Mad Hedge Biotech & Healthcare Letter
January 5, 2021
Fiat Lux
FEATURED TRADE:
(ANNOUNCING THE MAD HEDGE BIOTECH AND HEALTH CARE TRADE ALERT SERVICE)
(WHY ASTRAZENECA IS NOT JUST A COVID PLAY)
(AZN), (PFE), (MRNA), (JNJ), (ALXN)
Posts
The latest update on AstraZeneca’s (AZN) COVID-19 vaccine candidate has received a lot of attention from investors.
The company and its research partner Oxford University recently landed a deal to deliver 2 million doses of their COVID-19 vaccine weekly to the UK starting mid-January.
This is on top of the massive deal AstraZeneca sealed with India for emergency use approval as well.
While these are exciting updates, the reality is that AstraZeneca aims to market its COVID-19 vaccine candidate at cost.
As the race to supply COVID-19 vaccine to the world continues, it’s undeniable that a huge chunk of the roughly $40 billion COVID-19 revenue would go to the current frontrunners Pfizer (PFE) and Moderna (MRNA).
This is particularly true for Moderna’s case as the biotechnology company employed a revolutionary technology to create its COVID-19 vaccine candidate.
The success of its vaccine so far is indicative of future treatments and even vaccines based on the mRNA technology. This offers incredible promise not only for the current pandemic but for a myriad of rare diseases.
In comparison, AstraZeneca and even Johnson & Johnson (JNJ) opted for more traditional approaches for their COVID-19 vaccine candidates.
While these are also promising, it’s likely that these companies do not anticipate their COVID-19 programs to be the profit centers for 2021.
In fact, there are a lot of good reasons to buy AstraZeneca shares right now – and its COVID-19 vaccine candidate didn’t make the top of the list.
One of the main reasons AstraZeneca deserves a spot in your portfolio is the fact that it already has an established and successful pipeline.
While its COVID-19 program definitely boosted its popularity, this effort was not altogether necessary in terms of the company’s overall growth.
Despite the pandemic that brought down businesses in 2020, including commercial launches of new drugs, sales of AstraZeneca’s new products rose 9% year over year.
In fact, throughout the past 12 months, the company managed to generate approximately $1.9 billion in free cash flow.
In the first nine months of 2020, the company reported core earnings growth of 13% year over year, with a 2.8% dividend.
To close the year with a bang, AstraZeneca announced its $39 billion acquisition of one of our closely-watched biotechnology companies: Alexion Pharmaceuticals (ALXN).
Although this initially didn’t bode well with its investors, AstraZeneca is set to gain the blockbuster franchise composed of the Soliris-Ultomiris duo.
At its current growth rate, Alexion’s prized Soliris franchise is estimated to generate at least $6 billion in sales in 2021.
Meanwhile, Soliris’ longer-lasting version, Ultomiris, which was launched in 2018, is projected to rake in almost twice in profits this year.
Both Soliris and Ultomiris require regular treatment, with the former administered every other week while the latter is an infusion needed every other month.
Although there are less expensive biosimilar options already making the in the market today, particularly for Soliris, the move of Alexion to develop Ultomiris as a longer-lasting and more convenient version all but obliterates any future competition.
Simply put, AstraZeneca will have a monopoly of this market once the acquisition is complete by mid-2021.
Speaking of convenient options for prolonged treatments, AstraZeneca recently gained expanded approval for its easy-to-swallow tablet called Tagrisso. This drug is developed for lung cancer patients with tumors caused by specific gene mutations.
The latest approval allows Tagrisso to be prescribed to newly diagnosed patients who just had their tumors removed surgically.
This presents a lucrative market for AstraZeneca considering that these patients undergo therapy for long periods.
More importantly, AstraZeneca doesn’t really need to market Tagrisso’s value to oncologists.
Clinical results show that the tablet can lower the risk of the disease’s recurrence or even death by as much as 80% among their patients.
Putting these results in the context of AstraZeneca’s records, Tagrisso’s sales for the third quarter of 2020 alone grew by 30% year over year to reach $4.6 billion.
With the recent FDA approval, this number is set to increase to transform Tagrisso into a certified blockbuster drug.
Other than Tagrisso, AstraZeneca has a number of oncology blockbusters in its portfolio and pipeline.
In the first nine months of 2020, the sales of the company’s therapies unit rose by 23% year over year to a record $8.2 billion. Admittedly, Tagrisso contributed a substantial amount.
However, it’s not the sole growth driver in AstraZeneca’s oncology lineup.
Another moneymaker is Lynparza, which showed a 42% jump year over year in its third quarter sales in 2020 to reach $1.9 billion.
This drug, which was initially approved as an ovarian cancer treatment, is now prescribed to treat prostate, pancreatic, and breast cancer. Therefore, the expanded approvals are expected to offer more lift this year.
Another promising addition to AstraZeneca’s oncology pipeline is Enhertu, which the company gained from its $1.35 billion collaboration project with Daiichi Sankyo.
Since the two companies started working together last year, Enhertu has received approval for breast cancer patients who relapse or do not respond to standard care.
Aside from this, Enhertu is also under review as a treatment for stomach cancer.
Although the companies are still awaiting approval, the treatment is reported to have a great chance at approval because of its impressive ability to lower the risk of cancer patients’ death by 41% compared to chemotherapy.
AstraZeneca’s decision to boost its oncology segment by adding the likes of Alexion Pharmaceuticals and collaborating with Daiichi Sankyo guarantees that the company remains in a position to be able to deliver gains no matter what happens to the broader economy.
The continuous success for all the products in AstraZeneca’s pipeline could lead to market-crushing gains.
However, investors who own the stock don’t necessarily need to rely on luck to know that they are set to get a healthy return.
That assurance makes AstraZeneca a great stock to buy today and hold for a long time.
Mad Hedge Biotech & Healthcare Letter
December 17, 2020
Fiat Lux
FEATURED TRADE:
(ALL HAIL THE DIVIDEND KING)
(JNJ), (PFE), (GSK), (SNY), (MRK), (MRNA)
Major problems have the tendency to attract major problem solvers.
That’s why it came as no surprise when the biggest pharmaceutical companies, like Pfizer (PFE), GlaxoSmithKline (GSK), Sanofi (SNY), and Merck (MRK), jumped in to work a solution the moment a global pandemic threatened the planet.
Now, another big name in the healthcare industry is set to release its own solution.
As Johnson & Johnson (JNJ) releases more positive data from its COVID-19 vaccine program, it becomes more obvious that the company won’t simply be one of the businesses benefiting from the world turning the corner on the pandemic—it will be one of the companies making that happen.
While companies like Pfizer have already gained approval and are out in the market today, JNJ’s day in the sun could be happening sooner than anticipated as well.
What we know so far is that JNJ would be able to manufacture at least 1 billion doses of its COVID-19 vaccine, JNJ-78436735, by early 2021. Given the company’s massive production capacity, catching up with the global demand won’t be an issue either.
More importantly, JNJ’s vaccine offers more convenience in terms of storage compared to current leaders Pfizer and Moderna (MRNA) since JNJ-78436735 does not need ultra-special requirements.
Unlike the other vaccines, JNJ’s candidate can be stored at refrigerator temperature for up to three months.
Plus, JNJ-78436735 is formulated to be a one-dose vaccine, which means it would be easier to administer than the two-shot candidates from Pfizer and Moderna.
While this is great news, the company already announced that it would be selling JNJ-78436735 at cost during the pandemic.
That doesn’t necessarily mean that JNJ is doing all these for purely altruistic reasons though. Even when the pandemic is over, there will still be a demand for the COVID-19 vaccine.
The market for this is estimated to be worth roughly $100 billion in sales and over $40 billion in profits.
If approved, then JNJ can comfortably share this opportunity with competitors.
Given the pricing and the target market, JNJ is projected to earn at least $3 billion in sales for JNJ-78436735 in 2021 alone.
However, the appeal of JNJ stock does not lie in its COVID-19 vaccine candidate.
Pretty much like industry stalwarts such as Walmart (WMT), JNJ is one of the safest blue-chip stocks.
Founded in 1886, it has shown its capacity to weather practically all types of market crashes thanks to its consumer defensive strategy.
While JNJ is not immune to setbacks, as it faced patent expirations for its best-selling drugs and even lawsuits for products like Tylenol and the infamous Baby Powder legal battle, the company managed to repeatedly bounce back primarily because of its well-diversified business segments.
Simply put, its strong products easily offset the weaknesses.
JNJ manufactures and markets basic items like bandages, baby formula, and even skincare products—all of which are goods that customers continue to buy regardless of what is happening to the economy.
Specifically, JNJ owns a number of multibillion-dollar brands like Band-Aid, Listerine, and Nicorette. However, it doesn’t heavily rely on already established names.
For instance, its consumer health sector—the smallest segment in the company—raked in $13.9 billion in sales in 2019.
Meanwhile, its medical devices division generated $26 billion in the same year.
Its pharmaceuticals sector, which covers drugs and treatments for infectious diseases, oncology, and cardiovascular, brought in a whopping $42.2 billion.
A more recent demonstration of JNJ’s ability to weather market downturns is the company’s third-quarter earnings report, which showed a 3.8% jump in its EPS to hit $2.2 and a 1.7% increase in its sales to reach $21.1 billion.
By 2021, JNJ is projected to report a 9% increase in its revenue and a 12% earnings growth following the easing of the pandemic woes and the increasing sales of its top cancer treatments Darzalex and Imbruvica.
Over the past five years, JNJ’s stock has rallied by over 40% and generated a total return of 65%.
To date, this stock trades at merely 17 times forward earnings and pays a respectable forward yield at 2.7%, making it a good investment at a decent price.
As in the past, it’s easy to bet on JNJ’s dividend growth in the next years and even decades for three main reasons—an extremely diversified portfolio that already has an established solid footing across global markets, a rock-solid balance sheet, and a hyper-focus on development and growth.
JNJ’s solid foothold in the worldwide healthcare market along with its innovative R&D spending serves as key drivers for its impressive cash flow and consistent dividends.
Most investors are familiar with companies tagged as Dividend Aristocrats. These stocks are part of the S&P 500 group that managed to increase their dividends for at least 25 years in a row.
However, there’s an even more elite group of dividend stocks that do not get as much fanfare: the Dividend Kings.
To be categorized as a Dividend King, the company must be able to grow its dividend for at least 50 consecutive years.
Since it went public 76 years ago, JNJ has been able to boost its annual dividend for 58 straight years---making this company one of the globally recognized Dividend Kings of the S&P 500.
Mad Hedge Biotech & Healthcare Letter
December 8, 2020
Fiat Lux
FEATURED TRADE:
(IS THIS STOCK A DISCOUNT TO MODERNA?)
(NVAX), (MRNA), (PFE), (BNTX), (AZN), (JNJ), (MSFT)
Eighteen months ago, an unknown vaccine developer called Novavax (NVAX) confronted an existential terror: getting delisted by the NASDAQ stock index.
This threat came on the heels of the company’s second failed vaccine study in less than three years, plunging Novavax shares to less than $1 for 30 straight days and triggering a warning from NASDAQ.
Desperate to keep the company going, Novavax sold two of its manufacturing plants in Maryland, cutting the payroll by over 100 employees.
By January 2020, Novavax only had 166 employees in its roster and was priced at $4 per share.
By December of the same year, Novavax more than tripled its workforce and the stock has risen to $128 per share.
What a difference a year—and a global pandemic—could make.
To date, Novavax stock has already skyrocketed to over 3,000%—shattering even the wildest dreams of its early investors. And this isn’t the best news yet.
Like Moderna (MRNA), another small biotechnology that skyrocketed this year, Novavax is projected to enjoy more room for growth in the succeeding years.
Despite the similarities in their achievements, there has been a notably sizable gap between the valuations of these two biotechnology companies in the Operation Warp Speed list.
The valuation gap would probably make more sense now, especially since Moderna has the golden ticket when it comes to high efficacy results for the COVID-19 vaccine, while Novavax has yet to prove its candidate’s worth.
However, Novavax isn’t out of the race just yet. Novavax plans to end 2020 with a bang by launching pivotal COVID-19 vaccine trials for its candidate, NVX-CoV2373, in the US and Mexico.
While the old saying, “The early bird gets worm,” is frequently accurate and we’ve seen how first-movers generally attain the highest success, this may not be the case here.
In view of the COVID-19 vaccine race, there’s a realistic possibility that Novavax will come out as a bigger winner than Pfizer (PFE) or Moderna (MRNA) in the long run.
Admittedly, it’s encouraging for vaccine developers to know that RNA vaccines, such as Pfizer and BioNTech’s (BNTX) BNT162b2 and Moderna’s mRNA-1273, are effective.
It’s definitely even more encouraging to learn that the second type of vaccine, which is being developed by AstraZeneca (AZN) and Oxford, also offer successful trials.
However, the potential of Novavax’s vaccine candidate proves that there are many ways to skin the cat.
This protein-based vaccine, which also caught the attention of Microsoft (MSFT) co-founder Bill Gates, is expected to show the best results among all the developers.
Although its competitors are months ahead in their tests, NVX-CoV2373 actually outshone the rest of the developers on key metrics in the monkey and even human tests.
Moreover, Novavax’s technology offers versatility, which means it can be applied to other vaccines and treatments as well.
If NVX-CoV2373 gains approval, the company will easily continue this momentum in 2021 and in the next years.
The market opportunity presented by the demand for a COVID-19 vaccine is unbelievable.
Priced at $16 per dose, Operation Warp Speed shelled out $1.6 billion to buy 100 million doses of the Novavax vaccine.
Considering that this is a two-shot vaccine, this would only cover 50 million people.
Although the price may be higher or lower depending on various factors, $16 per dose is a good starting point for a back-of-the-envelope calculation.
What we know so far is that Novavax has already secured agreements to manufacture more than 2 billion doses.
Taking into consideration the price point of $16 for each dose, that easily gives the company a potential revenue of a whopping $32 billion in 2021.
The upside is surreal.
Plus, we still have no guarantee whether the need for a COVID-19 vaccine will be a one-time requirement or a yearly ritual like flu shots, which Novavax also has covered with the production of its new drug, Nanoflu.
As the market continues to swoon over the huge updates from Pfizer and Moderna, it no longer comes as a surprise when other candidates are glossed over.
Novavax isn’t about to start selling its COVID-19 vaccine tomorrow, but it’ll probably release critical data in the next months.
Assuming that it gets regulatory approval by the first half of 2021, it’ll begin to realize the upside almost instantaneously.
At $8 billion market capitalization, Novavax stock could easily triple to $24 billion by the time the vaccine is released.
I believe Novavax offers a potential long, and I find myself getting bullish on this stock.
Although it has a limited pipeline at the moment, I think positive data from its COVID-19 vaccine candidate will serve as a catalyst for this stock to trade much higher in the future.
While I can see that Novavax is widely considered as a dark horse in this race, I believe it’s going to be a dark horse that can lead us out of this darkness soon.
Mad Hedge Biotech & Healthcare Letter
December 3, 2020
Fiat Lux
FEATURED TRADE:
(IT’S TIME TO JOIN THE COVID-19 VACCINE BANDWAGON)
(PFE), (BNTX), (MRNA), (NVAX), (AZN), (JNJ), (MRK)
In the history of corporate ventures, Pfizer (PFE) is one of the select few that can claim that their contributions genuinely contribute to the betterment of mankind.
This giant biopharmaceutical company has rapidly developed a promising vaccine candidate for the deadly COVID-19—an achievement that could potentially put an end to the global pandemic that has transformed 2020 into an apocalyptic year.
To date, Pfizer and its partner BioNTech (BNTX) have submitted the vaccine, BNT162b2, to the FDA for review—a move that could take us all a step closer to returning to our normal everyday lives, where we can be with our friends and loved ones without fretting over deadly infections.
If BNT162b2 gains approval, Pfizer and BioNTech can start the distribution by Christmas.
As expected, the COVID-19 vaccine will provide a quick and substantial boost to the company’s revenue this year.
Outside its COVID-19 program, Pfizer has a number of blockbuster treatments that have been generating steady growth despite the health and financial crises this year.
At the top of the list are breast cancer drug Ibrance and stroke and blood clot medication Eliquis. Other stars of Pfizer’s strong lineup include rheumatoid arthritis medication Xeljanz, heart failure treatment Vyndaqel, and prostate cancer drug Xtandi.
In terms of its pipeline, Pfizer has at least six programs queued for regulatory approval and an additional 21 candidates undergoing late-stage trials.
While Pfizer and BioNTech are leading the charge in the COVID-19 vaccine race, this is not necessarily a winner-take-all-market.
Days after Pfizer announced the results of its trials, fellow vaccine developer Moderna (MRNA) also released promising data. Another biotechnology company, Novavax (NVAX), has been sending out impressive results as well.
Even AstraZeneca (AZN), which has been working with Oxford, offered good news despite the delays in its own trials.
Meanwhile, Johnson & Johnson (JNJ) and Merck (MRK) have been making progress in their own COVID-19 programs as well.
However, there’s a crucial role played by Pfizer’s success.
It introduced to us the possibility of jumpstarting a vaccine program and shortening the development period that typically takes at least 10 to 15 years to complete.
More impressively, Pfizer has managed to come up with a vaccine with 95% efficacy – an amazing feat considering that 90% to 95% of vaccine trials tend to fail from the very beginning.
Most importantly, Pfizer’s recent results showed that we can now explore new options in vaccine development.
Taking BNT162b2 into consideration, this program opened doors for treatments created based directly on the molecular and even genetic structure of viruses.
Needless to say, Pfizer is a compelling stock to buy at a time when it is the norm to complain about having nothing to purchase at a reasonable price.
Additionally, Pfizer shares offer a dividend yield of 4.2% – a major advantage in a financial market that appears to be starved for any sort of security.
For those patient enough, the current conditions look to be ripe to use options to make the most of the short-term volatility to position yourselves for long-term gains.
By selling puts and buying calls, you can get the options market to pay them to purchase stock at cheaper prices and even participate in any rallies.
With Pfizer stock priced at around $36.18 these days, you can sell the January $36 put and buy the January $38 call for a credit of roughly 60 cents.
If Pfizer stock rallies, then you profit.
If the stock falls, then you can just buy it at the put strike price, although at a minimal discount because of the credit, or simply cover the put and move on.
If Pfizer stock hits $43 at the January expiration though, the call would be worth $5.
This risk-reversal plan is based on the prediction that good things are expected to happen to Pfizer—and to the world—soon.
Obviously, the key risk is that the stock rolls over and falls before the January expiration.
Given the new COVID-19 vaccine, however, that seems highly unlikely.
Mad Hedge Biotech & Healthcare Letter
November 24, 2020
Fiat Lux
FEATURED TRADE:
(WATCH OUT FOR BIONTECH’S HOCKEY STICK GROWTH)
(BNTX), (PFE), (AZN), (MRNA), (JNJ), (REGN), (DNA)
BioNTech (BNTX) is the perfect example of an old saying, “Timing is everything.”
Coming from its humble IPO in 2019, this biotechnology company now sports a $25 billion market capitalization—a number that could still go up once its COVID-19 vaccine candidate with Pfizer (PFE) receives US and EU nods.
What we know so far is that their COVID-19 vaccine candidate could secure an emergency approval as early as December and start delivery before Christmas.
Although it’s still not available in the market, the effect of its COVID-19 vaccine candidate, called BNT162, has made itself known in BioNTech’s earnings report.
The company reported roughly $80 million in revenue in the third quarter of 2020 alone—an impressive 135% jump from its previous performance in the same period last year.
To date, BioNTech and Pfizer are estimated to supply roughly 1.3 billion doses by the end of 2021.
Additional orders could still come in though, which is why the two companies have been busy scaling their manufacturing capacities.
If all goes according to plan, then the expected returns from their COVID-19 vaccine sales could come sooner than initially thought.
Recent reports reveal that Moderna’s (MRNA) COVID-19 vaccine candidate also showed over 90% efficacy. Even AstraZeneca’s (AZN) candidate with Oxford University disclosed promising results.
However, BioNTech and Pfizer’s candidate has a couple of competitive advantages.
The first would be its 95% efficacy, which gives the two companies the commanding position and effectively relegates the rest as second grade options.
Their candidate showed no safety concerns—a major issue for AstraZeneca and Johnson & Johnson’s (JNJ) candidates.
Third, the partners have been able to reassure their capability to manufacture at scale—an issue that would pose problems for other developers like Moderna.
In fact, BioNTech acquired a vaccine manufacturing plan in Germany just last September to meet the demand for 250 million doses by mid-2021 and another 80 million doses monthly thereafter.
In terms of manufacturing capacities, the two potential competitors of BioNTech and Pfizer here are AstraZeneca and JNJ. Both have already paused their trials and are now falling behind in terms of the rigid schedule.
As for the other COVID-19 vaccine leader, Moderna has yet to prove that it can manufacture at scale.
BioNTech and Pfizer even shut down the red herring about the cooling and storage of their COVID-19 vaccine candidate. The two companies released their plans for distribution and detailed a strategy that’s not only feasible but also cheap.
Since the vaccine requires extremely low temperatures to maintain its efficacy, Pfizer and BioNTech will ship them from centralized warehouses via a thermal shipper.
This will ensure that the temperature is maintained for 10 days without the need to re-ice and up to 15 days with re-icing. A GPS will be used to monitor and track the integrity of the vaccine in real-time.
The impact of its sales from the COVID-19 vaccine would dwarf practically everything else in BioNTech’s financial statements.
However, this does not mean the biotechnology company will revert to its 2019 status once the peak of its COVID-19 vaccinations is over.
Instead, BioNTech will be in possession of an extremely valuable IP of an effective and working mRNA vaccine platform.
This will allow the company to apply the technology to other infectious diseases.
If it continues with its partnership with Pfizer, it can even develop vaccines for farm animals and domestic pets and market those under the bigger company’s animal healthcare spinoff, Zoetis (ZTS).
Here’s a bit of background on BioNTech.
Founded in 2008, BioNTech was created to develop hyper-personalized medicine and treatments.
At the center of its mission, the company’s basic idea is that the tumor found in each cancer patient is one of a kind.
To help find a cure or treatment, the company analyzes the tumor for its genetic signature.
Once they identify this unique element, they would develop gene-based therapies to limit the spread or even put an end to that particular occurrence of cancer.
If you think this is a lofty goal for a small biotechnology company, then you’d be surprised to find out that BioNTech proved their theories in 2017.
At the time, all 13 patients who underwent the analysis and received injections for genetically personalized therapies for their advanced-stage cancers.
Essentially, the cancer patients developed immunity from their own cancer.
Apart from COVID-19 and cancer treatments, BioNTech is also working on treatments for tuberculosis, HIV, and several rare diseases.
Outside its partnership with Pfizer, it has been partnering with Regeneron (REGN) and Genentech (DNA).
Biotechnology stocks have the tendency to move when the companies release updates about their treatments under development.
For momentum investors, it’s crucial to be prepared for whatever happens in the aftermath.
Looking at the developments and other updates, BioNTech’s COVID-19 vaccine work could send this stock to the moon.
After all, its partnership with Pfizer resulted in what could be the most effective and efficient candidate to battle the pandemic.
This means that the demand for the vaccine would exponentially exceed the supply in the near future, with the majority of what can be manufactured getting pre-sold or call option reserved.
To date, BioNTech stock is trading at roughly $104 per share. However, I estimate that it could reach a target price of $600 by the first quarter of 2021.
