Mad Hedge Biotech & Healthcare Letter
November 19, 2020
Fiat Lux
FEATURED TRADE:
(A STOCK FOR ALL AGES)
(JNJ), (PFE), (BNTX), (MRNA), (BRK-A) (BRK-B)
Posts
November has been an action-packed month so far.
The US election has concluded, and on top of the political drama, Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA) have released COVID-19 vaccine trial data that look extremely promising.
Since Pfizer and BioNTech (BNTX) announced that their vaccine BNT162b2 offers roughly 95% efficacy, the development resulted in a market-wide rally, particularly in value stocks, with investors starting to anticipate the economy to show signs of meaningful recovery and bounce back to pre-pandemic levels.
Hence, it makes sense to position your portfolio in a manner that reflects these macro developments.
However, the coming months could still push the markets to be even more volatile.
That’s why my advice is to hold investments that have been historically proven to be dependable even in the most uncertain times.
One of the most reliable stocks in today’s tumultuous financial climate is Johnson & Johnson (JNJ).
Aside from Pfizer and Moderna, JNJ has also joined the ranks of COVID-19 vaccine developers brandishing their success.
In the latest update, the company announced that JNJ-78436735 could be ready for FDA approval by February 2021.
Although JNJ is months behind Pfizer and Moderna, JNJ-78436735 holds a huge advantage: it’s a one-jab vaccine.
In comparison, both Moderna and Pfizer require booster shots for their COVID-19 vaccine candidates. The second shots for these are expected to be given roughly a month after the first shot.
Despite not being the first in the market, JNJ still stands to reap the benefits from the recent developments, as the promising COVID-19 vaccine report could boost the company’s sales for its medical devices and consumer health products—a projection that is already coming into shape as JNJ stock gained over 7% since Pfizer’s announcement.
For the third quarter of 2020, JNJ raked in $21.1 billion in global sales, recording a 1.7% increase from the same period in 2019.
While this growth rate is not as exciting as previous reports, it signified a substantial improvement from the year-over-year sales decline in the second quarter, which was at 10.8%.
Sales for its pharmaceutical chapters rose by 4.7%, while its consumer health sector climbed by 3.1%.
More impressively, JNJ raised its 2020 sales guidance by $1 billion.
The company’s revenue guidance is now up to be somewhere in the range of $81.2 billion to $82 billion from its initial forecast of $79.9 billion to $81.4 billion.
Thanks to the diversity in its product portfolio, broad geographic reach, and of course, brand power, JNJ has been able to thrive despite the pandemic.
After all, JNJ has been in business since 1886, which indicates the company’s resilience and capacity to survive crises.
Historically, this company has been known as a safe stock primarily due to its growing dividends.
In fact, Warren Buffett’s Berkshire Hathaway (BRK-A) (BRK-B) has held on to JNJ stock for the past 14 years.
For context, JNJ reported $74.3 billion in sales back in 2014. By 2019, this Dividend Aristocrat’s top line has jumped to reach $82.1 billion. Even more impressively, JNJ has recorded a profit margin of at least 18%.
As a longstanding member of the S&P Dividend Kings, which lists companies that managed to boost their dividends for at least 50 consecutive years, JNJ offers an impressive dividend yield of 2.8%—significantly higher than the S&P 500’s average at 1.8%—translating to roughly $4.04 per share.
JNJ is a good long-term stock to hold.
Although it is admittedly not cheap, its valuation is still reasonable, especially if you think about the dearth of high-quality and safe assets available in today’s extremely volatile market.
So whether you’re a budding investor or a veteran of the market, I advise that you buy JNJ stock on the next dip at its share price to be one of the dividend investors enjoying this company’s revenue.
Mad Hedge Biotech & Healthcare Letter
November 12, 2020
Fiat Lux
FEATURED TRADE:
(GILEAD IS THE CHOSEN ONE)
(GILD), (REGN), (LLY), (PFE), (AZN), (MRNA), (BNTX), (IMMU)
The fight against the coronavirus reached a major milestone when the US Food and Drug Administration (FDA) approved the first ever treatment for this deadly disease.
Unsurprisingly, the chosen leader for COVID-19 treatment to cross the full approval finish line is the same company that has been supplying the medication since the pandemic started: Gilead Sciences (GILD).
While Gilead’s Remdesivir has been widely used since January to treat severe cases of COVID-19, this FDA approval makes it official—a welcome piece of good news that pushed the stock up by 4% upon announcement.
Now, Gilead can broadly market Remdesivir under its official drug name, Veklury, to doctors and patients.
That means that other than the elderly and severe cases, Veklury can be marketed to COVID-19 patients as young as 12 years old.
Since Veklury gained approval, the drug has generated roughly $873 million in revenues.
Despite its limited market, this COVID-19 treatment actually ranked as Gilead’s second highest-selling drug in the third quarter of 2020—only behind the blockbuster HIV medication Biktarvy, which rose by 8% to contribute $4.55 billion.
As expected, Veklury’s popularity boosted Gilead’s 2020 performance.
Gilead’s total sales for the third quarter alone reached $6.5 billion, with $873 million coming from its brand new just-approved COVID-19 treatment Veklury.
For context, the company’s sales for the third quarter was only projected to grow by 2%. Veklury sales boosted this number to generate an 18% jump in revenue instead.
Clearly, Veklury injects a ray of hope in the declining sales for some of previous Gilead’s money makers like its hepatitis lineup, which saw a $210 million slide in revenue this quarter.
With this approval, Gilead is expected to pocket billions in Veklury sales as the company announced its plan to ramp up production to meet the global demand.
After all, governments are expected to stockpile the drug to be ready for future outbreaks.
In terms of its sustainability, Gilead is estimated to enjoy Veklury’s lucrative profits for a year or two until a COVID-19 vaccine gets fully approved or when herd immunity eventually kicks in.
Apart from Gilead, there are also other companies looking to cash in on this demand.
One of them is Regeneron Pharmaceuticals (REGN), which gained popularity after being used to fast track the COVID-19 recovery of Donald Trump during the campaign period. Another is Eli Lilly, which also applied for an emergency authorization for its antibody cocktail.
Most importantly, Veklury sets a promising precedent for other COVID-19 programs, particularly the vaccines.
If the ongoing trials yield positive results, then the vaccines of Pfizer (PFE), AstraZeneca (AZN), Moderna (MRNA), and BioNTech (BNTX) could quickly receive emergency authorizations.
Meanwhile, Veklury is not the only pandemic-defying achievement of Gilead this year.
Even before the pandemic broke, Gilead’s strategy has consistently centered on acquisitions.
This plan was kickstarted with its $12 billion acquisition of Kite Pharma in 2017.
This investment has been paying off as the company continues growth in Asia, specifically in China.
By 2022, Gilead is projected to generate over $1 billion in sales from its Hepatitis B lineup in this region alone.
While 2020 has not been the best year for mergers and even acquisitions particularly in the biopharmaceutical sector, Gilead seems to not be letting the pandemic ruin its plans.
In March, Gilead completed its $4.9 billion acquisition of Forty-Seven in an effort to own the rights to a blockbuster cancer drug called Magrolimab. This product is anticipated to bring more than $3 billion in annual sales.
Recently, the company announced yet another massive $21 billion deal to acquire Immunomedics (IMMU)—a value that is nearly 30% of Gilead’s $70.4 billion market capitalization.
Gilead’s deal with Immunomedics adds another potential blockbuster drug in its oncology lineup: Trodelvy.
Once approved, Trodelvy is expected to rake in $4 billion annually—a profit that would eventually pay off the $21 billion that Gilead shelled out to acquire Immunomedics.
Looking at profits from its recent acquisitions, Gilead can rake in roughly $2 billion in quarterly revenue just for Trodelvy and Magrolimab alone.
Overall, Gilead’s product lineup has clearly shown significant growth.
Its core portfolio has been consistently strong, and the full FDA approval of Remdesivir offered the company a short-term boost.
In terms of long-term growth, Gilead maintains the capacity to provide significant cash flow for its shareholders.
Mad Hedge Biotech & Healthcare Letter
November 10, 2020
Fiat Lux
FEATURED TRADE:
(PFIZER ADDS EXCLAMATION POINT TO ITS DECLARATION OF INDEPENDENCE)
(PFE). (MRNA), (AZN), (JNJ), (MCK), (GSK), (MYL). (MRK), (BMY)
When Operation Warp Speed was launched, the US government handpicked the most promising COVID-19 vaccine programs and offered them funding—an offer that was welcomed by all those selected except for one: Pfizer (PFE).
While COVID-19 vaccine frontrunners like Moderna (MRNA), AstraZeneca (AZN), and even Johnson & Johnson (JNJ) accepted financial assistance from the US government, Pfizer insisted on funding its own coronavirus program.
Now, Pfizer has taken another step to make it clear that it does not need any help.
In what could only be described as adding an exclamation point to its “declaration of independence” from the US government, Pfizer announced that it won’t use the country’s chosen distribution partner in delivering its COVID-19 vaccine.
For years, the US government has been using McKesson (MCK) to deliver drugs and other treatments.
In fact, this was the same company used by the Obama administration in 2009, when it distributed the H1N1 vaccine and medications.
This won’t be the case for Pfizer’s COVID-19 vaccine though.
According to the company, it has designed its own delivery system to ensure the proper and safe distribution of its product.
In October, Pfizer disclosed its distribution plans that centered on select sites in Michigan, Belgium, Wisconsin, and Germany.
Other than its goal to operate as independently from the US government as possible, one of the concerns of Pfizer is the sensitive nature of its COVID-19 vaccine.
The vaccine has to be kept at an ultra-cold temperature of minus 94 degrees Fahrenheit, which means that the shipments would require close monitoring.
What we know so far is that Pfizer has designed shipping containers that can maintain the temperature of the vaccine for 10 days.
In terms of monitoring, the company has developed a real-time GPS tracking system that will report any deviations in the set conditions.
All these are implemented to ensure that the COVID-19 vaccine does not lose potency before it reaches patients.
Looking at the other vaccine candidates, Moderna might also resort to this kind of distribution arrangement since its vaccine needs to be stored at negative 4 degrees Fahrenheit.
Outside its COVID-19 efforts, Pfizer has been aggressive in pruning its business divisions.
Since late 2019, Pfizer has been implementing strategies to eliminate its underperforming segments.
In August last year, the company forged a partnership with GlaxoSmithKline (GSK) to combine their consumer healthcare sectors.
This led to the formation of the GSK Consumer Healthcare, where Pfizer holds a 32% stake.
This year, Pfizer has been working on offloading its off-patent drug unit, Upjohn, and merging it with Mylan (MYL).
This deal should be finalized by the fourth quarter of 2020, with the merger offering Pfizer’s shareholders with roughly 57% of the new company, Viatris.
When this is completed, Pfizer would become a smaller and more focused biopharmaceutical company.
This means that the company can leverage its $202.27 billion market capitalization to move the needle more substantially in terms of its long-term prospects.
One of the key areas that Pfizer has been working towards becoming a powerhouse is oncology—a sector that has served as a major growth driver for the company for years.
Pfizer has a deep oncology portfolio comprising over 20 approved drugs marketed to different areas including breast cancer, lung cancer, and blood cancer.
However, none of its cancer drugs have managed to breach the $10 billion annual sales mark in this sector.
This is because Pfizer has no absolute mega-blockbuster in the oncology space like its competitors Merck (MRK) with Keytruda and Bristol-Myers Squibb (BMY) with Opdivo.
With the growing number of pipeline candidates in its cancer portfolio, Pfizer is expected to come up with a blockbuster by the fourth quarter this year or before the first half of 2021 ends.
Looking at Pfizer’s pipeline, there are 14 approvals anticipated from today through 2025 in the oncology segment alone.
One contender is its prostate cancer drug Xtandi. Another is a non-small cell lung cancer medication called Lorbrena.
In terms of its current product lineup, Pfizer’s biopharmaceutical operations continue to impress investors.
Despite not having a mega-blockbuster, it still has several top-selling drugs like Eliquis and Ibrance. Both showed 9% increase each in sales for the third quarter of 2020.
Taking all these into consideration, Pfizer is estimated to deliver solid growth in the next few years primarily thanks to its fast-developing oncology segment. This market is forecasted to experience an increase of $240 billion every year by 2023.
Overall, a successful COVID-19 program could provide a one-time earnings boost for Pfizer and a substantial earnings accretion in fiscal 2021.
However, this giant biopharmaceutical company’s extensive lineup of commercialized products and promising oncology pipeline mean that its revenue and share performance do not heavily depend on its coronavirus vaccine.
If Pfizer’s COVID-19 vaccine candidate fails, it won’t be a disaster for its shareholders, especially since the company’s shares do not seem to consider this program in its pricing.
In fact, Pfizer shares are looking inexpensive even without a successful COVID-19 vaccine candidate.
If it does turn out to be a success though, then Pfizer investors could enjoy some COVID-19 vaccine call option for free.
Mad Hedge Biotech & Healthcare Letter
October 22, 2020
Fiat Lux
FEATURED TRADE:
(IS THIS COVID-19 VACCINE OUTLIER ON THE FAST LANE?)
(NVAX), (PFE), (AZN), (JNJ), (SNY), (MRNA), (TAK)
It is not at all surprising that the biggest names in the healthcare industry are dominating the COVID-19 vaccine race.
After all, Big Pharmas such as Pfizer (PFE), AstraZeneca (AZN), Johnson & Johnson (JNJ), and Sanofi (SNY) are backed with vast resources that even media favorites like Moderna (MRNA) find challenging to compete against.
For months now though, going head to head with these big-name frontrunners is a clear outlier: Novavax (NVAX).
So far, there are only 10 COVID-19 vaccine candidates that have reached late-stage testing and Novavax’s NVX-CoV2373 has been performing at par (if not better) than its rivals—and the market has definitely noticed.
When 2020 started, Novavax’s market capitalization was less than $130 million and traded at roughly $4 per share.
Ten months into the pandemic, this small biotechnology company’s market cap grew to over $6.5 billion and has been trading at $110 per share—and that is already after a price decrease in the past weeks.
Given the disparity in its size and resources compared to its competitors, it’s safe to say that Novavax has been punching way above its weight class particularly in terms of landing supply agreements for its COVID-19 program.
Novavax first received a CEPI grant in March worth $4 million, which was immediately dwarfed by the $384 million the biotech company got in May.
In a matter of months, Novavax joined the major league players and secured a $1.6 billion funding courtesy of the US government’s Operation Warp Speed program.
In exchange, the biotech company will supply 100 million doses of NVX-CoV2373 to the US upon approval.
Novavax also inked an agreement with the UK for 60 million doses and another with Canada for 76 million doses.
Novavax has also landed deals with Japan through Takeda Pharmaceutical (TAK) and India via the Serum Institute of India.
As expected, the grants and supply agreements were perceived as votes of confidence on Novavax’s work and the company reaped the rewards.
In March, the prices started moving from less than $10 per share to almost $50.
By May, the price moved up to roughly $80 per share.
After its Operation Warp Speed contract in July, Novavax’s price per share soared all the way to $189 before eventually falling to $110 this October.
Novavax has only conducted late-stage testing in the UK. But, Phase 3 is expected to begin in the US soon as well.
Admittedly, a lot is riding on NVX-CoV2373.
However, the company has actually offloaded the majority—if not all—of its financial risks linked to the program.
Riding the momentum of its COVID-19 vaccine candidate, Novavax has been working on a related influenza vaccine called Nanoflu.
Given the market size for this, Nanoflu is estimated to rake in an annual revenue somewhere between $550 million and $1.7 billion.
Another potential blockbuster is respiratory syncytial virus (RSV) vaccine ResVax, which is projected to reach peak sales of $2 billion.
Novavax is also working on a vaccine candidate for the Ebola virus, the Middle East Respiratory Syndrome (MERS-CoV), and Severe Acute Respiratory Syndrome (SARS).
While NVX-CoV2373 is anticipated as Novavax’s moneymaker in the coming years, the biotech company can only realistically expect massive sales from this until 2023.
Looking at the company’s manufacturing partnerships and the aggressive timeline it has taken, Novavax is expected to produce 2 billion doses of its COVID-19 vaccine by mid-2021.
This is great news for its investors because of Novavax’s smaller market capitalization compared to its competitors.
Since the biotech company is projected as one of the first companies—if not the first—to offer a vaccine, then it can cover a substantial market share before its bigger rivals take over the market.
Even if Novavax prices its COVID-19 vaccine cheaply, say, $10 per dose, it can still generate $20 billion in annual sales.
Moreover, the late-stage success of NVX-CoV2373 will definitely cause Novavax’s stock price to skyrocket.
Despite this potential though, it’s important to keep in mind that this biotech company still has a way lower market cap than its rivals.
That means its share price will move a lot higher compared to the stocks of the other vaccine leaders.
Therefore, Novavax’s small size is not a negative for its investors—it is actually an advantage.
So for biotech investors who are searching for a promising COVID-19 vaccine stock, there’s nothing cheaper and more promising than Novavax.
Mad Hedge Biotech & Healthcare Letter
October 8, 2020
Fiat Lux
FEATURED TRADE:
(CAN REGENERON TRUMP OTHER COVID-19 RIVALS?)
(REGN), (GILD), (SNY), (JNJ), (MRK)
If the experimental COVID-19 treatment of Regeneron Pharmaceuticals (REGN) is good enough for the US president, then this stock should be given more attention not only by the media but also by investors.
One of the biggest stories this October is that President Donald Trump got infected with COVID.
The bigger story for the stock market though is his choice of treatment.
According to his medical team, Trump was given Regeneron’s antibody cocktail, called REGN-COV2, which was actually developed based on the same technology used in the company’s experimental Ebola treatment.
Although REGN-COV2 is still in the trial phase, reports that Trump already beat COVID just three days since his diagnosis are doing wonders for the stock.
Apart from REGN-COV2, Trump also received Gilead Sciences’ (GILD) Remdisivir as well as dexamethasone, a common generic steroid he once touted as a “miracle COVID-19 cure.”
The president was given aspirin and famotidine, which is more widely known as Johnson & Johnson (JNJ) and Merck’s (MRK) Pepcid.
On top of these, he took zinc, Vitamin D, and two immune-boosting supplements.
Compared to how far Gilead’s Remdesivir has gone in terms of offering treatment to COVID-19 patients with severe symptoms, Regeneron’s candidate is nowhere near the finish line.
Among all these drugs, however, Regeneron enjoyed the most advantage, with its stocks rising to roughly 5% since the announcement. Gilead also experienced a boost from the news, with a 3% jump.
What does this mean for investors?
Well, this news triggered aggressive buying of Regeneron shares. As expected, the unusually heavy volume pushed the stock price up.
While it would be tempting to join the market mob in buying a hot stock in the hopes of it getting even hotter, you might want to consider switching gears instead.
Hot stocks that dominate the news tend to cool and end up sliding at some point.
Rather than buying Regeneron stock right now, think about buying its bullish call options.
Options are always cheaper than their associated stock, which means you’ll be less at risk if something happens that lowers the stock price.
Even if the stock continues to advance, investing in options will still ensure that you get a nice return.
After all, each options contract represents 100 shares of stock.
To date, Regeneron’s stock is up 7.2% at $605.
That means you should buy bullish November $600 call options for roughly $40 with the expectation that REGN-COV2 gets approved—or at least stays as a strong contender until the next earnings report.
Since Regeneron released its 2019 third-quarter earnings report on November 5, it’s reasonable to assume that the company will follow the same timeline for 2020.
Therefore, setting the expiration to November ensures that you cover its third-quarter earnings report this year.
Aside from that, you’ll have enough time to gauge the success of REGN-COV2 and how the results will affect the stock price.
If the company’s share price reaches $665 at the expiration date, which is its peak price in the past 52 weeks, the call would be worth $65. If it hits $700, then the call will be worth $100.
For context, Regeneron stock has been anywhere between $279.22 and $664.64 in the past 52 weeks.
If REGN-COV2 gains approval, its projected 2021 sales could reach $1.8 billion. Meanwhile, its 2022 sales could hit $2.4 billion, with a decline to $1.7 billion by 2023.
Outside its COVID-19 efforts, the company has a promising portfolio to keep investors interested.
Regeneron’s annual revenue for its marketed drugs has been consistently climbing since 2012, with the biotechnology company’s earnings beating estimates in the last four quarters.
At the moment, the company has over 30 programs in its pipeline, 9 of which are in Phase 3, ensuring that its portfolio still has so much room for growth.
At the height of the pandemic, Regeneron maintained its stellar balance sheet in the second quarter.
One of its top-selling drugs is atopic dermatitis medication Dupixent, which it developed with Sanofi (SNY), with $770 million in sales for that period alone.
Looking at the drug’s track record, Dupixent is projected to rake in $6.3 billion in sales in 2021.
However, the top performer in the second quarter is eye injection Eylea, which contributed $1.1 billion in sales.
Meanwhile, skin cancer treatment Libtayo generated $63 million and cardiovascular disease drug Praluent raked in $47 million.
Regeneron also finished the second quarter with $943 million in net cash flow, which is a massive jump from the $188 million it reported in the same period in 2019.
On top of Regeneron raking in huge rewards for ’s COVID-19 treatment if approved, the company also has other promising products in its portfolio—ones that can still sway investors in their favor regardless of REGN-COV2’s future.
