Mad Hedge Biotech & Healthcare Letter
August 3, 2021
Fiat Lux
FEATURED TRADE:
(SHAKING UP THE BIOTECHNOLOGY AND HEALTHCARE INDUSTRY)
(PSTX), (PFE), (NVS), (GILD), (GSK), (BLUE), (CRSP), (EDIT)
Posts
With the advancement of biotechnology and healthcare, it’s not hard to imagine a future where drugs and therapies will be tailored to every person’s unique genetic profile.
Thanks to the continuous work on mass customization in the world of pharmaceuticals and even in whole genome sequencing, it’s only a matter of time before we can come up with a personalized pill for each popper.
Nowadays, robotics and automation have started to become tightly integrated with the medical arena. In fact, robotics in the field of pharmaceuticals is no longer anything novel.
The majority of drug manufacturers across the globe are already utilizing robots to address their needs, such as packaging and warehouse storage.
What interests me most, though, is how automation plays an active role in developing actual therapies. After all, doing this entails so much more than simply feeding codes to robots to teach them how to move test tubes around a lab.
One company that has been gaining traction in this space is Multiply Labs. Established in 2016 with roughly $22 million in funding thus far, this San Francisco company aims to be a force multiplier not only in creating personalized pills but also cell therapies.
Run by mostly MIT graduates, Multiply Labs started out by letting their robots take 24-hour shifts to quickly deliver biologic drugs needed for clinical trials.
That offers tremendously faster turnaround times and shorter waiting periods for researchers and pharmaceutical companies.
Since virtually perfecting that process, the company has decided to expand its focus to handle more challenging and complex work.
Now, it has set its sights on using its robotics platform to ease bottlenecks in the development of cell therapies.
As we know, cell therapies are regarded as powerful tools in the battle against cancer. However, the production process is extremely labor-intensive. This makes their development incredibly expensive.
Let’s take CAR-T cell therapy, which boosts the body’s immune system to help it fight off cancer, as an example.
In CAR-T cell therapy, scientists need to extract blood from the patient. Then they’d have to isolate the immune cells, which they would need to genetically engineer.
After that, they have to carefully grow the new cells. Finally, they’d inject these genetically engineered new cells back into the patient.
In most cases, every step needs to be repeated for individual patients.
What Multiply Labs is trying to do is automate several stages, such as genetically altering the harvested cells, which can only be performed by highly trained professionals.
Not only will they be able to cut down on the time needed to complete the procedures, they would also be able to reduce—if not completely eliminate—human error.
Aside from working with the University of California San Francisco, Multiply Labs has been collaborating with Cytiva, a subsidiary of Dannaher (DHR), to move their services closer to commercialization.
Apart from Multiply Labs, another San Francisco company has been working on improving the expensive, logistically complicated, and oftentimes error-filled cell therapy space: Cellares.
Unlike Multiply Labs, which aims to ease the bottleneck in the cell therapy creation process, Cellares’ goal is to handle the entire procedure on its own.
Dubbing its work as the “Cell Shuttle,” what Cellares offers is basically a “factory in a box” solution to the creators of cell therapies.
Basically, the “Cell Shuttle” is an end-to-end solution that comes in the form of a box designed to deliver an automated cell therapy platform. Cellares’ product handles everything from beginning to end, starting from taking in the cells of the patient to injecting the genetically engineered versions back into the individual.
Raking in roughly $100 million in funding so far, Cellares’ plan is to allow the pharmaceutical companies to scale and deploy the “Cell Shuttle” based on their needs.
To date, Cellares’ latest collaborator in this venture is Poseida Therapeutics (PSTX).
However, there are thousands of cell-based and cell therapy clinical studies conducted across the globe. The cell and gene therapy (CGT) sector is projected to be one of the fastest-growing markets in the healthcare sector, with the segment estimated to reach $14 billion by 2025.
Moreover, CGT offers promising treatments for severe and chronic conditions like obesity, diabetes, and, of course, cancer. It can also be the answer to rare genetic conditions and their related complications.
That’s why it comes as no surprise that Big Pharma names like Pfizer (PFE), Novartis (NVS), Gilead Sciences (GILD), and GlaxoSmithKline (GSK) are taking interest in this niche.
However, the progress of smaller companies, such as bluebird Bio (BLUE), CRISPR Therapeutics (CRSP), and Editas Medicine (EDIT), also offers incredible potential in this space.
And while Poseida Therapeutics may be the first to collaborate with the likes of Cellares and Multiply Labs, the rest would undoubtedly follow suit in integrating robotics and healthcare in the near future.
Mad Hedge Biotech & Healthcare Letter
July 29, 2021
Fiat Lux
FEATURED TRADE:
(A BIOTECH PREPARED FOR ANOTHER DOOMSDAY MARKET)
(BNTX), (PFE), (MRNA), (AZN), (JNJ), (GSK), (GILD)
If you’ve heard of Harry Dent Jr., then you know that he’s the economist who correctly and accurately forecasted the Japanese economic downturn back in 1989. He also hit the nail on the head when he predicted the collapse of the dot.com bubble in 2000.
Now, he’s saying that the stock market will crash in the next three months, describing it as “the biggest crash of our lifetime.”
There’s no precise method to determine if his pessimistic outlook is justified thus far.
Nonetheless, even if Dent turns out to be right, I don’t believe that all stocks will plummet. There are a handful of stocks that could soar if the stock market does crash this summer.
For instance, I think vaccine stocks would most likely take off if the new variants of COVID-19 triggered a market crash in the coming months.
After all, the best weapons we have in overcoming these issues are still vaccines.
I also think that one of the biggest—if not the biggest—winners in this segment is BioNTech (BNTX).
Let me share with you the reasons.
For one, BioNTech is actually the smallest of the biopharmaceutical companies in the vaccine market today.
Catalysts typically generate larger swings in stocks that hold smaller market capitalizations compared to those with bigger market caps.
It’s also telling that BioNTech and its co-vaccine developer, Pfizer (PFE), have started delving into tactics to handle the continuous rise of the Delta variant.
So far, what the partners have suggested includes adding a third dose to the COVID-19 vaccine to boost the immunity and protection of people against the new strain.
The two are also looking into beginning their clinical testing on a modified version of their vaccine, which would specifically target the Delta variant, by August.
BioNTech’s valuation also plays a key role. The company so far is the cheapest among the leading vaccine stocks, which include Moderna (MRNA) and AstraZeneca (AZN), based on its forward earnings multiples.
To date, BioNTech trades at roughly 6.3 times its expected earnings—a low valuation that wouldn’t last long, especially if fears about the new variants spark another massive downturn in the market.
Thus far, BioNTech and Pfizer have delivered roughly 392 million vaccine doses to the US alone.
However, the country is anticipating increasing demand for it, pushing it to sign up for an additional 200 million doses.
The duo plans to deliver 110 million doses to the US by the end of 2021 and the rest of the orders by April 2022.
In a separate agreement, the US also ordered 500 million doses as donations to developing countries across the globe.
In comparison, Moderna delivered 137.3 million, while Johnson and Johnson (JNJ) supplied 13.1 million.
On top of these, Pfizer and BioNTech are working to expand the reach of their vaccine.
The companies recently sealed an agreement with Biovac, a company in South Africa, to produce vaccine shots from a plant in Cape Town. Similar initiatives are under exploration in Latin America.
Riding the momentum of its COVID-19 vaccine, BioNTech is also working to develop a highly effective and widely tolerated malaria vaccine.
The malaria vaccine candidate is expected to build on two decades’ worth of mRNA research, which BioNTech used to co-develop the COVID-19 vaccine with Pfizer.
The clinical trial for this new project is planned to start by the end of 2022.
At this point, only one malaria vaccine is available on the market: GlaxoSmithKline’s (GSK) Mosquirix, which offers about 30% effectiveness in safeguarding kids from the mosquito-borne virus.
If successful, BioNTech will be easing a massive burden globally, as over 400,000 children die from malaria every year.
In addition to its malaria vaccine candidate, BioNTech is also looking into using its mRNA expertise to diversify its pipeline to include cancer treatments, including colorectal cancer, advanced melanoma, and other malignant solid tumors.
BioNTech’s move to attempt to conquer the oncology sector gained even more traction following its recent acquisition of Kite, a manufacturing plant under Gilead Sciences (GILD).
Kite primarily focuses on an experimental kind of cancer treatment relating to neoantigen T-cell receptor cell therapy.
In the first quarter of 2021, BioNTech was able to boost its sales by over 7,295%.
Its total revenues within that period reached $2.49 billion, which indicates a healthier revenue stream compared to its main competitor, Moderna, which raked in $1.9 billion.
In terms of sales outlook for the entire year, BioNTech also forges ahead with $26 billion, while Moderna anticipates $19.2 billion.
Needless to say, these numbers show how undervalued BioNTech has been lately.
Given the new developments concerning the new variants and the company’s expanded coverage of the market, it’s clear to see that the future looks bright for BioNTech regardless of Dent’s doomsday market predictions.
Mad Hedge Biotech & Healthcare Letter
July 13, 2021
Fiat Lux
FEATURED TRADE:
(SPINOFF STOCKS POISED FOR LONG-TERM GROWTH)
(VTRS), (OGN), (PFE), (MRK), (JNJ), (LLY), (ABBV),
(AZN), (GSK), (BMY), (GILD), (REGN), (PYPL), (EBAY), (CARR), (UTC)
Spinoffs have historically been known to deliver healthy returns for their investors.
A good example is PayPal (PYPL), which grew sevenfold since 2015 following its spinoff from eBay (EBAY).
A more recent example is Carrier Global (CARR), which tripled its shares amid the pandemic after its spinoff from United Technologies (UTC) last year.
Basically, spinoffs allow smaller segments of companies to thrive on their own or push high-growth divisions to expand faster.
Over the past months, the cheapest stocks found in the S&P 500 have recently spun off pharmaceutical companies: Viatris (VTRS) and Organon (OGN).
Viatris is a spinoff of Pfizer (PFE), which merged with Mylan, while Merck (MRK) jettisoned Organon (OGN) just last month.
Both are brand new and still under the radar, particularly among investors who don’t follow healthcare updates.
While these two have yet to impress the market, both exhibit potential that could make them promising long-term prospects.
Viatris holds an extensive portfolio of drugs courtesy of Pfizer’s Upjohn unit and Mylan’s pipeline.
The list includes the previously top-selling Lipitor, Viagra, Lyrica, and even Norvasc from Pfizer. It also has Mylan’s income-generating EpiPen along with the company’s HIV/AIDS therapies and 7,500 marketed products across the globe.
To date, Viatris has fallen roughly 30% from its average price target. It’s not for the subpar performance of its products though. This is mostly attributed to the lack of attention from investors and possibly a bit of skepticism from some analysts.
However, Viatris has a really good value proposition.
The main goal of the biggest names in the biopharmaceutical sector, such as Johnson & Johnson (JNJ), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca (AZN), GlaxoSmithKline (GSK), Bristol-Myers Squibb (BMY), and Gilead Sciences (GILD), is to develop and launch the best-in-class treatments to market.
To achieve that, these industry giants are granted a set period to exclusively sell and market each new drug that gains approval.
This would allow them to command a premium price, which in turn would give them the money to fund the next round of research and development needed to come with the next generation of newer and improved versions of the treatment.
However, not everyone can afford those premium prices.
So when the periods of exclusivity end, there are companies like Mylan—now Viatris—that are allowed to manufacture generic versions of those branded drugs and sell them at lower prices.
The list of drugs with soon-to-expire patents for which Viatris has been working on creating biosimilars or generic versions include Humira from AbbVie, which recorded peak sales at $20 billion; Eylea from Regeneron (REGN), which peaked at $7.5 billion; and even Allergan’s Botox, which peaked at $5 billion.
Viatris is also working on biosimilars for Roche’s (RHHBY) cancer treatments Avastin, which had peak sales of $7 billion, and Perjeta, which peaked at $5 billion.
Obviously, Viatris will not reach the same height of success as the companies that created those branded drugs.
But, if it manages to achieve even only 10% of those numbers, then it can generate roughly $4 to $5 billion in sales—and that’s just the tip of the iceberg.
So far, Viatris owns at least 1,400 approved molecules applicable in roughly 10 therapeutic segments.
It has roughly 350 products in its pipeline at the moment, with each item estimated to generate approximately $100 million to $500 million in sales.
With its current performance and access to 165 countries and territories, Viatris is expected to generate roughly $224 billion in global sales annually.
With all these in mind, Viatris’ value proposition looks impressively strong to me.
More importantly, this Pfizer spinoff has the capacity to become the world’s first dominant generic and biosimilar drug manufacturer, with its revenues potentially becoming comparable to major pharmaceutical companies at some point.
The same value proposition could be behind Organon, as this newly spun-off company markets Merck’s off-patent drugs.
While the move to separate from its parent company has yet to show tangible results, Organon is projected to rake $6.1 billion to $6.4 billion in revenue for 2021, with annual sales expected to rise in mid-single digits and dividends anticipated to be about 3%.
The biosimilars market is still relatively young, with only 60 biosimilars approved in the EU and 29 in the US thus far. In total, those represent a market worth approximately $17 billion.
Conservative estimates project that the global biosimilars market will be worth $692 billion by 2027, considerably outpacing the mainstream pharmaceutical sector.
Given their potential and prospect for future gains, the low prices for companies like Viatris and Organon present rare opportunities to grab long-term investments.
Mad Hedge Biotech & Healthcare Letter
June 15, 2021
Fiat Lux
FEATURED TRADE:
(A STOCK TO ADD TO YOUR RETIREMENT PORTFOLIO)
(MRK), (REGN), (GSK), (LLY), (GILD)
Building a retirement portfolio is different from when you’re aggressively playing the market. With this, you’d want something with less risk and more stability. A healthy helping of income definitely wouldn’t hurt either.
Taking these into consideration, a particular stock that offers a well-balanced mix of income and capital appreciation comes to mind: Merck (MRK).
The biggest news for Merck recently is its $1.2 billion deal with the US government involving its experimental COVID-19 antiviral.
The treatment, called Molnupiravir, is expected to cost about $700 per course, putting the total of the order from the US to 1.7 million courses.
This is just the beginning though. According to Merck and its partner, Ridgeback Biotherapeutics, they can produce at least 10 million courses of Molnupiravir by the end of 2021.
If we use the same pricing as the US, then we can expect approximately $7.1 billion in sales for Molnupiravir alone this year.
Still, the $1.2 billion deal with the US is already a massive win for Merck as experts initially estimated that Molnupiravir sales would only reach $25 million this year.
What makes Molnupiravir unique and more advantageous than its competitors is that the drug is taken orally.
The convenience alone easily edges out the other monoclonal antibody therapies from the likes of Regeneron (REGN), GlaxoSmithKline (GSK), and Eli Lilly (LLY)—all of which need to be administered intravenously.
If Molnupiravir does gain emergency use authorization from the FDA, its sole competitor in the market today is Veklury from Gilead Sciences (GILD).
To offer an idea on the size of the market for this treatment, Gilead recorded $2.8 billion in sales of Veklury in 2020. This figure is even projected to go up to $2.9 billion for this year.
Apart from its COVID-19 program, Merck has always been a favorite among value investors.
It’s a great dividend stock and has gained a reputable name in the industry as being one of the biggest and oldest companies in this field.
It’s also the force behind blockbuster treatments like the top-selling cancer drug Keytruda, HPV vaccine Gardasil, and of course, the diabetes medication Januvia.
In fact, Keytruda is estimated to become the No. 1 selling drug in the world by 2023—an achievement that Merck has lots of time to capitalize on considering that the treatment’s patent exclusivity lasts until 2028.
Keytruda is a key revenue generator for Merck, with the cancer drug showing off a 19% jump to reach $3.9 billion in sales in the first quarter of 2021.
This puts it on track to rake in roughly $16 billion in sales for this year, showcasing an 11% increase from 2020.
By 2026, Keytruda is estimated to generate $24.32 billion in sales annually.
Apart from Keytruda, Merck has been boosting its pipeline as well. For example, Bridion, one of its newer drugs, raked in $1.2 billion in sales in the first quarter, which is up 6% year-over-year.
Looking at its history, Merck has repeatedly shown that it can compete aggressively in the biopharmaceutical industry.
In 2020, the company still managed to generate $48 billion in sales despite the pandemic, with an earnings per share of $5.94—a value that’s 65% stronger than it was just five years ago.
Its strong profit growth and promising pipeline programs have allowed the company to boost its dividend payout at an impressive 7.1% pace over the past years.
This is a performance that most blue-chip companies, regardless of their size and market cap, struggle to keep up with.
Merck isn’t as exciting as the other stocks in the biotechnology and healthcare market, but that’s a comforting thought for investors who are on the lookout for a stable business.
Although Merck stock is not dirt cheap, I think it’s attractive for those who have extra cash or are hesitant to roll the dice on more volatile companies today.
Mad Hedge Biotech & Healthcare Letter
May 20, 2021
Fiat Lux
FEATURED TRADE:
(REGENERATED REGENERON)
(REGN), (PFE), (JNJ), (AMGN), (BMY), (GILD), (MRK), (LLY), (SNY), (BAYRY), (NVS), (RHHBY)
The biotechnology and healthcare sectors have become attractive investment targets for investors who recognize the value and essence of these industries along with the possible risks associated with them.
While not all companies in these areas are great investments, some offer remarkable growth opportunities.
One company worth considering is Regeneron (REGN), with its strong and stable investment thesis and steady organic growth.
Regeneron joins the ranks of Pfizer (PFE) and Johnson & Johnson (JNJ) as one of the handful of biopharmaceutical companies to release solid first quarter results this 2021 compared to other big names in the industry, including Amgen (AMGN), Bristol Myers Squibb (BMY), Gilead Sciences (GILD), Merck (MRK), and Eli Lilly (LLY).
The New York-based company reported a 38% boost in its revenue compared to the same period in 2020, reaching $2.5 billion for the first quarter of 2021 alone.
Virtually all of Regeneron’s products generated solid growth during this period, with the company’s COVID-19 antibody cocktail REGEN-COV delivering the highest sales at $262 million.
To underscore just how significant REGEN-COV is to Regeneron this quarter, its absence from the roster would take away 18% from the company’s overall revenue growth.
Riding the momentum of its COVID-19 program, Regeneron has developed Inmazeb, which is a treatment for Ebola virus infection.
Aside from its COVID-19 antibody cocktail, Regeneron also saw an impressive boost in the performance of its atopic dermatitis drug Dupixent.
Dupixent, which Regeneron sells in partnership with Sanofi (SNY), generated $1.26 billion in sales in the first quarter, showing off a notable 48% increase from its 2020 report.
Although Dupixent is a shared product with Sanofi, this dermatitis drug holds incredible promise for Regeneron.
To date, only 6% of eligible patients are being treated with Dupixent. This indicates a massive space that is yet to be explored by both companies.
Taking into consideration the pace at which Dupixent has been growing so far, this drug is projected to peak at roughly $12.5 billion in sales in the coming years.
Another high-selling drug for Regeneron is wet age-related macular degeneration (AMD) treatment Eylea.
Sales for this drug, which was developed in collaboration with Bayer (BAYRY), went up from $1.2 billion in the first quarter of 2020 to $1.3 billion this year.
The increase in sales for Eylea is a welcome surprise for both Regeneron and Bayer, especially since more and more competitors are attempting to topple the drug as the top product in the niche.
Cornering the AMD segment is an attractive venture for any biopharmaceutical company.
After all, Eylea generated $4.9 billion in sales in 2020 from the US market alone.
Thus far, two main competitors have come forward as the strongest.
One is Novartis (NVS), which released Beovu in 2019.
The second, and possibly the stronger competitor between the two, is Roche (RHHBY) with Faricimab.
To ensure its dominance in the AMD market, Regeneron has been expanding the use of Eylea.
The latest development is the drug’s enrollment in the Phase 3 program, which would allow extended periods in between treatments but still deliver the same level of efficacy and safety.
Aside from these, Regeneron is looking into additional revenue streams ahead.
One growth segment is its oncology program, particularly its cancer drug Libtayo, which may soon be marketed to cover a fourth type of cancer.
Regeneron aims to submit Libtayo for review as a treatment for advanced cervical cancer.
On top of this, the drug is also a strong contender in the development of several antibody treatments.
Thus far, the company has 12 oncology antibodies under clinical development.
Overall, Regeneron’s strong results for the first quarter of 2021 highlighted its continuous evolution into a company carrying multiple and diverse portfolios of products and pipeline programs that address an extensive range of serious diseases, from COVID-19 and rare diseases to cancer.
