(LLY) - Page 26 - Mad Hedge Fund Trader

The Biotech Merger Boom Accelerates

Nothing can ever be absolutely shocking in the biotechnology and healthcare world.

I’ll admit though that the reports on AstraZeneca’s (AZN) interest in acquiring Gilead Sciences (GILD) surprised me.

The two companies touched base last month on a potential acquisition deal.

If this rumor turns into a reality, then we’re looking at what could be the biggest healthcare deal to date.

That’s saying something considering the massive mergers we’ve seen in the past years.

So far, the biggest biotechnology and healthcare deal is the $87.6 billion acquisition of Celgene (CELG) by Bristol-Myers Squibb (BMY) in 2019.

In the same year, AbbVie (ABBV) acquired Allergan (AGN) for a whopping $83.8 billion, making it the third biggest deal in the healthcare sector to date.

The year 2018 paved the way for two more massive deals in the form of Takeda’s (TAK) $81 billion acquisition of Shire, which ranks fourth overall, and Cigna’s (CI) $68.4 billion deal with Express Scripts (ESRX) in seventh place.

Fifth on the list is by Sanofi’s (SNY) $73.5 billion deal with Aventis in 2004.

Although it has been two decades since it happened, the $72.5 billion merger of Glaxo and SmithKline Beecham in 2000 still counts as one of the biggest deals in the industry. This agreement gave birth to GlaxoSmithKline (GSK).

Prior to Bristol-Myers Squibb and Celgene deal, it was Pfizer’s (PFE) $87.3 billion acquisition of Warner-Lambert in 1999 that topped the list.

AstraZeneca’s current market capitalization is roughly $140 billion. Meanwhile, Gilead Science’s market cap stands at approximately $96 billion.

With all these in mind, the AstraZeneca-Gilead Sciences merger is estimated to reach roughly $250 billion on top of the significant synergies expected throughout the years.

If these two health industry heavyweights merge, then their newly formed company would become the third biggest healthcare company in the world behind Johnson & Johnson (JNJ), which has a market cap of $384.55 billion, and UnitedHealth Group (UNH) with $293.85 billion.

Looking at this potential merger in the context of the coronavirus race, it’s safe to say that the combined efforts of AstraZeneca and Gilead would create a COVID-19 titan.

AstraZeneca’s partnership with the University of Oxford resulted in a COVID-19 vaccine candidate that was recently selected as one of the top five candidates worthy of US government support through Trump’s Operation Warp Speed program.

Meanwhile, Gilead’s antiviral medication Remdesivir has been constantly hailed as the standard of care for COVID-19 treatment since the pandemic broke.

The drug which was previously marketed as an HIV medication is now expected to generate $2 billion in sales as a COVID-19 treatment in 2020 alone.

In 2022, Remdesivir is estimated to rake in roughly $7.7 billion in sales. After that, the antiviral drug is projected to generate annual sales somewhere between $6 billion and $7 billion.

Although everything is hypothetical, let’s take a quick look at where each company stands at the moment outside their COVID-19 efforts.

AstraZeneca has been a consistent strong stock market performer throughout the years.

In the first quarter of 2020, sales improved in practically all of AstraZeneca’s territories. Although it has a diversified portfolio of drugs and a robust pipeline, the company’s hottest segment is its oncology business.

A good example of this is non-small cell lung cancer treatment Tagrisso, which is starting to live up to expectations as the next mega-blockbuster for AstraZeneca.

The cancer drug’s first quarter sales reached an impressive $982 million, showing off a 56% jump year over year.

This is promising considering that its competitors include Roche’s (RHHBY) Tarceva and Eli Lilly’s (LLY) Cyramza.

As for its 2020 revenue forecast, AstraZeneca is reported to rake in $25 billion, from which it will generate approximately $7.5 billion in operating profit.

On the other hand, Gilead also has an impressive portfolio that it can bring to the table.

In the first quarter of 2020, the company earned $5.47 billion in revenue compared to the $5.20 billion it generated in the same period last year.

Despite the decline in its hepatitis products from $790 million in the first quarter of 2019 to $729 in the same period of 2020, Gilead’s HIV line made up for the loss by bringing in over $4 billion in sales compared to the $3.6 billion it earned last year.

Not only that, some of Gilead’s other candidates are exciting.

For example, rheumatoid arthritis drug Filgotinib is expected to become another blockbuster and generate $5 billion in revenue annually.

Meanwhile, the anti-tumor treatment Magrolimab is estimated to rake in $3 billion in peak sales.

With the company’s older drugs still capable of generating strong revenue and its new candidates showing their potential for revenue expansion, Gilead can be assured of a continued cash flow well into the 2030s.

Regardless of whether this rumored mega-merger pushes through, both Gilead and AstraZeneca are attractive stocks worthy of their premium valuations.

June 11, 2020/by Mad Hedge Fund Trader

May 26, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
May 26, 2020
Fiat Lux

Featured Trade:

(WHY SORRENTO THERAPEUTICS WENT NUTS)
(SRNE), (REGN), (LLY)

May 26, 2020/by Mad Hedge Fund Trader

Why Sorrento Therapeutics Went Nuts

Biotech Letter

Eyes were popping when Sorrento Therapeutics (SRNE) shares went ballistic in mid-May. The price shot up from $2.62 per share to $9.96 in a single day, a gain of 380%. Unfortunately, Sorrento’s climb was halted just as fast when the stock sank 11.5% two days after.

From the look of it, investors eventually sobered up after the initial excitement and realized that the announcement on Sorrento’s pre-clinical results promised too much too soon for a Covid-19 vaccine.

What does this mean for this company?

This rollercoaster situation is par for the course when it comes to small biotechnology companies such as Sorrento, which has a market capitalization of only $1.15 billion.

Extreme volatility is commonplace, with investors getting all riled up the moment a bit of positive news gets out only to balk the moment they fully digest the nitty-gritty of the announcement.

Get used to it. It is a new factor in the market that is roiling prices daily.

Before I discuss Sorrento’s merits and downsides further, here’s a brief background on the good news that got everyone all excited in May.

As you must have guessed by now, the company’s announcement centered on the coronavirus disease (COVID-19).

According to Sorrento, they have hit upon an “exceptionally potent antibody” for this deadly disease. The experimental “cure” is currently dubbed STI-1499.

The breakthrough hit the airwaves after Sorrento’s CEO contacted a Fox News reporter to discuss their discovery, with the executive saying that they have “a solution that works 100%.”

The company is working with Mount Sinai Health System to assess whether STI-1499 can function as a stand-alone therapy as well as a component of an antibody cocktail designed to fight off the SARS-CoV-2 virus, which causes COVID-19.

STI-1499 works by blocking the virus from attaching itself to the body, thereby effectively protecting the cells from infection.

Needless to say, the success of this antibody means big bucks for Sorrento.

It’s critical to bear in mind that results from tests conducted via test tubes and Petri dishes do not guarantee success when applied to human clinical trials -- and this is exactly the problem with Sorrento’s recent results. Cancer has been cured in rates over 100 times.

The STI-1499 trial results were all collected from lab tests. Sorrento has yet to advance to the early-stage clinical study phase. This means that the experimental vaccine is from a slam dunk at this point.

Simply put, STI-1499 has yet to be tested on living things like a mouse and then of course, on humans.

If history is any indication, then Sorrento should be prepared to handle questions about STI-1499’s efficacy. After all, less than 1 in every 5 experimental drugs designed for infectious diseases actually receives FDA approval.

To make things even more challenging for Sorrento, the company isn’t alone in thinking that an antibody regimen could be used against COVID-19.

Prior to this announcement, news has already broken out that Eli Lilly (LLY) and Regeneron Pharmaceuticals (REGN) are also studying similar kinds of approach for this disease.

Beyond its COVID-19 efforts, Sorrento only has one approved product: topical medication ZTlido. This drug, commercially released in 2018, is used to ease the pain brought about by shingles.

Since its launch, ZTlido hasn’t turned out to be a big moneymaker for Sorrento. In the first quarter, this treatment has raked in only $5.2 million in revenue.

Looking at the company’s recent earnings report, it’s clear that Sorrento has been spending more than it’s making so far.

In the first quarter of 2020 alone, the biotechnology company reported $69.2 million in net loss.

Compounding this situation is Sorrento’s fast-depleting cash to fund its operations, with the drugmaker posting a total of $21.9 million in cash and cash equivalents in the year’s first quarter.

Without coming up with more ways to generate additional capital, Sorrento doesn’t have enough bandwidth to keep the lights on any longer much less fund an aggressive coronavirus program.

As for its pipeline, the biotechnology company has two experimental oncology drugs ready for Phase 2 of their clinical trials. Sorrento also has a number of early-stage studies focusing on cancer and pain.

With all these in mind, the question remains: Is Sorrento stock worth buying today?

Although it can be tempting, exhilarating even, to run after a high-flying biotechnology stock plastered all over the news, the wise move would arguably be to restrain yourself and stay on the sidelines -- for now.

If STI-1499 fails in the clinical trials, then all of Sorrento’s gains would be wiped out instantaneously.

What I know so far in terms of the company’s plans to raise more funds is that a public offering might happen soon. If that happens, then the value of the existing Sorrento shares will be diluted.

So if you’re confident to take this gamble of either losing half your money or making it multiple times your initial investment, then this might just be your cup of tea.

However, I can see too many unknown variables for Sorrento to be a compelling stock to buy at the moment.

While Sorrento looks to be offering promising products and is on its way to fueling growth through capital fundraising methods, I have doubts on its ability to cash in big on COVID-19.

One reason is that I find the company’s timing a bit off. On top of that, I’m also not convinced on their capacity to execute particularly in terms of manufacturing.

Most importantly, Sorrento’s is not even considered as the frontrunner in the COVID-19 vaccine race.

I would prefer to wait and see how STI-1499 performs in at least two more stages of clinical trials.

At the very least, these studies would be able to give us a hint at how safe and effective the experimental vaccine is. Right now, I think there are a number of other biotechnology stocks that can provide more reasonable and even attractive risk-reward propositions.

May 26, 2020/by Mad Hedge Fund Trader

April 14, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
April 14, 2020
Fiat Lux

Featured Trade:

(ELI LILLY’S CORONA LEAP FORWARD)
(LLY), (GSK)

April 14, 2020/by Mad Hedge Fund Trader

Eli Lilly's Corona Leap Forward

Biotech Letter

Eli Lilly (LLY) is one of the major biotechnology companies that have been working double-time to develop a coronavirus disease (COVID-19) cure, and the company shared its progress in this field.

According to this top biotech company, its partnership with the National Institute of Allergy and Infectious Diseases will explore the potential of Olumiant as a COVID-19 treatment.

This drug was first approved in June 2018 as a rheumatoid arthritis medication. Health experts believe that its anti-inflammatory effects on the immune system could be effective as a COVID-19 cure.

The clinical trial for Olumiant will involve COVID-19 patients in the US, with results available within two months.

Other than this Olumiant trial, Eli Lilly has another potential COVID-19 clinical trial already in Phase 2 for an experimental antibody treatment currently dubbed LY3127804.

This trial will involve pneumonia patients diagnosed with COVID-19. These patients are at a higher risk of acquiring acute respiratory distress syndrome (ARDS). The antibody treatment trial is slated to begin by late April at several US centers.

Apart from these experimental treatments, Eli Lilly is also taking an active part in providing testing centers to frontliners in its home state Indiana.

In March, Eli Lilly launched drive-through testing centers for active healthcare workers. This initiative was in partnership with the Indiana State Department of Health and backed by the U.S. Food and Drug Administration.

Eli Lilly’s centers test for the SARS-CoV-2 virus, which is the type that caused COVID-19. This service is offered free of charge to frontliners.

Outside its COVID-19 efforts, Eli Lilly has been active in developing its pipeline.

The latest deal towards this end is with privately held company Sitryx, which focuses on creating drugs for cancer and inflammatory diseases.

The partnership involves a five-year collaboration culminating in the development of four drugs. Eli Lilly has already selected two lead projects from Sitryx’s pipeline to be the first drugs they’ll submit for licensing.

Founded in 2018, all projects in Sitryx’s pipeline are still in the preclinical phase. The company is also comprised of widely known immunology experts, with another biotech heavyweight GlaxoSmithKline (GSK) contributing to its technology.

According to the terms of the collaboration, Sitryx will handle drug discovery while Eli Lilly will fund the clinical development as well as the marketing efforts.

Sitryx will get $50 million from Eli Lilly upfront, with the Indianapolis biotech company making an additional $10 million equity investment.

Meanwhile, the smaller biotech is eligible to almost $820 million if the development milestones are reached. Sytrix is also entitled for royalties.

Amid the pandemic, Eli Lilly is riding the momentum of its previous quarters and is still aiming to deliver a promising growth this year.

Coming off a strong 2019 fourth quarter, the company saw an 8% year over year growth in its top line. The entire year’s sales also went up by a modest 4% from how much they earned in 2018.

As for earnings per share (EPS), the said quarter showed off an impressive 49% year over year jump to reach $1.64. Meanwhile, the entirety of 2019 recorded an EPS of $8.89 which is more than twice 2018’s $3.13 total.

For Eli Lilly’s 2020 performance, the company is anticipating more growth, especially after the completion of its $1.1 billion all-cash acquisition of Dermira.

This acquisition opens a plethora of opportunities for Eli Lilly, particularly in the dermatology medicines sector.

A prime example to illustrate potential growth is Dermira’s top-selling product Qbrexza, which is used to treat excessive underarm sweating. This bestselling item boosted Eli Lilly’s quarterly sales by 27%, increasing the revenue from $8.1 million to $10.2 million.

Even without the collaborations, Eli Lilly can stand on its own as a solid buy.

The company has shown a strong operating margin, staying over 20% in all the previous 10 quarters. Moreover, its free cash flow of $3.5 billion and consistent revenue generation platforms through the years, Eli Lilly is in a good position to take on more acquisitions down the road.

Basically, Eli Lilly is ideal for investors on the lookout for a biotech stock that you can buy and just forget.

Only a handful of sectors managed to escape the coronavirus pandemic unscathed as practically every stock suffered a 20% drop over the course of the past months. I believe there’s one group that merits our attention even in the midst of this pandemonium: the biotech sector.

I think biotech stocks will roar back soon enough, and buying shares of solid and well-managed biotech companies that pride themselves with promising product lineups and solid pipelines should be rewarded in the long run.

Among these biotech stocks, Eli Lilly is one of the best-positioned growth stories. Investors searching for a port in this coronavirus storm might want to take a good look at this biotech stock.

April 14, 2020/by Mad Hedge Fund Trader

February 11, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
February 11, 2020
Fiat Lux

Featured Trade:

(NOVO NORDISK IS MINING GOLD WITH DIABETES)
(NVO), (LLY)

February 11, 2020/by Mad Hedge Fund Trader

Novo Nordisk is Mining Gold With Diabetes

Biotech Letter

Diabetes is one of the fastest-growing and serious health conditions that affect the lives of over 50% of Americans, with 60 million more categorized as pre-diabetics. As expected, the market for diabetes treatments is saturated.

However, this biotechnology company has been hailed as one of the leaders in this sector: Novo Nordisk (NVO).

Novo Nordisk has long established itself as a major player in this lucrative market, with diabetes treatments in its portfolio primarily responsible for the 24% jump of the stock’s performance in 2019 -- an increase that has been sustained up until today.

The company’s lineup includes a number of insulin products such as Tresiba and NovoRapid, with Novo Nordisk supplying roughly 50% of the insulin distributed globally.

Meanwhile, its top-selling Type 2 diabetes drug Ozempic ranked first among all the drugs launched in 2018.

Capitalizing on the success of Ozempic as a blockbuster insulin injectable, Novo Nordisk has gained FDA approval to market this bestselling drug as a treatment to reduce the risk of major adverse cardiovascular (CV) condition among patients of Type 2 diabetes.

This is actually an impressive move since diabetics are more often than not also suffering from other comorbidities like kidney problems, obesity, and CV disease.

With this expanded indication involving CV risk reduction, Novo Nordisk’s cash cow will be on par with heavyweights like Bristol-Myers Squibb (BMY) and AstraZeneca’s (AZN) Farxiga as well as Boehringer Ingelheim Pharmaceuticals, Inc. (BIPI) and Eli Lilly’s (LLY) Jardiance.

Ozempic, which was first approved way back in December 2017 as a diabetes medication and launched in the market by 2018, has long been considered the company’s strongest moneymaker.

In fact, the first nine months of 2019 saw Ozempic bring in roughly $1 billion in sales worldwide.

Still riding the momentum of its diabetes treatments, Novo Nordisk also recently received another label upgrade that classifies its recently approved oral tablet Rybelsus as CV safe as well. Projected sales for this drug now lands somewhere between $2 billion and $5 billion.

In addition to CV diseases, Novo Nordisk has also enjoyed success on other fronts like obesity.

For instance, the company’s prescription weight loss shot Saxenda has been gaining sales momentum since its release in 2014.

The fact that Saxenda can also help improve blood sugar levels for pre-diabetic patients has made it the first of its kind across the globe.

Earning $540 million in 2018, which represented a 50% jump from its 2017 sales, Saxenda is estimated to own a 68% share of the obesity market.

Saxenda’s dominance was once again proven in its third-quarter earnings report in 2019 when the drug gained an impressive 56% increase compared to the same period in the previous year.

Novo Nordisk shares come with a bit of a steep price though, and investors are hesitant over the strong reliance of the company on its diabetes lineup. After all, 84% of its sales in the third quarter of 2019 came from this line of business alone.

However, the recent approval and expanded indication of Rybelsus as another groundbreaking Type 2 diabetes treatment both in the US and abroad makes Novo Nordisk a highly coveted investment.

Keep in mind that over 90% of diabetes cases fall under that type, so the company is poised to dominate not only a lucrative sector but also an addressable target market.

Apart from that, the early and mid-stage pipeline of Novo Nordisk offers a promising lineup.

The company has been consistent with its strategy, and that is focusing on its strengths then building on them. Right now, Novo Nordisk has a lot of up and coming candidates not only for its tried and tested diabetes market but for rare diseases as well.

Thus, Novo Nordisk sales are expected to continue its upward trajectory in 2020. If this trend continues, the company can double its earnings practically every five years.

February 11, 2020/by Mad Hedge Fund Trader

December 26, 2019

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
December 26, 2019
Fiat Lux

Featured Trade:

(THE BOOM IN CANCER DRUGS),
(MRK), (CELG), (RHHBY), (BMY), (LLY), (NOVN)

December 26, 2019/by Mad Hedge Fund Trader

The Boom in Cancer Drugs

Biotech Letter

Forecasting drug revenue can be a tricky business -- just ask the biotech leaders who overpromised but underdelivered.

These days, more and more variables are coming into play, with the US elections looming over us and the threat of generic meds overtaking market leaders becoming more tangible by the minute.

Another threat is the entry of biosimilars in the US, knocking down big-name drugs even in the most lucrative markets. Payers are also constantly seeking discounts, forcing tougher competition among crowded markets like diabetes and hepatitis.

However, the oncology sector remains a booming sector for the biotech industry.

Practically all major companies are either developing oncology treatments or already marketing these as blockbuster treatments, with 63 cancer drugs launched in just the past five years.

Unfortunately, not all cancer drugs are created equal. Looking at the spending on the treatments in recent years, it can clearly be seen that almost 80% of the money has been hogged by the industry leaders with the rest of the group lagging far behind.

To put things in perspective, bear in mind that the annual sales of the top 20 cancer drugs have reached over $50 billion, with $31 billion distributed among industry leaders Merck and Co (MRK), Celgene (CELG), and Roche Holdings (RHHBY).

These numbers hardly come as a surprise especially in light of over $133 billion recorded in spending for cancer treatments.

The top-selling oncology drug to date is multiple myeloma treatment Revlimid. Technically a Celgene product, the company’s $74 billion acquisition by Bristol-Myers Squibb (BMY) means the drug will be joining the other powerhouse offerings in the newly formed company’s lineup in the years to come.

With over a decade of dominance in the market and an impressive $9.7 billion in global sales annually, Revlimid has yet to hit its peak.

In fact, this mega-blockbuster is projected to exceed $15 billion in sales next year.

As if that wasn’t impressive enough, this oncology leader is estimated to bring more than double that amount come 2022.

Another dominant player in the oncology market is lung cancer drug Keytruda. Since its launch, this Merck immunotherapy leader has been able to usher in a boatload of cancer treatments using its core indications -- and it’s not yet done.

With an FDA approval eyed on June 29, 2020 for yet another indication for Keytruda, specifically for treating cutaneous squamous cell carcinoma (cSCC), its goal to dethrone Revlimid as the leader in this space now looks achievable.

Right now, Keytruda is used for various cancer types.

Aside from dominating the large addressable lung cancer market, it’s also used to treat head and neck cancer as well as melanoma. This makes Keytruda’s contributions indispensable to Merck’s overall top-line and continuous growth in sales in the past years.

Hence, it comes as no surprise that Merck’s recent third-quarter earnings had Keytruda is the starring role once again. Sales for this oncology drug jumped 62% year over year, reaching almost $3.1 billion.

One more dominant force in the oncology sector is Roche, with breast cancer drug Herceptin serving as the primary moneymaker of the company in the past 15 years.

With Herceptin raking in roughly $7 billion in annual sales in recent years, Roche has been proactive in securing its position in the oncology space by adding blockbusters ovarian cancer drug Avastin and leukemia medication Rituxan in the list.

For years, these three cancer drugs have formed the foundation of Roche’s continuous growth in the oncology sector. However, these treatments are now in danger of facing competition.

A particularly aggressive competitor is Pfizer (PFE), with its breast cancer drug Ibrance gaining traction as shown by its growing sales from $0.7 billion in 2015 to a promising $4.1 billion in 2018. Other competitors include Eli Lilly’s (LLY) Verzinio and Novartis’ (NOVN) Piqray.

To maintain its stronghold, Roche has been aggressive as well in developing new drugs.

Word has it that the company is expecting an addition $5 billion in sales for its new cancer treatments like breast cancer drugs Perjeta and Kadycla along with lung cancer medications Tecentriq and Alecensa.