Mad Hedge Biotech and Healthcare Letter
February 10, 2022
Fiat Lux
Featured Trade:
(A HEALTHCARE ENIGMA TO ADD TO YOUR WATCHLIST)
(GILD), (JNJ), (PFE), (ABBV), (LLY), (MRK), (BMY),
(AMGN), (MRNA), (AZN), (REGN), (BNTX), (NVAX)
Posts
The top names in the biopharmaceutical world based on their market capitalization include Johnson & Johnson (JNJ), Pfizer (PFE), AbbVie (ABBV), Eli Lilly (LLY), Merck (MRK), Bristol Myers Squibb (BMY), Amgen (AMGN), and Gilead Sciences (GILD).
Among these names, Gilead is often viewed as an enigma, given its history and the challenge in predicting its share price trajectory.
Over the past months, Gilead has been testing the patience of investors. In fact, the company is projected to experience a fall in revenues this year from $27 billion in 2021 to $24.05 billion in 2022.
The latest news that added to their anxiety was the pause on clinical trials for its cancer therapy, Magrolimab.
This came after its short-lived dominance in the Hepatitis C segment.
At that time, the sales of its leading drug Sovaldi skyrocketed from $140 million in 2013 to a jaw-dropping $10.2 billion by 2014.
Meanwhile, another Hepatitis C treatment, Harvoni, single handedly raked in $13.8 billion in sales in 2015, pushing the entire company’s revenues to an impressive $32.6 billion.
Unfortunately for Gilead, it became the victim of its own staggering success.
Its Hepatitis C treatments, Sovaldi and Harvoni, were incredibly effective and managed to cure the patients within months. The demand for these drugs fell because the patient pool gradually ran dry.
By 2019, the Hepatitis C franchise of the company had declined and managed to scrape $2.9 billion in combined sales.
Since then, though, the company has been struggling to regain investors' faith.
Nevertheless, these recent developments are not enough reasons to panic. If anything, Gilead has simply become even more attractively priced due to the fallout.
In 2020, Gilead managed to report its first year-on-year increase in revenues since its glory days in 2015.
As the COVID-19 pandemic started to take hold of the world, it was Gilead’s Veklury (Remdesivir) that secured the first-ever Emergency Use Authorization from the FDA.
While Veklury was eventually overshadowed by COVID-19 vaccines from Pfizer, Moderna (MRNA), JNJ, and AstraZeneca (AZN), as well as other treatments and antibody cocktails from Eli Lilly, Regeneron (REGN), and Merck, Gilead’s candidate managed a comeback by the fourth quarter of 2021 after experts declared it to be effective against the Omicron strain.
In effect, Veklury had a major impact on the company’s 2021 performance, recording $5.6 billion in annual sales.
Although this is not as illustrious or groundbreaking as its Hepatitis C treatments, the reemergence of Gilead as a frontrunner in the pandemic is proof that the company has not lost its knack for discovering and developing a winning formula for blockbuster treatments.
Another avenue that Gilead has been exploring is actively acquiring assets to expand its portfolio.
One notable move in that direction is its $11.9 billion acquisition of Kite Pharma, a leader in the cell therapy space, in 2017. Thus far, this agreement has yielded two drugs: Yescarta and Tecartus.
Since oncology is one of Gilead’s major areas of concentration, the commercialization of these two treatments conveys a promising future.
While both are yet to become blockbusters, the field of cell therapy has been rapidly expanding and turning into a critical therapeutic option for certain patient categories.
Yescarta is projected to rake in $1.5 billion in revenues if it receives the FDA green light for large B-cell lymphoma
Considering that its last trial data showed off a 60% improvement with Yescarta compared to standard of care in terms of halting the disease’s progression or even death, there’s a huge possibility that Gilead will be delivering good news soon.
As for Tecartus, this treatment received approval for acute lymphoblastic leukemia last year and is aiming to expand to cover mantle cell lymphoma by July 2022.
With its list price of $373,000, this CAR-T therapy is projected to reach blockbuster status in the following months as well.
Another oncology drug anticipated to reach blockbuster status soon is metastatic triple-negative breast cancer treatment Trodelvy, which Gilead gained access to following a $21 billion deal with Immunomedics in 2020.
Given its current approved indications and the queued trials to expand its coverage, Trodelvy is projected to reach $4.7 billion in peak sales.
Going back to the 2022 revenue forecast for Gilead, I think the change is from the company’s anticipated decline in Veklury sales.
Since Pfizer, BioNTech (BNTX), Novavax (NVAX), and Moderna have been actively working on Omicron-focused vaccines and treatments, Gilead expects its Veklury revenues to shrink as well.
Overall, Gilead still presents an excellent opportunity for long-term investors.
Despite its setbacks, the company has proven that it still holds the knack of rolling out remarkable and effective best-in-class treatments.
Moreover, its pipeline is filled with promising candidates poised to deliver in the years to come. So, don’t be too quick to write off Gilead just yet.
Mad Hedge Biotech and Healthcare Letter
February 1, 2022
Fiat Lux
Featured Trade:
(A SHIFT IN NEUROSCIENCE BIOTECH)
(BIIB), (AXSM), (PFE), (BMY), (MRK), (NVS), (ABBV), (GSK), (JNJ), (LLY), (RHHBY), (TAK)
Industry experts typically describe mergers and acquisitions as the life force that propels the biotechnology and healthcare sector forward.
Based on that description, it’s safe to say that the segment’s health has plummeted, considering the sluggishness observed last year.
In 2021, the M&A of this industry had fallen to one of its lowest recorded levels in history.
During this period, the deals only amounted to $108 billion for the entire year. This number was approximately 40% of the total recorded in 2019.
Despite the sluggishness in 2021 and the relatively slow start in 2022, this year is still projected to push the would-be buyers into more aggressive action.
After all, several key products are facing patent expiration before this decade ends.
The list includes Big Pharma players like Pfizer (PFE), Bristol Myers Squibb (BMY), Merck (MRK), and Novartis (NVS).
This means that a massive deal might be on the horizon, pretty much when AbbVie (ABBV) executed its jaw-dropping $63 bill acquisition of Allergan in 2019 following its problems with generics competing against its blockbuster drug Humira.
Aside from patent protection concerns, another factor in play is the intense competition in lucrative research sectors such as immunology, neurology, rare diseases, and oncology.
Add to this the constant pressure of Congress to pull down drug prices, and it becomes apparent why companies—big or small—turn to mergers and acquisitions for survival.
Simply put, biotech and healthcare companies have no other choice but to be aggressive in looking for external innovation to secure the continuous transformation of their businesses.
On that note, I think there could be major acquisitions to be announced in 2022.
One deal I’m looking forward to is Biogen’s (BIIB) potential acquisition of Axsome Therapeutics (AXSM).
To remain competitive in the neuro stage, Biogen must keep up with the times—and a deal with Axsome might just be the solution.
Axsome’s size and price, with a market capitalization of $992 million, appear to be just the right fit for Biogen to gobble up.
More importantly, its portfolio is an excellent fit for Biogen. Both focus on neurological diseases, making their pipelines complementary to each other.
So far, Axsome has several leading candidates in the clinical stages.
One is AXS-05, which is a treatment for major depressive disorder (MDD).
Apart from MDD, this candidate is under late-stage review to target Alzheimer’s disease agitation.
In addition, Axsome is looking to advance AXS-05 in late-stage trials for smoking cessation therapy.
Needless to say, AXS-05 would go hand in hand with Biogen’s own approved, albeit controversial, Alzheimer’s drug Aduhelm.
Another promising candidate is AXS-07, a potential competitor of Pfizer and Novartis’ migraine medication. This drug has been submitted for FDA approval and might be launched by the second quarter of 2022.
There’s also AXS-12, which is a narcolepsy treatment candidate, and AXS-14, which is geared towards fibromyalgia. Both candidates are slated for FDA review by the third or fourth quarter of 2022.
For over 20 years, even the biggest and most powerful drug companies have stayed away from working on treatments specifically for the brain and central nervous system (CNS).
That’s not surprising considering the sheer number of failed programs in neuroscience, pushing drugmakers to believe that we still don’t have sufficient data on the subject, so the money might be better spent elsewhere.
Nowadays, though, the CNS landscape is starting to shift.
GlaxoSmithKline (GSK) recently embarked on reviving its CNS program by striking a $700 million deal with a smaller biotechnology company called Alector.
Meanwhile, Pfizer and Novartis reached an agreement with Biohaven Pharmaceuticals for the latter’s migraine treatment and Parkinson’s drug.
Aside from these, Johnson & Johnson (JNJ), Eli Lilly (LLY), Roche (RHHBY), and Takeda (TAK) are anticipated to secure CNS-centered deals soon.
Despite the lower number of M&A deals last year, the volume of strategic collaborations in the neuroscience sector climbed by about 50% in 2021 compared to its 2020 performance.
By 2022, this space is projected to become even more investable, considering the number of biotechnology companies focusing on CNS. Watch out for blockbuster deals in this sector.
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)
The past two years have been focused on finding solutions to end the COVID-19 pandemic.
More have been attempting to join Pfizer (PFE), BioNTech (BNTX), AstraZeneca (AZN), Johnson & Johnson (JNJ), and Moderna (MRNA) in sustaining and even boosting the momentum in terms of vaccine development and launch of new drugs in the market.
While the biotechnology and healthcare industry will still predictably have COVID-19 as one of its priorities, I can see a number of promising developments waiting to be unleashed to the public this year.
One is the expansion of mRNA applications to go beyond its potential as a coronavirus vaccine.
In the first three quarters of 2021, Moderna recorded $10.7 billion in sales for its mRNA vaccine while Pfizer-BioNTech raked in $39 billion—and these numbers are expected to soar even higher for 2022.
However, what’s more promising is that the pandemic revealed an undeniable and irrefutable fact: mRNA-based treatments could be administered safely and successfully to patients.
That discovery appears to have bolstered investor confidence in the technology, as an increasing number of RNA-based drug developers managed to lure hundreds of millions in terms of financing.
China’s Abogen Biosciences received over $700 million in its Series C round last August, while another RNA-focused biotech, Massachusetts-based Laronde, raked in $440 million in a Series B round during the same period.
Another technology on the rise is artificial intelligence (AI).
For years, AI has grown from science fiction tales to real-life applications. Lately, this segment has shown signs of finally coming up with a breakthrough.
In fact, something groundbreaking might arise in the healthcare world courtesy of Roche (RHHBY) and its Genentech subsidiary.
After all, these two became the talk of the industry in December 2021 when they committed roughly $12 billion in exchange for access to the revolutionary operating system of Recursion Pharmaceuticals (RXRX).
Ultimately, the collaboration aims to come up with advanced treatments—40 programs in total—for various conditions, focusing on neuroscience and oncology.
Aside from mRNA and AI, another sector that’s expected to rally this year is the cell and gene therapy segment.
So far, more capital has poured into this area and a growing number of programs are entering Phase 3 trials.
In the first six months of 2021 alone, gene therapy companies raised approximately $6.4 billion in funding and queued 376 trials.
This notably surpassed 2020’s performance, which recorded $2.2 billion and 359 trials.
By the second half of 2021, big money started to come in with billion-dollar partnerships cropping up everywhere.
These included Takeda Pharmaceutical’s (TAK) collaboration with Poseida Therapeutics (PSTX), worth roughly $3.6 billion, as well as Roche’s partnership with Washington’s Shape Therapeutics at $3 billion.
On top of these exciting breakthroughs is another exciting development: synthetic biology.
In the first six months of 2021, the synthetic biology segment attracted about $8.9 billion in venture funding.
To top it off, the sector managed to launch two successful IPOs last year: Zymergen (ZY) and Ginkgo Bioworks (DNA).
Considering the growing momentum in this field, synthetic biology is anticipated to remain on track and achieve full-scale marketing and manufacturing across many applications. These can span from essential medicines to even various foods such as dairy and meat.
Although the biotechnology and healthcare sector struggled in the past months, it’s undeniable that the market still has faith in the industry’s future and potential.
In fact, investors showered the biotechnology segment with a record-breaking $24 billion in terms of venture capital in the first three quarters of 2021, exceeding the $20 billion total generated in 2020.
Throughout the years, biotechnology has transformed from a restrictive academic enterprise into a booming industry with real-world applications.
Looking at the history and trajectory of this sector, I can say that the trend will continue into 2022 and beyond.
Mad Hedge Biotech and Healthcare Letter
January 20, 2022
Fiat Lux
Featured Trade:
(A NO-BRAINER DIVIDEND CONTENDER UP FOR GRABS)
(AMGN), (ABBV), (GILD), (REGN), (JNJ)
To say that biotechnology stocks haven’t been performing well as of late is an understatement.
Over the past 12 months, the SPDR S&P Biotech Exchange Traded Fund (XBI) has recorded an over 30% loss and is anticipated to reach its 52-week low soon.
Investors have been pulling back from biotechnology stocks for several reasons like threats of drug pricing reforms in the US, the ever-increasing interest rates, and of course, the lure of rapid-growth assets such as cryptocurrencies.
Nevertheless, all is still not lost for the biotechnology sector.
The industry, in its entirety, continues to move forward with unprecedented innovations.
These groundbreaking discoveries, in turn, offer a myriad of untapped, top-value markets that will bode well for long-term investors.
This means that savvy investors would do well to make the most of this broad selloff in a highly promising segment.
One way to determine quality names in this volatile sector is to choose dividend-paying stocks.
After all, dividends are excellent sources of passive income. Apart from that, these can easily boost your portfolio if you plan to reinvest your money.
Basically, regardless of your investment strategy, choosing dividend-paying businesses can be really helpful in reaching your goals.
Among the names in the biotech industry, one that looks promising these days is Amgen (AMGN).
While Amgen’s dividend yield isn’t as high as the likes of AbbVie (ABBV) and Gilead Sciences (GILD), this pioneering biotechnology company is still a promising investment.
Recently, Amgen reported another dividend increase of 10.2%, indicating a rise from $1.76 to reach $1.94 per quarter, with the subsequent dividend expected to be payable by March 2022.
This results in an annual dividend of $7.76 and a respectable dividend yield of 3.41%.
More impressively, Amgen has been paying out dividends since 2011 and boosted its dividend not only annually but with an 11.97% in CAGR over the past 5 years.
Given the company’s history and growth trajectory, Amgen’s earnings growth rate annually in the next 5 years is estimated to be 6%, while its yearly dividend hike rate is projected at 7%.
At first glance, it’s easy to dismiss Amgen’s current standing.
In the third quarter of 2021, the company’s total revenue only reached $6.7 billion, indicating a measly 4% rise year-over-year.
A potential reason for this underwhelming growth is the pending patent cliff for some of its key products and the threat of biosimilars taking over Amgen’s target markets.
For example, cancer medication Neulasta reported a 25% decline in its sales year-over-year to contribute only $415 million in the third quarter.
Needless to say, this kind of disheartening top-line growth is partly responsible for the stock’s sluggish performance in the market lately.
However, other products in the company’s portfolio have reported much better performances than Neulasta.
There’s osteoporosis treatment Prolia, which rose by 15% year-over-year to contribute $803 million in the same period.
Even cholesterol drug Repatha showed off a 33% growth to record $272 million, while arthritis medication Otezla’s sales climbed by 13% to rake in $609 million.
On top of these, Amgen has also succeeded in developing new products that can easily provide additional revenue streams.
One of the most promising recently approved products is advanced non-small-cell lung cancer (NSCLC) treatment Lumakras, which received the US FDA green light last year.
Although there are many approved drugs for this condition, Lumakaras is the first and only treatment that targets specific mutations among non-squamous NSCLC patients.
This translates to 13% of patients suffering from that particular condition.
This is a massive market for Amgen.
Back in 2019, lung cancer was identified as the leading cause of cancer deaths in the United States.
At that time, the total was 139,603 individuals, which made up 23% of all the deaths attributed to the condition. Among the lung cancer deaths, 84% were identified to be of the NSCLC category.
So, if you put everything in perspective, the 13% patient population that Amgen exclusively holds equates to a big opportunity.
In addition, the European Union already approved Lumakras as well. This opens up yet another massive market for the treatment.
In the third quarter of 2021, Lumakras only delivered $36 million in sales. With the recent approvals and broadening of markets, this drug’s revenue is projected to rise quickly.
Aside from these products, Amgen has been working on expanding its pipeline. To date, the company has over 20 ongoing Phase 3 clinical trials.
Moreover, Amgen has decided to take a page out of the books of biosimilar developers.
As the company witnessed its own products get pummeled by biosimilars in the market, Amgen has opted to cannibalize sales of a wide range of treatments that lost their patent exclusivities.
This strategy has already delivered rewards, with the company reporting at least $2 billion in annual sales from its biosimilars in 2021.
For 2022, Amgen has three more biosimilars under development and is looking into poaching the likes of Regeneron’s (REGN) Eylea and Johnson & Johnson’s (JNJ) Stelara as well.
Despite the pandemic, Amgen has managed to extend its dividend growth streak to reach 11 consecutive years. This makes this biotechnology company an impressive Dividend Contender.
Overall, I consider this company a solid buy and an excellent long-term investment. It’s not simply an undervalued pick for value investors but also an outstanding choice for dividend investors.
Mad Hedge Biotech and Healthcare Letter
January 13, 2022
Fiat Lux
Featured Trade:
(NO REST FOR THIS PANDEMIC SUPERSTAR)
(PFE), (MRK), (RHHBY), (DNAY), (JNJ), (LLY), (BNTX), (EDIT)
Amid the pandemic fatigue hounding everyone these days, one name continues to attack the situation with consistent vigor: Pfizer (PFE).
It’s not a stretch to say that its COVID franchise is the most popular line in Pfizer’s portfolio today.
Needless to say, this is highly lucrative from a shareholder’s point of view. The company’s vaccination business has recorded over 3 billion doses to generate roughly $36 billion in sales from Comirnaty alone in 2021.
Riding the momentum of its successful 2021, the company anticipates an even more successful 2022.
So far, Pfizer is targeting an increase in its Comirnaty production to hit at least 4 billion doses this year.
Aside from being one of the first companies to develop a vaccine, the company has also created a highly effective antiviral COVID treatment that can be taken orally: Paxlovid.
While Merck (MRK) has earlier announced its move to come up with a similar oral treatment, Pfizer’s pill proved to be more effective.
Actually, customers are starting to take note of the difference and are switching brands. France already canceled their agreement with Merck and decided to order Pfizer’s Paxlovid instead.
This once again underscored the dominance of Pfizer’s brilliant R&D segment and the company’s capacity to rapidly come up with highly effective solutions for issues involving COVID.
The way Pfizer has been handling the COVID situation can be compared to Roche’s (RHHBY) approach and eventual blockbuster success with Tamiflu over 20 years ago.
Although the flu is obviously not as deadly as the coronavirus, it still caused widespread economic breakdown and health problems.
When Tamiflu eventually entered the market, the world was finally granted a simple medical answer for what was initially thought to be an unsolvable health problem.
Pfizer’s Paxlovid could very well be the Tamiflu for COVID.
Looking at Paxlovid’s effect in terms of revenue, it’s safe to say that this oral treatment can drive medium-term growth for Pfizer.
To date, Pfizer disclosed that Paxlovid would be sold for roughly $700 for each treatment course.
Let’s use the US numbers as an example to help put things in perspective. So far, the country has recorded approximately 170,000 cases per day.
If we assume that this will be the average for 2022, then there will be about 62 million COVID patients this year.
Let’s say that only 40% of these patients qualify for Pfizer’s treatment; then this would reach 24 million people at $700 each to rake in roughly $17 billion in total revenue in the US alone.
The number would definitely be significantly higher considering that Paxlovid will be offered as a global COVID treatment.
It’s evident that Pfizer’s efforts are paying off, as the sheer earnings power of the company’s COVID-19 pandemic franchise could provide a medium-term boon for its investors.
In 2021, Pfizer recorded a 130% growth in its revenue, with the numbers still climbing.
While its pandemic response has become its primary growth driver, Pfizer’s other key segments also posted promising revenues.
To sustain its climb, the company has continued to invest in R&D heavily.
A notable investment it made recently is an $8 million upfront payment to Codex DNA (DNAY) for the smaller biotechnology company to “produce certain materials of interest to Pfizer.”
According to the deal involving the exclusive product, Codex expects $10 million in technical milestone payments, up to $60 million in clinical development milestones, and $180 million in sales milestones.
Codex DNA is a small biotechnology company with a market capitalization of $267 million. It’s a spinoff from a California company called Synthetic Genomics.
While Pfizer and Codex have yet to share their plans publicly, we can hypothesize that it has something to do with the large biopharma using the small biotech’s technology to accelerate its mRNA vaccine development process.
After all, Codex’s distinct value proposition lies in its rare ability to automate various elements of the entire process. Its push-button, end-to-end solutions promise to build functional grade synthetic mRNA and DNA.
In effect, this will save cost and time for its clients.
Aside from Pfizer, this small biotech has been collaborating with other organizations like Duke University and MIT.
It has also been working with large biopharmas, including Johnson & Johnson (JNJ), Eli Lilly (LLY), BioNTech (BNTX), Merck, and even gene therapy expert Editas (EDIT).
For 2022, Pfizer is anticipated to generate at least $96 billion in sales, showing off a jaw-dropping 17.2% jump from its 2021 revenue and a 229% increase from 2020.
As we slowly accept that COVID will become a staple in our lives in the coming years, I think investors would be wise to add proven “experts” in their portfolio to take advantage of the ever-present and increasing demand.
