Mad Hedge Biotech and Healthcare Letter
September 6, 2022
Fiat Lux
Featured Trade:
(ONLY FOOLS RUSH IN)
(APDN), (RVPH), (NERV), (JNJ), (BMY), (AZN), (LLY), (PFE)
Posts
Following a promising first half of 2022, it looks like the markets are taking an about turn as more and more investors start dumping their stocks.
The seemingly recovering Nasdaq Composite showed a 4.3% decline last month despite reporting its best record since 2020 just last July.
Nevertheless, several biotech names appear to have avoided the crash thanks to some exciting company-specific updates.
The top gainers so far include Apple DNA Sciences (APDN), which skyrocketed 340% by the end of August. Among the projects in its pipeline, the most promising to date is its monkeypox virus test.
Another name on the list is Reviva Pharmaceuticals Holdings (RVPH). This clinical-stage biopharmaceutical firm reported a whopping 244% gain during its second-quarter earnings report.
However, the top gainer that has been on the news lately is Minerva Neurosciences (NERV). This budding biopharmaceutical company gained 321%, according to its report last month.
Minerva Neurosciences isn’t a name I have kept track of nor even heard of until these past months when its wild upswing started to make me curious.
The company started attracting attention when billionaire Steve Cohen of Point72 Asset Management fame invested in it. This move saw Minerva Neurosciences’ shares soar to more than 70% at that time.
Just before August wrapped up, the company filed for its long-delayed schizophrenia treatment, Roluperidone.
Entering the neuroscience industry is a clever move, especially with the potential of this segment. In 2021, this market was estimated to be worth $32.22 billion. By 2027, the neuroscience segment is projected to reach $41.24 billion.
As for schizophrenia, roughly 1% of the entire population is affected by this disease. Based on recent WHO reports, more than 24 million individuals are suffering from schizophrenia annually.
In 2021, the global schizophrenia drug market was reported to cost $8.02 billion. Taking into consideration the changes in the environment and living conditions, the number is expected to go higher as the years pass. With these in mind, the estimated worth of this market is expected to reach $10.15 billion by 2027.
Minerva Neurosciences wouldn’t be the first to take interest in the schizophrenia segment. Prior to this biopharma’s entry, there have already been a handful of key players attempting to be hailed as the leader of this sector.
The names include Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY), AstraZeneca (AZN), Eli Lilly (LLY), and Pfizer (PFE).
However, only Minerva Neurosciences specifically targets the negative symptoms of schizophrenia. That makes the company stand out in this steadily growing segment.
Given that Minerva Neurosciences is cheaper than these stocks, would it then be wise to buy shares from the smaller company to gain entry into the neuroscience market?
At this point, Minerva Neurosciences has yet to prove that it’s more than just a one-trick pony. In fact, the company has not even sufficiently shown that it has mastered its single trick.
When looking at the potential of any biotechnology and healthcare company, I generally begin by checking out its pipeline.
For Minerva Neurosciences, the list does not look sustainable.
The company’s MIN-301 for Parkinson’s Disease remains inconsequential since it’s still in the preclinical trial stage.
Prior to this, Minerva Neurosciences worked with JNJ to develop treatments for insomnia and major depressive disorder. However, those have yet to yield tangible results that can move the needle for the company’s share price.
That means Minerva Neurosciences is all about Roluperidone. While the company is moving as fast as it could to launch the product to market, more questions remain than answers.
Actually, the company seems to have eliminated earnings conference calls. These could have been useful in offering a more accurate picture of its future, but it looks like investors will need to make do with whatever information is published.
Admittedly, exciting times could very well be waiting for Minerva Neurosciences’ shareholders. The recent progress with Roluperidone most likely offered them some relief.
No doubt that the optimistic investors are hoping that the 321% gain would signify another incredible run in the following weeks. However, this might not be likely. In fact, a pullback seems to be more in the horizon.
Considering its sparse pipeline and the lingering uncertainty over Roluperidone’s performance, this might not be the best time to buy Minerva Neurosciences’ shares.
Mad Hedge Biotech and Healthcare Letter
August 30, 2022
Fiat Lux
Featured Trade:
(THE TIMES ARE A-CHANGING)
(NVS), (LLY), (ALC), (GSK), (PFE), (JNJ), (BMY)
With the US GDP sliding for another quarter, the economic projections are becoming increasingly hostile.
However, investors who have consistently been buying quality stocks could easily consider the gloomy economic conditions as a bump in the road.
One of the most resilient companies in the biotechnology and healthcare industry is Novartis (NVS).
The Swiss drugmaker, which has a massive market capitalization of $207 billion, is ranked as the sixth biggest pharma stock worldwide.
Over the past 12 months, Novartis has delivered better results than the overall pharmaceutical industry and the S&P 500. Its performance, albeit marginally better than the rest, proved its resilience amid such chaotic and complex situations.
Recently, Novartis announced that it would cut loose its Sandoz division, turning it into a standalone spinoff by the second half of 2022.
Basically, Novartis has two main segments: Innovative Medicine and Sandoz.
The company’s Innovative Medicine section comprises roughly 80% of its sales and centers on everything involving patented to prescription products.
Its Sandoz section, approximately 20% of the total sales, is further categorized into franchises: Biopharmaceuticals, Retail Generics, and Anti-Infectives.
The stay-behind business would be composed solely of the products in the Innovative Medicines segment, a combination of Novartis’ oncology and pharmaceuticals business divisions.
This makes Novartis the latest name to be added in the long line of Big Pharma players letting go of their generics division to strip away all but their core products in development.
The plan to spin off Sandoz, Novartis’ division concentrating on generics and biosimilars, has been in the works for quite some time now.
Prior to this announcement, there were even talks of a potential acquisition instead of creating a standalone company. However, no attractive enough offer was given, pushing Novartis to go ahead with its original plan.
Sloughing off the generics and biosimilars divisions could help solve some of the company’s issues.
The generic drug sector has been causing issues for drugmakers as of late, and sales of the Sandoz division have been notably stagnant compared to the steady growth of Novartis’ new drugs sector.
To put things in perspective, Sandoz’s net sales in 2021 was only $9.6 billion, while the company’s Innovative Medicine division raked in a whopping $42 billion.
Getting rid of Sandoz means Novartis could focus on more promising products in its portfolio and develop more blockbuster drugs in its pipeline.
For instance, the company can focus on expanding the treatments involving Cosentyx.
The top-selling drug in Novartis’ portfolio, making up 10% of total revenues, Cosentyx continues to rise rapidly, reporting double-digit growth.
This drug targets psoriatic arthritis and was valued at $7.15 billion in 2019. By 2027, this drug is expected to be worth $13.64 billion.
Most importantly, its patent will last longer as it will expire by 2028 in the US, 2029 in Japan, and 2030 in Europe.
Another blockbuster drug in Novartis portfolio is chronic heart failure treatment Entresto, which accounts for roughly 9% of the company’s total revenues. The growth of this product has been impressive thanks to the high demand in Europe, which means an increase in its sales is almost guaranteed.
Like Cosentyx, its patent will also last longer and is estimated to reach until 2036. This makes Entresto one of the most interesting—if not the most exciting—drug in Novartis’ pipeline.
Novartis is also becoming a significant player in the metastatic breast cancer market, estimated to grow from $15.52 billion in 2020 to $41.74 billion in 2030.
The company’s product in this segment, Kisqali, has been gradually taking up market share and is expected to gain more traction as it expands its indications.
In terms of growth, though, multiple sclerosis drug Kesimpta is the top performer in Novartis’ portfolio. In the second quarter of 2021, sales were at $22 million. In the same period in 2022, the number skyrocketed to $239 million.
Kesimpta is anticipated to become another blockbuster, especially with the projections in the multiple sclerosis market.
This segment is estimated to be worth $25.43 billion in 2022 and will grow to $33.17 billion by 2029. While the growth isn’t as massive as other segments, the exciting news is that Kesimpta has been outpacing the growth rate of the reference market thus far.
The move to eliminate Sandoz is in line with the ongoing aggressive slimming down of the company’s operations.
In 2014, Novartis sold its animal health segment to Eli Lilly (LLY). A few years after, it spun off its eye-care sector to become Alcon (ALC), then sold its consumer health segment to GlaxoSmithKline (GSK) for $13 billion.
Meanwhile, the decision to become a pure-play pharma has become a widespread trend among prominent names in the industry, with the likes of Pfizer (PFE), Johnson & Johnson (JNJ), and Bristol Myers Squibb (BMY) transforming into sleeker and slimmer businesses.
Ultimately, the goal is for these pharma giants to shed unwanted weight to compete in the faster-paced biotechnology world. The plan is to focus all their resources on advancing the science and developing the technology needed to come up with the next groundbreaking innovation.
With Novartis joining the bandwagon, we can expect its growth to accelerate over the long term as it focuses more on strengthening its already solid and impressive pipeline. I highly suggest that you buy the dip.
Mad Hedge Biotech and Healthcare Letter
August 25, 2022
Fiat Lux
Featured Trade:
(A RISK WORTH TAKING)
(AXSM), (SAGE), (RLMD), (PFE), (LLY), (BMY), (BIIB)
When a drugmaker does not deliver a new product within the promised timeframe, its shares generally drop.
When this happens, investors should take a closer look at regulatory headwinds as potential buying opportunities, especially in the biotechnology world.
However, it’s important to determine whether the business in question can satisfactorily address the issues raised by the regulators and eventually get the green light for the held-up product.
Several companies find themselves in this scenario, but a particular one looks promising: Axsome Therapeutics (AXSM).
While Axsome isn’t one of the most renowned biotechs and its shares may look somewhat risky, it’s worth considering initiating positions in this growing company.
One reason is Axsome’s recent victory over a hurdle, finally gaining the long-awaited FDA approval for its depression drug that can take effect within just 1 week because it uses a unique mechanism instead of the traditional elements.
The drug, previously known as AXS-05, will be marketed as Auvelity and slated for sale in the fourth quarter of 2022.
For months, investors have been closely monitoring the progress and approval of this drug with some concern.
Doubts over Axsome’s capacity to deliver started to hound the company, especially after FDA’s self-imposed approval deadline for AXS-05 passed in 2021.
However, the company attributed the delay to the pandemic and shrugged off concerns over the actual drug.
Auvelity is the first of a class of drugs, which are classified as NMDA receptor antagonists, to be marketed in pill form created as a treatment for depression.
It is the only approved pill working as a fast-acting drug targeting major depressive disorder. This will also be Axsome’s first-ever marketed product.
Other than Axsome, there are several biotechs working on antidepressant treatments.
Among them, the closest potential competitors are Sage Therapeutics (SAGE) and Relmada Therapeutics (RLMD).
Sage recently started rolling out its own candidate, Zuranalone, for approval as a treatment for major depressive disorder.
Relmada is also working on a similar candidate, REL-1017, but seems to be at an earlier stage.
Psychiatric treatments like Auvelity are widely sought after and highly coveted assets in the biopharma world for a myriad of reasons.
The sheer potential of Auvelity puts Axsome on buyout watch for several Big Pharma and even expanding biotechnology and healthcare companies today.
Moreover, Axsome’s major depressive disorder drug would dovetail conveniently with the lineups of a lot of leading pharmaceutical names in the industry including Pfizer (PFE), Eli Lilly (LLY), Bristol-Myers Squibb (BMY), and even Biogen (BIIB).
With that in mind, Axsome’s brain trust would most likely demand an astronomical premium based on or relative to its current valuation if it ever enters any buyout discussion with interested suitors.
Auvelity sales are projected to hit $209.1 million in 2023, growing impressively to blockbuster status by 2027 at $1.5 billion.
By 2030, sales of this major depressive disorder drug are estimated to reach $2 billion every year.
Auvelity is made up of two drugs that physicians already readily prescribe and are comfortable with for years; one of which is bupropion.
Bupropion, marketed under the brand name Zyban, actually raked in blockbuster sales marketed as a smoking cessation treatment.
Hence, Axsome plans to leverage the success of Auvelity to begin a pivotal study that could utilize this major depressive disorder as a smoking cessation treatment as well.
On top of these, Axsome is anticipating another FDA approval in the next months.
The company submitted its new migraine treatment, AXS-07, for review in 2021. Like Auvelity, it encountered delays due to the pandemic. However, things seem to be moving along as the regulatory committees catch up.
By 2023, Axsome plans to submit another candidate for FDA approval. Clinical trial results for its fibromyalgia treatment, AXS-14, recently released positive data.
So, what now?
When investing in biotech, it’s always good to keep in mind that extreme volatility is an ever-present risk. This makes the sector unfit for those looking for short-term investments.
For Axsome, the biggest challenge today is showing that Auvelity sales can support the development of AXS-07 and AXS-14 and fund operations into 2024 without the need to ask shareholders for more capital.
However, even if Auvelity fails to deliver strong revenues in 2023, the rest of the company’s late-stage pipeline still looks pretty exciting.
Taken together, Axsome looks like a promising stock to invest in as a relatively small portion of a diversified biotech portfolio.
Mad Hedge Biotech and Healthcare Letter
July 14, 2022
Fiat Lux
Featured Trade:
(GOODBYE BIG PHARMA, HELLO BIG BIOTECH)
(GSK), (PFE), (BMY), (VTRS), (LLY), (JNJ), (AMGN), (GILD),
(MRK), (RHHBY), (AZN), (NVO), (ABBV), (SNY), (ABT)
The moment GlaxoSmithKline (GSK) completes the spinoff of its massive segments marketing drugstore staples, such as Tums and Advil, it will become the latest name to join the list of Big Pharmas shuffling their assets and rebranding itself into a pure-play biopharma stock.
The reorganization of this UK-based company is the culmination of years-long process that has transformed practically all the biggest pharmaceutical companies globally into biotechnology companies on steroids.
This type of transformation, which gets rid of sideline businesses, has been going on for years. Pfizer (PFE) dumped its chewing-gum segment back in 2002 and established another spinoff unit, Viatris (VTRS), with Mylan in 2020.
Bristol Myers Squibb (BMY) decided to spinoff its infant-formula division in 2009. In 2018, a new animal health company came to be from Eli Lilly (LLY).
By 2023, Johnson & Johnson (JNJ) expects to complete the creation of a spinoff company and unload its consumer health segment, which offers Tylenol and Band-Aids.
Essentially, they’re turning into Amgen (AMGN) and Gilead Sciences (GILD) but with more money and resources to churn out high-priced, complex treatments for rare diseases.
However, not all Big Pharma names plan to become pure-plays. For example, Merck (MRK) still intends to retain its animal health sector while Roche (RHHBY) wants to keep its diagnostics segment.
As for the rest, including AstraZeneca (AZN), Novo Nordisk (NVO), and AbbVie (ABBV), their plan is to focus on creating new drugs and marketing these treatments—nothing more, nothing less.
The idea of Big Pharma transforming into “Big Biotech” dates back to 1992, when Henri Termeer, the CEO of Genzyme—now owned by Sanofi (SNY)—was summoned to a Senate hearing in Washington to argue and justify one of the most expensive medicines ever put to market.
The medication in question was for a rare genetic condition called Gaucher disease. A year-long treatment for one person needed tens of thousands of human placentas, and the price tag? A jaw-dropping $380,000 annually.
Amid the demand to make the treatment cheaper, Genzyme stood by its decision and the price barely budged after two years.
The company’s tenacity and insistence on standing by its pricing altered the biopharma landscape. That is, drug developers realized that rather than marketing cheaper drugs to combat common diseases, they can focus on biotech-style treatments to target rare conditions.
At that time, Big Pharma companies were battling over pieces of massive markets. They allocated considerable funds to their commercial teams, hoping to outrank one another in crowded spaces.
Meanwhile, biotechs like Genzyme decided on a different strategy.
They concentrated on more innovative approaches. Actually, the biotech focused on biologics at that point. Then, the company simply ignored the pricing rules and set its own prices, which were considerably higher.
A more recent go-to proof of concept for this strategy is Abbott Laboratories (ABT), which was initially a diversified company that offered an extensive range of products like medical devices and even infant formula.
In 2013, the company spun off its branded pharmaceutical sector into AbbVie, which became a pure-play biopharma that focused on developing and marketing the arthritis drug Humira. Since then, Humira has transformed into one of the top-selling drugs in history.
More than that, AbbVie pays substantial dividends while its shares have delivered 500% returns since the spinoff. In comparison, the S&P 500 has returned roughly 220% within the same timeframe.
While this is a shift that investors have clamored to see in the healthcare sector, it also means that the transformations could turn companies with solid revenue streams that have become reliable despite the ups and downs of the drug discovery process into riskier bets.
Although treatments for rare diseases admittedly come with very high price tags, focusing on smaller markets brings with it the inherent risk that these buy-and-stuff-under-the-mattress blue chips could no longer deliver returns as consistently.
These days, though, the advancements have made faster and safer scientific breakthroughs much more plausible.
Companies have gained a better understanding of the human genome, oncology treatments, genetic diseases, and groundbreaking modalities like gene therapies.
The science has now caught up with the demand. More importantly, Big Pharma has finally woken up and started to leverage its resources to take advantage of the opportunities.
This gradual change can be seen in the surge of new treatments in the past years. From 2016 to 2020, the FDA approved an average of 46 new therapies annually.
This is more than half the number between 2006 and 2010 when the organization only approved an average of 22 new treatments every year.
Needless to say, these changes are also partly in response to the overall dissatisfaction of investors with the diversification strategies of Big Pharma.
Basically, the general message here is that Big Pharma should let the investors worry about diversifying their own portfolios and focus on developing safe and effective drugs.
Mad Hedge Biotech and Healthcare Letter
July 12, 2022
Fiat Lux
Featured Trade:
(THE LEADERSHIP BATON IS IN BIOTECH’S HANDS NOW)
(MRK), (SGEN), (CRSP), (VRTX), (BLUE), (BIIB), (LLY), (RHHBY)
Mad Hedge Biotech and Healthcare Letter
June 14, 2022
Fiat Lux
Featured Trade:
(MULTI-PRONGED STOCKS POSITIONED FOR LONG-TERM SUCCESS)
(LLY), (NVO)
