Mad Hedge Biotech and Healthcare Letter
October 12, 2023
Fiat Lux
Featured Trade:
(BARKING UP THE RIGHT STOCK)
(ZTS), (MRK)
Posts
When I search for investment opportunities, it's rare for an old article to capture my attention. Yet, an article from The Wall Street Journal in January titled "Americans Can't Stop Pampering Their Pets - Companies Want In" has lingered in my thoughts. While the sentiment of treating pets as family isn't new, the financial implications of this trend are profound.
The global animal healthcare market, a sector once overlooked, has now burgeoned into a significant investment avenue. Recent data reveals the global animal healthcare market size was worth $40.21 billion in 2022.
Astoundingly, it's projected to soar to $84.98 billion by 2030, growing at a CAGR of 9.81%. This growth isn't just a fluke; it's propelled by rising animal health expenditure, increasing prevalence of diseases in animals, concerns over zoonoses, and strategic initiatives by industry giants.
A case in point: In January 2023, Merck (MRK) inaugurated a state-of-the-art manufacturing facility in Boxmeer, Netherlands, specifically for companion animal vaccines, responding to surging global demand.
But what's driving this demand? The answer lies in our plates and our living rooms.
On one hand, there's a rising global appetite for animal protein. While plant-based diets are gaining traction, the majority still lean towards animal-derived sources like eggs, meat, and milk. On the other hand, the human-animal bond has never been stronger, especially with pets. This bond translates to a willingness to spend on their well-being, ensuring they receive the best care possible.
Enter companies like Zoetis Inc. (ZTS). As the world's premier provider of animal medicines, vaccines, and diagnostic products, Zoetis stands at the forefront of this booming market.
With an impressive portfolio boasting over 300 product lines, including 15 blockbuster drugs, Zoetis has strategically positioned itself in two pivotal markets: companion animals (our beloved cats and dogs) and livestock (primarily cattle). Their dominance isn't just regional; they lead in North America, Latin America, and Asia.
To provide a snapshot of their market prowess, Zoetis recently highlighted that pet expenditure remains unaffected even in economic downturns, where household budgets shrink by 20%.
This resilience proves the anti-cyclical nature of the animal health sector, especially the companion animal segment. Concurrently, the livestock market is set to flourish, driven by a global population surge.
By 2050, with 2 billion more mouths to feed, the demand for healthcare products for livestock will inevitably skyrocket.
Notably, Zoetis isn't just riding the wave; they're steering it. Their growth strategy is clear: sustain a 3-point premium over market growth in the long term. This ambition is backed by a robust product portfolio, continuous innovation, and a keen understanding of market dynamics. Their focus isn't just on current market leaders like parasiticides but also on potential future heavyweights in areas like atopic dermatitis, cardiovascular diseases, chronic kidney diseases, and oncology.
So, what does this mean for investors?
Zoetis' financial trajectory is promising. Their revenue forecast for this year stands between $8.575 billion and $8.725 billion, marking a 6% to 8% rise.
Their earnings per share is also set to climb, with projections between $5.03 and $5.14, up from $4.49 in 2022.
Moreover, their consistent dividend hikes, with a recent 15% increase to $0.38, signal a company that's not only growing but also rewarding its shareholders.
Overall, with its blend of resilience and growth, the animal healthcare market presents a compelling investment opportunity. Zoetis, with their strategic vision, robust product portfolio, and financial strength, is poised to lead this sector. For investors eyeing long-term growth coupled with stability, adding this company to your portfolio is undoubtedly a prudent move. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
October 5, 2023
Fiat Lux
Featured Trade:
(FROM FRUSTRATING WHACK-A-MOLE ATTEMPTS TO PRECISION STRIKES)
(MRK), (MRNA)
The age-old battle against cancer is getting a revolutionary upgrade, with our own immune systems leading the charge. Imagine if our body's defense system could be tweaked, tuned, and harnessed to target and decimate previously unconquerable tumors specifically. With the global oncology market previously valued at a staggering USD 167.9 billion in 2021 and anticipated to grow to about USD 286.3 billion by 2030, the promise of that dream is becoming closer to reality.
Take a moment and think about drugs called PD-1 and PD-L1 inhibitors. No, they don't play the ancient game of "whack-a-mole" with cancer cells. Instead, they orchestrate a sophisticated game of hide-and-seek, unmasking these rogue cells from the vigilant gaze of our cancer-hunting T-cells. The result? Some of the deadliest cancers, like melanoma and certain lung malignancies, are now seeing remarkable increases in survival rates. These advancements are epitomized by companies like Merck (MRK), whose collaborations with biotech giants like Moderna (MRNA) have pushed the frontier of cancer treatment.
However, the innovation doesn't stop there. Enter the realm of personalized cancer vaccines, the latest generals in this battle. Their might was most notably exhibited when Moderna and Merck recently announced that their investigational personalized mRNA cancer vaccine, when combined with Merck's KEYTRUDA, showed promising results in a Phase 2b trial for melanoma treatment.
By employing genetic sequencing, these vaccines pinpoint unique mutations within an individual's cancer. Much like how the COVID-19 vaccines rev up our immune response, these personalized armaments rally T-cells to specifically target and decimate cancer cells brandishing those identified mutations. In fact, such advancements are so promising that Moderna envisions creating a vaccine tailored for every unique cancer mutation.
In 2022, Joe Biden set an ambitious goal of slicing cancer deaths by half in a quarter-century. With early detection, prevention strategies, and these groundbreaking treatments, this goal could very well be within reach. This is also timely since, forecasting a glimpse into 2023, the U.S. is bracing for approximately 1,958,310 fresh cancer diagnoses. Alongside this daunting figure, the shadows of the ailment further extend with an anticipated 609,820 individuals succumbing to the disease.
Let’s dive a bit deeper into the intricacies of immunotherapy. At its heart, it’s about training our body to do what it's naturally designed to do – recognize and obliterate invaders. But cancer, being the wily enemy it is, has learned to don an invisibility cloak. That's where our new drugs, like PD-1 and PD-L1 inhibitors, along with vaccines, step in - revealing these camouflaged enemies and bolstering our body's defense forces to strike back.
Needless to say, this shift in perspective on cancer is a game-changer. Gone are the days of merely categorizing it by body parts. Now, armed with insights into the unique biology of tumors, coupled with advancements from pharmaceutical behemoths like Merck and biotech pioneers like Moderna, hundreds of different cancers can be identified and targeted.
It's undeniable that collaborations, such as the one between Merck and Moderna, have signaled a paradigm shift in the battle against cancer. Their shared vision of pushing forward in the field of personalized cancer vaccines can potentially redefine how we approach oncology in the coming years.
Yet, as with all wars, there are casualties. The treatments, while promising, aren't without risks. Unbridling the immune system, for instance, can sometimes lead to unforeseen reactions, some of which can be fatal. Nonetheless, the consensus is clear: these treatments are generally safer and potentially more effective than the traditional chemotherapy approach.
But what does this mean for the average Joe or Jane grappling with a cancer diagnosis? Simply put, a shimmering beacon of hope. While some cancers remain resilient to these advances, others are showing remarkable progress. However, staying updated with the latest treatments is crucial. This might sometimes involve enrolling in trials or seeking genetic sequencing of one's cancer to unlock potential targeted therapies.
The bottom line, as put succinctly by oncologists working on these treatments: “We’re not in the 1990s anymore.” With key players like Merck and Moderna at the forefront of these innovations, we might just be on the brink of turning the tide in this relentless war. Make sure you don’t get left behind. Buy the dip.
Mad Hedge Biotech and Healthcare Letter
September 19, 2023
Fiat Lux
Featured Trade:
(A SHOT AT HOPE)
(MRNA), (IMTX), (MRK), (PFE), (BMY), (GH), (ILMN), (NVS), (RHHBY), (BGNE), (AZN)
In a quaint Boston lab, as the first rays of dawn broke, a team of scientists, led by Moderna (MRNA), embarked on a mission. Their goal? To craft a solution to one of humanity's most persistent adversaries: cancer.
The grim reality remains that cancer is a leading cause of death in the United States. The statistics are daunting, with over 1.9 million new cases anticipated in 2023 and a projected death toll exceeding 600,000. The financial implications mirror this gravity, with costs expected to soar from $156 billion in 2018 to a staggering $246 billion by 2030.
As the world watched with bated breath, Moderna, already a household name for its COVID-19 vaccine, was silently weaving a narrative that could redefine the future of oncology.
Needless to say, the biotechnology sector, a realm of ceaseless innovation, has been abuzz with Moderna's latest venture. Earlier this month, the biotech announced its agreement with the German drug developer Immatics (IMTX) to develop cancer vaccines and therapies. As part of the deal, Moderna will pay $120 million in cash and will also make additional milestone payments.
This collaboration is not just about the financials; it's a beacon of hope for millions.
The partnership is set to merge Moderna's mRNA technology with Immatics’s T-cell receptor platform, focusing on various therapeutic modalities such as bispecifics, cell therapies, and cancer vaccines. Their combined research aims to leverage mRNA technology for in vivo expression of Immatics's half-life extended TCR bispecifics targeting cancer-specific HLA-presented peptides, among other innovative approaches.
With an upfront investment of $120 million, Moderna has made it clear: they're in it to win it. And the stakes? Potentially life-changing cancer vaccines.
However, this isn’t Moderna’s first foray into the realm of cancer treatments.
Building on the momentum of the technology of its highly potent COVID-19 shots, Moderna announced a partnership with Merck (MRK) earlier this year, combining their efforts to come up with treatments that can drastically reduce the spread of skin cancer. By leveraging Merck's Keytruda with its own innovative vaccine, Moderna has showcased the potential of such collaborations in advancing cancer treatment.
After all, the global community oncology services market is not just growing; it's clearly thriving.
From $47.95 billion in 2022 to a projected $53.79 billion in 2023, the numbers speak for themselves. By 2027, this figure is set to skyrocket to $81.33 billion. Such exponential growth underscores the immense potential and critical importance of advancements in oncology.
Yet, as expected, Moderna isn't the only player on the field.
Giants like Novartis (NVS) and Roche (RHHBY) have also thrown their hats in the ring, collaborating with known international cancer organizations to democratize access to cancer medicines. Among the myriad of promising stocks these days, though, Moderna, China’s BeiGene, Ltd. (BGNE), and the UK’s AstraZeneca PLC (AZN) shine the brightest.
Other notable contributors to the fight against cancer include Bristol Myers Squibb (BMY), Guardant Health (GH), Illumina (ILMN), and Pfizer (PFE). Their diverse portfolios and relentless pursuit of innovation are set to shape the future of oncology.
But as the curtains draw on this narrative, the spotlight remains firmly on Moderna. Their success with the COVID-19 vaccine has already etched their name in the annals of medical history. With their sights now set on cancer vaccines, the world waits with eager anticipation.
In the grand tapestry of medical advancements, Moderna's endeavors in the cancer vaccine domain promise to be a golden thread. Their journey, fraught with challenges and uncertainties, is proof of human resilience and ingenuity. As investors, we're not left standing on the sidelines watching history unfold; we're granted an active role in it.
The potential of Moderna's innovations in oncology beckons a promising horizon. For those looking to make a mark in the annals of medical investments, this biotech offers a gateway to the future of oncology. Act now, and be part of this groundbreaking narrative.
Mad Hedge Biotech and Healthcare Letter
September 7, 2023
Fiat Lux
Featured Trade:
(SUGAR, SPICE, AND EVERYTHING NICE)
(NVO), (LLY), (MRK), (JNJ), (AZN), (LVMH)
If the weight-loss drug market is a tide, Novo Nordisk (NVO) stands at its crest. As investors, when we seek promising ventures, we look for history, market presence, and future potential–and this Danish pharmaceutical powerhouse seems to tick all these boxes.
Dive into the annals of Novo Nordisk's story, and you'll find a century-old legacy predominantly immersed in diabetes treatment. This enterprise, with Eli Lilly (LLY) and Sanofi (SNY), once commanded an impressive 90% insulin market share.
But things changed when Sanofi made its exit in 2019, setting the stage for Novo Nordisk's next significant act. Though others such as Merck (MRK), Johnson & Johnson (JNJ), and AstraZeneca (AZN) are present in the diabetes space, they operate in unique niches, focusing primarily on small molecules.
So, what is Novo Nordisk's contemporary claim to fame? It’s none other than the weight-loss drug, Wegovy.
As of its recent U.K. debut, Wegovy is now associated with the National Health Service. This was a strategic move that saw the company's value soar, comfortably eclipsing the luxury behemoth Louis Vuitton (LVMH).
The numbers speak for themselves: Novo Nordisk's stock surged 40% this year, pushing its market cap to an enviable $428 billion.
If they were based stateside, this positions them as the 14th most valuable entity in the S&P 500.
What's truly jaw-dropping is the scale of Novo Nordisk's success. It achieved European market leadership with Wegovy's debut in just five significant markets: Denmark, Norway, Germany, the U.S., and the U.K. The demand seems to be exploding every time the drug lands in a new market.
Meanwhile, their main competitor, Eli Lilly, isn't actually that far behind. Bolstered by their Mounjaro drug, they've seen a stock uptick of 52% this year.
Novo Nordisk's current revenue is approximately $26 billion, predominantly from its diabetes drugs lineup. However, by 2030, forecasts predict the obesity market could range from $30 billion to even $100 billion.
And only a few major players are in line to capitalize on this. Notably, Novo Nordisk and Eli Lilly are poised to dominate this space, with a combined projected market share of 82%.
Furthermore, whispers in the pharmaceutical sector suggest that Novo's golden molecule, semaglutide, has broader applications. Beyond diabetes and obesity, it might target three substantial markets in the coming decade.
Firstly, the cardiovascular space, valued at $162 billion in 2022, presents significant potential. Early indications reveal that semaglutide might offer protective benefits against cardiovascular threats. If Novo gains the necessary approvals, its market share could rise substantially.
Secondly, non-alcoholic steatohepatitis (NASH) affects nearly 30 million Americans. Market evaluations for this condition vary, with some projections reaching $62 billion by 2031.
Novo Nordisk is already deep into phase 3 clinical trials, and if semaglutide proves effective here, it would be another feather in the company's cap.
Lastly, the treatment of addiction disorders could be an untapped market for semaglutide. Preliminary research shows promise, but real-world human trials are still in their infancy. If validated, this could open another revenue stream for Novo Nordisk in the years to come.
Overall, Novo Nordisk is more than just a pharmaceutical company; it's a saga of consistent growth, innovation, and potential.
If you had invested in its shares between 2017 and 2019, today's valuation would offer substantial returns.
Admittedly, the current valuation is on the higher side. Still, context matters.
In light of the above, my advice is two-fold. For those eyeing short-term gains, a 'Hold' might be the best strategy for Novo Nordisk. But if you're in it for the long haul, with a decade or more in view, this is a definitive 'Buy.'
Mad Hedge Biotech and Healthcare Letter
August 15, 2023
Fiat Lux
Featured Trade:
(UNPACKING A PHARMACEUTICAL POWERHOUSE)
(MRK)
Engaging in the pursuit of income through investing might not be the most riveting way to build wealth. Still, the story can unfold with remarkable profit when dividends remain consistent and occasionally serve as a side of growth.
Take a look at the captivating tale of Merck (MRK) shareholders. Picture this: a $5,000 investment made just five years ago that has now blossomed into $9,700 with dividends reinvested. An investment that beats the S&P 500 index's transformation of the same amount into $8,600 during that same stretch. Intrigued? You should be.
Now, let's dive deeper into this pharmaceutical marvel, a proud member of the Dow Jones Industrial Average.
Few players in the pharmaceutical landscape embrace innovation quite like Merck, an arena where it generously dispensed $13.5 billion on research and development in 2022.
That's a whopping 23% of its impressive $59.3 billion in total revenue for that year.
From the game-changing oncology drug Keytruda to the vital human papillomavirus vaccine Gardasil, Merck's pharmaceutical arsenal boasts seven products, each teetering on the brink of exceeding $1 billion in sales by 2023.
Emerging from its New Jersey hub, Merck's total sales displayed a modest 3% growth year-over-year, totaling $15 billion in Q2.
But factor in the robust U.S. dollar's foreign exchange influence, and you'll discover a currency-neutral surge of 7% for that quarter. A deep dive into these numbers would reveal an increase in sales in five out of seven of Merck's blockbuster products.
The spectrum of growth ranged from a modest 1% for its ProQuad/M-M-R II/Varivax vaccine franchise to a meteoric 53% for Gardasil.
Even the 30% and 23% YoY sales dips in diabetes medicines Januvia and Janumet couldn’t dim the sparkle, as generic competition in Europe and U.S. pricing challenges were handily offset.
The plot thickens with Merck's Q2 non-GAAP net loss per share of $2.06. Unravel this figure, and you’ll find that, excluding the $4.02 per share acquisition charge for Prometheus Biosciences, adjusted diluted EPS actually rose 4.8% YoY to $1.96.
Notably, the acquisition of Prometheus, a spotlight on immune-mediated disease treatments, fortifies Merck's immunology pipeline, adding the promising PRA-023 drug candidate for ulcerative colitis and Crohn's disease.
Merck's R&D treasure trove is far from empty.
With over 100 projects in phase 2 or phase 3 clinical trials, gems like the pulmonary arterial hypertension drug candidate sotatercept stand out, projected to reach annual peak sales of $3 billion to $4 billion.
Moreover, Merck's adjusted diluted EPS is projected to rise 9.4% annually for the next half-decade, outpacing the industry's 8.5% consensus.
Merck's 2.8% yield isn't just numbers on a page; it's a tantalizing promise, especially when juxtaposed against the S&P 500 index's 1.5% yield. And the intrigue deepens when you learn that Merck's quarterly dividend per share soared 52% higher in a mere five-year span.
Expect the threads of mid- to high-single-digit annual dividend growth to weave into the future, enabled by a strategic dividend payout ratio of just 41% for 2023, excluding the Prometheus acquisition charge. After all, the company has shown excellent strategies in terms of capitalization on growth opportunities and further fortification of the balance sheet.
With shares surging 21% higher in the past 12 months, Merck's momentum isn't just business—it's also in the stock. And yet, there's still more to be uncovered for income investors.
Consider Merck's forward P/E ratio of 12.4, a figure that ducks below the drug manufacturer industry average of 13.3. These numbers sketch a compelling picture where above-average growth potential meets below-average valuation. Analysts pencil in an average 12-month share price target of $125—a striking 19% upside from the current $105 share price.
In the grand tapestry of investment opportunities, Merck's stock elegantly stitches together an engaging and profitable narrative, making it an alluring buy for income investors at this juncture. It's not just a chapter in the book of investment—it's a whole saga waiting to be read.
