Mad Hedge Biotech and Healthcare Letter
May 9, 2024
Fiat Lux
Featured Trade:
(A HIGH-RISK, HIGH REWARD BIOTECH PLAY)
(CRSP), (VRTX), (DNA)
Posts
Ah, the "golden age of biotech" — remember when that was the phrase du jour? Well, it might not be on everyone’s lips these days, but let me tell you, the biotech arena still holds some golden tickets for those with an eye for long-term gems.
These hotbeds of innovation aren’t just cooking up your everyday aspirin; they’re on the front lines battling the big beasts like rare diseases and crafting cures that might have seemed like sci-fi a few decades ago.
So, why should we keep our wallets ready for biotech? Simple: life-saving meds aren't exactly impulse buys at the checkout counter. People need these drugs, economy be darned. And that, my friends, brings us to a biotech belle of the ball: Crispr Therapeutics (CRSP).
Now, if you’re hunting for the disruptors of the disruptors, cast your eyes on CRISPR/Cas9 gene-editing technology. And leading the charge? Crispr Therapeutics, of course. Their new FDA-approved therapy, Casgevy? Think of it as a microscopic search-and-replace function for your genes, pinpointing the exact spot that needs fixing. Snipping out a faulty gene? Child's play for CRISPR.
This isn't just about editing genes willy-nilly. This technology, honed and shepherded through the halls of academia, now bears the fruit of a Nobel Prize in Chemistry in 2020 — a tip of the hat to one of CRISPR Therapeutics’ founders, Charpentier.
With exclusive rights to this CRISPR/Cas9 tech, they’re not just playing in the minor leagues; they’re major league players with the FDA-approved Casgevy aimed at tackling sickle cell disease (SCD).
If you’re feeling more cautious, however, then Vertex Pharmaceuticals (VRTX) might be a steadier ride. It’s a bigger boat with more therapies on the market.
But if you’re feeling a bit more Maverick, a direct bet on Crispr Therapeutics could be your kind of play. Smaller in size, sure, but with a direct line to the gains (or pains) from Casgevy, and boy, does biotech love a high stakes game.
So, what does throwing your chips in with CRISPR entail? Let's unwrap this.
First off, their Casgevy is a pioneering ex vivo CRISPR-Cas9 therapy—think of it as a pit stop where cells are tuned up outside the body before being put back in the race. It’s already got the green light from the FDA for not one, but two heavy hitters: sickle cell disease and transfusion-dependent beta-thalassemia (TDT).
But here’s the rub: despite these big wins, CRISPR’s stock has been more or less jogging in place for five years. Why? It seems the market’s giving the side-eye to the commercial rollout of these therapies. But hold up—shouldn’t the stock be climbing as these treatments start to hit the market?
Well, the game here is more marathon than sprint. We're talking about a potential addressable market for these treatments that’s just aching to be tapped into. But there’s a catch—the price tag is a whopper at $2.2 million a pop. That’s a lot of zeroes.
Now, let’s do some napkin math.
If CRISPR could corner the market on all SCD and TDT patients across the US and EU, we're looking at a ballpark figure of around $38.6 billion in potential revenue. And here's the kicker: the real puzzle is figuring out how many of these folks will actually get treated with Casgevy, given the steep costs and varied insurance landscapes.
Yet, if CRISPR can snag just a slice of this market, even with a high discount rate factored in for all the risk, the numbers start to look pretty tasty.
Imagine if they treated all these patients over a decade—ka-ching! That’s an NPV (net present value) that could potentially justify CRISPR’s current market cap all on its own.
Overall, investing in CRISPR Therapeutics could be akin to buying a stake in Genentech (DNA) back in the day—before they hit the biotech jackpot.
With Casgevy already approved and more potential blockbusters in the pipeline, CRISPR isn't just about today’s gains; it’s about betting on a biotech future that could be as revolutionary as the invention of the wheel—if the wheel could edit your DNA, that is.
What’s the verdict then? If you’re game for a ride on the wild side of biotech with a company that’s rewriting the genetic code of healthcare, CRISPR Therapeutics might just be the stock to watch. So buckle up because it’s going to be an exciting ride.
Forget your classic biotech launch story. One of 2024's most lavishly funded biotech upstarts is taking a massively ambitious swing at reinventing the entire drug development process.
I'm talking AI, venture billions, and some serious star power all rolled into one wild capital extravaganza.
The company behind this cash-flushed disruption bid is Xaira Therapeutics. And they've snagged a bona fide heavy hitter as CEO — Marc Tessier-Lavigne, the ex-president of Stanford and former chief science officer at Genentech (DNA).
His mandate is simple: turn Xaira's billion-dollar AI vision into cold, hard, realized potential.
Tessier-Lavigne is a true believer when it comes to AI's potential for transforming every clunky, painfully inefficient step of conventional drug R&D. We're not just talking incremental improvements here.
The man thinks smart deployment of generative AI could legitimately deliver "two- or three-fold" increases in both speed AND success rates across the entire confounding slog of getting new medicines approved.
That's one heckuva rallying cry.
But Tessier-Lavigne has legitimate grievances with the antiquated status quo. We all know the drug development game is brutal.
By most credible estimates, only about 1 in 10 drug candidates that make it to human trials ever get approved for use. Attrition rates are staggering, even before reaching those do-or-die clinical trials – that's money, research hours, and hope down the drain.
Xaira plans to flip that script. Their pitch: AI is their ace in the hole.
We're talking about designing entirely new drugs from scratch, pinpointing disease targets faster than ever, and finally cutting those mammoth clinical trials down to size. Think of it as the entire process of getting a machine learning upgrade.
And they're not starting from zero. Xaira tapped into the brains behind groundbreaking protein science: biochemist and computational biologist David Baker's team at the University of Washington. These are the geniuses who revolutionized protein structure prediction, and several of their top scientists are now on Xaira's payroll.
For the key task of AI-driven lead design, Xaira is leaning heavily on the advanced protein modeling systems developed in David Baker's acclaimed lab at the University of Washington.
To actually design the new candidate drug molecules, Xaira is deploying advanced AI systems developed in Baker's lab. We're talking cutting-edge tech like RFdiffusion and RFantibody.
These use similar "diffusion" AI architectures that power viral image generators like DALL-E, except instead of churning out weird digital art, they generate brand-new protein structures from scratch.
On the biology side, Xaira has assembled specialist teams from genomics titan Illumina (ILMN) and proteomics upstart Interline Therapeutics. The goal is to use AI to decipher complex disease mechanisms on a molecular level at an unprecedented scale and quality.
As for the money side, Xaira's co-founders are a duo of biopharma's biggest VC shot-callers: Bob Nelsen from ARCH Venture Partners and Vik Bajaj, who leads the investment crew over at Foresite Capital's in-house incubator.
The rest of Xaira's bulging investor list reads like a who's who of the VC world's heaviest hitters from coast to coast.
But let's get one thing straight: deploying AI for drug discovery itself isn't new. Investors have poured hundreds of millions into previous AI-oriented biotech upstarts with remarkably little tangible progress to show for it so far.
That’s why plenty of scientists remain deeply skeptical about the real-world viability of using in silico methods to design brand-new proteins capable of becoming actual medicines.
But Xaira's leaders are taking an unmistakably bullish stance. As Tessier-Lavigne brazenly stated, "We believe the technology is ready for making therapeutics today. And it's only going to get better and better going forward." Shots fired.
And this startup isn't just flexing impressive scientific ambition and bravado, either.
Xaira's boardroom and executive lineup is stacked with certified rockstars spanning the lofty peaks of biopharma's regulatory, academic, and corporate pillars.
The company's board alone includes former FDA head Scott Gottlieb, Stanford chemist Carolyn Bertozzi (you know, the Nobel laureate), and even ex-Johnson & Johnson (JNJ) CEO Alex Gorsky.
Clearly, this isn't some penny-ante upstart's advisory council.
Speaking of going big, let's talk about Xaira's huge VC funding for a minute. Their over $1 billion haul puts them in a seriously elite company among the top five largest VC-backed biopharma raises of all time.
We're talking the same rarified air as anti-aging disruption play Altos Labs (ALTO) and Roivant Sciences' (ROIV) $1.1 billion mega round from 2017.
That's an outrageously rich launch valuation for an upstart AI biotech without a single disclosed pipeline product. But it reflects the blazing hot enthusiasm and optimism around applying machine learning to overcoming drug development's biggest bottlenecks and inefficiencies.
In that vein, Xaira's most direct competition comes from other prominent AI drug trailblazers like Alphabet's (GOOGL) Isomorphic Labs and Flagship Pioneering's Generate Biomedicines.
All three of these hyper-funded disruptors are in a race to develop superior AI systems for accurately modeling protein structures or generating wholly new proteins from digital representations.
Of course, Xaira's monster ambitions will ultimately live or die based on tangible results and clinical execution over the long haul.
Love it or hate it, though, the great AI-powered biopharma upheaval is officially underway thanks to Xaira's monster VC haul. Whether the company can truly live up to its gargantuan hype and disruption premise, well, that multi-billion dollar enigma should start getting some added clarity in the not-too-distant future.
Let's see if these self-professed drug R&D revolutionaries have the disruptive chops to put their lofty money where their mouths are.
Mad Hedge Biotech and Healthcare Letter
February 6, 2024
Fiat Lux
Featured Trade:
(SETTING THE TABLE FOR STEADY GAINS)
(ABBV), (ABT), (PFE), (GILD), (DNA), (MRNA), (AMGN), (LLY)
Here's a nugget of wisdom from someone who's sailed the investment waters more times than I've had hot dinners: diversification is your best friend. Think of it as the Swiss Army knife in your investment toolkit.
Now, if there's one treasure you'd want aboard your investment ship, it's a dividend stock. Not just any old stock, though. I'm talking about AbbVie (ABBV).
Since it waved goodbye to its parent company, Abbott Laboratories (ABT), in 2013, it has boosted its dividend payouts by an eye-popping 290%. With a yield hanging around 4% and delivering a 130% total return over the past 5 years, long-term investors undoubtedly struck gold.
Unfortunately, 2023 has turned into the kind of year we'd rather forget. The end of Humira's patent was looming like a dark cloud, threatening to rain on AbbVie's parade by letting generics flood the market. The horror, right?
But, plot twist: the anticipated disaster was more of a light drizzle. Despite the competition, Humira still brought in a cool $11.1 billion. Sure, it's a dip, but not the plunge we feared.
Meanwhile, AbbVie's been on a shopping spree, snapping up Immunogen and Cerevel for a combined total that's a smidgen under $19 billion. It's like they're collecting Infinity Stones, diversifying beyond Humira into areas ripe with potential.
And let's not forget their foray into the realm of Antibody Drug Conjugates (ADCs) — the hot ticket in oncology.
While AbbVie’s not throwing around cash like confetti, like some of their peers including Pfizer (PFE), Gilead Sciences (GILD), Genentech (DNA), they're making notable moves. It's a bit like betting on the dark horse; if their ADCs and CNS ventures hit their stride, we're all in for a treat.
Amidst all this innovation and expansion, AbbVie hasn't lost sight of what gets investors' hearts racing — a solid dividend. It's the kind of steady reliability that's as comforting as your favorite cozy blanket.
As if those aren’t enough, the company just threw us a curveball that's got Wall Street buzzing more than my neighbor's annoying leaf blower on a peaceful Sunday morning.
In its recent earnings report, AbbVie not only beat the revenue expectations for its fiscal fourth quarter but decided to sweeten the deal by raising its long-term sales outlook.
Despite the concerns about Humira, AbbVie still posted fourth-quarter earnings that had their investors nodding in approval, even if they were a tad lower than previous years’ glory days. With revenue hitting $14.3 billion, surpassing the street's guess of $14 billion, it's clear the company isn't just hanging in there; it's throwing punches back.
The immunology portfolio, while taking a 12% hit, isn't down for the count, thanks to Skyrizi and Rinvoq. These two rising stars, which are quickly becoming the Batman and Robin of the biopharmaceutical world, are not just filling Humira's big shoes; they're sprinting.
With the duo’s sales surging by 52% and 63%, respectively, it's no wonder AbbVie is adjusting its binoculars and raising its long-term guidance for these drugs to a whopping more than $27 billion by 2027.
That's a $6 billion jump from their previous forecast. If that doesn't scream confidence, I don't know what does.
And just for a bit of perspective, while AbbVie was basking in the glow of success, its peers had a mixed day at the market. Pfizer took a slight tumble, Moderna (MRNA) and Amgen (AMGN) dipped their toes into the red, while Eli Lilly (LLY) floated up, riding a wave of optimism.
So, as we move forward this 2024, you might be wondering, "What's next for AbbVie?"
Well, if I were a betting man (and let's be honest, investing is betting with extra steps), I'd say we're not likely to see AbbVie pulling a rabbit out of a hat.
But, and it's a big but, we're talking about a company that's as expertly managed as a Michelin-starred kitchen. They've got a knack for serving up share price growth and dividends that leave investors coming back for seconds.
So while AbbVie might not be dangling the next blockbuster breakthrough in front of us, their steady march forward is as promising as finding a shortcut on your morning commute. We might not see the stock skyrocket overnight, but a climb to around $180 per share? That's not just possible; it's on the menu. And right now, with its recent earnings report, it's as good a time as any to pull up a chair to the AbbVie table. Bon appétit.
Mad Hedge Biotech and Healthcare Letter
December 26, 2023
Fiat Lux
Featured Trade:
(A MARATHON, NOT A SPRINT)
(AMGN), (ABBV), (DNA), (PFE), (RHHBY), (GILD), (NVO)
Navigating the stock market, where fortunes are made and lost faster than a New York minute, can be as exhilarating as it is nerve-wracking.
And when you're hunting for that quick win, that short-term stock buy that'll make your year, you realize you're playing a game where even the big guns like Warren Buffett don't always have the magic crystal ball.
But let's pivot a bit. What about when you're not sweating under a cash crunch — when you can afford to play the long game?
That's when you shift your sights to those long-term compounders, the kind that churn out robust returns on capital like a well-oiled machine. Here, initial valuations play second fiddle to the long-term prospects.
This is where Amgen (AMGN) struts onto the stage. It's not just any old player in the biotechnology and healthcare arena; it's a front-runner with a knack for keeping its coffers brimming and its profitability soaring.
In terms of therapeutic innovation, Amgen is a leader in the fields of oncology, inflammation, neurology, and pulmonary diseases. Their biosimilar practice is also on the rise, churning out replicas of blockbuster drugs like AbbVie’s (ABBV) Humira and Genentech’s (DNA) Herceptin.
Essentially, investing in Amgen is like finding a gold mine in your backyard – and then realizing there's oil under there, too.
Now, let's talk numbers because that's where the rubber meets the road. Amgen's moat-worthy drug franchises make it as solid as a rock for those seeking stability in their cash flows, especially when economic clouds are gathering.
And in the healthcare segment, it's akin to building your house on a rock – it withstands economic storms.
Amgen is known for its industry-leading profitability, flashing its A+ grade like a badge of honor. Their 11% return on total capital and a jaw-dropping 134% return on equity? That's not just good; it's like winning the financial Olympics.
Over the last decade, Amgen's total return of 218% didn't just outdo the S&P 500; it left peers like Pfizer (PFE), Roche (RHHBY), and Gilead (GILD) in the dust. Sure, AbbVie is still ahead, but that's mostly thanks to their Humira magic.
Fast forward to the present, and Amgen's showing no signs of slowing down.
Their total revenue shot up by 4% YoY to $6.9 billion in the third quarter, courtesy of a surge in volumes across their star products. We're talking double-digit growth in BLINCYTO, EVENITY, Repatha, and Nplate. This is like watching a relay race where every runner is Usain Bolt.
Peeking into the future, Amgen's pipeline is a treasure trove of potential.
The company has six first-in-class oncology assets and three FDA Breakthrough Therapy designations. Mirroring Novo Nordisk's (NVO) success with Ozempic, Amgen’s wrapped up Phase 2 studies for their obesity contender, Maridebart cafraglutide.
But here's where it gets even more interesting. Amgen's leap into multi-specific drugs, particularly with tumor treatment AMG 193, is like stepping into a sci-fi novel – it's groundbreaking, it's futuristic, and it just might revolutionize drug delivery.
Let's not forget the FDA's priority review of tarlatamab for small-cell lung cancer. This isn't just good news; it's a potential game-changer, a sign that Amgen might just be first across the finish line in this high-stakes race.
Of course, the recent acquisition of Horizon Therapeutics adds another feather to Amgen's cap, expanding its rare disease portfolio. The incoming drugs from this deal, including Tavneos, Tepezza, KRYSTEXXA, and UPLIZNA, are in the early stages of their lifecycle, making them ripe for growth.
However, every silver lining has a cloud. The integration of Horizon Therapeutics carries its own set of risks, and Amgen's legacy drugs like Enbrel and Otezla face the ticking clock of declining sales.
We also can’t gloss over the elephant in the room – Amgen's ballooning long-term debt, expected to hit a whopping $65 billion by year-end. The recent downgrade of Amgen's credit rating to BBB is like a cautious tap on the shoulder, a reminder to tread carefully.
But don't let that dampen your spirits. Amgen's 3.3% dividend yield is as solid as it comes, with management showing a vote of confidence with a 5.6% raise for the upcoming Q1 2024 payout.
The company's history of rewarding shareholders through share buybacks – a 19% reduction in share count over five years is nothing to scoff at either.
So, where does that leave Amgen's valuation? At a current price of $275 and a forward PE of 14.8, it's not exactly a bargain basement, but it's far from sky-high. It's in that sweet spot where quality meets value.
For long-term investors who value stability and growth, consider adding Amgen to your portfolio playbook.
Mad Hedge Technology Letter
September 26, 2022
Fiat Lux
Featured Trade:
(DARLING TO DEMOTED)
(ARKK), (SARK), (PRNT), (IZRL), (ZM), (DNA), (TSLA)
ARK Innovation ETF (ARKK) and its infamous CEO Cathie Wood was the poster boy for tech growth as the 10-year bull market in technology shifted into high gear.
That was then and this is now.
Oh, how one full year makes a world of difference in the tech universe.
ARKK is not touted anymore as the tech fund that could do no wrong.
We, as investors, cannot recreate the world we desire by a click of a button but must roll with the punches and embrace a paradigm shift into a new normal of economic uncertainty, stagnation, de-globalization, supply chain bottlenecks, weak emerging currencies, and most important, higher interest rates.
It just so happens that the best trade out there all along has been long the US dollar to the detriment of tech stocks. Tech usually does well when the US dollar is weak.
ARK’s underperformance is finally creating a change as Wood is relinquishing her role as portfolio at 3D Printing ETF (PRNT) and ARK Israel Innovative Technology ETF (IZRL).
Recent criticism has been fierce accusing the fund of being a one-woman show with much of the hopes and dreams pinned on Wood.
Much of this has to do with her earlier success in Tesla (TSLA) which I would like to give her credit for.
However, since then, she has ridden the coattails of popularity to become a tech growth evangelist no matter what conditions.
She has often cut a polarizing figure in the world of tech investing.
ARK’s centralization of management could prove to be their downfall.
The demotion for Wood won’t be taken lightly and this also could be a way to throw the next guy under the bus as tech stocks go from bad to worse.
There have been headscratchers lately.
ARKK bought more of Zoom Video Communications Inc. (ZM) last month and I find that more of a beggar’s belief than anything else.
A pandemic darling shouldn’t be confused with a small company with no competitive advantages against big tech.
Another bizarre decision was to buy Ginkgo Bioworks Holdings Inc. (DNA), which has fallen 69% this year. The company invests in early-stage biotech companies and has lost around $1.5 billion in the first half of 2022. The company in 2021 lost $1.8 billion as well, but Wood continues to pour capital into this start-up.
The Nasdaq is now rescinding the premium they used to generously deliver for loss-making companies but fast-growing companies.
Woods hypers herself up as investing in disruptive tech, but many of her companies aren’t that disruptive and she is not aware of market cycles or market timing.
For the past year, she has proved that she is a specialist in being wrong.
ARKK needs to be careful of a meltdown instead of flashing the cash on pandemic darlings because they are cheap today.
There is a reason that many of these speculative tech firms are now cheap, it’s because they aren’t growing enough or making enough money. She still doesn’t understand that.
Expect more demotions for Wood as her pixie dust has run dry.
Buy the inverse of ARKK called AXS Short Innovation Daily ETF (SARK) after bear market rallies.
Mad Hedge Biotech and Healthcare Letter
January 25, 2022
Fiat Lux
Featured Trade:
(WHAT TO WATCH OUT FOR IN 2022)
(PFE), (BNTX), (AZN), (JNJ), (MRNA), (RHHBY), (RXRX), (TAK), (PSTX), (ZY), (DNA)
