pharmaceutical companies.
Actually, this sector has been hot in recent years, with companies like AbbVie (ABBV) and Celgene, now with Bristol-Myers Squibb (BMY), coming up with mega-blockbuster treatments, such as Humira and Revlimid, that rake in billions in sales annually.
Among them, Amgen has emerged as one of the most consistent and aggressive players in the biotech world, with competitors still struggling to topple some of its products after decades of being in the market.
This biotech giant has also been busy boosting its pipeline of newly developed treatments. It’s even bolstering its biosimilar lineup to ensure its dominance in the sector.
Last year, Amgen’s revenue rose by 9%, with more growth indicators lighting the way for a brighter future for the company.
While Amgen has been working on many conditions, its portfolio still looks focused on particular diseases.
In 2020 alone, Amgen’s seven blockbusters each generated over $1 billion in revenue. Among these, four managed to rake in more than $2 billion in annual sales.
Amgen’s impressive lineup of drugs includes psoriatic arthritis treatment Enbrel, osteoporosis and bone cancer injection Prolia, and even newcomer heart disease medication Repatha.
With its rivals nipping at the heels of its first-generation blockbusters like Neupogen, Amgen has been hustling to find ways to reinvent itself.
Apart from developing new drugs, the company has been looking into acquisitions to sustain its position at the top.
Recently, Amgen has been doubling down on its newest shining star: Otezla.
Otezla was one of the company’s biggest purchases, with Amgen acquiring this drug for a whopping $13.4 billion from Celgene in August 2019.
In 2019, Otezla sales rose by 25% to reach $1.6 billion. By 2020, the drug generated $2.2 billion in sales, showing off a 36.5% jump.
Over the next few years, Amgen estimates that Otezla sales will climb by over 10% annually.
Riding the momentum of not only Otezla but its entire portfolio and programs in the pipeline, Amgen aims to dominate the immunology sector.
Among the candidates in Amgen’s pipeline, the most promising is its lung cancer medication Sotorasib, which should complete Phase 2 in the first half of 2021.
Meanwhile, Amgen’s latest deal outside its own pipeline is the $1.9 billion acquisition of Five Prime Therapeutics (FPRX), which is a small biotech company developing treatments for stomach cancers. The agreement should be finalized by June 2021.
Five Prime’s experimental treatment, Bemarituzumab, perfectly aligns with the other stomach cancer medications queued in Amgen’s pipeline.
If this proves successful, then Bemarituzumab will be a strong contender against Bristol-Myers Squibb’s blockbuster treatment Opdivo.
While Opdivo has been in the market longer, Five Prime’s candidate has consistently shown stronger and more promising results since the trials started.
Prior to its deal with Prime Five, Amgen acquired a 20% stake in Beijing-based biotech company BeiGene (BGNE). This is a telling move as it indicates the company’s efforts to expand its reach in Asia, particularly in China and Japan.
Another revenue stream that Amgen has been pushing for expansion is its biosimilars sector.
The company released its first-ever blockbuster, Epogen, in 1989. Since then, this anemia drug has been a top seller. However, biosimilar competition eventually caused a decline in its sales starting in 2015.
Learning from the fall of Epogen in the hands of biosimilars, Amgen decided to turn its weakness into its strength.
Since 2015, the company has been expanding its work on biosimilars. In that year alone, Amgen developed 29 biosimilars for its own products and launched 18 more to compete with other companies.
To date, biosimilars have been generating at least $2 billion in revenues, with 10 more queued in Amgen’s pipeline.
Considering the accelerated growth of the biotechnology sector, now is not the time to count out Amgen.
Today, Amgen has transformed itself into one of the leaders in the biotech world, generating over $25 billion in revenue.
Since 1988, the company has only reported a decline in its year-over-year revenue three times: 2009, 2018, and 2019.
This performance shows tangible proof that Amgen is not a “one-hit-wonder” type of biotech stock. Instead, it demonstrates its capacity to generate solid earnings and sustainability.
Currently, Amgen trades at a price-to-earnings multiple that’s actually 40% lower than the average S&P 500 stock. Its EPS is estimated to rise in the high single digits in the next several years.
Simply looking at its 2020 fiscal report, it’s obvious that Amgen delivered an impressive performance considering the recession and the pandemic.
The company also continues to reward its shareholders with double dividend increases plus an aggressive repurchase program, which Amgen plans to spend roughly $3 billion to $4 billion.
Recently, the stock has been trading at a roughly 30% discount. This is a real bargain considering everything Amgen has to offer.
Mad Hedge Biotech & Healthcare Letter
March 23, 2021
Fiat Lux
FEATURED TRADE:
(THIS ISN’T THE TIME TO HIT THE PANIC BUTTON)
(AZN), (PFE), (BNTX), (ALXN), (MRK), (RHHBY)
Everybody will have heard about the issue in Europe these days, with more countries suspending dosing of the COVID-19 vaccine from AstraZeneca (AZN) and Oxford.
However, I think gaining clarity over the situation is important.
I haven’t been the greatest advocate of the AstraZeneca vaccine because its initial rollout was, to put it mildly, botched.
At the time, it was difficult to determine just how efficacious the vaccine, AZD1222, really was, and the latest figure I heard is that it’s 60% effective.
While the European Medicines Agency declared AZD1222 as safe, many member states of the EU seem to disagree, pointing out the reports of blood clotting issues after dosing.
I can see several apparent levels of this concern, but the most pressing, clearly, is medical.
The main problem that the experts are figuring out isn’t about the fairly common blood clots, which actually occurred at background levels and can generally be observed among elderly folks.
Their focus is the extremely rare autoimmune disorder that’s triggered when the body starts aggressively destroying the platelets needed for clotting.
That particular condition is hard to treat and can even be fatal.
Although they haven’t zeroed in on the specifics of the problem just yet, the experts agree that the blood clot issue is caused by some sort of overreaction in the immune system.
The stimulus for this reaction is still under review, but there’s a growing consensus that it could be genetic predisposition in a rare group of people.
This could be the same case as the doctor in Florida who died because of his immune system’s overreaction, which was triggered by the vaccine from Pfizer (PFE) and BioNTech (BNTX).
That’s not conclusive though, since it’s the only case cited in the United States.
The experts also pointed out that the condition is extremely rare, which was why it was not observed even in the Phase 3 trial of AZD1222.
While this is clearly a medical issue, there’s also an image issue for AstraZeneca to think about. How does this negative news on AZD1222 affect the stock?
Here’s a key point to keep in mind when analyzing AstraZeneca’s potential: The company is not selling AZD1222 for a profit while we’re going through the pandemic.
That means that suspending the dosing of AZD1222 won’t hurt AstraZeneca’s profit for 2021.
However, that doesn’t mean that AZD1222 has absolutely no effect on the company’s standing.
If anything, AZD1222 is an earnings opportunity for AstraZeneca in the future because the company’s expected to raise prices and generate a profit after the pandemic.
To underscore this goal, AstraZeneca has actually been ramping up capacity to manufacture at least 3 billion doses every year.
Considering this target, AstraZeneca is clearly signaling that it has the infrastructure to become a dominant player—if not the ultimate market leader—in the coronavirus vaccine sector.
If the issues with AZD1222 are resolved, then AstraZeneca holds a product that could rake in billions in revenue in the years to come.
Notably, AstraZeneca’s shares haven’t budged much regardless of the vaccine news released.
Since April 30, which was the day that the company announced its plans to join the COVID-19 vaccine race, AstraZeneca stock has fallen by roughly 6%.
In the past 11 months, which was filled with ups and downs for AZD1222, and up until the European countries suspended dosing in March 2021, the shares barely changed.
On the whole, AstraZeneca isn’t exactly known for massive one-year gains.
Rather, investors enjoy long-term wins, as seen in the company’s impressive 75% climb in over the past five years.
So far, AstraZeneca has 38 candidates in its pipeline queued for Phase 1 trials, 54 are slated for Phase 2, and 41 are lined up to go through Phase 3.
To fight off stagnation, AstraZeneca acquired biotechnology company Alexion Pharmaceuticals (ALXN) for a whopping $39 billion last December.
This deal offers a major expansion in AstraZeneca’s portfolio because Alexion brings with it its famed rare disease drug Soliris, which generates approximately $1 billion in revenue every quarter.
For 2020 alone, Alexion was estimated to add up to $5.95 billion in sales.
By 2025, AstraZeneca projects that Alexion will be on track to consistently contribute double-digit growth in its annual revenue.
It’s reasonable to say that AstraZeneca is one of the frontrunners in the COVID-19 race.
However, the past weeks have seen the company’s woes multiply due to questions on AZD1222’s side effects.
It’s worth reminding ourselves though why huge biopharmaceutical companies like AstraZeneca, Pfizer, Merck (MRK), and Roche (RHHBY) are not sensitive to these vaccine updates: They do not rely on their vaccine revenue alone for growth.
AstraZeneca markets an extensive array of products, which include eight blockbuster drugs.
In 2020, the company’s sales climbed by 10% to reach over $25 billion year-over-year.
Therefore, the reports on AstraZeneca’s AZD1222 isn’t a cause for alarm. The company’s overall portfolio is well-positioned to drive profit higher in the next several years.
More importantly, if AstraZeneca’s track record serves as any indication, then long-term shareholders should remain optimistic about the company’s growth trajectory.
Mad Hedge Biotech & Healthcare Letter
March 9, 2021
Fiat Lux
FEATURED TRADE:
(AN MRNA STOCK TO CONSIDER)
(BNTX), (MRNA), (PFE), (NVS), (SNY), (AZN), (JNJ), (NVAX), (MRK), (BMY), (REGN), (DNA), (CVAC), (FB), (TSLA), (GOOG)
Mad Hedge Biotech & Healthcare Letter
March 4, 2021
Fiat Lux
FEATURED TRADE:
ARE WE THERE YET: HOW THE JNJ VACCINE COULD BE THE ANSWER
(JNJ), (MRNA), (PFE), (BNTX), (MRK), (SNY)