Mad Hedge Biotech and Healthcare Letter
July 25, 2023
Fiat Lux
Featured Trade:
(THE NEXT INVESTMENT DARLING)
(VRTX), (CRSP)
Mad Hedge Biotech and Healthcare Letter
July 25, 2023
Fiat Lux
Featured Trade:
(THE NEXT INVESTMENT DARLING)
(VRTX), (CRSP)
The pandemic stage lit a blazing spotlight on healthcare and biotech warriors like never before. Some biotech heroes, taking on the gauntlet of grave or lethal ailments, are still setting the market ablaze.
You see, the world's population isn't getting any younger, and diseases aren’t going away. These elements strap an ironclad defense around the healthcare sector - come hell or high water in the economy, the drumbeat of demand won't miss a beat.
One name in the biotechnology and healthcare sector that’s snubbing the bear market's growl with its groundbreaking panaceas is Vertex Pharmaceuticals (VRTX).
Widely considered an underdog in the sector, Vertex has been an overachiever for the past decade, running circles around the market. But guess what? The San Diego champ is also primed to repeat that glorious run over the next ten years.
Vertex has carved out its healthcare niche, nurturing a blossoming franchise in the world of cystic fibrosis treatments. The company's yearly sales are closing in on the dizzying heights of $10 billion.
While other Big Pharma names are staring down the barrel of a patent cliff later this decade, Vertex has shown that it’s playing the long game. Their cystic-fibrosis arsenal is locked and loaded till the mid-2030s at least, and they've got a robust pipeline of drugs chugging along nicely.
Specifically, its blockbuster drug Trikafta won't face the treacherous patent cliff until 2037. With its history of turning the complex task of developing CF therapies into child's play, Vertex has lorded over this territory for over a decade. Adding more feathers to its cap, Vertex is poised to bag fresh non-CF approvals, a move that will spice up its offerings and rev up its growth engine.
Not one to rest on its laurels, Vertex, along with Crispr Therapeutics (CRSP), is on the brink of clinching approval for a gene-editing treatment for red blood cell disorders such as sickle cell disease. The stage is set at this point, and the companies are patiently awaiting the green signal for exa-cel from Uncle Sam and our European friends across the pond.
Exa-cel, the brainchild of Vertex and CRISPR Therapeutics, is a game-changer in gene-editing therapy for rare blood diseases. But this ain't a one-trick pony. Vertex has more rabbits in the hat.
The company's brewing up a storm, geared towards hitting a home run by launching five new products within the next five years. Ambitious? You bet.
As Vertex's cystic fibrosis (CF) business continues to stride forward and the pipeline remains robust, a steady uptick in revenue and earnings is on the cards. The company stands tall, ready to deliver market-beating performances for some time to come.
Sure, the stock is inching closer to its 52-week zenith, but make no mistake - it's still a good catch, even at this high watermark.
Moreover, Vertex is far from being the wallflower at the party. The stock has leaped a whopping 25% this year, outpacing the respectable 18% gain of the S&P 500. The drug giant is the belle of the ball, sporting a market cap north of $90 billion.
Taking a cue from its CF monopoly, Vertex will kick things up a notch, potentially establishing a monopoly in the world of pain relief. The company should get its moment in the spotlight by year's end when clinical trial results for its ground-breaking non-narcotic drug for pain roll out.
Operating under the code-name VX-548, this trailblazer from Vertex intercepts pain signals in the peripheral nerves, outside the central nervous system. The modus operandi is somewhat akin to the topical drug lidocaine, but with a twist.
While lidocaine takes a toll on the heart when ingested, VX-548 sidesteps this issue, making it safe to pop as a pill. Plus, as it doesn't monkey around with the brain, it avoids the slippery slope of opioid addiction. Now, that's what I call a win-win.
Naysayers may voice doubts about the willingness of insurance companies to foot the bill for Vertex's high-priced, newfangled pain drug instead of sticking to the generic opioids or other neurological drugs usually prescribed.
But I don’t buy into the skepticism. There’s a huge possibility that the insurers will. The reason? The mounting political and public relations pressure will essentially force these organizations to back a non-opioid contender, given it can duke it out toe-to-toe in terms of effectiveness.
Given the market for this, VX-548 stands to amass a revenue jackpot of a whopping $5 billion by 2032.
Sure, the healthcare sector isn't going the way of the dodo anytime soon. But rest on your laurels, and you'll be yesterday's news. It's a dog-eat-dog world out there, and if healthcare companies don't stay ahead of the curve, they risk being left in the dust.
This is where Vertex shines as a leader and innovator in its corner of the healthcare world. Keep an eye on this stock. It has the potential to deliver some handsome returns over the next decade.
Mad Hedge Biotech and Healthcare Letter
July 11, 2023
Fiat Lux
Featured Trade:
(A CALCULATED GAMBLE)
(PFE), (CRBU), (AAPL), (NTLA), (CRSP)
There has been a lot of chin-wagging about whether we're on a collision course with a recession or on the upswing. I get it. It's as confusing as figuring out why Warren Buffet didn't invest in Apple (AAPL) sooner.
Still, there are stocks that, recession or not, will let you sleep like a baby. In the biotechnology and healthcare sector, Pfizer (PFE) stands out as one of those stocks. In bear markets, it fares well because, well, let's face it, health trumps wealth every time.
Now, you might look at Pfizer's recent earnings and think it's taken a bit of a tumble. No growth in revenue or EPS in the first quarter of 2023? That’s definitely worrisome. But hold your horses. Let's peel back the layers a bit to see the full picture.
Pfizer has been raking in the dough from its COVID-19 potions, especially its vaccine Comirnaty and therapy Paxlovid. With the COVID gold rush subsiding, the company reported a 29% dip in revenue in Q1, clocking in at $18.3 billion.
Remember, context is key. Strip out the COVID-19 products, and revenue has actually nudged up 5% YoY.
It’s the same story with the company's forecast.
Revenues are predicted to be between $67 billion and $71 billion, a drop of 29% to 33%. But subtract the COVID dollars and cents, and Pfizer's set to grow between 7% to 9%.
What's Pfizer doing with its COVID-19 windfall? It's not buying beachfront properties, that's for sure.
Instead, it has a staggering 101 programs in the pipeline, including 38 in phase 3 trials. This year, the company also had four new approvals, from new uses for Paxlovid and Prevnar 20 to a vaccine for older folks and a nasal spray for migraines.
But the market's jittery about the predicted revenue drop, causing the stock to tumble 21% this year. That just makes it a bargain.
Pfizer's trading at less than 8 times earnings makes it the frugal shopper's dream.
To sweeten the pot, Pfizer's upped its quarterly dividend by 2.5% to $0.41 a pop. That gives a yield of about 4%, twice the average of the S&P 500. More impressively, it's been doing this for 14 consecutive years.
However, Pfizer's not resting on its laurels.
Its latest move? A 7% stake in Caribou Biosciences (CRBU), a firm that's pushing the boundaries of gene-editing tech and cell therapies for cancer. It's like investing in a tech startup but with a biological twist.
Caribou's stock has taken a wild ride since it went public in 2021, peaking at over $30 and dipping to a recent low of $4. After Pfizer's buy-in, it jumped 46% to $5.94. A small stake of $25 million, but it's a clear sign that gene editing is back in the spotlight.
Moreover, Caribou's no one-trick pony.
It's testing treatments based on the Nobel Prize-winning CRISPR technology. This precision tool allows doctors to zero in on problematic DNA and tweak it. The potential for treatments for cancer and genetic disorders is mind-boggling.
Caribou currently has a pair of potential game-changers simmering in the preliminary stages.
First up is their experimental treatment, CB-010, aiming a direct hit at blood cancer lymphoma. This therapy manipulates immune cells to lock onto the cancer.
Picture them as bounty hunters of the body, genetically tweaked to bring down the cancerous bad guys.
To date, we've got a trio of these CAR-T therapies courtesy of other pharmaceutical giants in the game, but they all work on modifying the patient's immune cells. Unfortunately, not every patient’s cells are ripe for the CAR-T transformation.
This is where Caribou switches things up.
The biotech’s CAR-T therapy is akin to a supermarket for immune cells – off-the-shelf and ready for action. Through some nifty gene editing, immune cells from healthy volunteers are modified and packed for delivery.
In theory, these should pack more punch. And it seems they do, judging by Caribou's initial guinea pigs – six lymphoma patients who saw their cancer vanish without a trace after a rendezvous with Caribou's CAR-T.
Obviously, they’re not promising an everlasting disappearance, but a couple of these folks kept their cancer at bay for at least a year.
While Caribou isn't alone in the off-the-shelf CAR-T quest, they've put up a stellar performance so far against the likes of Intellia Therapeutics (NTLA) and CRISPR Therapeutics (CRSP).
Caribou’s pipeline also features another off-the-shelf CAR-T contender battling the blood disorder known as multiple myeloma. This therapy, dubbed CB-011, is what specifically caught Pfizer's eye. Basically, Pfizer’s investment has earned it the right to haggle for a license if another suitor comes courting for Caribou's star player.
But Caribou's act doesn't end here.
It has a growing ensemble featuring CB-012, a CAR-T cell therapy focused on recurrent or stubborn acute myeloid leukemia, and CB-020, another CAR-T variant for various stubborn tumors.
Pre-Pfizer deal, Caribou boasted a cash reservoir of $291 million, promising smooth sailing until around 2025.
Caribou promises an action-packed second half of 2023, with an update on CB-010's phase 1 trial safety and efficacy, a dose-escalation report for CB-011's phase 1 trial, and a new drug application for CB-012 targeting relapsed/refractory acute myeloid myeloma.
As with all biotechs in the clinical stage, though, it's a bit of a gamble. With some key milestones expected later this year, investors are watching with bated breath to see if the company can deliver.
If the dice roll the right way, Caribou could be a jackpot for Pfizer – and for savvy investors.
So if you're looking for a stock that has the potential to thrive despite market uncertainties, with a dash of excitement and a sprinkle of future possibilities, Pfizer could be your ticket.
Not only is it a reliable dividend payer, but its recent ventures show it's also not afraid to swing for the fences.
Mad Hedge Biotech and Healthcare Letter
June 29, 2023
Fiat Lux
Featured Trade:
(THE RISE, FALL, AND IMMINENT RESURGENCE)
(CRSP), (VRTX)
The investing world is a roller coaster where investors' enthusiasm can experience sharp rises and precipitous drops.
One classic case study is CRISPR Therapeutics (CRSP), whose stock is currently hovering around $61 per share, a far cry from its zenith of $220.20 back on January 15, 2021.
But don't write off this biotech player yet; it's poised for a resurgence, and here's why.
The company is in the final stages of commercializing its pioneering gene therapy, exa-cel. This novel treatment, developed in collaboration with Vertex Pharmaceuticals (VRTX), aims to redefine the treatment landscape for patients battling transfusion-dependent beta-thalassemia (TDT) and sickle cell disease (SCD).
With approval requests already lodged with regulatory bodies, the company could be on the cusp of a financial windfall by Q2 2024, sending its stock skyward.
Shining a spotlight on this exa-cel opportunity, it's important to understand that current treatment options for blood disorders are far from ideal, involving blood transfusions and frequent hospital stays. Both physicians and patients are likely ready for a less disruptive alternative.
Exa-cel could be a game-changer for CRISPR, obviating the need for lifelong blood transfusions for certain SCD and TDT patients.
The Institute for Clinical and Economic Review (ICER) recently suggested that the therapy could fetch a staggering $1.9 million per treatment. Meanwhile, the treatment is projected to reach global sales of $1.7 billion by 2028, propelling it into the blockbuster category.
Even with Vertex claiming a majority 60% share of profits, the opportunity remains substantial for CRISPR.
CRISPR and Vertex are primed to address the needs of the most critically ill patients, estimated to be around 32,000 in the U.S. and Europe.
The real charm, however, lies in CRISPR's potential for sustainable long-term growth.
The approval of exa-cel doesn't just promise immediate benefits but also unlocks the potential of the company's pipeline, acting as a proof of concept for CRISPR's gene-editing methodology.
Fast-forward a decade, and the company might boast a portfolio of blockbuster therapies.
Among these potential stars is CTX310, set to enter clinical trials soon. CTX310 is one of the company's few in-vivo therapies, delivering therapeutic genes, gene modulators, and gene-editing tools directly into patient cells.
CTX310 targets angiopoietin-related protein 3 (ANGPTL3) to mitigate the risk of cardiovascular disease, a prevalent concern linked to high rates of coronary artery disease.
In contrast to the relative rarity of SCD and TDT, coronary artery disease is the most common heart disease in the U.S., claiming 375,476 lives in 2021, according to the Centers for Disease Control and Prevention.
Another contender in the pipeline is CTX110, currently under testing for B-cell cancers, including B-cell lymphomas, acute lymphoblastic leukemia (ALL), and chronic lymphocytic leukemia (CLL).
The drug showed promising results in a phase 1 trial to treat large B-cell lymphoma, reporting an objective response rate of 67% and a complete response rate of 41% in patients with significant prior treatment.
The future looks promising for CRISPR's quartet of chimeric T-cell (CAR-T) therapies -- CTX119, CTX130, CTX112, and CTX131 -- being developed as cancer therapies. These therapies target specific proteins to suppress tumors or provoke an immune response.
Contrasting the typical clinical-stage biotech company, CRISPR, thanks to collaborative revenue, is in a healthier financial position.
As of Q1, CRISPR had $1.89 billion in cash reserves, ample to fund operations for the next three years. With potential exa-cel approval, these funds could further fuel research and development.
While it's hard to predict precisely where CRISPR will stand in a decade, its roadmap sets it apart from most clinical-stage biotech firms. The company has already demonstrated its ability to advance its science. Its success, though, will hinge on its capacity to transition into marketing and to manufacture its products.
Given its promising future, I see CRISPR Therapeutics as an excellent investment. Even though I've tempered my expectations about the market opportunity and challenges confronting both Vertex and CRISPR, the potential for exa-cel, which could rake in billions of dollars and serve as a functional cure, lends itself to investor optimism.
In the past, CRISPR shares have breached the $190 mark, translating to a near $20 billion market cap, or over 4x its current valuation. Granted, a fully commercialized pharma typically trades at around 5x sales, but an experimental pharma with a robust pipeline can trade at 50x sales without necessarily appearing overvalued. After all, pharma investing is about betting on future potential, or as we call it, "jam tomorrow."
Taking a long-term perspective and factoring in the cash reserves of over $1 billion, the potential to broaden the SCD/TDT market with Exa-cel 2.0 and 3.0, the technology validation, other pipeline assets, and a solid partner in Vertex, I believe CRISPR's stock is poised to reclaim a price above $100 in due time. There may be some turbulence along the way, but I anticipate exa-cel will one day fuel blockbuster sales exceeding $1 billion annually.
For context, consider Alnylam (ALNY), a drug developer in the field of RNA interference, which generated just over $1 billion in sales last year at a net loss of over $1 billion, yet sports a market cap of $25.1 billion.
With this perspective, the future for CRISPR looks bright indeed.
Mad Hedge Biotech and Healthcare Letter
June 13, 2023
Fiat Lux
Featured Trade:
(BUCKING THE TREND)
(VRTX), (ABBV), (CRSP)
The notion of "Sell in May and go away" hasn't exactly proven true this year in 2023. Surprisingly, the stock market has been experiencing an impressive upward trend, especially in June, and there may still be further potential for growth.
Allow me to share one of my favorite examples that embody both profitability and consistent expansion, all while enjoying a significant competitive edge.
In the biotechnology and healthcare sector, Vertex Pharmaceuticals (VRTX 1.94%) fits the description perfectly.
This company stands out as the undisputed leader in the market for cystic fibrosis treatments, offering a unique portfolio of drugs that specifically target the underlying cause of this genetic condition.
These groundbreaking medications, known as CFTR modulators, have successfully been introduced to the market, with Vertex Pharmaceuticals spearheading the way by bringing forth four of them.
Vertex has been continuously making remarkable progress in the field of cystic fibrosis (CF) treatment.
A notable achievement is the expanded approval of their drug, Kalydeco, by the U.S. Food and Drug Administration. It can now be used to treat CF patients as young as one-month-old, marking a groundbreaking milestone as the first CFTR modulator ever approved for this age group.
Kalydeco has also been a significant revenue generator for Vertex, ranking as their second highest-earning drug with an impressive $553 million generated over 12 months.
But there's more to Vertex's success.
Their flagship medication, Trikafta, takes the lead as their best-selling drug, raking in a staggering $7.7 billion in revenue in 2022 alone.
Recently, Trikafta received approval to treat children as young as two years old with specific mutations, providing relief to nearly 1,000 more individuals in the cystic fibrosis patient community.
The long-lasting patent protection of Trikafta, with approximately 14 years remaining before expiration, holds great significance for Vertex Pharmaceuticals. With a relatively modest patient population of 88,000, the company has ample opportunities for further growth.
The robust revenue and profits of Vertex's CF franchise speak to their success in this area. Additionally, AbbVie's (ABBV) decision to discontinue its CF program further solidifies Vertex's monopoly in the cystic fibrosis field, strengthening its position for continued success.
While capitalizing on the expanding market for cystic fibrosis treatments, Vertex Pharmaceuticals also targets underserved areas to drive long-term growth.
One promising drug candidate in their pipeline is VX-548, a non-opioid medication designed to address acute pain conditions, which is nearing commercialization.
Moreover, Vertex has a highly promising candidate in its pipeline that goes beyond cystic fibrosis.
Collaborating with CRISPR Therapeutics (CRSP), the company eagerly awaits regulatory approvals for exa-cel, an innovative treatment for sickle cell disease and transfusion-dependent beta-thalassemia, in both the United States and Europe.
Exa-cel represents just the tip of the iceberg when it comes to Vertex's upcoming arsenal of new drugs.
The company holds great optimism for VX-548, a cutting-edge non-opioid therapy targeting acute pain, as well as its triple-drug combination for cystic fibrosis, which features vanzacaftor.
Both treatments are undergoing Phase III trials, with expectations for completion in late 2023 or early 2024.
Additionally, Vertex is conducting a pivotal trial for inaxaplin, a potential treatment for APOL1-mediated kidney disease that impacts a larger patient population than cystic fibrosis.
Needless to say, Vertex has been experiencing an exceptional streak, consistently outperforming the market over the past year. The best part is that its potential to generate significant returns extends well into the next decade.
While Vertex possesses a variety of potential approvals for treating cystic fibrosis, some of which may materialize before 2028, its CF-related revenue is expected to grow substantially even without factoring in those additional approvals.
Analysts anticipate a solid annual increase of 8.2% in the company's overall revenue over the next five years. Although this growth rate is commendable for a biotech industry heavyweight, it falls short of Vertex's impressive 38% annual growth achieved in the previous five years.
From my perspective, the projected 8.2% growth appears rather conservative.
This sentiment is particularly amplified when considering the imminent potential approval of exa-cel, an innovative gene-editing therapy targeting sickle cell disease (SCD) and beta-thalassemia (TDT).
After all, the initial market value of exa-cel could soar to a staggering $64 billion, and given the life-altering impact it offers, a price tag of approximately $2 million per treatment is justifiable.
Honestly, I'm hard-pressed to find anything negative to say about Vertex. This prominent biotech company is constantly delivering positive news and making significant strides on all fronts. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
May 30, 2023
Fiat Lux
Featured Trade:
(A MONSTER STOCK ON THE RISE)
(VRTX), (MRNA), (ABBV), (CRSP)
Biotech companies possess an extraordinary power: the ability to soar to great heights with just a handful of successful drugs.
An excellent example of this phenomenon is the remarkable ascent of Moderna (MRNA), a visionary biotech firm that catapulted from a $4 billion valuation to an astounding $52 billion.
The secret behind its meteoric rise? The resounding triumph of its coronavirus vaccine not only sparked hope in the hearts of millions but also propelled its stock price to a staggering 100% surge over the past three years.
But it's not just about a momentary triumph. Some biotech geniuses focus on concocting life-altering remedies for tricky-to-tackle diseases, which demand regular treatment for the long haul.
This is where Vertex Pharmaceuticals (VRTX) truly shines.
Vertex, the biopharmaceutical juggernaut born in 1989, has orchestrated a stunning 636% surge in annual revenue over the past decade. While maintaining such an astronomical growth trajectory might prove challenging, the company’s formidable pipeline harbors the potential to fuel its rise for yet another decade.
The shining star of Vertex’s portfolio these days is none other than Trikafta, a groundbreaking medicine combatting the relentless foe known as cystic fibrosis (CF).
This blockbuster drug singlehandedly generated $7.6 billion in revenue in 2022, constituting the lion's share of the company's overall product revenue, amounting to $8.9 billion.
In fact, in the first quarter of 2023, Trikafta contributed an astounding $2.1 billion to Vertex's $2.3 billion total product revenue.
At present, Vertex's revenue stream flows exclusively from CF medications, with the company projected to rake in $9.5 billion to $9.7 billion for the entire year from these products alone.
Here's another fun fact that further cement Vertex’s dominance in the CF world: other contenders in the cystic fibrosis domain have stumbled and faltered, leaving the landscape desolate with scarce rivals.
AbbVie (ABBV) has thrown in the towel, abandoning its CF program altogether. It's no wonder Vertex's triumphant creation is now in higher demand, hailed as a proven champion in the ring of battle.
However, Vertex is no stranger to the importance of diversifying its revenue streams.
While the company has a standout product, it recognizes the risks of relying solely on its success. That's why Vertex is boldly venturing into various other programs.
Teaming up with CRISPR Therapeutics (CRISP), it recently wrapped up the regulatory submissions for exa-cel, an innovative gene therapy designed to combat both beta-thalassemia and sickle cell disease.
The potential approval of exa-cel could catapult Vertex into a whole new realm of breakthrough treatments.
But that's not all.
Vertex's pipeline boasts a promising therapy called inaxaplin, currently in pivotal studies, which targets APOL1-mediated kidney disease—a condition affecting more patients globally than CF. Furthermore, the company's early-stage clinical testing program holds the potential to cure type 1 diabetes. Vertex also has its sights set on tackling type 1 diabetes, harnessing the power of CRISPR's cutting-edge gene-editing technology known as CRISPR-Cas9.
Evidently, Vertex has aggressively invested in new ways to expand its portfolio. Its first-quarter report showed that the company allocated a staggering $742 million in research and development.
This substantial investment underscores Vertex’s determination to continue launching groundbreaking therapies worldwide.
Vertex also has significant milestones on the horizon, including the completion of a late-stage study for its vanzacaftor triple-drug therapy targeting cystic fibrosis (CF) by the end of 2023.
Additionally, late-stage testing for VX-548, a potential acute pain treatment, is expected to conclude later this year or early 2024.
Although it may take time for these therapies to reach the market, even with positive results, it’s reasonable to believe that their future regulatory approvals seem to be slam-dunks.
Moreover, both therapies hold tremendous revenue potential for Vertex. The vanzacaftor triple-drug therapy has the potential to become the company's most profitable CF treatment, while VX-548 could serve as a blockbuster non-opioid painkiller.
To add to its strengths, Vertex enjoys a strong balance sheet with a substantial cash stockpile of $11.5 billion as of last March. I fully expect Vertex to leverage this financial strength for strategic business development deals and stock buybacks.
With a strong balance sheet, ongoing drug development efforts, and the potential to become a frontrunner in the biotech industry, I believe that Vertex has the potential to become a monster stock over the next decade.
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