Mad Hedge Biotech and Healthcare Letter
December 16, 2021
Fiat Lux
Featured Trade:
(TIME TO LOOK AT ONE OF THE LEAST FAVORED BIOTECHS)
(AMGN), (RHHBY), (PFE), (MRK), (GSK), (JNJ), (AZN)
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Value investing shouldn’t be an ordeal. It definitely doesn’t have to entail scouring for a needle in a haystack. The truth is, several quality discount stocks are hiding in plain sight. Unfortunately, these have fallen out of favor with investors recently.
While the market has performed quite well in 2021, the technology sector served as the primary driving force behind this positive performance.
In comparison, the healthcare sector has been besieged with negative updates throughout the year. This resulted in a number of excellent biotech healthcare names getting undervalued, and one of them is Amgen (AMGN).
Amgen is widely known as one of the biotechnology and pharmaceutical sector pioneers, alongside Genentech, which has since been acquired by Roche (RHHBY). The company focuses on specialty biologics in the fields of blood disorders, cancer, and immunology.
To date, Amgen has a market capitalization of $119 billion and has generated $25.8 billion in revenue in the past 12 months.
This biotechnology company also holds a relatively solid and steady track record of growth, having grown its revenue by roughly 65% in the past 10 years.
Amgen has also virtually not experienced any significant dip in its sales over the same period—an impressive feat considering the slowly crowding and often tumultuous biotech space.
Looking at its EBITDA margin, or earnings before interest, taxes, depreciation, and amortization, Amgen also emerges as a superior stock compared to others in the industry.
In the past five years, Amgen’s EBITDA margin has consistently been within the 50% range. This is higher than its peers, such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), and Johnson & Johnson (JNJ), which only reached 30%, while Sanofi (SNY) recorded roughly 20%.
In addition, Amgen declared a dividend worth $1.76 per share each quarter in October. This represents a 10% jump year over year.
Then, the company opened in December with another dividend increase to reach $1.94 per share by the first quarter of 2022, showing off a 10.2% increase year-over-year.
Since 2011, Amgen has been consistent in increasing its dividend payout annually—a guarantee of the company’s robust and stable business performance.
Moreover, Amgen’s dividend yield is higher than other industry leaders as well. At present, the company offers a 3.5% dividend yield. In comparison, Pfizer gives out 2.9%, while JNJ offers 2.7%.
To sustain its momentum, Amgen has been busy bolstering its pipeline.
Thus far, the company has 58 programs under development. Of these, there are 34 queued in Phase2/3 clinical trials, while there are others submitted for regulatory approval.
One of the promising programs is its collaboration with JNJ, which combines Amgen’s Kyprolis and the latter’s Darzalex Faspro.
Just this December, the US FDA approved this combination treatment for patients suffering from multiple myeloma, a rare type of blood cancer.
In terms of profitability, Kyprolis generated $1.065 billion, and Darzalex Faspro raked in $4.19 billion in sales in 2020.
The high revenues recorded for these drugs last year are indicative of the strong demand from the healthcare industry.
This means that the approval of the combination treatment could lead to a more lucrative payout for both companies moving forward.
Another promising program for Amgen is Tezepelumab, which is a severe asthma therapy it developed with AstraZeneca (AZN).
In July, this treatment was approved for Priority Review by the US FDA. The two companies expect to submit Tezepelumab for approval to the US FDA by the first quarter of 2022.
Meanwhile, Amgen is also working on its first RNA-based treatment, called Olpasiran or AMG 890. This project is for myocardial infarction patients and will work the same way as gene therapies.
Basically, its goal is to target the relevant gene to prevent any damage. Looking at its timeline, Amgen expects Phase 2 results within 6 months.
If this RNA-based project succeeds, Amgen plans to expand its portfolio to include more than 25 first-in-class therapies and three more biosimilars based on this technology.
Doing so will equip the company with a steady revenue runway while also reinforcing its position as one of the top biotechnology companies in the world.
Overall, Amgen looks extremely undervalued these days, making it attractive given how profitable this biotech is and its prospects moving forward.
Mad Hedge Biotech and Healthcare Letter
December 14, 2021
Fiat Lux
Featured Trade:
(FROM AN UNKNOWN mRNA PIONEER TO BIG PHARMA PLAYER)
(BNTX), (PFE), (MRNA), (AZN), (JNJ), (SNY), (CVAC), (REGN), (MRK), (BMY)
Almost everything that could go right has gone right for BioNTech so far.
Its COVID-19 vaccine with Pfizer (PFE), Comirnaty, has been breaking records left and right, and more and more approvals in other countries are piling up.
Needless to say, BioNTech has transformed into one of the most profitable biotechnology companies with a rapidly growing cash stockpile.
Now, the company is up for another challenge: the Omicron variant.
Although BioNTech and even Moderna (MRNA) insist that they offer more than COVID vaccines, the reality is that their pipelines still have not reached the stage where they can generate as much revenue.
Hence, it is no surprise that their share prices have climbed since discovering the Omicron strain.
The emergence of this new mutation sparked another competition among COVID-19 vaccine developers, specifically in the mRNA segment dominated by BioNTech and Moderna.
Since news broke about the Omicron variant, these companies have been racing to come up with the most effective vaccine against it.
BioNTech holds a competitive advantage between the two since the company reportedly has been working with Pfizer on a vaccine candidate for this type of situation months before the discovery.
In comparison, Moderna has yet to determine where their candidate stands in terms of fighting off the new variant.
The same can be said about other vaccine developers like AstraZeneca (AZN) and Johnson & Johnson (JNJ).
What happens to their efforts if the Omicron variant turns out to be less dangerous and possibly closer to the common flu?
In this case, the vaccine developers would most likely boost the prices of their products 10-fold because then they’d end up with fewer orders to private customers instead of sealing agreements with governments.
The flu vaccine market is worth roughly $8 billion annually, while the COVID vaccination market is projected to bring in approximately $25 billion each year in the post-pandemic period.
Either way, this situation could offer speculative investors a solid stream of price catalysts.
The uncertainty will result in a higher valuation for BioNTech in the short term because the company has already proven its ability to deliver an effective vaccine within a short period.
Prior to its COVID work, BioNTech was actually known as one of the “Big 3” and a pioneer in the mRNA world. At that time, it shared this title with Moderna and CureVac (CVAC).
Since then, the segment has grown, and new challengers have joined the mRNA industry.
Some of the promising ones include China’s Abogen Biosciences, which managed to raise over $700 million in funding for its own mRNA COVID vaccine, and of course, Sanofi (SNY), which splurged in a $3.2 billion acquisition of Translate Bio to access the latter’s mRNA pipeline for cystic fibrosis and several genetic conditions.
Meanwhile, BioNTech has retained its focus on cancer, with 16 of the 18 programs targeting oncology in its Phase 1 pipeline.
If BioNTech successfully develops an mRNA treatment for cancer, they’ll be breaking into a massive and lucrative market.
By 2024, the market for cancer treatments is projected to grow and reach over $200 billion.
Apart from its work on oncology therapies, BioNTech is also known for its infectious disease pipeline, including vaccines for HIV, malaria, and tuberculosis. It’s also collaborating with Pfizer on 2 influenza vaccines.
By the end of 2021, BioNTech is anticipated to release 5 updates on its vaccine trials involving solid tumors that target head and neck cancer, melanoma, and colorectal cancer.
Other than Pfizer, the company has been working with Regeneron (REGN), Genentech, Merck (MRK), Bristol Myers Squibb (BMY), and Sanofi.
In terms of performance so far, BioNTech has raked in $15.2 billion in revenues for the first three quarters of 2021, with full-year earnings expected to reach $18.1 to $19.2 billion.
Overall, I view BioNTech as a long-term investment.
While many still see it as a pure COVID play, this German company is increasingly starting to act more and more like the Big Pharma organizations.
It’s realistically expecting that its profit-generating asset, Comirnaty, may not have a very long shelf life. Therefore, it understands the necessity to come up with new products to sustain its current valuation over the longer term.
Mad Hedge Biotech and Healthcare Letter
December 7, 2021
Fiat Lux
Featured Trade:
(GET READY FOR THE SECOND WAVE OF COVID-19 VACCINES)
(NVAX), (MRNA), (PFE), (BNTX), (JNJ), (AZN), (SNY)
Moderna (MRNA) and Pfizer (PFE) / BioNTech (BNTX) unquestionably rule the COVID-19 vaccine market these days.
These companies have amassed billions in quarterly revenue from their vaccine candidates, with Moderna expecting $18 billion and Pfizer/BioNTech anticipating $36 billion in annual sales this year.
Other than these two, Johnson & Johnson (JNJ) and AstraZeneca (AZN) offer COVID-19 vaccines, but these appear to be distant rivals to the mRNA contenders.
However, it looks like the COVID-19 vaccine market will soon get another competitor—one that has a solid potential to truly carve out a considerable share: Novavax (NVAX).
At this point, Novavax’s vaccine candidate has yet to gain authorization in major markets.
Its shares have also fallen by over 30% since it started in January this year. Nonetheless, the company is projected to turn things around starting this December.
For one, it has already started filing for regulatory approval in various countries and recently gained authorization in Indonesia and the Philippines. Meanwhile, it plans to file for approval in the US before 2021 ends.
To date, Novavax has secured $7 billion worth of advance purchase agreements for its vaccine by 2022.
But a more promising catalyst for Novavax lies in its proven technology.
This makes it notably distinct from Moderna and Pfizer’s vaccines. Simply put, Novavax isn’t offering new technology like the mRNA vaccine.
Rather, Novavax uses a tried and tested approach in the form of protein subunit vaccines. These constitute the very same technology used in vaccines that have been long available in markets, such as the Hepatitis B vaccine.
Considering the pushback in using new technology like mRNA, which comes from healthcare professionals and patients, the entry of a long-established vaccine technology would encourage more people to get the coronavirus jab.
Moreover, Novavax’s candidate can be stored at refrigerator temperatures. This is more convenient compared to the vaccines of Moderna and Pfizer, which require freezer temperatures.
The latest coronavirus variant, Omicron, brings about another catalyst.
Since the WHO announced Omicron’s presence last month, the entire world, including the stock market, has been rattled.
However, this announcement also served to light a fire under COVID-19 vaccine stocks.
After all, every problem can offer an opportunity. Omicron’s emergence has boosted the demand for COVID-19 vaccines.
While it’s never advisable to get the cart ahead of the horse, especially since the worries over the Omicron might be premature, it’s still reasonable to assume that the anxiety triggered by the news will most likely increase the popularity of vaccine stocks.
In the case of Novavax, the company is taking advantage of this exposure to announce that it is currently working on a candidate that’s potent against the new variant.
Beyond Novavax’s COVID-19 vaccine, the company has 8 more programs queued in its pipeline. Of these, 3 are in Phase 2/3 clinical trials.
These include ResVax and RSV F, which are vaccines against the respiratory syncytial virus (RSV). While adults can recover from RSV within weeks, this virus can be fatal to infants and children.
The most promising candidate is NanoFlu, which received a Fast Track Designation from the US FDA in early 2020. It also recorded top-line data against Fluzone from Sanofi (SNY), the leading flu vaccine today.
To give an idea of NanoFlu’s potential, Fluzone raked in $2.9 billion in sales in 2020—and it hasn’t even covered most of the market yet.
Considering NanoFlu’s Phase 3 clinical trials results, the product is estimated to generate more than $9.5 billion in global revenue by 2027.
Admittedly, Novavax investors have experienced a bumpy ride throughout 2021. However, it appears that the biotechnology company is on its way up, thanks to a couple of catalysts that lie ahead.
While I still think that Moderna and Pfizer are great stocks for long-term investments, these companies have already reaped the benefits of share performance. It may very well be Novavax’s turn to impress the market in the next few weeks.
Mad Hedge Biotech and Healthcare Letter
December 2, 2021
Fiat Lux
Featured Trade:
(A REMARKABLE COVID-19 JUGGERNAUT)
(PFE), (BNTX), (MRNA), (JNJ), (AZN), (MYOV), (AKCA)
Unless you have been living under the rock in the past two years, you probably heard that Pfizer (PFE) is one of the frontrunners in the COVID-19 market.
Between its incredibly successful vaccine and its soon-to-be-approved antiviral treatments, this company has undoubtedly risen to meet—and even surpass—the expectations.
And while a juggernaut in the pharmaceutical and healthcare industry may not seem like your run-of-the-mill growth stock, Pfizer has been showing no signs of slowing down.
If anything, this vaccine leader is anticipated to deepen its lead and reward its investors with market-crushing returns.
Moreover, the foundation of a good growth stock is a great product.
Pfizer clearly has that with its COVID-19 vaccine, Comirnaty, which raked in $13 billion in sales in the third quarter of 2021 alone—and there are surely billions more to come in the next months.
The company actually projects roughly $36 billion from Comirnaty sales this year, which is $2.5 billion more than the initial guidance of $33.5 billion announced earlier, with opportunities appearing to be multiplying more rapidly than even the management anticipated.
For 2022, Pfizer projects $29 billion in sales from Comirnaty—a number that could still rise given the recent approval for vaccines for children over 5 years old and the authorization for booster shots for adults.
On top of the vaccine sales, Pfizer has yet to take into account the potential of its COVID-19 pill, which has at least 90 countries interested.
Actually, the Biden administration has already allocated $5.3 billion to buy 10 million doses in advance of the anticipated approval.
This antiviral pill, called Paxlovid, can serve as an excellent alternative for those who are still hesitant over the vaccine. Plus, it has an 89% effectiveness in reducing the risk of severe COVID-19.
Considering that COVID-19 doesn’t seem to be disappearing anytime soon, there’s no question that Pfizer has a wide runway for growth.
Here’s one example of how Pfizer has been leveraging its expertise and technology lately.
In November, the world was alarmed by the news of yet another COVID-19 variant called Omicron, which was discovered in South Africa.
Although not much is known about it yet, scientists think it’s an escape variant because of its ability to double mutations compared to the Delta variant.
More alarmingly, Omicron is considerably distinct from the original virus that was the basis for the existing COVID-19 vaccines.
That led to growing concerns over the effectiveness of the current vaccines in the face of a highly virulent variant.
Countries like the US, the UK, Canada, Singapore, and Australia have decided to impose travel restrictions on passengers arriving from Africa to curb another pandemic.
The news of this new variant alarmed the world so much that even the stock market experienced a downtrend, particularly in the travel and hospital sectors. This is devastating considering that international travels have only been recently reopened.
Amidst the panic over the Omicron variant, Pfizer and its vaccine partner BioNTech (BNTX) shared that they have been long prepared over the possibility of an “escape variant” emerging.
In fact, the two have taken action months before the news broke and worked to modify their mRNA vaccine to target the new variant, with their candidate ready to be shipped out within 100 days.
This is an impressive foresight on the side of Pfizer and BioNTech, especially in light of the fact that its competitors, Moderna (MRNA), Johnson & Johnson (JNJ), and AstraZeneca (AZN), are only about to investigate the efficacy of their vaccines against Omicron.
Meanwhile, Pfizer has 94 programs in its pipeline. Of these, 38 are enrolled in Phase 2 and 3 clinical trials.
It also has 6 mRNA projects with its German partner BioNTech for additional COVID-19 vaccines and an mRNA flu vaccine.
In terms of expanding its other segments, Pfizer has collaborations with several companies in numerous specializations.
These include the acquisition of Trillium Therapeutics (TRIL) and work with Myovant Sciences (MYOV) to expand its oncology segment, while its collaboration with Akcea Therapeutics (AKCA) targets its cardiovascular sector.
Overall, Pfizer has proven itself to be the safest COVID-19 stock in the market today. Moreover, the continuous expansion of its core business and its heavy focus on R&D all guarantee that it remains in a tremendous position even in a post-COVID world.
Mad Hedge Biotech and Healthcare Letter
November 18, 2021
Fiat Lux
Featured Trade:
(A GROSSLY OVERLOOKED REOPENING PLAYER)
(ISRG), (JNJ), (SYK), (BDT), (MDT)
Some people say that the entirety of November can be considered the Halloween season for investors, especially with the current stock market climate.
Stock valuations are higher than ever, while inflation has started to rear its ugly head since the month began.
Personally, I don’t believe that investors should be scared.
Throughout history, there has always been a bogeyman or two emerging as a reason to veer far away from the stock market. More often than not, though, these frightening situations tend to be overblown.
One of the companies that investors are afraid to risk their money on is Intuitive Surgical (ISRG).
However, Intuitive Surgical has the markings to realistically expand to 10X or even more over the following decades.
If anything, I think this is a stock that investors should be more frightened to pass up rather than to buy.
Admittedly, Intuitive Surgical’s high-tech robotic surgical platforms do look sort of scary. Nonetheless, the stock tells a completely different story.
Intuitive Surgical is a pioneer in robotic surgery, with the company’s work dating back to the late 1990s.
To date, it has over 6,500 of its systems installed across the globe and more than 9.7 million procedures performed utilizing its robotic platforms.
Basically, Intuitive Surgical offers a robotic-assisted surgery structure called the “da Vinci System.”
Surgeons use this in an effort to lessen the invasiveness of surgeries. The company’s robotic systems have been used in various surgery types like gallbladder, hernia, gynecological, colorectal, and bariatric.
While the da Vinci System has become synonymous with Intuitive Surgical, what most people don’t know is that the company gets the majority of its revenue from recurring orders of accessories, instruments, and service.
In fact, these comprise 69% of the company’s revenue in the first 6 months of 2020, with the number rising to 72% during the same period in 2021.
After all, hospitals invest millions in buying the machines and training the surgeons, so it makes sense that they want to keep them in tiptop shape.
Although these numbers look impressive, the truth is that Intuitive Surgical is barely scratching the surface of this opportunity.
Given its history and growth trajectory, the company projects that it will perform approximately 6 million procedures annually based only on its systems with regulatory clearances. In comparison, Intuitive Surgical recorded 1.2 million procedures in 2020.
Intuitive Surgical still believes that it can surpass this projected five times growth opportunity despite this promising outlook.
In recent years, the company has been investing heavily in its R&D sector to expand its reach.
One of the potential markets in its sights is the soft-tissue surgery segment, which has recorded roughly 20 million procedures every year.
And these are all based on the current population. If we factor in the aging demographics, then we can definitely expect to drive the volume higher in the coming decades.
Considering the massive potential of this market, it comes as no surprise that Intuitive Surgical faces more and more competition.
Although several big and small companies have tried to enter the robotic surgical systems segment, none can compare to the proven track record of Intuitive Surgical.
Given the 20-year headstart of Intuitive Surgical, saying that it would be difficult to catch up to its accomplishments is an understatement.
Moreover, the company controls roughly 80% of the surgical robotics market globally—and that’s a multi-billion dollar market.
Some of the companies trying to penetrate the space are Johnson & Johnson (JNJ) , Stryker Corporation (SYK), Becton, Dickinson, and Company (BDX) and Medtronic (MDT).
Intuitive Surgical has a proven track record of being one of the most notable regardless of industry, even in terms of profitability.
If you compare its bottom line, net profit margin, to its competitors, the company’s margin looks so much better than the combined margin of SYK, BDX, and MDT.
Bear in mind that the medical technology sector is one of the areas that will tremendously benefit from the reopening.
While it’s not top of mind, many elective surgeries and diagnoses were sidelined during the lockdowns.
The influx of COVID-19 cases in hospitals caused many doctors to delay these procedures, and patients didn’t want to risk infection either. This resulted in a colossal backlog of elective surgeries.
With the vaccination rates going up and the pandemic getting handled more efficiently, these very same patients will need to get treatment for the postponed surgeries.
Needless to say, this will trigger a post-pandemic boom in the elective surgeries and diagnostics field—and Intuitive Surgical will be there, ready and waiting to reap the rewards.
Overall, Intuitive Surgical is a safe pick with impressive growth potential.
Other than the immediate benefits from the post-COVID-19 era, the company has a remarkable expansion rate and innovative technology.
It’s good to be reminded though, that best-in-breed stocks don’t go on sale as frequently. The truth is, Intuitive Surgical isn’t for bargain hunters.
However, it’s a successful company that’s worth adding, especially on the dip and holding for long-term investors.
