Mad Hedge Biotech & Healthcare Letter
January 12, 2021
Fiat Lux
FEATURED TRADE:
(DEFEATING GRIMMER REAPERS)
(PFE), (BNTX), (MRNA), (CVAC)
Posts
They say there’s always a light at the end of the tunnel, but what a very long tunnel we’re in right now.
More contagious strains of the SARS-CoV-2 have been discovered in the UK and South Africa, with these new variants threatening to make the situation worse before we even get the chance to try to make things better.
However, there’s still hope.
Just take another look at the leading vaccines developed in response to the COVID-19 pandemic and you’ll realize that we could be nearing the light at the end of this dark road.
In fact, the innovative solutions that emerged in 2020 could serve as beacons of light to illuminate the darker paths that the biotechnology and healthcare sector has been struggling with for decades.
The more we study the effects of the new vaccines, the more it becomes plausible that they could not only be used as weapons to fight off the 2020’s ultimate grim reaper, COVID-19, but also annihilate grimmer reapers like cancer.
Among the vaccine developers that launched their COVID-19 program, the technology used by Moderna (MRNA), Pfizer (PFE) – BioNTech (BNTX), and CureVac NV (CVAC) proved to be the most groundbreaking.
All these utilized the nucleic acids, more commonly known as RNA or mRNA, to create their COVID-19 vaccines.
Traditional vaccines are typically injected into the body to trigger an immune response, which would, later on, be useful in fighting off the live pathogen. The problem with this is that it requires so much time and exposes the vaccines to contamination.
In comparison, mRNA vaccines do not suffer from these setbacks. Basically, these vaccines instruct the body to replicate parts of the virus.
In the case of SARS-CoV-2, the mRNA vaccines tell our bodies to replicate the proteins wrapped around the virus. This way, the body gets to practice on the replicated proteins and prepare for the day when the actual virus shows up in the system.
By familiarizing the body with the genetic makeup of the deadly virus, the mRNA vaccines help us perfect the immune response for when the real thing attacks us—and therein lies the much bigger promise of this technology.
mRNA has the capacity to instruct our cells to create whatever protein necessary, which means it can be applied to fight off other diseases apart from COVID-19.
Researchers since the 1970s have been attempting to shed light on this technique but failed to get traction.
Due to the urgency caused by the pandemic, companies like BioNTech and Moderna have been given practically carte blanche of the funds to finally develop the mRNA vaccines and show the world not only how potent it could be but how quickly we can have it ready compared to more traditional processes.
Now, the technology is gaining more attention because it could finally be the cure to a myriad of diseases including cancer.
These days, we treat malignant tumors by zapping them with radiation or via chemicals. These methods tend to damage lots of surrounding tissues in the process.
Moderna and BioNTech have come up with a better idea.
Instead of blindly zapping in one general direction, they believe that each should be treated as a genetically unique tumor. Therefore, it would be more effective and less damaging to the patients if their immune systems are accurately programmed to attack specific enemies.
This is where mRNA comes in.
Once the antigen is identified, the scientists can determine its unique makeup or fingerprint.
Then, they can reverse engineer its entire cellular instructions to be able to come up with the blueprint that can help them develop an accurate plan on how to target the culprit.
Similar to how Moderna and BioNTech’s COVID-19 vaccines work, the body will then be conditioned to do the rest.
What’s more exciting is that these plans are no longer just ideas.
Both Moderna and BioNTech have been filling their pipelines with drug trials for cancer treatments of the skin, lung, breast, pancreas, prostate, and brain. They’ve been working on mRNA-based vaccines for a wide range of diseases as well including Zika, rabies, and even influenza.
The success of Moderna and BioNTech’s COVID-19 programs accomplished more than just giving the companies a marketable product. It turbo-charged decades-long processes.
Remember, it only took 11 months since the discovery of the SARS-CoV-2 virus for the UK and US regulators to declare that the mRNA vaccine for COVID-19 is not only safely tolerated by people but also effective.
Prior to this, no vaccine had been developed in less than four years. The approval period takes even longer.
That is, COVID-19 inadvertently led to the grand debut and definitive proof of concept of this much-awaited technology.
If you missed out on Moderna or BioNTech’s rally in 2020, buying on the dip is definitely a smart move now.
Mad Hedge Biotech & Healthcare Letter
January 5, 2021
Fiat Lux
FEATURED TRADE:
(ANNOUNCING THE MAD HEDGE BIOTECH AND HEALTH CARE TRADE ALERT SERVICE)
(WHY ASTRAZENECA IS NOT JUST A COVID PLAY)
(AZN), (PFE), (MRNA), (JNJ), (ALXN)
The latest update on AstraZeneca’s (AZN) COVID-19 vaccine candidate has received a lot of attention from investors.
The company and its research partner Oxford University recently landed a deal to deliver 2 million doses of their COVID-19 vaccine weekly to the UK starting mid-January.
This is on top of the massive deal AstraZeneca sealed with India for emergency use approval as well.
While these are exciting updates, the reality is that AstraZeneca aims to market its COVID-19 vaccine candidate at cost.
As the race to supply COVID-19 vaccine to the world continues, it’s undeniable that a huge chunk of the roughly $40 billion COVID-19 revenue would go to the current frontrunners Pfizer (PFE) and Moderna (MRNA).
This is particularly true for Moderna’s case as the biotechnology company employed a revolutionary technology to create its COVID-19 vaccine candidate.
The success of its vaccine so far is indicative of future treatments and even vaccines based on the mRNA technology. This offers incredible promise not only for the current pandemic but for a myriad of rare diseases.
In comparison, AstraZeneca and even Johnson & Johnson (JNJ) opted for more traditional approaches for their COVID-19 vaccine candidates.
While these are also promising, it’s likely that these companies do not anticipate their COVID-19 programs to be the profit centers for 2021.
In fact, there are a lot of good reasons to buy AstraZeneca shares right now – and its COVID-19 vaccine candidate didn’t make the top of the list.
One of the main reasons AstraZeneca deserves a spot in your portfolio is the fact that it already has an established and successful pipeline.
While its COVID-19 program definitely boosted its popularity, this effort was not altogether necessary in terms of the company’s overall growth.
Despite the pandemic that brought down businesses in 2020, including commercial launches of new drugs, sales of AstraZeneca’s new products rose 9% year over year.
In fact, throughout the past 12 months, the company managed to generate approximately $1.9 billion in free cash flow.
In the first nine months of 2020, the company reported core earnings growth of 13% year over year, with a 2.8% dividend.
To close the year with a bang, AstraZeneca announced its $39 billion acquisition of one of our closely-watched biotechnology companies: Alexion Pharmaceuticals (ALXN).
Although this initially didn’t bode well with its investors, AstraZeneca is set to gain the blockbuster franchise composed of the Soliris-Ultomiris duo.
At its current growth rate, Alexion’s prized Soliris franchise is estimated to generate at least $6 billion in sales in 2021.
Meanwhile, Soliris’ longer-lasting version, Ultomiris, which was launched in 2018, is projected to rake in almost twice in profits this year.
Both Soliris and Ultomiris require regular treatment, with the former administered every other week while the latter is an infusion needed every other month.
Although there are less expensive biosimilar options already making the in the market today, particularly for Soliris, the move of Alexion to develop Ultomiris as a longer-lasting and more convenient version all but obliterates any future competition.
Simply put, AstraZeneca will have a monopoly of this market once the acquisition is complete by mid-2021.
Speaking of convenient options for prolonged treatments, AstraZeneca recently gained expanded approval for its easy-to-swallow tablet called Tagrisso. This drug is developed for lung cancer patients with tumors caused by specific gene mutations.
The latest approval allows Tagrisso to be prescribed to newly diagnosed patients who just had their tumors removed surgically.
This presents a lucrative market for AstraZeneca considering that these patients undergo therapy for long periods.
More importantly, AstraZeneca doesn’t really need to market Tagrisso’s value to oncologists.
Clinical results show that the tablet can lower the risk of the disease’s recurrence or even death by as much as 80% among their patients.
Putting these results in the context of AstraZeneca’s records, Tagrisso’s sales for the third quarter of 2020 alone grew by 30% year over year to reach $4.6 billion.
With the recent FDA approval, this number is set to increase to transform Tagrisso into a certified blockbuster drug.
Other than Tagrisso, AstraZeneca has a number of oncology blockbusters in its portfolio and pipeline.
In the first nine months of 2020, the sales of the company’s therapies unit rose by 23% year over year to a record $8.2 billion. Admittedly, Tagrisso contributed a substantial amount.
However, it’s not the sole growth driver in AstraZeneca’s oncology lineup.
Another moneymaker is Lynparza, which showed a 42% jump year over year in its third quarter sales in 2020 to reach $1.9 billion.
This drug, which was initially approved as an ovarian cancer treatment, is now prescribed to treat prostate, pancreatic, and breast cancer. Therefore, the expanded approvals are expected to offer more lift this year.
Another promising addition to AstraZeneca’s oncology pipeline is Enhertu, which the company gained from its $1.35 billion collaboration project with Daiichi Sankyo.
Since the two companies started working together last year, Enhertu has received approval for breast cancer patients who relapse or do not respond to standard care.
Aside from this, Enhertu is also under review as a treatment for stomach cancer.
Although the companies are still awaiting approval, the treatment is reported to have a great chance at approval because of its impressive ability to lower the risk of cancer patients’ death by 41% compared to chemotherapy.
AstraZeneca’s decision to boost its oncology segment by adding the likes of Alexion Pharmaceuticals and collaborating with Daiichi Sankyo guarantees that the company remains in a position to be able to deliver gains no matter what happens to the broader economy.
The continuous success for all the products in AstraZeneca’s pipeline could lead to market-crushing gains.
However, investors who own the stock don’t necessarily need to rely on luck to know that they are set to get a healthy return.
That assurance makes AstraZeneca a great stock to buy today and hold for a long time.
Mad Hedge Biotech & Healthcare Letter
December 29, 2020
Fiat Lux
FEATURED TRADE:
(BUY BEFORE THE RALLY)
(PFE), (MRNA), (AZN), (MRK), (GILD), (VTRS)
Mad Hedge Biotech & Healthcare Letter
December 17, 2020
Fiat Lux
FEATURED TRADE:
(ALL HAIL THE DIVIDEND KING)
(JNJ), (PFE), (GSK), (SNY), (MRK), (MRNA)
Major problems have the tendency to attract major problem solvers.
That’s why it came as no surprise when the biggest pharmaceutical companies, like Pfizer (PFE), GlaxoSmithKline (GSK), Sanofi (SNY), and Merck (MRK), jumped in to work a solution the moment a global pandemic threatened the planet.
Now, another big name in the healthcare industry is set to release its own solution.
As Johnson & Johnson (JNJ) releases more positive data from its COVID-19 vaccine program, it becomes more obvious that the company won’t simply be one of the businesses benefiting from the world turning the corner on the pandemic—it will be one of the companies making that happen.
While companies like Pfizer have already gained approval and are out in the market today, JNJ’s day in the sun could be happening sooner than anticipated as well.
What we know so far is that JNJ would be able to manufacture at least 1 billion doses of its COVID-19 vaccine, JNJ-78436735, by early 2021. Given the company’s massive production capacity, catching up with the global demand won’t be an issue either.
More importantly, JNJ’s vaccine offers more convenience in terms of storage compared to current leaders Pfizer and Moderna (MRNA) since JNJ-78436735 does not need ultra-special requirements.
Unlike the other vaccines, JNJ’s candidate can be stored at refrigerator temperature for up to three months.
Plus, JNJ-78436735 is formulated to be a one-dose vaccine, which means it would be easier to administer than the two-shot candidates from Pfizer and Moderna.
While this is great news, the company already announced that it would be selling JNJ-78436735 at cost during the pandemic.
That doesn’t necessarily mean that JNJ is doing all these for purely altruistic reasons though. Even when the pandemic is over, there will still be a demand for the COVID-19 vaccine.
The market for this is estimated to be worth roughly $100 billion in sales and over $40 billion in profits.
If approved, then JNJ can comfortably share this opportunity with competitors.
Given the pricing and the target market, JNJ is projected to earn at least $3 billion in sales for JNJ-78436735 in 2021 alone.
However, the appeal of JNJ stock does not lie in its COVID-19 vaccine candidate.
Pretty much like industry stalwarts such as Walmart (WMT), JNJ is one of the safest blue-chip stocks.
Founded in 1886, it has shown its capacity to weather practically all types of market crashes thanks to its consumer defensive strategy.
While JNJ is not immune to setbacks, as it faced patent expirations for its best-selling drugs and even lawsuits for products like Tylenol and the infamous Baby Powder legal battle, the company managed to repeatedly bounce back primarily because of its well-diversified business segments.
Simply put, its strong products easily offset the weaknesses.
JNJ manufactures and markets basic items like bandages, baby formula, and even skincare products—all of which are goods that customers continue to buy regardless of what is happening to the economy.
Specifically, JNJ owns a number of multibillion-dollar brands like Band-Aid, Listerine, and Nicorette. However, it doesn’t heavily rely on already established names.
For instance, its consumer health sector—the smallest segment in the company—raked in $13.9 billion in sales in 2019.
Meanwhile, its medical devices division generated $26 billion in the same year.
Its pharmaceuticals sector, which covers drugs and treatments for infectious diseases, oncology, and cardiovascular, brought in a whopping $42.2 billion.
A more recent demonstration of JNJ’s ability to weather market downturns is the company’s third-quarter earnings report, which showed a 3.8% jump in its EPS to hit $2.2 and a 1.7% increase in its sales to reach $21.1 billion.
By 2021, JNJ is projected to report a 9% increase in its revenue and a 12% earnings growth following the easing of the pandemic woes and the increasing sales of its top cancer treatments Darzalex and Imbruvica.
Over the past five years, JNJ’s stock has rallied by over 40% and generated a total return of 65%.
To date, this stock trades at merely 17 times forward earnings and pays a respectable forward yield at 2.7%, making it a good investment at a decent price.
As in the past, it’s easy to bet on JNJ’s dividend growth in the next years and even decades for three main reasons—an extremely diversified portfolio that already has an established solid footing across global markets, a rock-solid balance sheet, and a hyper-focus on development and growth.
JNJ’s solid foothold in the worldwide healthcare market along with its innovative R&D spending serves as key drivers for its impressive cash flow and consistent dividends.
Most investors are familiar with companies tagged as Dividend Aristocrats. These stocks are part of the S&P 500 group that managed to increase their dividends for at least 25 years in a row.
However, there’s an even more elite group of dividend stocks that do not get as much fanfare: the Dividend Kings.
To be categorized as a Dividend King, the company must be able to grow its dividend for at least 50 consecutive years.
Since it went public 76 years ago, JNJ has been able to boost its annual dividend for 58 straight years---making this company one of the globally recognized Dividend Kings of the S&P 500.
Mad Hedge Biotech & Healthcare Letter
December 15, 2020
Fiat Lux
FEATURED TRADE:
(DON’T BUY ASTRAZENECA FOR ITS COVID-19 VACCINE)
(AZN), (PFE), (MRNA), (ALXN)
AstraZeneca (AZN) is one of the leaders in the COVID-19 vaccine race, but you wouldn’t have guessed it by observing the stock price in the past months.
The indifference might be rooted from the company’s recent issues with its vaccine candidate, AZD1222, which includes dosing errors and lack of transparency on their trial data.
In comparison, frontrunners like Pfizer (PFE) and Moderna (MRNA) have been gaining back to back approval from the FDA and even from investors.
Let me tell you why this doesn’t really matter for AstraZeneca anyway.
For one, AstraZeneca won’t even make a profit from its COVID-19 vaccine candidate. In fact, the British drugmaker pledged earlier this year that it will sell AZD1222 at no profit.
So, what is the financial benefit of AstraZeneca’s vaccine?
The potential big win from this COVID-19 program is not from AZD1222 itself, but from AstraZeneca’s long-acting antibody cocktail.
This treatment could be the solution needed to prevent the progression of diseases among patients who are already infected with the virus. It can also be used as a preventive measure, which can last up to 12 months, for those who cannot take a vaccine.
If AZD1222 gains approval, then this COVID-19 vaccine is projected to add $3 billion—an impressive 30%—to AstraZeneca’s 2021 profits.
The approval of this technology would also fall nicely in place with the rest of AstraZeneca’s plans.
Since the start of 2020, AstraZeneca has made it clear that it would start pivoting to focus on rare diseases.
Its latest plan towards developing this expertise is the $39 billion acquisition of biotechnology company Alexion Pharmaceuticals (ALXN).
Here’s the nitty-gritty of this massive merger.
The $39 billion price tag comes in the form of cash and stock, putting each share at $175. Alexion shareholders will get $60 in cash on top of 2.1 AstraZeneca shares for every share they own. Aside from that, Alexion will own 15% of the newly formed company.
If everything goes according to plan, then the deal will be completed by the third quarter of 2021.
This acquisition will significantly expand the R&D programs of AstraZeneca, especially its highly specialized and rare diseases sectors.
This combined company is estimated to rake in double-digit growth in its revenue through 2025, with the company potentially gaining significant synergies of roughly $500 million annually – a fair price that could easily justify the premium price AstraZeneca paid for the merger.
AstraZeneca should also be able to expect double-digit increases in its core EPS accretion for the first three years, with the company realistically anticipating a strong FCF with a strong investment-grade rating.
Now, let’s take a look at what Alexion brings to the table.
Alexion is one of the most promising biotechnology companies to date, which managed to achieve significant growth since its IPO. From 2017 to 2020, the company managed to boost its annualized revenue by 20%, growing from $3.5 billion to $6 billion.
With a market capitalization of $34.21 billion, it has invested a significant part of its budget to the development of rare disease drugs.
The most popular products in Alexion’s portfolio are chemotherapy drugs Ultomiris and Soliris, which generated $4.3 billion in combined sales in 2019 alone.
For 2020, sales of these two treatments are expected to rise by 17% to reach $5 billion.
Prior to this deal with AstraZeneca, Alexion has been engaged in an acquisition spree since 2018.
It managed to snap up four smaller biotechnology companies for $4 billion in total, with its $1.4 billion purchase of Portola Pharmaceuticals as its most recent deal.
Truth be told, the performance of Alexion’s rare disease treatments in the market didn’t skip a beat despite the pandemic in 2020.
In fact, these products have been substantially outperforming expectations that the company itself presented in January.
With this merger, AstraZeneca will gain access to Soliris and its widely successful follow-on medication Ultomiris.
Apart from these mega-blockbuster drugs, AstraZeneca will also get its hands on a handful of treatments for rare metabolic diseases, making the company on pace to rake in roughly $840 million in revenue for this year alone.
With all these plans in place, it’s clear that the strongest reason to buy AstraZeneca is not its COVID-19 program.
Buy this stock for the promising long-term prospects not only for rare diseases, but also for its treatments in cancer, cardiovascular diseases, and even diabetes. Buy it as well for its consistent growth, with the company braving the pandemic headwinds and achieving 10% revenue growth and a 16% jump in core EPS to date.
Global Market Comments
December 14, 2020
Fiat Lux
FEATURED TRADE:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ASSET SHORTAGE),
(INDU), (PFE), (MRNA), (PTON), (DOCU), (ETSY), (CAT), (JPM), (BABA), (TSLA), (TLT), (ABNB), (DIS)
