Mad Hedge Biotech & Healthcare Letter
September 24, 2020
Fiat Lux
(PLAY YOUR CARDS RIGHT WITH MODERNA)
(MRNA), (PFE), (AZN), (BNTX), (JNJ), (MRK), (VRTX), (CRSP)
Posts
The COVID-19 race is entering the home stretch, and it could only be a matter weeks before the world finds out which among the leading vaccine candidates will work.
For months, Moderna (MRNA) has been dubbed as the leader of the pack, with the company’s shares reaping the rewards thanks to this year’s wild growth and promising clinical results.
Now, it looks like Moderna is on the verge of officially claiming the crown as promising reports surfaced from its late-stage clinical trials.
If the Moderna’s COVID-19 vaccine candidate, called mRNA-1273, is proven to be at least 70% effective, the company will immediately ask for an emergency authorization to use it on high-risk patients.
Like Pfizer (PFE), Moderna is also expecting results to come as early as October. With potential delays in the trials, the company thinks the data would be released by November at the latest.
Moderna is also looking into building footprints outside the United States.
Part of its efforts to expand its potential market reach for mRNA-1273, Moderna opened a commercial hub – its first ever – in Switzerland, where it has already been collaborating with Swiss drug manufacturer Lonza (SWX: LONN).
This is a good move for Moderna.
After all, Europe presents a substantial market for the COVID-19 vaccine. For context, the European Union has over 446 million people while the US only has 328 million.
To date, Moderna has agreed to supply 100 million doses of its COVID-19 vaccine to the US government for up to $1.525 billion. The contract also provides for an optional additional 400 million doses, depending on mRNA-1273’s performance in the trials.
Meanwhile, Moderna already secured a deal with the Swiss federal government to deliver 4.5 million of mRNA-1273.
While it has yet to announce a similar deal with the rest of the EU, the company is reported to be in the advanced stages of its negotiations with other member countries, where it is estimated to provide an additional 160 million doses.
Overall, the global manufacturing projection for Moderna falls somewhere between 500 million and 1 billion doses starting in 2021.
Looking at the agreements, we can conservatively say that mRNA-1273 could rake in $12.4 billion in sales for Moderna by 2022.
Despite the current payment plans implying that each dose of Moderna’s vaccine would only cost $15.25, the company already received government funding of roughly $2.5 billion.
Taking those expenses into account, the actual value would be somewhere between $25 and $30 per dose.
In comparison, Pfizer’s vaccine candidate with BioNTech (BNTX) is estimated to cost less than $19.50 per dose while Johnson & Johnson (JNJ) announced that it will offer its vaccine at $10 per dose.
Meanwhile, AstraZeneca’s (AZN) candidate with Oxford University is expected to be even cheaper at $2.96 to $4 per dose.
With its COVID-19 vaccine rivals offering decidedly cheaper options, Moderna will need to leverage its first-mover advantage if it hopes to fight for a decent market share.
Outside COVID-19 vaccine efforts, Moderna has a rich pipeline, with 23 candidates distributed over 22 programs and 6 modalities.
Aside from the urgent need to offer a vaccine to the world, there is another reason why Moderna is focusing on the COVID-19 program right now.
If proven successful, the program can be used to validate another experimental vaccine, called mRNA-1647, which targets congenital cytomegalovirus infection.
Although CMV is identified as one of the leading causes of birth defects in the US, there remains no approved vaccine for it.
However, there is a catch.
Moderna will not be able to reap the full benefits of the CMV vaccine.
In fact, it will only be able to receive 50% of its profits if it becomes successful since mRNA-4157 is being developed alongside Merck (MRK).
The idea is for the drug to boost the oncology sector of Merck, with the goal of finding another blockbuster like the melanoma drug Keytruda.
As impressive as the CMV vaccine is as a product to launch in the market, there is a huge possibility that Moderna would not necessarily benefit from a large windfall because of it.
Aside from Merck, Moderna is also working with another biopharmaceutical giant and competitor in the COVID-19 vaccine race: Vertex (VRTX).
Moderna and the Massachusetts-based giant are collaborating to develop a treatment for cystic fibrosis, a niche that Vertex has dominated for years.
This is actually their second collaboration, but this project seems a tad more ambitious than the earlier one: Moderna and Vertex are working to develop a one-time treatment for cystic fibrosis using mRNA technology.
Basically, the two companies want to use gene-editing techniques to modify a patient’s DNA and correct the cells that cause cystic fibrosis.
The collaboration will span 3 years, with Vertex paying Moderna $75 million upfront. The smaller biotechnology company is also eligible for an additional $380 million in milestone payments plus royalties.
Notably, this is not the first cystic fibrosis treatment collaboration that Vertex formed with gene-editing companies.
Earlier this year, the company also secured a license option with CRISPR Therapeutics (CRSP) to work on practically the same thing.
Clearly, Vertex is hedging its bets on two potential options with this second partnership with Moderna.
Thanks to its trailblazing COVID-19 vaccine candidate, Moderna has become one of the most sought-after stocks of 2020, with its year-to-date growth reaching a stunning 360% last July.
Despite the temptation to bet big on Moderna stocks, bear in mind that early leaders like this biotechnology company will be facing incredible pressure from pharmaceutical titans like Pfizer, Johnson & Johnson, and AstraZeneca – all of which have the capacity to meet the manufacturing and distribution demands across the globe.
At best, a company with Moderna’s size would probably receive a slice of the market in the early days.
At worst, it might struggle to keep a foothold as stronger and larger competitors flood the market with cheaper but equally effective alternatives.
Nonetheless, this is not to say that you should completely avoid smaller biotechnology companies just because they are too small to compete with the larger fish.
Rather, I think it would simply be prudent to invest based on each player’s proven ability and outlined plans to meet the demand at a mass scale.
Doing so would guarantee that you not only limit your risks but also allow you to reap the rewards of successful vaccine deployment. If you play your cards right, then you might even get a handful of different COVID-19 vaccine winners in your back pocket.
Mad Hedge Biotech & Healthcare Letter
September 22, 2020
Fiat Lux
Featured Trade:
(WHY MERCK IS UNDER-APPRECIATED IN THE COVID-19 RACE)
(MRK), (PFE), (MRNA), (RHHBY), (REGN), (BMY), (GILD)
The excitement over the COVID-19 vaccine candidates has boosted the shares of the most widely reported companies like Pfizer (PFE) and Moderna (MRNA). Meanwhile, other developers have not received the same love from investors.
However, it looks like another COVID-19 vaccine player will be joining Pfizer and Moderna under the spotlight: Merck (MRK).
Merck recently announced that it is now ready to test its vaccine on humans. The trials will be conducted in Germany, and the company has been scouring government databases for viable volunteers.
Unlike Pfizer and Moderna, which are utilizing a novel technology that will need two vaccine doses to be fully effective, Merck is working on two different COVID-19 vaccine candidates designed to work with only a single dose.
This could offer Merck a clear advantage over its competitors.
Also, one of Merck’s candidates could be taken in oral form. This is another significant advantage since it would make the vaccine easier and more convenient to administer.
Merck’s vaccine candidates contain a destabilized version of the same virus that causes measles. This virus is then used to deliver the coronavirus’ spike protein to the patient’s immune system, which would trigger an immune response.
The goal is not only to create a vaccine that would offer protection using a single dose, but also utilizing an existing and reliable technology that can be readily scaled up for mass production.
Since we need to immunize roughly 7 billion across the globe, Merck’s plan to manufacture a single-dose vaccine would be more convenient instead of using multiple doses.
Overall, the COVID-19 vaccine market could reach $50 billion in revenue by 2030.
Apart from its vaccine candidate, Merck is also looking into an antiviral treatment for COVID-19 patients
If successful, this product would be competing against Gilead Sciences’ (GILD) Remdesivir. Just like one of its vaccines, Merck is also developing a treatment in oral form instead of a hospital infusion.
Merck’s Remdesivir alternative can reduce the severity of the COVID-19 by interrupting the virus’s capacity to replicate.
Unlike Gilead’s drug, which can only be used in severe cases, Merck’s candidate can be prescribed immediately after a patient is diagnosed with the disease.
This COVID-19 cure is set to begin its Phase 3 trial this September, with Merck is confident that it can manufacture millions of doses before 2020 ends.
Experts dubbed this drug as an “underappreciated COVID-19 treatment,” which is estimated to reach blockbuster status.
Aside from not getting enough credit for its COVID-19 efforts, Merck is also not receiving enough attention for its pipeline.
So far, the company holds the leading drug that boosts the immune system to fight off cancer: Keytruda. It also has one of the leading vaccine franchises in the world.
Keytruda can easily generate $14.5 billion in sales in 2020 alone, which represents a 30% jump from its 2019 performance. More importantly, the drug can reach $22 billion by 2025.
However, investors are worried over Merck’s dependence on the drug, which comprises 30% of its revenue. In fact, Wall Street keeps zeroing in on the 2028 patent expiration of Keytruda.
At the moment, Keytruda faces competitors like Roche Holding (RHHBY), Regeneron Pharmaceuticals (REGN), and Bristol Myers Squibb (BMY).
However, Merck is not the type to put all its eggs in a single basket.
The company is developing new products that can generate an additional $13 billion to $18 billion in sales annually.
Among these treatments is another potential immuno-oncology antibody, which has been sent to clinical trials this year. Merck also has a long-term HIV treatment queued for clinical studies.
One exciting drug candidate is ARQ531, which is a potential cancer therapy. This projected blockbuster was part of Merck’s $2.7 billion acquisition of ArQule in January.
Other than this acquisition, Merck also obtained the rights to several cancer treatments, which are hailed to be more effective than the conventional chemotherapy, thanks to its acquisitions of Astex Pharmaceuticals and Taiho Pharmaceuticals.
In terms of its vaccine franchise, this arm of the business is projected to generate $9 billion in annual sales in 2021, with the revenue steadily rising to $100 billion in the next several years.
In particular, Merck is looking into developing further its cervical cancer vaccine Gardasil. So far, this vaccine is estimated to generate roughly $3.9 billion in sales in 2020 and reach $5.5 in 2023.
The focus on boosting its vaccine franchise is a strategic move considering that vaccines are generally a durable business and are typically immune from any generic competition.
Although it is not one of the leading vaccine developers in the COVID-19 race, Merck has positioned itself as the leader in the cancer drug development sector and its distribution over at least the next decade.
I believe that Merck’s prudent business, strategic acquisitions, and exciting pipeline will gradually push the stock to the top.
In summary, I think that Merck is a good stock to buy. For those searching for a strong biopharmaceutical play at a reasonable price, this company should be on your shortlist.
Mad Hedge Biotech & Healthcare Letter
September 15, 2020
Fiat Lux
Featured Trade:
(ASTRAZENECA’S BUMP IN THE ROAD)
(MRNA), (AZN), (PFE), (MRK), (JNJ), (GSK), (SNY), (CVAC), (BNTX), (INO)
Moderna (MRNA) was the first company to test its COVID-19 vaccine candidate on humans. However, AstraZeneca (AZN) and its partner Oxford University have been setting out the most aggressive timelines.
In fact, AstraZeneca sealed deals with the promise of delivering vaccine results as early as September.
The possibility of that happening, already precariously hanging by a thread, was completely eliminated earlier this month when the company halted its COVID-19 vaccine program after a subject showed severe adverse reactions.
Needless to say, news of AstraZeneca’s suspension of its late-stage 30,000-patient trial rattled the markets.
However, it looks like investors are simply shaking off the panic as other COVID-19 vaccine stocks continue to gain momentum.
In fact, even AstraZeneca only suffered a 2% slide following the announcement.
Shares of its COVID-19 rivals Pfizer (PFE), Merck (MRK), Johnson & Johnson (JNJ) went up 1% each, while GlaxoSmithKline (GSK) and Sanofi (SNY) rose 2%.
Bigger jumps were seen in smaller biotechnology companies with Moderna and CureVac (CVAC) being 4% higher and Novavax (NVAX), Inovio (INO), and BioNTech (BNTX) climbing 6%.
Still, a lot is riding on AstraZeneca’s vaccine candidate. The company has secured more contracts compared to its rivals.
To date, AstraZeneca has disclosed deals to supply roughly 3 billion doses to different nations including the US, Europe, Australia, Japan, Brazil, Latin America, and even China.
Its leading competitors, Moderna and Pfizer, have only managed to commit a small fraction of AstraZeneca’s supply.
Although AstraZeneca’s decision would cause some delay, experts assure the public that this is a normal occurrence in the vaccine development process.
It is actually a good sign especially given the fast-tracked timelines for the COVID-19 programs.
This voluntary pause from AstraZeneca means that the standards for vaccine development are still stringently followed by the developers despite the tight deadlines and competition.
A third-party safety board was already assigned to review AstraZeneca’s case, with the company expecting results in the next weeks.
So, what happens next?
There are few possible outcomes of this scenario. The ideal result would be for the board to find that the adverse effect has no connection to AstraZeneca’s vaccine candidate.
If this is the case, then the company can restart trials as early as next week. Although it obviously suffered a delay, AstraZeneca says it is still on track and can submit efficacy data before 2020 ends.
If everything else falls into place and from a manufacturing standpoint, AstraZeneca can still deliver a vaccine by the end of the year or early 2021.
If the adverse effect is caused by the vaccine though, then it could spell trouble not only for AstraZeneca but also for some of its rivals using the same technology.
The company utilized a neutralized virus for delivery, which is the same method used by other developers like Johnson & Johnson.
In comparison, Moderna and Pfizer’s vaccine candidates used a new technique involving messenger-RNA. This method stimulates a person’s body to produce a protein, which can help build immunity against the coronavirus.
The worst-case scenario is that if the problem turns out to be an immune reaction to the coronavirus fragments.
This would set back all the COVID-19 vaccine developers because it is the common element among them.
Although the COVID-19 vaccine candidate is a high-value product, AstraZeneca remains poised to prosper no matter what happens as a result of the pandemic or even the overall financial market.
The company is consistently generating strong revenue growth. In particular, its cancer lineup of non-small cell lung cancer treatments Tagriss and Imfinzi, and ovarian cancer therapy Lynparza have been showing remarkable momentum amid the crisis.
However, it is AstraZeneca’s pipeline that makes this stock impressive.
So far, the company has 166 programs that are under clinical development. Of those, 24 have already reached late-stage trials.
What’s even more exciting is that 9 of these late-stage studies are for new drugs. Meanwhile, the remaining 15 are additional approvals for expanded indications of existing products.
AstraZeneca offers one of the most promising product portfolios and clinical pipelines in the healthcare and biotechnology industry. It also provides impressive shareholder reward programs.
Most importantly, this single COVID-19 vaccine candidate is definitely not a make-or-break type of development for the company – not by a very long shot.
Therefore, bargain hunters may want to capitalize on AstraZeneca’s shares on any weakness resulting from this trial suspension.
Mad Hedge Biotech & Healthcare Letter
August 25, 2020
Fiat Lux
Featured Trade:
(LET THE VACCINE PRICING WARS BEGIN)
(MRNA), (MRK), (PFE), (BNTX), (AZN), (JNJ), (NVAX), (SNY)
The COVID-19 vaccine race is winding down to its final lap, with at least seven candidates already undergoing Phase 3 trials.
Now, one question inevitably arises: How much will these vaccines cost?
Moderna (MRNA), one of the frontrunners in this race, revealed that its vaccine, mRNA-1273. will be priced somewhere between $32 and $37 for each dose.
The moment this pricing was announced, health advocates were up in arms to point out the high price of the vaccine especially with the funding Moderna received from the US government.
However, the company clarified that this would only apply to “small-volume” transactions.
According to Moderna, the pricing for their coronavirus vaccine should be viewed in two phases: the pandemic and the endemic periods.
During the pandemic period, the coronavirus vaccine would be given a price “well below” its actual value. The pricing will change and eventually be more in line “with other innovative commercial vaccines” when the crucial period passes.
For reference, flu shots are typically priced somewhere between $50 to $120 depending on the clinic while a single-dose HPV vaccine from companies like Merck (MRK) can cost up to $235.
Despite the clamor to further investigate this pricing scheme, Moderna sealed another deal with the US government worth $1.525 billion if the company succeeds in meeting its promised timeline.
This will translate to roughly $100 million doses.
It also stands to gain an additional $8.125 billion in follow-up doses plus the $300 million bonus if it can score an FDA approval by January 31, 2021.
Another frontrunner in this coronavirus vaccine race is Pfizer (PFE).
Among the healthcare and biotechnology companies working on a vaccine, Pfizer and its German partner BioNTech (BNTX) are reported to have the most lucrative contract with the federal government to date.
The company recently sealed a $1.95 billion deal for 100 million doses. This puts Pfizer’s coronavirus vaccine at roughly $20 per dose.
Both vaccine candidates from Pfizer and Moderna require two doses.
In comparison, Johnson & Johnson (JNJ) has a “one-and-done” vaccine candidate. That is, the Ad26.COV2-S showed potential that it could only require a single dose.
This is definitely a competitive edge as it will eventually be a cheaper and more convenient alternative to the two-dose vaccine offered by its competitors.
In terms of pricing, JNJ recently landed a $1 billion contract with the US government to deliver 100 million doses. This translates to $10 per dose.
However, AstraZeneca (AZN) appears to be the favored candidate by the US government.
In fact, recent reports suggest that the Trump administration is considering bypassing normal regulatory standards in the UK to fast track the delivery of the vaccine candidate to the US — all before election day.
What we know so far is that AstraZeneca, which is developing its vaccine in collaboration with the University of Oxford, signed a deal with the US government worth $1.2 billion.
This will amount to 300 million doses of their vaccine candidate, which puts the cost of each dose to roughly $4. At this price point, AstraZeneca offers the cheapest option.
Meanwhile, small-cap biotechnology company Novavax (NVAX) recently signed a similar deal with the government.
The Maryland-based company agreed to manufacture 100 million doses of its vaccine for $1.6 billion. This works out to approximately $16 per dose.
Next to Moderna, Novavax’s journey this year has been considered a “Cinderella story” by a lot of investors.
The company ended 2019 all banged up, with the biotechnology stock falling by almost 90%, thanks to its failed respiratory syncytial virus (RSV) vaccine candidate.
However, Novavax rose from the ashes following the encouraging results of its late-stage study for NanoFlu, another vaccine candidate.
By March 2020, Novavax’s flu vaccine released promising data that put NanoFlu in direct competition against Sanofi’s (SNY) flu vaccine Fluzone Quadrivalent.
Riding the momentum of their success with NanoFlu, Novavax joined the COVID-19 vaccine race with NVX‑CoV2373.
While companies like Pfizer, Moderna, JNJ, and AstraZeneca have been gaining media attention, an increasing number of health experts and analysts are claiming that Novavax’s candidate might just be the best in class.
Outside the companies under Trump’s Operation Warp Speed, China’s state-owned company, Sinopharm, also announced the pricing for its COVID-19 vaccine candidates.
The pricing is quite higher than those put forward by other vaccine developers, with the Beijing company quoting $145 for two doses.
Aside from China, Russia also has a vaccine candidate expected to be out in the market soon.
Vladimir Putin claims that Russia’s coronavirus vaccine candidate is similar to the one created by AstraZeneca and Oxford University.
No information has been given on either the results of the vaccine’s late-stage trials or its pricing.
To date, the World Health Organization (WHO) has recorded 7 vaccine candidates undergoing Phase 3 clinical trials, while there are 15 more going through Phase 2 expanded safety trials.
An additional 25 candidates are currently under Phase 1 small-scale trials plus another 138 pre-clinical candidates slated for human trials soon.
The development and success of at least one coronavirus would undoubtedly reverse the economic and financial damage brought by the pandemic. Hopefully, that time will come soon.
Another biotechnology company is cashing in on its COVID-19 vaccine efforts: CureVac (CVAC).
CureVac, which has a market capitalization of $9.9 billion, is hoping to follow the footsteps of Moderna (MRNA) and BioNTech (BNTX).
Earlier this year, both small-cap companies saw their value skyrocket, with Moderna now reporting a market capitalization of $27.3 billion while BioNTech is at $16.3 billion.
While the jump in their market capitalization is definitely newsworthy, what is even more impressive is that neither company has a product out in the market today. That is, up until the pandemic struck.
Now, CureVac is looking into raking in the same benefits from its own COVID-19 vaccine work.
Here is a snapshot of how well this stock is doing so far.
CureVac, which raised $213.13 million in its IPO, initially priced its shares at $16 each, started trading at $44 per share and ended the day at $55.90 per share.
The week after, CureVac shares started trading at $79.33 in the premarket hours of Monday, with the price expected to reach an all-time high of approximately $85 per share.
Aside from the Bill and Melinda Gates Foundation, CureVac also attracted backing for its COVID-19 vaccine candidates from the German government and GlaxoSmithKline (GSK). So far, the company has recorded $640 million in funding for its coronavirus program.
What we know about CureVac’s vaccine candidate is that it utilizes the same mRNA-based technology as Moderna and Pfizer (PFE).
While the newly minted biotechnology company is behind competitors, the results of their study are expected to be released by the next quarter.
Prior to prioritizing its COVID-19 vaccine work, CureVac has been focusing on developing cancer and rare disease treatments.
CureVac is also developing CV8102, which is a treatment that can target four different kinds of tumors.
Another frontrunner in its pipeline is CV7202, which is its rabies drug candidate. Its second-generation lipid nanoparticle (LNP) flu vaccine, called CV6301, is also a promising treatment.
Apart from CureVac, another small-cap biotechnology company has been competing against the COVID-19 vaccine frontrunners like AstraZeneca (AZN) and Johnson & Johnson (JNJ).
Earlier this month, Novavax (NVAX) announced the launch of the Phase 2B clinical trial of its COVID-19 vaccine.
The trial for the coronavirus vaccine, called NVX-CoV2373, is set in South Africa and is anticipated to not only provide the company with a larger group but also test the vaccine’s efficacy in an environment where the disease is currently surging.
Although Novavax is also behind the leaders, the level of transmission rate in South Africa, which accounts for half of the COVID-19 cases in Africa, is expected to provide the company a better chance of evaluating its candidate.
Other than that, Novavax has also secured manufacturing deals that can handle more than 2 billion doses.
Novavax has been working on a COVID-19 vaccine since February, with the company receiving $388 million in funding from the Coalition for Epidemic Preparedness Innovations.
By July, the company received a $1.6 billion investment from the US government courtesy of Trump’s Operation Warp Speed project.
If Novavax’s vaccine candidate earns approval, then the company could realistically expect over $10 billion in annual sales.
Riding the momentum, Novavax has also been working on a flu vaccine candidate, called NanoFlu, which can record as much as $1.7 billion in yearly sales.
With the current financial climate, the unprecedented demand for a vaccine will unsurprisingly drive the shares of companies like Novavax and CureVac even higher.
However, it is better to err on the side of caution when it comes to these ultra risky biotechnology companies.
The biotechnology industry has no shortage of investors on the lookout for stocks that can easily make them filthy rich. Although these high-profile stocks can definitely result in massive gains, there are still a number of critical caveats to bear in mind.
While waiting for the actual candidates to get launched, it is safer to bet on tested and proven businesses for now and perhaps dip your toe in the unfamiliar water currently dominated by these small-cap biotechnology companies.
Mad Hedge Biotech & Healthcare Letter
August 13, 2020
Fiat Lux
Featured Trade:
(HOW ROCHE’S STRATEGIC MOAT KEEPS IT AFLOAT)
(RHHBY), (MRK), (GILD), (LLY), (BPMC), (PFE), (JNJ), (ABBV), (NVS)
