Mad Hedge Biotech & Healthcare Letter
July 13, 2021
Fiat Lux
FEATURED TRADE:
(SPINOFF STOCKS POISED FOR LONG-TERM GROWTH)
(VTRS), (OGN), (PFE), (MRK), (JNJ), (LLY), (ABBV),
(AZN), (GSK), (BMY), (GILD), (REGN), (PYPL), (EBAY), (CARR), (UTC)
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Spinoffs have historically been known to deliver healthy returns for their investors.
A good example is PayPal (PYPL), which grew sevenfold since 2015 following its spinoff from eBay (EBAY).
A more recent example is Carrier Global (CARR), which tripled its shares amid the pandemic after its spinoff from United Technologies (UTC) last year.
Basically, spinoffs allow smaller segments of companies to thrive on their own or push high-growth divisions to expand faster.
Over the past months, the cheapest stocks found in the S&P 500 have recently spun off pharmaceutical companies: Viatris (VTRS) and Organon (OGN).
Viatris is a spinoff of Pfizer (PFE), which merged with Mylan, while Merck (MRK) jettisoned Organon (OGN) just last month.
Both are brand new and still under the radar, particularly among investors who don’t follow healthcare updates.
While these two have yet to impress the market, both exhibit potential that could make them promising long-term prospects.
Viatris holds an extensive portfolio of drugs courtesy of Pfizer’s Upjohn unit and Mylan’s pipeline.
The list includes the previously top-selling Lipitor, Viagra, Lyrica, and even Norvasc from Pfizer. It also has Mylan’s income-generating EpiPen along with the company’s HIV/AIDS therapies and 7,500 marketed products across the globe.
To date, Viatris has fallen roughly 30% from its average price target. It’s not for the subpar performance of its products though. This is mostly attributed to the lack of attention from investors and possibly a bit of skepticism from some analysts.
However, Viatris has a really good value proposition.
The main goal of the biggest names in the biopharmaceutical sector, such as Johnson & Johnson (JNJ), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca (AZN), GlaxoSmithKline (GSK), Bristol-Myers Squibb (BMY), and Gilead Sciences (GILD), is to develop and launch the best-in-class treatments to market.
To achieve that, these industry giants are granted a set period to exclusively sell and market each new drug that gains approval.
This would allow them to command a premium price, which in turn would give them the money to fund the next round of research and development needed to come with the next generation of newer and improved versions of the treatment.
However, not everyone can afford those premium prices.
So when the periods of exclusivity end, there are companies like Mylan—now Viatris—that are allowed to manufacture generic versions of those branded drugs and sell them at lower prices.
The list of drugs with soon-to-expire patents for which Viatris has been working on creating biosimilars or generic versions include Humira from AbbVie, which recorded peak sales at $20 billion; Eylea from Regeneron (REGN), which peaked at $7.5 billion; and even Allergan’s Botox, which peaked at $5 billion.
Viatris is also working on biosimilars for Roche’s (RHHBY) cancer treatments Avastin, which had peak sales of $7 billion, and Perjeta, which peaked at $5 billion.
Obviously, Viatris will not reach the same height of success as the companies that created those branded drugs.
But, if it manages to achieve even only 10% of those numbers, then it can generate roughly $4 to $5 billion in sales—and that’s just the tip of the iceberg.
So far, Viatris owns at least 1,400 approved molecules applicable in roughly 10 therapeutic segments.
It has roughly 350 products in its pipeline at the moment, with each item estimated to generate approximately $100 million to $500 million in sales.
With its current performance and access to 165 countries and territories, Viatris is expected to generate roughly $224 billion in global sales annually.
With all these in mind, Viatris’ value proposition looks impressively strong to me.
More importantly, this Pfizer spinoff has the capacity to become the world’s first dominant generic and biosimilar drug manufacturer, with its revenues potentially becoming comparable to major pharmaceutical companies at some point.
The same value proposition could be behind Organon, as this newly spun-off company markets Merck’s off-patent drugs.
While the move to separate from its parent company has yet to show tangible results, Organon is projected to rake $6.1 billion to $6.4 billion in revenue for 2021, with annual sales expected to rise in mid-single digits and dividends anticipated to be about 3%.
The biosimilars market is still relatively young, with only 60 biosimilars approved in the EU and 29 in the US thus far. In total, those represent a market worth approximately $17 billion.
Conservative estimates project that the global biosimilars market will be worth $692 billion by 2027, considerably outpacing the mainstream pharmaceutical sector.
Given their potential and prospect for future gains, the low prices for companies like Viatris and Organon present rare opportunities to grab long-term investments.
Mad Hedge Biotech & Healthcare Letter
June 1, 2021
Fiat Lux
FEATURED TRADE:
ANOTHER BUY-THE-DIP OPPORTUNITY DROPPED IN OUR LAPS
(AMGN), (QGEN), (GH), (AZN), (MRTX), (LLY), (JNJ), (SNY), (JNJ)
The ideal stocks are those you can just buy and hold for a long time. A healthcare and biotechnology company that perfectly fits the bill is Amgen (AMGN).
Amgen wasn’t an active participant in the COVID-19 race.
Instead, the biotechnology giant chose to stick with its circle of competence and focused on delivering remarkable results to its shareholders through boosting its revenue and increasing dividends.
Recently, this hyper-focus has paid off.
Amgen received FDA approval to market a drug that targets cancer cells in an area that researchers have been attempting to hit for decades.
The new treatment, Lumakras, will be the first of its kind to target a tumor growth process commonly known as KRAS for non-small cell lung cancer (NSCLC).
To understand the extent of Amgen’s breakthrough, scientists and researchers have been working on developing a KRAS blocker for over 40 years.
Prior to this, KRAS had been known as an “undruggable” target.
Basically, Amgen came up with a drug that can target the notorious and illusive cancer-causing protein—something that was previously considered the “Achilles heel” of lung cancer tumors.
More impressively, Lumakras was approved three months ahead of its schedule.
Based on the results of its Phase 2 trials, Lumakras can stall the progress of lung cancer in roughly 81% of the patients for a median time of 10 months.
In the Phase 3 trials, Amgen is looking into testing the drug in combination with other medications to hit the tumors that developed resistance to the pill.
A key factor in Lumakras’ launch is determining the types of patients who’d benefit most from the drug.
So far, Amgen has been collaborating with diagnostic partners, particularly Qiagen (QGEN) and Guardant Health (GH), for biomarker testing.
In terms of pricing, Amgen estimates monthly spending on Lumakras to be $17,900.
In the United States, roughly 30,000 patients of KRAS-mutated lung cancers are reported annually.
That puts Lumakras sales to at least $100 million for 2021 alone.
By 2025, the drug is expected to rake in roughly $1 billion annually, with sales growing to $1.51 billion in 2026.
These are actually conservative estimates that assume only a 50% success rate from Lumakras in the next few years.
Given the provisional and accelerated approval the drug has already received from the FDA though, it is safe to say that it can achieve at least 75% success rate, which means it can generate higher revenue.
The KRAS target is not limited to lung cancer. It also appears in other solid tumors, which Amgen continues to test Lumakras in a dozen other types, including colorectal cancer.
Depending on expansion plans, Lumakras sales can reach $3.2 billion by 2030.
Again, this expansion is a conservative estimate.
If the expansion for Amgen’s drug would be anything like AstraZeneca’s (AZN) blockbuster Tagrisso, which eventually became a recommended first-line therapy option for NSCLC, then Lumakras sales can peak at $4 to $5 billion.
Considering the potential of this market, it no longer comes as a surprise that competitors are hot on Amgen’s heels just days after Lumakras’ approval was announced.
The closest rival so far is Mirati Therapeutics (MRTX), which also has KRAS-inhibitor candidates in Phase 1 and Phase 2 trials.
Prior to that, Eli Lilly (LLY) and Johnson & Johnson (JNJ) tried their hands at KRAS mutation but failed.
Aside from Lumakras, Amgen has another blockbuster candidate in store for its shareholders: asthma drug Tezepelumab.
Developed in collaboration with AstraZeneca, this drug is already in the second late-stage pipeline and has been showing promising results so far.
Globally, there are about 2.5 million patients with severe asthma, with 1 million suffering from eosinophilic asthma in the United States. Amgen is hoping to target the latter population.
If Tezepelumab gets approved, it would be in direct competition against Sanofi (SNY) and Regeneron’s (REGN) asthma drug Dupixent. Peak sales for this asthma drug is estimated at roughly $3.5 billion.
Over the past 12 months, Amgen’s stock performance has been rangebound.
Although this is obviously frustrating for growth-oriented shareholders, I think the short-term volatility of the stock may present good opportunities for value-conscious investors.
That is, I view the drop in Amgen’s share price as another favorable buying opportunity.
Mad Hedge Biotech & Healthcare Letter
May 27, 2021
Fiat Lux
FEATURED TRADE:
(A SAFE STOCK FOR YOUR PEACE OF MIND)
(JNJ), (ABBV), (TDOC), (MSFT)
No matter how you look at it, the stock market is definitely facing serious volatility these days. How long this uncertainty will last and whether it’s a sign of a looming market crash or correction is anybody’s guess.
On a positive note, the current situation will not cause panic to long-term investors. After all, it’s not right to base stock-buying decisions on the market’s behavior over the course of a few days, weeks, or even months.
Meanwhile, if a major bear market is on the horizon, then this could present a good opportunity to add resilient and recession-proof stocks to your portfolio.
In the biotechnology and healthcare sector, one stock comfortably fits the mold, and that's Johnson & Johnson, JNJ.
In terms of market capitalization, JNJ is one of the biggest—if not the biggest—pharma companies in the world, weighing in at roughly $450 billion.
It also holds an undisputed status as a Dividend King, which is a title granted to those companies that increase their payouts annually and consistently over the course of 50 years.
Actually, JNJ’s dividend-hiking streak has stretched to 59 straight years—and it doesn’t seem to be ending anytime soon.
To date, its quarterly dividend per share jumped by 5% from $1.01 to reach $1.06.
That’s why it comes as no surprise that it’s one of the stocks that investors come running to for safety and stability during periods of volatility.
In its first quarter earnings report in 2021, JNJ showed off by outperforming revenue expectations of $21.98 billion to record $22.32 billion instead.
Its EPS also beat estimates of $2.34 and instead reported $2.59. Despite the less-than-stellar condition of the US economy in the past months, JNJ still managed to boost its sales in the first quarter and increased its sales by 7.9% year-over-year.
All of JNJ’s core business segments also expanded their revenues this quarter.
For instance, its Janssen pharmaceutical arm, which was in charge of its COVID-19 vaccine, saw a 9.6% year over year increase in sales to reach $12.19 billion.
Even its medical devices segment experienced an improved performance with a 7.9% bump to record $6.57 billion for this quarter alone.
Looking at the programs in its pharmaceutical division, it’s clear that JNJ has a strong focus on six areas: cardiovascular, pulmonary hypertension, immunology, neuroscience, metabolism, and, of course, oncology.
In fact, three of JNJ’s pharmaceutical treatments raked in more than $4 billion in sales in 2020.
The list was topped by Stelara, which is a drug for Crohn’s disease, psoriasis, ulcerative colitis, and psoriatic arthritis, at $7.7 billion.
It was followed by multiple myeloma treatment Darzalex at $4.2 billion.
The product of its collaborative work with AbbVie (ABBV), blood cancer drug Imbruvica, rounds up the list at $4.1 billion.
The sheer size and financial power of JNJ offer the company extensive M&A opportunities—and it’s definitely taking advantage of that to continue boosting its revenue streams.
In August 2020, amid the COVID-19 pandemic, JNJ acquired Momenta Pharmaceuticals for $6.5 billion. This all-cash transaction added a slew of drug candidates that enhanced JNJ’s immune-mediated and rare disease pipeline programs.
Jumping into the telehealth bandwagon, JNJ has invested in Madison Thirty around the same time last year as well.
Much like Teladoc (TDOC), this small telehealth company has also attracted attention since it started and thus far raised $70 million in funding.
Boosting its presence in the merging world of technology and medicine, JNJ recently revealed its six-armed robotic surgical assistant, Ottava.
Basically, Ottava will be a high-tech guidance system and assistant to surgeons in operating rooms.
Throughout its history, JnJ has proven itself to be a top biopharmaceutical stock —full stop.
A global leader in the healthcare industry, JNJ is one of only two corporations that hold an AAA credit rating from Standard & Poor. The other company is Microsoft (MSFT).
It has been generating record profits and boosting its dividends. More importantly, investors can expect JNJ stock to serve as a healthy long-term wealth generator.
It prides itself on a strong triad of business segments that continuously drive growth: consumer health, pharmaceuticals, and medical devices.
Mad Hedge Biotech & Healthcare Letter
May 20, 2021
Fiat Lux
FEATURED TRADE:
(REGENERATED REGENERON)
(REGN), (PFE), (JNJ), (AMGN), (BMY), (GILD), (MRK), (LLY), (SNY), (BAYRY), (NVS), (RHHBY)
The biotechnology and healthcare sectors have become attractive investment targets for investors who recognize the value and essence of these industries along with the possible risks associated with them.
While not all companies in these areas are great investments, some offer remarkable growth opportunities.
One company worth considering is Regeneron (REGN), with its strong and stable investment thesis and steady organic growth.
Regeneron joins the ranks of Pfizer (PFE) and Johnson & Johnson (JNJ) as one of the handful of biopharmaceutical companies to release solid first quarter results this 2021 compared to other big names in the industry, including Amgen (AMGN), Bristol Myers Squibb (BMY), Gilead Sciences (GILD), Merck (MRK), and Eli Lilly (LLY).
The New York-based company reported a 38% boost in its revenue compared to the same period in 2020, reaching $2.5 billion for the first quarter of 2021 alone.
Virtually all of Regeneron’s products generated solid growth during this period, with the company’s COVID-19 antibody cocktail REGEN-COV delivering the highest sales at $262 million.
To underscore just how significant REGEN-COV is to Regeneron this quarter, its absence from the roster would take away 18% from the company’s overall revenue growth.
Riding the momentum of its COVID-19 program, Regeneron has developed Inmazeb, which is a treatment for Ebola virus infection.
Aside from its COVID-19 antibody cocktail, Regeneron also saw an impressive boost in the performance of its atopic dermatitis drug Dupixent.
Dupixent, which Regeneron sells in partnership with Sanofi (SNY), generated $1.26 billion in sales in the first quarter, showing off a notable 48% increase from its 2020 report.
Although Dupixent is a shared product with Sanofi, this dermatitis drug holds incredible promise for Regeneron.
To date, only 6% of eligible patients are being treated with Dupixent. This indicates a massive space that is yet to be explored by both companies.
Taking into consideration the pace at which Dupixent has been growing so far, this drug is projected to peak at roughly $12.5 billion in sales in the coming years.
Another high-selling drug for Regeneron is wet age-related macular degeneration (AMD) treatment Eylea.
Sales for this drug, which was developed in collaboration with Bayer (BAYRY), went up from $1.2 billion in the first quarter of 2020 to $1.3 billion this year.
The increase in sales for Eylea is a welcome surprise for both Regeneron and Bayer, especially since more and more competitors are attempting to topple the drug as the top product in the niche.
Cornering the AMD segment is an attractive venture for any biopharmaceutical company.
After all, Eylea generated $4.9 billion in sales in 2020 from the US market alone.
Thus far, two main competitors have come forward as the strongest.
One is Novartis (NVS), which released Beovu in 2019.
The second, and possibly the stronger competitor between the two, is Roche (RHHBY) with Faricimab.
To ensure its dominance in the AMD market, Regeneron has been expanding the use of Eylea.
The latest development is the drug’s enrollment in the Phase 3 program, which would allow extended periods in between treatments but still deliver the same level of efficacy and safety.
Aside from these, Regeneron is looking into additional revenue streams ahead.
One growth segment is its oncology program, particularly its cancer drug Libtayo, which may soon be marketed to cover a fourth type of cancer.
Regeneron aims to submit Libtayo for review as a treatment for advanced cervical cancer.
On top of this, the drug is also a strong contender in the development of several antibody treatments.
Thus far, the company has 12 oncology antibodies under clinical development.
Overall, Regeneron’s strong results for the first quarter of 2021 highlighted its continuous evolution into a company carrying multiple and diverse portfolios of products and pipeline programs that address an extensive range of serious diseases, from COVID-19 and rare diseases to cancer.
Mad Hedge Biotech & Healthcare Letter
May 18, 2021
Fiat Lux
FEATURED TRADE:
(AN UP-AND-COMER BIOPHARMA STOCK)
(ABBV), (ABT), (JNJ), (PFE)
Mad Hedge Biotech & Healthcare Letter
May 4, 2021
Fiat Lux
FEATURED TRADE:
(A BAD NEWS BUY STOCK)
(AZN), (PFE), (BNTX), (MRNA), (JNJ)
