Mad Hedge Biotech and Healthcare Letter
August 18, 2022
Fiat Lux
Featured Trade:
(MORE THAN JUST A ONE-TRICK PONY)
(MRK), (SGEN), (SNY), (PFE), (BNTX), (GSK), (CVAC), (MRNA)
Posts
When executed correctly and sufficient time is allocated, stock market investing can be highly rewarding. But, what can investors do to make the most of their opportunities in the market?
The short answer: Choose businesses that have or are building a strong competitive advantage.
Those investing in the biotechnology and healthcare sector know that buying companies with promising portfolios and diverse pipelines is vital.
After all, a solid lineup can generate and secure steady cash flow to fund R&D efforts as well as acquisitions to expand the pipeline. Consequently, this guarantees steady growth in revenues as existing products face patent exclusivity losses.
Within this sector, one of the companies with a strong portfolio and promising pipeline is Merck (MRK).
Merck has become practically synonymous with Keytruda—the #1 cancer drug in terms of sales globally. In the first 6 months of 2022 alone, this drug already raked in $10.1 billion in sales.
While several biotechnology companies would be content with this top-tier drug in its portfolio, Merck refuses to be a one-trick pony.
Leveraging its $222 billion market capitalization, the fifth-biggest pharmaceutical company on the planet has been steadily expanding its portfolio.
In fact, Keytruda only made up 33% of its total $30.5 billion sales in the first half of the year.
Merck has built a formidable oncology lineup and developed several blockbuster treatments in this space.
Its flagship, Keytruda, climbed 30% year-over-year in its second-quarter earnings report to record $5.3 billion for that period. Other cancer treatments improved their performance as well. Lynparza grew 17% while Lenvima rose 33%.
Amid these growths, Merck remains aggressive in expanding its oncology lineup. Earlier this year, the healthcare world has been abuzz with Merck’s plan to buy cancer-centered biotech Seagen (SGEN).
The deal, if it pushes through, would be reportedly worth $40 billion and add 4 already approved cancer drugs to Merck’s portfolio.
On top of these market-ready products, Seagen will also bring numerous late-stage candidates to the table.
Merck also recently inked a smaller deal with Orion Corporation. The agreement, worth $290 million, will grant Merck access to Orion’s drug candidate for prostate cancer.
Meanwhile, Merck just announced its plan to catch up with its peers in the COVID-era race. Specifically, the biotech giant has finally become more invested in entering the messenger RNA technology segment.
Earlier this week, Merck struck a $3.7 billion deal with Cambridge-based private biotech Orna Therapeutics for the latter’s novel take on mRNA called oRNA.
Basically, Orna’s approach involves altering the mRNA strands in such a way that it creates a circle instead of a line.
According to the firm, this will be a more effective way to apply the technology to mRNA-based vaccines and therapies.
This isn’t the first time Merck collaborated with a smaller firm to pursue mRNA technology.
As early as 2015, Merck has already been investing in this segment. In fact, it was one of the early partners of Moderna (MRNA), signing a series of agreements with the latter including collaborations on infectious diseases programs.
While some of the programs have been discontinued, Merck and Moderna continue to work together on a personalized cancer vaccine program.
Amid these efforts, Merck is still regarded as a laggard compared to its Big Pharma peers in terms of making huge investments in the mRNA space.
Recent mRNA collaborations include Sanofi’s (SNY) $3.2 billion deal with Translate Bio, Pfizer’s (PFE) massive investment in BioNTech’s (BNTX) technology, and GlaxoSmithKline’s (GSK) deal with CureVac (CVAC).
Nevertheless, the deal with Orna suggests a shift with Merck’s strategy.
Overall, Merck is a premier biotech and healthcare business with a strong portfolio and a promising pipeline.
Its profitability and expansion over the past years have been proven to be top-notch, and it’s not farfetched to expect the same or even better results in the future. I recommend buying the dip.
Mad Hedge Biotech and Healthcare Letter
March 17, 2022
Fiat Lux
Featured Trade:
(A SECURE STOCK TO ASSUAGE YOUR FEARS)
(NVS), (INCY), (ABBV), (VYGR), (PFE), (BNTX), (CVAC), (RHHBY)
The year 2022 marked the time fear made a comeback to Wall Street.
Since the year began, we’ve been plagued with fears over Russia’s invasion of Ukraine, constant threats of high inflation, and the possibility of a recession.
There’s even the fear of major corrections among overheated stocks that could drag the entire market along with it.
Nevertheless, it’s critical to bear in mind that what we have is a market of stocks rather than a stock market.
Although the S&P has been unstable and the Nasdaq continues to be riddled with corrections, we can still be confident that value stocks and, of course, dividend stocks are faring much better.
Truth be told, that’s hardly surprising since value stocks typically outperform the market even in the most challenging periods.
Moreover, the highest-quality stocks tend to deliver the best performance.
When it comes to high-value stocks, one of the defensive, low volatility names that constantly crops up is Novartis (NVS).
To date, Novartis is considered as one of the Big Pharma companies globally, with a staggering market capitalization of $224 billion.
Recently, Novartis has become more aggressive in diversifying its lineup—a strategy that showed tremendous payoffs.
After all, one of the competitive edges of Novartis is its solid profitability compared to its peers, which is primarily driven by the company’s well-balanced portfolio.
For years, the company has been widely known for its oncology treatment portfolio, which was strengthened by its eventual collaboration with Incyte (INCY).
Apart from cancer, it has so far succeeded in developing treatments for cardiovascular, immunology, and even blood disorders.
Its current portfolio of drugs generated impressive revenue despite the economic slowdown over the past months.
For example, psoriatic arthritis drug Cosentyx, which is AbbVie’s (ABBV) top-selling Humira’s biggest competitor, raked in $3.5 billion in sales last year, showing off a 20% increase year-over-year, while myelofibrosis treatment Jakavi reported a 23% jump to reach $1.2 billion.
Meanwhile, heart failure treatment Entresto recorded an impressive 46% climb year-over-year to reach roughly $3 billion.
Aside from these, Novartis has a promising pipeline. Thus far, it has 54 programs queued for Phase 3 trials.
Even if we assume that the company only achieves a 50% success rate, these new products could still add substantial revenue streams within the next few years.
Further leveraging its size and capital, Novartis has been searching for avenues to expand its in the biotechnology market.
Its latest move towards this direction is a license option agreement with Voyager Therapeutics (VYGR).
Novartis has long been on a perennial search for revolutionary therapies to take under its wing, and this deal with Voyager appears to be an excellent opportunity for both companies.
In a nutshell, the two companies have agreed to collaborate on gene therapy programs for adeno-associated virus capsids.
This biobucks deal sees Novartis paying Voyager $54 million upfront, with the possibility of shelling out up to $1.7 billion in several milestone payments and royalties.
The agreement covers three programs targeting the central nervous system plus potentially two more after 12 months.
In addition, Novartis will be granted access to Voyager’s proprietary RNA-based screening platform used to deliver the payload in gene therapy-based treatments.
Another biotechnology-related venture for Novartis is its deal with Carisma Therapeutics.
Following its success with the COVID-19 vaccine production for Pfizer (PFE) and BioNTech (BNTX), the Big Pharma company entered another contract manufacturing agreement with Carisma Therapeutics.
In this deal, Novartis will handle the manufacture of Carisma’s HER2-targeted CAR-M cell therapy, which is under development for the treatment of solid tumors and is slated to be submitted for approval in 2023.
Other than Carisma, Novartis also signed an initial manufacturing deal with CureVac (CVAC) and Roche (RHHBY) in 2021.
Overall, this makes Novartis a relatively safe and low-risk play in the biotechnology and healthcare sector.
Mad Hedge Biotech and Healthcare Letter
December 14, 2021
Fiat Lux
Featured Trade:
(FROM AN UNKNOWN mRNA PIONEER TO BIG PHARMA PLAYER)
(BNTX), (PFE), (MRNA), (AZN), (JNJ), (SNY), (CVAC), (REGN), (MRK), (BMY)
Almost everything that could go right has gone right for BioNTech so far.
Its COVID-19 vaccine with Pfizer (PFE), Comirnaty, has been breaking records left and right, and more and more approvals in other countries are piling up.
Needless to say, BioNTech has transformed into one of the most profitable biotechnology companies with a rapidly growing cash stockpile.
Now, the company is up for another challenge: the Omicron variant.
Although BioNTech and even Moderna (MRNA) insist that they offer more than COVID vaccines, the reality is that their pipelines still have not reached the stage where they can generate as much revenue.
Hence, it is no surprise that their share prices have climbed since discovering the Omicron strain.
The emergence of this new mutation sparked another competition among COVID-19 vaccine developers, specifically in the mRNA segment dominated by BioNTech and Moderna.
Since news broke about the Omicron variant, these companies have been racing to come up with the most effective vaccine against it.
BioNTech holds a competitive advantage between the two since the company reportedly has been working with Pfizer on a vaccine candidate for this type of situation months before the discovery.
In comparison, Moderna has yet to determine where their candidate stands in terms of fighting off the new variant.
The same can be said about other vaccine developers like AstraZeneca (AZN) and Johnson & Johnson (JNJ).
What happens to their efforts if the Omicron variant turns out to be less dangerous and possibly closer to the common flu?
In this case, the vaccine developers would most likely boost the prices of their products 10-fold because then they’d end up with fewer orders to private customers instead of sealing agreements with governments.
The flu vaccine market is worth roughly $8 billion annually, while the COVID vaccination market is projected to bring in approximately $25 billion each year in the post-pandemic period.
Either way, this situation could offer speculative investors a solid stream of price catalysts.
The uncertainty will result in a higher valuation for BioNTech in the short term because the company has already proven its ability to deliver an effective vaccine within a short period.
Prior to its COVID work, BioNTech was actually known as one of the “Big 3” and a pioneer in the mRNA world. At that time, it shared this title with Moderna and CureVac (CVAC).
Since then, the segment has grown, and new challengers have joined the mRNA industry.
Some of the promising ones include China’s Abogen Biosciences, which managed to raise over $700 million in funding for its own mRNA COVID vaccine, and of course, Sanofi (SNY), which splurged in a $3.2 billion acquisition of Translate Bio to access the latter’s mRNA pipeline for cystic fibrosis and several genetic conditions.
Meanwhile, BioNTech has retained its focus on cancer, with 16 of the 18 programs targeting oncology in its Phase 1 pipeline.
If BioNTech successfully develops an mRNA treatment for cancer, they’ll be breaking into a massive and lucrative market.
By 2024, the market for cancer treatments is projected to grow and reach over $200 billion.
Apart from its work on oncology therapies, BioNTech is also known for its infectious disease pipeline, including vaccines for HIV, malaria, and tuberculosis. It’s also collaborating with Pfizer on 2 influenza vaccines.
By the end of 2021, BioNTech is anticipated to release 5 updates on its vaccine trials involving solid tumors that target head and neck cancer, melanoma, and colorectal cancer.
Other than Pfizer, the company has been working with Regeneron (REGN), Genentech, Merck (MRK), Bristol Myers Squibb (BMY), and Sanofi.
In terms of performance so far, BioNTech has raked in $15.2 billion in revenues for the first three quarters of 2021, with full-year earnings expected to reach $18.1 to $19.2 billion.
Overall, I view BioNTech as a long-term investment.
While many still see it as a pure COVID play, this German company is increasingly starting to act more and more like the Big Pharma organizations.
It’s realistically expecting that its profit-generating asset, Comirnaty, may not have a very long shelf life. Therefore, it understands the necessity to come up with new products to sustain its current valuation over the longer term.
Mad Hedge Biotech & Healthcare Letter
August 5, 2021
Fiat Lux
FEATURED TRADE:
(LET THE BIOTECH BUYOUTS BEGIN)
(TBIO), (SNY), (MRNA), (PFE), (BNTX), (ARCT), (GSK), (JNJ), (MRK), (BLUE), (CVAC)
One of my predictions for this year just came true: the biotechnology buyouts have begun.
In my letter last January, I forecasted that the growing popularity of the mRNA technology courtesy of the COVID-19 vaccines from Moderna (MRNA) and Pfizer (PFE / BioNTech (BNTX) would trigger acquisitions of smaller biotechnology companies this year.
I predicted that bigger players in the healthcare industry would scoop up smaller players to stake a claim in this quickly growing space.
Topping our list of buyout candidates is Translate Bio (TBIO)—the very same company hogging headlines in the past days following its $3.2 billion acquisition by Sanofi (SNY).
The all-cash deal values each TBIO share at $38, representing a premium of over 30% above the stock’s price. If all goes well, the deal should be completed by the third quarter of 2021.
This is one of the first major moves by Sanofi following the healthcare giant’s recent pivot into vaccines.
However, this isn’t the first time Sanofi and TBIO worked together.
The two companies have actually started collaborating back in 2018, working on a potential mRNA-based flu vaccine—a project that has Sanofi and TBIO ahead of the pack, with BioNTech and Arcturus Therapeutics Inc. (ARCT) trailing behind.
Sanofi and TBIO’s mRNA seasonal flu vaccine candidate is expected to commence with Phase 1 results expected to be out by the fourth quarter of this year.
Considering that Sanofi is one of the leading vaccine makers in the world with roughly $3 billion in sales in flu vaccines alone in 2020, it won’t come as a surprise if their candidate breezes through the trials.
Even prior to this acquisition, Translate Bio has been working on using its mRNA platform to develop vaccines and treatments for a broad range of diseases like liver and pulmonary ailments.
So far, its novel pipeline has 2 clinical-stage programs along with 7 pre-clinical work covering direct therapeutics and vaccines.
One of its lead candidates is MRT5005, which is an mRNA-based therapy for cystic fibrosis (CF).
This is a groundbreaking treatment because it takes advantage of mRNA’s capability to deliver proteins to lung cells. It’s also extremely non-invasive, as patients can simply inhale the mRNA drug into their bodies.
Other than helping with the treatment of CF, this inhalation delivery system can also open avenues for other pulmonary targets.
Most importantly, TBIO’s MRT5005 doesn’t only offer treatments. It actually is a cure for CF.
TBIO’s work on CF treatment is extremely important. This disease is terrible, recording a median age of death among patients in the US as 30.6 years old. In this country alone, over 30,000 people suffer from the condition, and more than 70,000 are recorded worldwide—and the numbers continue to climb each year.
In terms of the CF market, the global demand for treatments for this disease is expected to reach $16.3 billion by 2026, hitting roughly 16.8% in CAGR over the years.
With the acquisition of Translate Bio, Sanofi plows ahead of its competitors in the space, including Pfizer, GlaxoSmithKline (GSK), Johnson & Johnson (JNJ), and Merck (MRK), as the sole Big Pharma company with a wholly-owned in-house mRNA platform.
This is on top of Sanofi’s recent $470 buyout of another mRNA company, Tidal Therapeutics, to bolster its immuno-oncology and inflammatory diseases segments.
Apart from its aggressive buyout strategy, Sanofi also announced its plan to allocate roughly $476 million annually to a “vaccines mRNA Center of Excellence” with the goal of queuing at least six mRNA-based candidates in clinical trials by 2025.
Allotting $476 million to this plan is a telling move on the company’s future direction, as it comprises a substantial fraction of Sanofi’s $6.5 billion overall R&D budget.
These moves strongly signal that Sanofi’s going all-in on the mRNA platform, which could obviously pose a challenge to the likes of Moderna and, of course, BioNTech.
With smaller cap companies like bluebird Bio (BLUE) and CureVac (CVAC) still up for grabs, it’s only a matter of time before another big company decides to follow suit.
Mad Hedge Biotech & Healthcare Letter
June 10, 2021
Fiat Lux
FEATURED TRADE:
(IN THE RIGHT PLACE AT THE RIGHT TIME)
(MRNA), (PFE), (BNTX), (NVAX), (CVAC), (SNY), (TMO), (CTLT), (BAX), (INO)
Before the COVID-19 pandemic, only a handful of people had actually heard of messenger RNA (mRNA).
Now, this technology has become a household term thanks to the success of the COVID-19 vaccine programs of Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA).
Aside from these three names, other players in the mRNA arena include Novavax (NVAX) and an under-the-radar stock called CureVac (CVAC), which has been collaborating with Bayer (BAYRY).
Even Sanofi joined the list recently with its acquisition of mRNA-focused biotechnology company Tidal Therapeutics.
Amid the growing number of mRNA-focused companies, however, the world has come to associate the technology most with Moderna.
This is apparent in the increasing demand for Moderna’s COVID-19 vaccine, which has been pushing the biotech company to quickly expand its manufacturing capacity.
One of the steps it took to meet the supply expectations is to partner with Thermo Fisher (TMO), specifically for fill-finish, labeling, and packaging.
For orders outside the United States, Moderna established a partnership with South Korea’s renowned Samsung Biologics (KRX: 207940) to keep up with the demand.
While TMO and Samsung Biologics are the two major forces helping Moderna in its manufacturing concerns, other companies are also pitching in, including Catalent (CTLT), Sanofi, and Baxter BioPharma Solutions (BAX).
With the assistance of these companies, along with the major expansion of its own manufacturing site, Moderna anticipates that it can supply at least 3 billion doses of its COVID-19 vaccine annually by 2022.
This is promising news, particularly in light of another massive market that Moderna can conquer next: India.
While the United States has managed to turn the corner in the COVID-19 battle, India has been struggling to fight back against the virus. To this day, the country continues to grapple with the increasing number of COVID-19 cases.
Low and sluggish vaccination rates are considered the major contributing factor to this problem, with a measly 3.3% of India’s citizens getting fully vaccinated so far.
With a population of approximately 1.39 billion, this offers a massive opportunity for vaccine developers.
Thus far, only 228 million doses of the COVID-19 vaccines have been shipped to India. That leaves about 1.16 billion people in this huge country to receive a vaccine.
Since India is a developing nation, vaccine makers are expected to charge the low end of their range.
For Moderna, that would be roughly $25 per dose, while Pfizer would probably charge $19.50 per dose.
However, these prices could still go lower depending on the contract negotiated by the Indian government.
Even at the low end of the price point though, the Indian market represents approximately $28 billion in revenue for COVID-19 vaccine developers.
Taking advantage of this momentum, Moderna has been working on booster candidates for its COVID-19 vaccine. In fact, one candidate may be ready by fall.
Of course, competitors are looking into the new variants as well. Aside from Pfizer, smaller companies like Inovio Pharmaceuticals (INO) have started with clinical trials this year.
Moderna is also investing heavily in artificial intelligence (AI) in an effort to become a step ahead of future diseases.
Through AI and machine learning, Moderna aims to predict strains that evade protection provided by their roster of vaccines.
Based on the data, the company will be able to develop next-generation vaccines and boosters before the situation becomes as critical as what happened in 2020.
These efforts are essential for Moderna to sustain its position as the leader in mRNA technology.
Despite its earlier issues with production, Moderna is still set to generate roughly $19.2 billion in revenue for its COVID-19 vaccine thanks to advance purchase agreements.
The potential availability of a booster this year would definitely get the ball rolling in terms of handling newer variants.
The biotechnology industry is favored among investors on the lookout for companies with incredibly strong growth potential.
While it’s a risky environment filled with businesses flaming out practically year after year, winners in this field can come out with extremely impressive results.
In recent months, Moderna has become one of the most successful examples that demonstrated the potential of a biotech when it finds itself with cutting-edge technology at an ideal time.
