Mad Hedge Biotech and Healthcare Letter
January 23, 2024
Fiat Lux
Featured Trade:
(PHARMA'S AI PLAY: A MASTERSTROKE OR MISFIRE?)
(AZN), (ILMN), (NVDA), (SDGR), (EXAI), (SNY), (BAIVF), (SNY), (GOOGL), (PFE), (IBM), (NVS), (BAYR), (RHHBY), (VRTX), (JNJ)
Faced with an aging blockbuster pipeline and a competitive landscape where some of its rivals are sprinting ahead, AstraZeneca (AZN) is making a bold move - doubling down on Artificial Intelligence (AI).
This isn't just about keeping up with the Joneses (or in this case, their industry rivals); it's a calculated gamble with the potential to redefine drug discovery. The million-dollar question is: will this tech-savvy move send its shares soaring or just keep it in the running?
Let's address the elephants in the room of drug development. It's a long and winding road, with more dead ends than a maze in a horror movie. The usual grind? Spend ages finding a glimmer of hope in therapy targets and molecules, only for a paltry 21% to get the regulatory thumbs up after clinical trials.
So, you can bet your bottom dollar that if there’s a technology promising to up those odds and speed things up, companies will be jumping on the bandwagon faster than you can say "biotech boom."
And AstraZeneca? They are fully committing to AI, making significant waves in the field.
Case in point: their recent team-up with Absci, an AI drug discovery outfit. They're talking about developing a cancer-fighting antibody, with a potential payout of up to $247 million in milestone payments. If this pans out, it could be the first of many high-fives between the two.
But AstraZeneca's history with AI extends beyond this collaboration. Last September, they put up to $840 million on the line with Verge Genomics, aiming to tackle neurodegenerative diseases.
Add to that their work with Illumina (ILMN) and Nvidia (NVDA) in 2021 for some supercomputing firepower, and you've got a company that's serious about its AI game. They’ve even got a couple of AI-bred candidates in their pipeline, though it’s hush-hush on how those are faring.
And before you think it’s all about the new kids on the block, AstraZeneca has been rubbing elbows with Schrodinger (SDGR) since before 2020, working on making their biological medicine modeling sharper than a tack.
However, AstraZeneca is far from being the lone ranger in this new frontier.
Exscientia (EXAI) and Sanofi (SNY) are pairing up to take on COPD with an AI-driven approach. Meanwhile, BenevolentAI (BAIVF) played matchmaker between baricitinib and its new role as a COVID-19 treatment contender.
Over at Google’s (GOOGL) DeepMind, they’ve cooked up AlphaFold, an AI program adept at unraveling protein structures – a feat that’s akin to finding a map to hidden treasure in drug design.
And let's not forget the big guns. Pfizer (PFE) has teamed up with IBM’s (IBM) AI and supercomputing prowess, a partnership that’s been pivotal in accelerating the development of COVID-19 treatments like Paxlovid.
Novartis (NVS) is another key player, wielding AI to shave years off its drug development timeline, a strategy that could redefine the pace of pharmaceutical innovation.
Not to be outdone, Roche (RHHBY) is utilizing AI for a spectrum of tasks, from target identification to the virtual screening of molecules, illustrating the technology’s versatility in the drug discovery process.
Bayer (BAYRY) is also making a significant bet on AI to uncover new therapies, focusing on areas like immuno-oncology and cardiovascular diseases, areas with immense potential for groundbreaking treatments.
Vertex Pharmaceuticals (VRTX) and Johnson & Johnson (JNJ) are part of this evolving landscape as well, leveraging AI to enhance various stages of drug development. Their involvement underscores the widespread adoption of AI across different phases of the pharmaceutical process, from initial research to clinical trials.
Now, let’s go back to AstraZeneca. Best-case scenario? They cut their R&D budget, which was a cool $9.8 billion in 2022 while keeping the pedal to the metal on their clinical trials.
Worst case? Their AI bets don't pay off big time. But let's be real, with AI tech moving faster than a New York minute, that's looking less and less likely.
So, should you invest in AstraZeneca stocks right now? Not so fast. Jumping on the AI bandwagon isn't a golden ticket on its own.
Remember, everyone and their mother in big pharma is chasing the same AI dream. For now, it’s a case of watch, wait, and see how this fusion of AI and pharmaceuticals reshapes the landscape of drug discovery and development. Keep your ears to the ground – this is one race you don't want to miss.
Mad Hedge Biotech and Healthcare Letter
September 19, 2023
Fiat Lux
Featured Trade:
(A SHOT AT HOPE)
(MRNA), (IMTX), (MRK), (PFE), (BMY), (GH), (ILMN), (NVS), (RHHBY), (BGNE), (AZN)
In a quaint Boston lab, as the first rays of dawn broke, a team of scientists, led by Moderna (MRNA), embarked on a mission. Their goal? To craft a solution to one of humanity's most persistent adversaries: cancer.
The grim reality remains that cancer is a leading cause of death in the United States. The statistics are daunting, with over 1.9 million new cases anticipated in 2023 and a projected death toll exceeding 600,000. The financial implications mirror this gravity, with costs expected to soar from $156 billion in 2018 to a staggering $246 billion by 2030.
As the world watched with bated breath, Moderna, already a household name for its COVID-19 vaccine, was silently weaving a narrative that could redefine the future of oncology.
Needless to say, the biotechnology sector, a realm of ceaseless innovation, has been abuzz with Moderna's latest venture. Earlier this month, the biotech announced its agreement with the German drug developer Immatics (IMTX) to develop cancer vaccines and therapies. As part of the deal, Moderna will pay $120 million in cash and will also make additional milestone payments.
This collaboration is not just about the financials; it's a beacon of hope for millions.
The partnership is set to merge Moderna's mRNA technology with Immatics’s T-cell receptor platform, focusing on various therapeutic modalities such as bispecifics, cell therapies, and cancer vaccines. Their combined research aims to leverage mRNA technology for in vivo expression of Immatics's half-life extended TCR bispecifics targeting cancer-specific HLA-presented peptides, among other innovative approaches.
With an upfront investment of $120 million, Moderna has made it clear: they're in it to win it. And the stakes? Potentially life-changing cancer vaccines.
However, this isn’t Moderna’s first foray into the realm of cancer treatments.
Building on the momentum of the technology of its highly potent COVID-19 shots, Moderna announced a partnership with Merck (MRK) earlier this year, combining their efforts to come up with treatments that can drastically reduce the spread of skin cancer. By leveraging Merck's Keytruda with its own innovative vaccine, Moderna has showcased the potential of such collaborations in advancing cancer treatment.
After all, the global community oncology services market is not just growing; it's clearly thriving.
From $47.95 billion in 2022 to a projected $53.79 billion in 2023, the numbers speak for themselves. By 2027, this figure is set to skyrocket to $81.33 billion. Such exponential growth underscores the immense potential and critical importance of advancements in oncology.
Yet, as expected, Moderna isn't the only player on the field.
Giants like Novartis (NVS) and Roche (RHHBY) have also thrown their hats in the ring, collaborating with known international cancer organizations to democratize access to cancer medicines. Among the myriad of promising stocks these days, though, Moderna, China’s BeiGene, Ltd. (BGNE), and the UK’s AstraZeneca PLC (AZN) shine the brightest.
Other notable contributors to the fight against cancer include Bristol Myers Squibb (BMY), Guardant Health (GH), Illumina (ILMN), and Pfizer (PFE). Their diverse portfolios and relentless pursuit of innovation are set to shape the future of oncology.
But as the curtains draw on this narrative, the spotlight remains firmly on Moderna. Their success with the COVID-19 vaccine has already etched their name in the annals of medical history. With their sights now set on cancer vaccines, the world waits with eager anticipation.
In the grand tapestry of medical advancements, Moderna's endeavors in the cancer vaccine domain promise to be a golden thread. Their journey, fraught with challenges and uncertainties, is proof of human resilience and ingenuity. As investors, we're not left standing on the sidelines watching history unfold; we're granted an active role in it.
The potential of Moderna's innovations in oncology beckons a promising horizon. For those looking to make a mark in the annals of medical investments, this biotech offers a gateway to the future of oncology. Act now, and be part of this groundbreaking narrative.
Mad Hedge Biotech and Healthcare Letter
May 2, 2023
Fiat Lux
Featured Trade:
(QUANTUM COMPUTING IN BIOTECH)
(MRNA), (IBM), (PFE), (NVS), (ILMN), (TEVA), (NVO), (RHHBY), (GOOGL)
When you think of the pioneering biotech, Moderna (MRNA), artificial intelligence (AI) and quantum computing might not be the first things that come to mind. Instead, you might associate Moderna more with its work in traditional laboratory research and as a leading coronavirus vaccine manufacturer.
However, Moderna has taken significant strides into the realm of AI. In fact, the biotech utilized AI during the early stages of developing its coronavirus vaccine and has also implemented the technology for other business purposes.
Now, Moderna is taking things a step further by partnering with International Business Machines (IBM) to explore the potential of AI and quantum computing in enhancing its messenger RNA research.
Needless to say, this innovative collaboration could potentially revolutionize the biotech industry.
To understand Moderna's recent developments in AI and quantum computing, it's important to first have a grasp of its mRNA technology.
Unlike traditional vaccine production that involves growing viruses in a lab, Moderna produces mRNA that provides the body with instructions to treat or prevent a particular illness. This innovative process is already faster than traditional vaccine production methods. But AI has played a significant role in making the process even faster.
Moderna has been able to leverage AI and automation to scale up mRNA production significantly. In fact, the company's mRNA production for experiments went from about 30 per month to 1,000 per month thanks to AI. Additionally, AI has contributed to the generation of more effective mRNA sequence designs, saving researchers considerable time.
Let's now take a closer look at the implications of Moderna's partnership with IBM.
One of the primary areas of focus is IBM's generative AI for therapeutics, which has the potential to provide Moderna researchers with a deeper understanding of molecular behavior, facilitating the development of new molecules for therapeutics.
Moreover, IBM's expertise in quantum computing could prove invaluable in speeding up the discovery of new treatments, enabling Moderna to push the boundaries of medical research and improve patient outcomes.
Quantum computing differs from traditional computing in its use of a system that allows for states beyond the binary 1s and 0s. Quantum computers can understand information as 1, 0 or something in-between, offering the potential for individual bits to be in multiple states at the same time. This characteristic may be beneficial in modeling the dynamic interactions among drugs, enzymes, cells, and proteins that are continuously changing.
The use of advanced systems in molecular modeling has been challenging for earlier generations of hardware. However, the incorporation of quantum computing could revolutionize the way biotech companies solve these complex problems.
As a starting point, Moderna will be part of IBM's enterprise accelerator program, which provides a platform for "quantum curious" companies to invest in building their expertise in emerging areas. This program gives access to IBM's network of computing systems and specialized training on the use of quantum computing for life sciences research.
As part of this collaboration, Moderna will gain access to MoLFormer, a powerful AI model that can accurately predict a molecule's properties. This tool will prove particularly valuable in Moderna's efforts to improve the lipid nanoparticles that encapsulate its mRNA treatments.
Additionally, the partnership includes investments in generative AI programs that will assist in the design of innovative mRNA-based treatments and vaccines, helping Moderna to further cement its position as a leader in the biotech industry.
IBM had previously attempted to make a name for itself in AI-powered drug discovery, offering services through its Watson platform.
However, these offerings were ultimately discontinued in 2019. Despite once partnering with major names in cancer research such as Pfizer (PFE), Novartis (NVS), Illumina (ILMN), as well as Teva (TEVA) for drug repurposing, IBM has shifted its focus to other areas of the life sciences industry.
As quantum computing technology continues to evolve, however, its potential applications have begun to attract some of the biggest names in biotech.
Companies like Novo Nordisk (NVO), Roche (RHHBY), and Boehringer Ingelheim have partnered with industry giants like Google (GOOGL) to explore the possibilities of this cutting-edge field, which is quickly moving from the realm of science fiction into a scientific reality.
As for the question of whether these moves can be a game-changer for Moderna, the answer is likely yes.
Moderna has already experienced significant benefits from AI in its processes, both in and out of the lab. With access to IBM's platforms, there is potential for further improvements in the company's research and development of new treatments and vaccines.
Efficiency, speed, and precision are crucial factors in drug and vaccine development, and any improvement in these areas could have a significant impact on Moderna's success. Although the results of the IBM partnership may not be immediately visible, Moderna's investments in AI and quantum computing could pay off in the long run.
With continuous innovation and portfolio expansion, Moderna is well-positioned to capitalize on market opportunities presented by mRNA technology and achieve substantial revenue growth in the years ahead.
Therefore, investors should not be overly concerned about short-term stock price fluctuations or declines in revenue from coronavirus vaccines. After all, Moderna has a robust pipeline and has demonstrated significant potential with promising clinical trial results.
Hence, investors should consider Moderna as a long-term investment opportunity, making it a valuable addition to any investment portfolio.
Mad Hedge Biotech and Healthcare Letter
March 16, 2023
Fiat Lux
Featured Trade:
(WHO’S REALLY THE BOSS?)
(ILMN), (AAPL), (TWX), (MDLZ), (CVX)
Carl Icahn—the legendary investor known for toppling corporate behemoths and taking charge of their destinies—has swooped in to save Illumina (ILMN) from its own misguided move.
To salvage what’s left of the promising biotechnology company, he has emerged with a plan for shareholders: halt their recent deal with Grail—a cancer-screening firm that Icahn and his faithful followers want nothing more than to see dropped. Part of his plan is to nominate three people to sit on the board of Illumina. The move sent shares of ILMN soaring – no doubt leaving Icahn feeling pretty victorious himself.
For additional background, Icahn isn’t an ordinary businessman and investor. He is the founder, chairman, and majority shareholder of Icahn Enterprises, a diversified conglomerate holding company based in New York City, formerly American Real Estate Partners. He is one of the world's most successful and influential investors, having made billions through his investments in companies such as Apple (AAPL), Time Warner Inc. (TWX), RJR Nabisco (now Mondelez (MDLZ)), and Texaco (CVX). His extensive corporate takeover activities have resulted in him being dubbed "The King of Corporate Raiders."
As an activist investor, he is an individual or a member of a group of investors who uses their financial resources to directly influence the actions and decisions of organizations, often by purchasing shares in the business.
They often demand changes to corporate structure and strategy changes, board composition, and executive compensation practices. Needless to say, activist investors have a significant impact on a company, as they typically target companies that are undervalued and push for changes that can increase their value.
This is an extremely timely announcement for Illumina since the company’s value plummeted from $70 billion in 2021 to $31 billion in 2023. However, the biotech isn’t going down without a fight.
The acquisition of Grail by Illumina was first announced in September 2020, and it has been a subject of discussion and scrutiny since then. The proposed deal involves Illumina buying out the remaining stake in Grail that it does not already own, for a total of $8 billion in cash and stock.
Illumina believes that its plan to acquire Grail is a significant development in the field of genomics and cancer diagnostics. At the moment, Illumina is a leading provider of genomics technology, while Grail is a biotechnology company focused on developing a blood test for early cancer detection.
The acquisition is expected to create significant synergies between the two companies. Illumina's expertise in genomic sequencing technology combined with Grail's cutting-edge liquid biopsy technology could potentially lead to the development of a powerful and efficient cancer detection tool.
The acquisition has, however, faced some challenges, including regulatory hurdles. The Federal Trade Commission (FTC) expressed concerns that the acquisition could lead to Illumina having a monopoly in the market for sequencing machines, which are used in Grail's liquid biopsy tests. As a result, the FTC filed a lawsuit to block the acquisition.
Despite the challenges, Illumina and Grail remain committed to the deal, and in December 2021, they announced that they had reached a settlement with the FTC. The settlement requires Illumina to sell its existing liquid biopsy technology to a third party and abide by certain conditions to prevent any potential anti-competitive effects of the acquisition.
All things considered, it is undeniable that the acquisition of Grail by Illumina has the potential to revolutionize cancer diagnostics and improve patient outcomes. However, the regulatory hurdles demonstrate the importance of ensuring mergers and acquisitions do not harm competition and ultimately negatively impact consumers.
Overall, Illumina is a promising biotech with much room to grow. It pioneered the development of next-generation sequencing (NGS) technology, which revolutionized the field of genomics. NGS allows researchers to sequence large amounts of DNA quickly and at a lower cost than traditional Sanger sequencing methods.
NGS works by breaking the DNA into small fragments and sequencing them simultaneously. These short reads of DNA are then assembled to create a whole genome. Illumina's NGS technology is based on a proprietary sequencing-by-synthesis method, which uses flourescently labeled nucleotides to detect and record the sequence of DNA bases as they are incorporated into a growing DNA chain.
NGS has many applications in genomics research, including identifying genetic mutations, studying gene expression patterns, and characterizing the microbiome. The technology has also played a critical role in advancing precision medicine and personalized healthcare.
Illumina's pioneering work in NGS has allowed the company to establish a dominant market position in the genomics industry and has driven significant innovation in the field of genomics.
Thanks to this biotech’s products, the cost of a complete human genome analysis dropped from the hundreds of millions range in 2001 to less than $1000 today. More notably, the company projects the price to go lower and be below $200 when it releases its new services.
Being hailed as a market leader is a well-deserved description for the company. After all, Illumina quadrupled its revenues in the past 10 years and continues to deliver decent results.
Icahn’s move to take on Illumina offers a fresh and seemingly more promising perspective regarding the company’s direction. He believes Illumina can unlock value by spinning off non-core businesses, returning cash to shareholders, reducing costs, and improving operational efficiency. However, Illumina's management resisted Icahn's calls for a sale and instead focused on investing in research and development to drive growth.
Still, Icahn's targeting of Illumina is likely driven by his belief that the company is undervalued and not maximizing shareholder value. While it will take time before anything gets resolved, what’s apparent is that Illumina doesn’t hold complete freedom when it comes to decision-making, which would inevitably hurt its future success.
Mad Hedge Biotech and Healthcare Letter
September 15, 2022
Fiat Lux
Featured Trade:
(A LONG-TERM HIGH-RISK STOCK)
(ILMN), (GRAL), (EXAS), (NVTA), (GH), (NTRA)
As Warren Buffett says, it’s wise to be greedy when others are fearful. This is excellent advice these days since we’ve been dealing with fearful times. Even the best growth stocks have been struggling from economic headwinds and the rising panic over interest rate hikes.
That means there are several opportunities for enterprising investors to take advantage of the uncertainties and set themselves up for long-term success by buying quality stocks at discounted prices.
One stock that has been battling issues lately is Illumina (ILMN).
Over the past 10 years, Illumina has delivered 380% returns—resoundingly beating the market’s gain of 241.6%.
To achieve that success, the company sold, installed, and serviced over 20,000 gene sequencer devices, which hospitals and other biomedical centers use to analyze genetic data.
Unfortunately, Illumina’s luck has turned in the last 12 months. The company has been underperforming and has investors worried about the future.
Illumina’s dominance in the sequencer market is one of the significant reasons to invest in its stock.
After all, the significance of genetic information is projected to expand over time. That makes Illumina the clear candidate for a long-term hold despite its current underperformance.
However, it’s understandable for investors to be anxious, especially with the recent move of Europe’s antitrust regulators to bar the $8 billion acquisition of Grail (GRAL).
Here’s a brief background about the deal.
Grail has created a lab test that can identify over 50 types of cancers at their early stages using only a simple blood draw. This is called the Galleri blood test.
Since screenings do not exist for most kinds of cancers, many are not diagnosed until they’re already spread and are, therefore, more challenging to treat.
Although Grail’s test does not promise to detect all cancers, it can catch the 12 most fatal types with roughly 76% accuracy, while its false positives are lower than 1%.
Needless to say, these tests could save thousands of lives annually if adopted across the globe.
This is where Illumina comes in. Since the company develops platforms that sequence genetic tests for various fetal abnormalities and even COVID variants, it has the technology to expand Grail’s operation.
Moreover, Illumina has extensive experience negotiating insurer reimbursements, which means it could accelerate the commercial adoption of Grail’s technology. At the moment, most insurers refuse to cover the costs of Grail’s test.
This resulted in only $12 million in revenue for the company, with over $187 million in operating loss. Grail’s underwhelming performance is one of the reasons investors are baffled over the move to block the acquisition.
Another is that the acquisition does not fall under any of the categories for antitrust reviews under the EU bylaws because Grail does not operate or do any business in Europe.
However, the commissioner decided to invoke a provision under EU’s merger rules that allow member states to reach out to the commission when their governments do not have jurisdiction over the matter. Six countries did so, which led to the review.
The commission is tag-teaming with the US Federal Trade Commission, which also moved to stop the deal in 2021. Both regulating bodies claim that the agreement could impede competition in the embryonic multiple cancer-early detection industry.
According to the EU commission, this acquisition would cut off all of Grail’s rivals in the segment.
This is a tad confusing, though, because Grail has no rivals in the field.
The entire debacle has the scientific community wondering over the real reason, especially since Illumina developed the technology Grail used. Then, it was spun off for financing purposes, but Illumina still retained 20% ownership. Now, the company is merely taking it all back again by acquiring it.
It remains to be seen what will happen in the following months as Illumina plans to appeal the decision.
But why is Illumina still pushing through with this deal?
The reality is that the genetic testing industry is a bloodbath. It can take years for a single genetic test to complete clinical trials, receive regulatory approval, and achieve insurance coverage. This struggle is apparent in so many clinical laboratories such as Exact Sciences (EXAS), Invitae (NVTA), Guardant Health (GH), and Natera (NTRA). Even Grail lost so much while developing its cancer blood test.
Meanwhile, Illumina chooses to market clinical tests its clients have already pioneered. That way, it can still gain profits as a supplier of sequencing tools.
Hence, having Grail back in its portfolio would be a cherry on top of its current strategy.
Looking at the situation right now, it’s a mess. Nevertheless, Illumina’s main line of business is a significant segment to be a part of in the coming years.
I don’t think the company would spend this much time and effort on Grail unless the future payoff would be substantial. Think about it: detecting cancers early? How incredible is this technology? How many lives would be saved because of it?
The long-term investing thesis for betting on Illumina is that it’ll most likely continue to deploy its gene sequencing devices globally, generating more recurring revenue flows in the process.
Simultaneously, the company can expand its domain knowledge and gather a copious amount of data for R&D that would equip it against competitors.
Basically, it has found a way to lock in customers for years while being several steps ahead of its rivals.
As confusing and grim the situation may be, for now, I believe Illumina stock is an excellent investment with or without Grail (but I hope it finds a way to be with it).
