Mad Hedge Biotech and Healthcare Letter
November 8, 2022
Fiat Lux
Featured Trade:
(A GROWTH STOCK POISED TO BREAK RECORDS)
(LLY), (JNJ), (NVDA), (MA), (PG), (NVO), (ABBV)
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The stock market has been down in the past couple of months, and the outlook still does not look all that good, considering that the issues with inflation and economic crises are showing no signs of ending anytime soon.
However, as Berkshire Hathaway Vice Chairman Charlie Munger noted, long-term investors should not be too anxious over “when” the markets will recover.
Instead, he advised “to think about ‘what’ will happen versus ‘when’” as a far more efficient way to behave in these challenging times.
Bearing that advice in mind, a particular biotechnology and healthcare stock stands out and is worth considering given its promising future: Eli Lilly (LLY).
Eli Lilly has grown at a fast pace and is considered among the most prominent pharmaceutical businesses in the world, ranking second behind Johnson & Johnson (JNJ).
At the moment, its market capitalization is at about $340 billion, making Eli Lilly more valuable than juggernaut Nvidia (NVDA) and other big names like Mastercard (MA) and Procter & Gamble (PG).
The most promising drug in Eli Lilly’s pipeline right now is Mounjaro, earlier known as tirzepatide, which recently received the green light from the Food and Drug Administration.
This once-a-week injection is an approved therapy that targets Type 2 diabetes. On top of that, Mounjaro can also be used as a potential weight loss drug.
While there are already existing diabetes drugs that double as weight loss treatments, mainly from Novo Nordisk (NVO), what makes Mounjaro distinct is the fact that it’s the first-ever unimolecular dual GIP/GLP-1 receptor agonist. In layman’s terms, this treatment could function in the same way as two completely different hormones that serve to control blood sugar levels.
Now, the question is: How significant an impact is Mounjaro on Eli Lilly?
Based on data from the National Institute of Diabetes and Digestive and Kidney Diseases, about 2 in every 5 adults are classified as obese, while 1 in 11 adults suffer from severe obesity.
That’s a substantial market. More than that, the consequences of obesity are said to have ripple effects throughout the entire healthcare industry.
In fact, the Centers for Disease Control and Prevention estimate the yearly medical costs in the United States due to obesity to be roughly $173 billion in 2019.
Following its approval, Mounjaro raked in $16 million in sales. Given its unique mechanism and the massive market it can target, Mounjaro is estimated to rake in $25 billion in peak revenue annually.
Moreover, this treatment could not only be a game changer for the company but also the entire healthcare community.
For context, Eli Lilly’s total revenue in 2021 from all its products combined was $28 billion. Needless to say, Mounjaro would put the company on track for some serious growth.
Looking at this weight loss and diabetes drug's trajectory and potential, Mounjaro can benefit Eli Lilly in the same way AbbVie (ABBV) maximized Humira. For years, Humira was hailed as the top-selling drug in the world.
While it’s set to lose its patent protection by 2023, there’s no doubt that this anti-inflammatory drug boosted the share price and bottom line of AbbVie.
Clearly, this is a business poised to become even more valuable soon. This means its current share price could be considered a bargain in the next few years.
How long it would take for Eli Lilly to make money off its pipeline remains a question mark. However, concentrating on “what” is most likely about to happen instead of “when” makes it easy to make a case for Eli Lilly being an excellent growth investment.
Mad Hedge Biotech and Healthcare Letter
November 1, 2022
Fiat Lux
Featured Trade:
(BARGAIN DEAL FOR A QUALITY STOCK)
(ABBV), (ABT), (RGNX), (JNJ), (MRK), (GILD), (AMGN), (LLY), (BMY), (PFE)
Uncertainty. That’s the prevalent sentiment in the investment community these days.
Investors have been hesitant to buy stocks because they believe the bear market isn’t over yet.
Moreover, investors are anxious over the possibility that the stocks will keep falling as issues like higher inflation continue to hound the market.
However, it’s critical to remember that although today’s situation is challenging, it’s only temporary. This means that businesses with solid track records and promising prospects still make excellent buys.
One of the companies outperforming the market this year but which has fallen out of investors’ favor recently, is AbbVie (ABBV).
AbbVie stock has been declining in value lately following an underwhelming third-quarter earnings report. On top of that, the looming patent expiration of its top-selling drug Humira remains a significant concern among investors.
While the Humira situation is clearly not good news for the company, the reality is that AbbVie has impressively preserved the medication’s exclusivity for almost a decade longer than initially expected. Plus, the company has been boosting Humira pricing every year to cope with the declining revenues in the EU, where it already lost patent protection in 2018.
Hence, it’s acceptable for Humira’s chapter in AbbVie’s story to end. After all, the drug has given the company so much. It has been primarily responsible for the more than 325% climb in the company’s share price since 2012 when AbbVie was spun out of Abbott Laboratories (ABT).
Nonetheless, Humira’s impending patent loss doesn’t mean that AbbVie will simply abandon its roots.
The company has since developed potential successors of Humira, namely, Skyrizi and Rinvoq.
So far, the two auto-immune drugs have delivered promising results and are on track to keep the company in tip-top shape in its post-Humira era.
These newer immunology drugs are showing impressive growth potential, with Rinvoq recording a 56% increase in revenue in the third quarter of 2022 and Skyrizi revenue soaring by 85%.
Both are also on track to beat Humira’s peak sales, with joint peak sales from Skyrizi and Rinvoq initially estimated to reach roughly $15 billion.
However, recent revenue reports show that the two could surpass the estimate and completely eclipse Humira’s more than $20 billion annual return.
Obviously, AbbVie would require more than its immunology segment if it plans to sustain a good top and bottom-line growth trajectory.
Other than the more than 10 neuroscience, hematology, immunology, and oncology candidates in its pipeline, which are projected to be ready for market launches in the three to five years, AbbVie has been diving into the aesthetics and eye care markets.
Its eye care program, specifically RGX-314, which is currently being developed in partnership with Regenxbio (RGNX), is an interesting wildcard. For context, the eye care segments for wet and dry advanced macular degeneration are roughly worth over $10 billion to $20 billion annually.
With its Humira chapter closing, AbbVie could be ushering in a new era where products from its Allergan acquisition take the lead.
For example, its Botox franchise consistently delivers impressive results. Even its Botox for migraine line has been recording double-digit revenue growth in the third quarter, indicating gains in AbbVie’s neuroscience segment.
As for the aesthetic indications of Botox, this particular portfolio could be a key driver in the company’s future growth.
Aside from Botox, AbbVie also gained access to the widely used dermal filler Juvederm. With the facial aesthetics industry pegged to experience a compound annual growth rate yearly at 14%, the market is estimated to hit $15.2 billion by 2028.
This trend of AbbVie dominating the market is likely to continue as the company is confident that competitors would be unable to develop biosimilars of Botox. That means its Botox line could keep adding to its top-line growth for an extended period.
Overall, AbbVie is a solid bet among the “Big 8” in the pharmaceutical world, which includes Johnson & Johnson (JNJ), Merck (MRK), Gilead Sciences (GILD), Amgen (AMGN), Eli Lilly (LLY), Bristol Myers Squibb (BMY), and Pfizer (PFE).
Moreover, this is an excellent time to hunt for deals as several quality stocks continue to decline, affected negatively partly by the momentum of the broader market. Among stocks to consider, AbbVie should be at the top of your list.
Mad Hedge Biotech and Healthcare Letter
October 25, 2022
Fiat Lux
Featured Trade:
(A FAIL-SAFE HEALTHCARE STOCK)
(JNJ)
What’s a clear indicator of a well-run business? It’s when customers across the globe can easily recognize your company’s brands.
It’s safe to state that practically everyone in the world knows at least one or two products in Johnson & Johnson’s (JNJ) portfolio.
Since the pandemic started and until now, when things remain uncertain and economic headwinds continue to befall the market, JNJ has proven itself to be virtually recession-resistant.
In fact, based on its third-quarter earnings report, JNJ is one of the handful of companies receiving short-term boosts. Amid the issues over inflation and supply chains, this healthcare company reported $23.8 billion in revenue, rising by 1.9%, and earnings per share of $1.68, up by 22.6%.
In the past 10 years, JNJ has boosted its revenue annually except in 2015.
The biopharmaceutical giant is also diligent in making sure its investors are happy. It has shelled out $2 billion in 2022 alone on share buybacks, with an additional $3 billion scheduled.
It has also paid out $3 billion worth of dividends to investors, with the market-proclaimed Dividend King raising its payout for 60 consecutive years.
As in the previous quarters, JNJ’s pharmaceutical business division delivered the most substantial sales gains, while its consumer health division struggled to overcome foreign currency woes.
Minor tweaks to JNJ’s guidance offered some color to the earnings report. The company narrowed its sales growth estimates and lowered its range for full-year revenue to somewhere between $93 billion and $93.5 billion, primarily due to the strong dollar. Nevertheless, the company’s adjusted earnings guidance remains the same, with anticipated operational gains.
Meanwhile, its plan to spin off its consumer health segment in 2023 into a new company called Kenvue has shareholders hopeful for an increase in the value of JNJ stock soon.
The plan to spin off this segment has been in the works for quite some time and is anticipated to enable JNJ to become a more profitable company in the long run.
While brands like Listerine, Band-Aid, and Benadryl have high name recall, the company’s consumer health segment remains a slow growing and has become a burden. Actually, these well-known brands only account for roughly 15.6% of the company’s $47.4 billion recorded in the first 6 months of 2022.
The true catalyst in JNJ’s growth is and will continue to be its pharmaceutical division. This segment includes the mega-blockbuster immunology treatment Stelara and the oncology drug Darzalex, both of which rake in at least $5 billion in sales every year.
JNJ also has 11 more drugs and its COVID-19 vaccine in its portfolio, which are all on pace to add a minimum of $1 billion in sales for this year.
Looking at its current portfolio and pipeline, JNJ is projected to record a 4.1% annual earnings growth in the next 5 years. On top of these, JNJ has 99 drug indications queued for clinical development across various therapy areas like oncology and immunology. These should offer the company more than enough firepower to bolster its sales and earnings higher gradually.
Coupling this earnings growth with JNJ’s dividend payout ratio at a reasonably 44%, then I can confidently say that the company’s 60-year dividend growth streak is on track. It’s also safe to project 5% to 6% annual dividend growth in the short term.
One of the critical principles in investing is to ensure that you are diversifying your portfolio not only in terms of the companies but also the sectors you put your money into.
This measure can help protect your portfolio and its income from headwinds in a particular industry at any given time.
Throughout the years, healthcare has proven to be a must-own segment. After all, everyone will require access to the healthcare system, whether for a routine checkup, prescription, or surgical procedure.
Moreover, the part of the global population needing more focused and frequent medical care—people aged 65 and older—is projected to nearly triple from 2015 to 2050 to record 1.6 billion individuals.
Considering these factors and the stability offered by JNJ, it’s easy to see how this company can become a lucrative long-term investment for those looking to diversify their portfolio. I strongly suggest buying the dip.
Mad Hedge Biotech and Healthcare Letter
September 6, 2022
Fiat Lux
Featured Trade:
(ONLY FOOLS RUSH IN)
(APDN), (RVPH), (NERV), (JNJ), (BMY), (AZN), (LLY), (PFE)
Following a promising first half of 2022, it looks like the markets are taking an about turn as more and more investors start dumping their stocks.
The seemingly recovering Nasdaq Composite showed a 4.3% decline last month despite reporting its best record since 2020 just last July.
Nevertheless, several biotech names appear to have avoided the crash thanks to some exciting company-specific updates.
The top gainers so far include Apple DNA Sciences (APDN), which skyrocketed 340% by the end of August. Among the projects in its pipeline, the most promising to date is its monkeypox virus test.
Another name on the list is Reviva Pharmaceuticals Holdings (RVPH). This clinical-stage biopharmaceutical firm reported a whopping 244% gain during its second-quarter earnings report.
However, the top gainer that has been on the news lately is Minerva Neurosciences (NERV). This budding biopharmaceutical company gained 321%, according to its report last month.
Minerva Neurosciences isn’t a name I have kept track of nor even heard of until these past months when its wild upswing started to make me curious.
The company started attracting attention when billionaire Steve Cohen of Point72 Asset Management fame invested in it. This move saw Minerva Neurosciences’ shares soar to more than 70% at that time.
Just before August wrapped up, the company filed for its long-delayed schizophrenia treatment, Roluperidone.
Entering the neuroscience industry is a clever move, especially with the potential of this segment. In 2021, this market was estimated to be worth $32.22 billion. By 2027, the neuroscience segment is projected to reach $41.24 billion.
As for schizophrenia, roughly 1% of the entire population is affected by this disease. Based on recent WHO reports, more than 24 million individuals are suffering from schizophrenia annually.
In 2021, the global schizophrenia drug market was reported to cost $8.02 billion. Taking into consideration the changes in the environment and living conditions, the number is expected to go higher as the years pass. With these in mind, the estimated worth of this market is expected to reach $10.15 billion by 2027.
Minerva Neurosciences wouldn’t be the first to take interest in the schizophrenia segment. Prior to this biopharma’s entry, there have already been a handful of key players attempting to be hailed as the leader of this sector.
The names include Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY), AstraZeneca (AZN), Eli Lilly (LLY), and Pfizer (PFE).
However, only Minerva Neurosciences specifically targets the negative symptoms of schizophrenia. That makes the company stand out in this steadily growing segment.
Given that Minerva Neurosciences is cheaper than these stocks, would it then be wise to buy shares from the smaller company to gain entry into the neuroscience market?
At this point, Minerva Neurosciences has yet to prove that it’s more than just a one-trick pony. In fact, the company has not even sufficiently shown that it has mastered its single trick.
When looking at the potential of any biotechnology and healthcare company, I generally begin by checking out its pipeline.
For Minerva Neurosciences, the list does not look sustainable.
The company’s MIN-301 for Parkinson’s Disease remains inconsequential since it’s still in the preclinical trial stage.
Prior to this, Minerva Neurosciences worked with JNJ to develop treatments for insomnia and major depressive disorder. However, those have yet to yield tangible results that can move the needle for the company’s share price.
That means Minerva Neurosciences is all about Roluperidone. While the company is moving as fast as it could to launch the product to market, more questions remain than answers.
Actually, the company seems to have eliminated earnings conference calls. These could have been useful in offering a more accurate picture of its future, but it looks like investors will need to make do with whatever information is published.
Admittedly, exciting times could very well be waiting for Minerva Neurosciences’ shareholders. The recent progress with Roluperidone most likely offered them some relief.
No doubt that the optimistic investors are hoping that the 321% gain would signify another incredible run in the following weeks. However, this might not be likely. In fact, a pullback seems to be more in the horizon.
Considering its sparse pipeline and the lingering uncertainty over Roluperidone’s performance, this might not be the best time to buy Minerva Neurosciences’ shares.
Mad Hedge Biotech and Healthcare Letter
September 1, 2022
Fiat Lux
Featured Trade:
(A QUALITY HEALTHCARE STOCK IN A JAM)
(BMY), (JNJ), (RHHBY)
Sometimes the market overreacts, and it presents a buying opportunity for savvy investors. This is what happened with Bristol Myers Squibb (BMY).
Investors pulled back on BMY shares following mixed results from the Phase 2 trials of Milvexian, a stroke therapy the biopharmaceutical giant is developing with Johnson & Johnson (JNJ).
This treatment works as an anticoagulant formulated to prevent secondary strokes that usually occur after an ischemic stroke.
Ischemic strokes are the most common kind of strokes, triggered when a blood clot blocks an artery heading to the brain.
In its trial, Milvexian showed that it was able to lower the recurrence of ischemic strokes by 30% among patients who exhibited symptoms.
Unfortunately, it wasn’t able to show any effect on the smaller lesions typically detected only via MRIs. This is where the problem lies since the latter was part of the predefined endpoints when the trials started.
So, in terms of reducing symptomatic stroke, Milvexian’s results were “very positive.” But if you consider all the factors, then you get mixed data.
The underwhelming results of Milvexian’s Phase 2 trials led to a 5.5% fall in BMY’s shares, clearly demonstrating the erosion of investor confidence going into Phase 3.
What does this mean?
Milvexian was designed to become the successor of BMY’s mega-blockbuster Eliquis. BMY’s shares are declining because of the fear over the effectiveness of the company’s strategy to power through upcoming patent losses.
Despite the setback, BMY and JNJ aren’t giving up on the treatment. Apart from the 30% risk reduction it offers patients, Milvexian has an impressive safety profile. Based on these results alone, the companies still consider the candidate a good product.
Moreover, the results do not appear to be affecting the overall performance and strategy of the company. Minor adjustments simply need to be made.
The pharma giant’s recent quarter report disclosed revenue of $11.9 billion, which climbed 2% year over year. Within its US market, BMY’s revenue grew by 12%.
The company is also continuously innovating. In early 2022, the FDA approved a new cancer treatment it developed, estimated to rake in $4 billion in peak sales.
It’s also consistent in terms of delivering results. BMY has been generating over $11 billion in revenue quarterly, with profits reaching 14% of sales during those periods.
These sound financials place BMY in a great position to expand and pay out its dividend, which is at 2.9% to date.
Year to date, BMY has been consistently and soundly beating the general markets. It has been up 19% compared to the 10% fall of the S&P 500 as of late.
Aside from developing potential successors, BMY has also been active in acquiring assets. Recently, it shelled out $13 billion to buy MyoKardia.
The deal enabled BMY to gain access to Camzyos, a prescription medicine used to treat adults with a heart condition called symptomatic obstructive hypertrophic cardiomyopathy.
Camzyos recently gained approval and is estimated to reach $4 billion in peak sales annually.
BMY also recently acquired Turning Point Therapeutics for $4.1 billion to gain access to Repotrectinib, which is pegged as the next-generation oral treatment for lung cancer.
Given the drug’s data, it has the potential to competitively go head-to-head against Roche’s (RHHBY) Rozlytrek and rake in $1.5 billion in peak sales.
So, should investors start buying BMY shares following the clinical setback with Milvexian?
While Milvexian isn’t shaping up as the heir apparent for Eliquis, BMY still has a broad pipeline and portfolio of high-value treatments in the market and is under development.
In other words, BMY could easily shake off this setback. That means savvy investors may want to look into the stock and take advantage of this momentary weakness in the Big Pharma’s stock price.
After all, BMY is an excellent drugmaker that investors can rely on for long-term growth and dividend income.
