Mad Hedge Biotech and Healthcare Letter
May 2, 2023
Fiat Lux
Featured Trade:
(QUANTUM COMPUTING IN BIOTECH)
(MRNA), (IBM), (PFE), (NVS), (ILMN), (TEVA), (NVO), (RHHBY), (GOOGL)
Posts
When you think of the pioneering biotech, Moderna (MRNA), artificial intelligence (AI) and quantum computing might not be the first things that come to mind. Instead, you might associate Moderna more with its work in traditional laboratory research and as a leading coronavirus vaccine manufacturer.
However, Moderna has taken significant strides into the realm of AI. In fact, the biotech utilized AI during the early stages of developing its coronavirus vaccine and has also implemented the technology for other business purposes.
Now, Moderna is taking things a step further by partnering with International Business Machines (IBM) to explore the potential of AI and quantum computing in enhancing its messenger RNA research.
Needless to say, this innovative collaboration could potentially revolutionize the biotech industry.
To understand Moderna's recent developments in AI and quantum computing, it's important to first have a grasp of its mRNA technology.
Unlike traditional vaccine production that involves growing viruses in a lab, Moderna produces mRNA that provides the body with instructions to treat or prevent a particular illness. This innovative process is already faster than traditional vaccine production methods. But AI has played a significant role in making the process even faster.
Moderna has been able to leverage AI and automation to scale up mRNA production significantly. In fact, the company's mRNA production for experiments went from about 30 per month to 1,000 per month thanks to AI. Additionally, AI has contributed to the generation of more effective mRNA sequence designs, saving researchers considerable time.
Let's now take a closer look at the implications of Moderna's partnership with IBM.
One of the primary areas of focus is IBM's generative AI for therapeutics, which has the potential to provide Moderna researchers with a deeper understanding of molecular behavior, facilitating the development of new molecules for therapeutics.
Moreover, IBM's expertise in quantum computing could prove invaluable in speeding up the discovery of new treatments, enabling Moderna to push the boundaries of medical research and improve patient outcomes.
Quantum computing differs from traditional computing in its use of a system that allows for states beyond the binary 1s and 0s. Quantum computers can understand information as 1, 0 or something in-between, offering the potential for individual bits to be in multiple states at the same time. This characteristic may be beneficial in modeling the dynamic interactions among drugs, enzymes, cells, and proteins that are continuously changing.
The use of advanced systems in molecular modeling has been challenging for earlier generations of hardware. However, the incorporation of quantum computing could revolutionize the way biotech companies solve these complex problems.
As a starting point, Moderna will be part of IBM's enterprise accelerator program, which provides a platform for "quantum curious" companies to invest in building their expertise in emerging areas. This program gives access to IBM's network of computing systems and specialized training on the use of quantum computing for life sciences research.
As part of this collaboration, Moderna will gain access to MoLFormer, a powerful AI model that can accurately predict a molecule's properties. This tool will prove particularly valuable in Moderna's efforts to improve the lipid nanoparticles that encapsulate its mRNA treatments.
Additionally, the partnership includes investments in generative AI programs that will assist in the design of innovative mRNA-based treatments and vaccines, helping Moderna to further cement its position as a leader in the biotech industry.
IBM had previously attempted to make a name for itself in AI-powered drug discovery, offering services through its Watson platform.
However, these offerings were ultimately discontinued in 2019. Despite once partnering with major names in cancer research such as Pfizer (PFE), Novartis (NVS), Illumina (ILMN), as well as Teva (TEVA) for drug repurposing, IBM has shifted its focus to other areas of the life sciences industry.
As quantum computing technology continues to evolve, however, its potential applications have begun to attract some of the biggest names in biotech.
Companies like Novo Nordisk (NVO), Roche (RHHBY), and Boehringer Ingelheim have partnered with industry giants like Google (GOOGL) to explore the possibilities of this cutting-edge field, which is quickly moving from the realm of science fiction into a scientific reality.
As for the question of whether these moves can be a game-changer for Moderna, the answer is likely yes.
Moderna has already experienced significant benefits from AI in its processes, both in and out of the lab. With access to IBM's platforms, there is potential for further improvements in the company's research and development of new treatments and vaccines.
Efficiency, speed, and precision are crucial factors in drug and vaccine development, and any improvement in these areas could have a significant impact on Moderna's success. Although the results of the IBM partnership may not be immediately visible, Moderna's investments in AI and quantum computing could pay off in the long run.
With continuous innovation and portfolio expansion, Moderna is well-positioned to capitalize on market opportunities presented by mRNA technology and achieve substantial revenue growth in the years ahead.
Therefore, investors should not be overly concerned about short-term stock price fluctuations or declines in revenue from coronavirus vaccines. After all, Moderna has a robust pipeline and has demonstrated significant potential with promising clinical trial results.
Hence, investors should consider Moderna as a long-term investment opportunity, making it a valuable addition to any investment portfolio.
Mad Hedge Biotech and Healthcare Letter
April 20, 2023
Fiat Lux
Featured Trade:
(ANOTHER WILD RIDE IN BIOTECH)
(CRSP), (VRTX), (BLUE), (MRK), (MRNA),(RXDX)
The biotech industry is a rollercoaster of investment opportunities, where great successes and flops can easily be the difference between riches or ruin.
Companies like Moderna (MRNA) have seen this firsthand - going from a $4 billion valuation to nearly 15-fold that amount in just one successful drug launch resulting from their COVID vaccine development program. To rekindle investor interest in what may seem like an erratic space, giants such as Merck (MRK) are also putting money into promising companies; with its recent acquisition of Prometheus Biosciences (RXDX) evidence enough that even long-established pharmas recognize the potential rewards available within biotechnology markets.
Investors seeking the next big win in biotech should look beyond household names for potential gems.
Take CRISPR Therapeutics (CRSP), whose collaboration with Vertex Pharmaceuticals (VRTX) is taking exa-cel to new heights, and Bluebird Bio's (BLUE) progress on lovo-cel as just two examples of lesser-known science ahead of its time that could pay off handsomely in your portfolio.
Recent news shows that two upcoming treatments for sickle cell disease, exa-cel and lovo-cel, could be cost-effective if priced below $1.9 million - a figure the Institute of Clinical and Economic Review (ICER) concluded after conducting an extensive assessment of their financial aspects. Momentum is building as both companies aim to secure FDA approval soon; investor optimism in CRISPR continues to grow increasingly evident due to this good news.
Here’s a quick recap of the treatment’s market opportunity.
Sickle cell disease and thalassemia patients face a hefty financial burden over their lifetime, with disease-related expenses ranging from $4 million to $6 million.
As a gene-editing therapy, exa-cel is a complex treatment to manufacture and administer, which further justifies its potentially high price tag. With this innovative therapy, Vertex Pharmaceuticals and CRISPR Therapeutics aim to target 32,000 sickle cell disease (SCD) and thalassemia (TDT) patients in the United States and Europe, emphasizing the significant market opportunity for the companies.
The potential market for exa-cel, assuming a price point of $2 million, amounts to a staggering $64 billion opportunity.
While this price tag may seem steep, it is not unprecedented in the industry. Bluebird Bio, for instance, secured approval for its gene-editing medicine Zynteglo last year, pricing it at $2.8 million.
The question remains whether third-party payers will be willing to cover the high costs associated with these treatments. Case in point – Bluebird Bio exited the European market after being unable to secure favorable deals with third-party payers. As such, how exa-cel will fare in this challenging reimbursement environment is yet to be determined.
As CRISPR Therapeutics and Vertex Pharmaceuticals chart their path for the launch of exa-cel, they are keenly aware that pricing gene editing therapies rightly is critical.
Both companies have been in active dialogue with insurance providers and governmental programs like Medicaid to ensure this goal comes to fruition. Even if it means accepting modest prices for its product, there's still immense potential for exa-cel due to the lack of existing treatments meeting SCD and TDT patients' needs.
Given these details, where does CRISPR currently stand?
Investing in clinical-stage biotech stocks can be a tricky, with the potential rewards marred by the risks of what still lies ahead. However, for those brave enough to take on this challenge, there's an astronomical market opportunity at stake—the CRISPR Therapeutics and Vertex Pharmaceuticals tag team are vying against formidable foes like Bluebird’s Zynteglo as well as lovo-cel, one that could transform how SCD gene editing is treated if approved soon by FDA.
With a bigger war chest, however, Vertex may have an edge in the race, but CRISPR is no slouch, with an agreement in place to retain 40% of exa-cel's profits. It remains to be seen who will come out on top remains to be seen, but the potential rewards are undeniably huge.
As investors eagerly await the approval of exa-cel, CRISPR Therapeutics' promising gene-editing therapy for sickle cell disease, the company's market capitalization may not reflect the therapy's massive potential.
Assuming that exa-cel delivers and truly becomes a multi-billion-dollar opportunity, CRISPR Therapeutics and Vertex Pharmaceuticals are poised to capture a significant market share with their forthcoming therapies. With the advantage of a stronger cash position, Vertex could push the scales in its favor, helping with the therapies' launch.
Even conservatively assuming profits of $12 billion, CRISPR Therapeutics' market cap of $3.6 billion does not do justice to the company's potential.
While it's still early days, CRISPR Therapeutics' other promising programs should not be ignored. The company is somewhat fairly valued, but exa-cel's approval could send its shares soaring.
Beyond the financial benefits, the success of exa-cel could also bolster CRISPR Therapeutics' position as a leader in gene editing technology.
The company's pipeline includes promising programs in immuno-oncology and rare diseases, and the sustained revenue generated by exa-cel could fuel further research and development efforts. This bodes well for the stock's prospects, as CRISPR Therapeutics continues to advance the frontiers of innovative medicine.
Meanwhile, another possibility for CRISPR is a buyout.
The gene-editing market may be small, but its rapid growth rate of nearly 30% until 2030 presents an enticing opportunity for healthcare businesses to pursue. The market is estimated to reach less than $15 billion by then. With an approved gene-editing therapy, CRISPR Therapeutics could be a valuable asset for a larger healthcare company seeking growth.
At a market cap of less than $4 billion, CRISPR Therapeutics is an affordable acquisition for a top healthcare company looking to expand its portfolio. The company's favorable balance sheet, with over $1.8 billion in cash and short-term investments and modest debt of just over $244 million, makes it even more appealing as a potential acquisition.
The acquisition of CRISPR's business wouldn't come with a lot of headaches, and it could instantly boost a company's growth prospects.
With the sustained revenue from exa-cel and the potential for more clinical and regulatory wins in its other programs, CRISPR Therapeutics' gene-editing pipeline is worth considering for any healthcare business looking to capitalize on the promising growth opportunities in this market.
Overall, the potential for significant upside in the short and mid-term, combined with the company's pioneering spirit, makes CRISPR Therapeutics an attractive investment opportunity for discerning investors.
Mad Hedge Biotech and Healthcare Letter
February 16, 2023
Fiat Lux
Featured Trade:
(AN INFALLIBLE GROWTH STOCK IN BIOTECH)
(VRTX), (CRSP), (MRNA)
A buzzer-beater that you have no doubt would win your team the championship trophy. A job interview where you unequivocally know you impressed the recruiter. A stock exhibiting incredible growth prospects. There are just some things you simply know will succeed no matter what.
One surefire growth stock comes to mind in the biotechnology and healthcare sector: Vertex Pharmaceuticals (VRTX).
Although several biotechnology stocks took it on the chin in 2022, Vertex has been spared. In fact, this biotech crushed the market in the trailing-12-month timeframe, amplified by solid revenue, promising earnings growth, and remarkable long-term catalysts. On top of these, Vertex continues to dazzle with its financial reports.
Last year, the company’s revenue jumped by 18% year over year to reach $8.9 billion. Meanwhile, Vertex’s net income soared by 42% compared to 2021 and hit $3.3 billion.
The main business of Vertex is focused on a lineup of treatments targeting the underlying causes linked to cystic fibrosis (CF), which continue to be significant moneymakers. However, the drugmaker also has its sights on gaining new approvals.
No other company has gotten close to challenging Vertex in the CF treatment market. The company holds the only approved medications targeting the underlying causes of this rare genetic disease. Its closest rival remains several years away from even having a chance at gaining regulatory approvals.
Nonetheless, Vertex isn’t satisfied to simply rest on the blockbuster success of its CF therapies. The company remains aggressive in developing its pipeline of new candidates, mainly targeting different segments of the rare disease treatment market.
Some of the most promising candidates in its pipeline are its work with CRISPR Therapeutics (CRSP) on a rare blood disease treatment, an mRNA-centered CF treatment with Moderna (MRNA), and a non-opioid medication targeting acute pain.
Its candidate with CRISPR is expected to gain approval in the second half of 2023, while its Moderna candidate is slated for the next phase around the same period.
Its non-opioid treatment, dubbed VX-548, is hailed as a potential new class of drug that can help manage acute pain by blocking the patient’s pain signal in the peripheral nerves. This drug could offer effective pain relief sans the risk of addiction.
To date, VX-548 has demonstrated strong efficacy in Phase 2 trials, with an excellent benefit-risk profile and absolutely no abuse potential. The Food and Drug Administration has granted it the fast track and breakthrough therapy designations—an acknowledgment of the rising unmet demand and the drug’s compelling clinical profile.
Currently, the standard of care for acute pain management continues to sorely lack a treatment that is both effective and not prone to abuse. VX-548 has the potential to fill the void and target a market size worth $4 billion in the United States alone.
Vertex also recently disclosed its move to send applications for regulatory approvals for two blood-related disorders, exa-cel and sickle cell disease, in the United Kingdom and Europe. With only a handful of available treatment options for these conditions, Vertex would be addressing a severely underserved demographic while opening new and lucrative revenue streams.
Another noteworthy move that indicated Vertex’s plans to go beyond its CF pipeline is its $320 million acquisition of ViaCyte last year.
ViaCyte gained popularity for its initiative to utilize novel stem cell-derived cell replacement therapies as a functional cure for Type 1 diabetes.
These decisions are in line company’s “five-in-five goal,” wherein the plan is to release new treatments targeting five conditions within a five-year window. If Vertex succeeds, then these could open multi-billion-dollar revenue streams for the company.
Looking at its trajectory and track record, Vertex is expected to earn major regulatory approvals soon and diversify its portfolio of treatments over the next couple of years. This would translate to sustained growth in its revenue and earnings, which would push its stock price higher. Overall, these comprise an excellent recipe for long-term growth.
Mad Hedge Biotech and Healthcare Letter
February 7, 2023
Fiat Lux
Featured Trade:
(AN ICONIC BLUE-CHIP PHARMA SELLING AT A DISCOUNTED PRICE)
(PFE), (MRNA), (NVAX), (BNTX), (LLY), (NVO)
Pfizer (PFE) possibly contributed more than any other business in getting the world back to normal from the pandemic. It was rewarded with an impressive windfall courtesy of its twin COVID-19 programs: the blockbuster vaccine and the top-selling treatment, Paxlovid.
However, the world has already stopped fretting over COVID. As expected, Pfizer is paying the price for this turn of events. Sales of its COVID blockbusters are estimated to decline by more than 60% in 2023 after raking in a total of roughly $57 billion in 2022.
The company projects that Comirnaty vaccine sales would fall from $37.8 billion in 2022 to $13.5 billion in 2023, while Paxlovid would drop from $18.9 billion to $8 billion. After all, the United States and several countries already have massive stockpiles of the Pfizer vaccine and Paxlovid, recorded under the 2022 revenue. It would take until June 2023 to work through them.
In effect, Pfizer and other COVID plays like Moderna (MRNA), Novavax (NVAX), and BioNTech (BNTX) have fallen out of favor.
Still, Pfizer remains positive about the future of its COVID franchise. The company anticipates that 24% of Americans, or about 79 million, will get a COVID vaccine in 2023. In comparison, 31% or roughly 104 million, received the vaccine in 2022. Pfizer also expects to sustain its dominance, with a 64% market share for the vaccine alone.
Moreover, Pfizer has a robust pipeline—and pipelines are the driving force behind drug stocks.
With mRNA technology's momentum, Pfizer is optimistic about its combined flu-COVID vaccine. The company foresees around 132 million Americans lining up for this two-disease vaccine, which it hopes to launch by 2026.
Shifting the discussion away from COVID, Pfizer estimates non-COVID revenue to increase by 6% annually through 2025, then projects a similar trajectory or better every year through 2030 to hit at least $70 billion.
Announcing these projections is a bold move, especially since Pfizer faces one of the most significant patent cliffs starting 2025 to 2028. Several top-selling treatments, which generate roughly $17 billion in yearly sales, will lose patent protection and face generic competition.
Pfizer is aggressively filling these anticipated voids with acquisitions, including three exciting companies: Global Blood Therapies, Biohaven Pharmaceuticals, and Arena Pharmaceuticals.
In 2022 alone, the company spent $26 billion, which granted Pfizer access to promising drugs for sickle-cell anemia, migraines, and ulcerative colitis.
By 2030, the company projects these and its subsequent acquisitions to generate at least $25 billion in annual revenue. This means it’s still on the lookout for more acquisitions.
Actually, the company estimates that it’s just 40% on the way to hitting its target of $25 billion in 2030 revenue coming from acquired treatments. This means the company would most likely spend another $50 billion in acquisitions to reach its goal.
In terms of its internal pipeline, Pfizer’s candidates can rake in at least $20 billion in sales by 2030. Some of its key launches include vaccines for the flu, meningitis, and respiratory syncytial virus (RSV). It also has treatments targeting blood cancer and atopic dermatitis.
Meanwhile, its oral diabetes and obesity products, which are currently in clinical trials, have the potential to generate roughly $10 billion in annual sales. If approved, these would allow Pfizer to go head-to-head against Eli Lilly (LLY) and Novo Nordisk (NVO).
Overall, Pfizer is an “iconic, blue-chip company” that’s on a discount these days. It is down roughly 15% this 2023, offering an excellent window for investors who want to buy the stock.
The company trades for 13 times its estimated earnings in 2023 and yields 3.7%, which is over double the S&P’s dividend rate. With this payout, along with its solid earnings and one of the best balance sheets across the industry, Pfizer looks incredibly safe.
However, it’s essential to be realistic. Pfizer’s goal is to go through this year minimally unscathed. Although its performance in 2022 was impressively strong, with revenue surging to a whopping $100 billion compared to $42 billion in 2020, the year 2023 is a reset period for the business.
Mad Hedge Biotech and Healthcare Letter
January 24, 2023
Fiat Lux
Featured Trade:
(A MARKET-BEATING HEALTHCARE STOCK)
(LLY), (ABBV), (AMGN), (BMY), (GILD), (JNJ), (MRK), (PFE), (MRNA)
The previous year was horrible for the stock market, with the S&P 500 dropping in value by roughly 19%, marking its first decline since 2018 and only the second time it sank since the 2008 financial crisis.
It was an even more horrid year for the biotechnology industry, with the flagship SPDR S&P Biotech ETF (XBI) sinking by 26% following its more than 20% decline in 2020—a catastrophic blow for such a promising index which delivered an impressive over 30% gains in 6 of the last 10 years.
Meanwhile, the stock prices in the large-cap pharmaceutical segment generally stayed buoyant. The “Big 8,” in particular—AbbVie (ABBV), Amgen (AMGN), Bristol Myers Squibb (BMY), Eli Lilly (LLY), Gilead Sciences (GILD), Johnson & Johnson (JNJ), Merck & Co (MRK), and Pfizer (PFE)—reported an average share price gains of roughly 15%.
Among the names in this list, Eli Lilly has become one of the go-to “safe” stocks during these turbulent times.
In contrast to the broader market, the company has performed exceptionally well in the last 12 months, with its share prices climbing by 12% within the timeframe.
One of the critical reasons that propelled Eli Lilly’s performance was the regulatory approval it obtained for Mounjaro, a diabetes treatment, in May 2022. Although this pharma giant has been hailed as the leader in the diabetes care segment for decades, Mounjaro is a game changer.
This newly approved diabetes treatment could blow any competitor out of the water, with peak sales estimated to hit $25 billion.
Besides diabetes, Mounjaro is also under review as a potential obesity treatment, signifying label expansions for this drug.
If this pushes through, then Eli Lilly would become one of the first movers in the diabetes and obesity markets, with only Novo Nordisk (NVO) standing as a realistic challenger. Based on the market size and the lack of competitors, the profit margins for these segments could be likened to those recorded by Pfizer and Moderna (MRNA) for the COVID-19 vaccines.
There are also other promising candidates in Eli Lilly’s portfolio. One is Donanemab, which is a potential treatment for Alzheimer’s disease. According to the company's Phase 3 study, its candidate delivered better results than Biogen’s (BIIB) approved Alzheimer’s treatment, Aduhelm.
Eli Lilly recently sent its atopic dermatitis treatment candidate, Lebrikizumab, for regulatory review in both the US and Europe. This marks another potential blockbuster for the company, with many treatments queued for review and possible approval by the end of 2023.
As for the company’s current portfolio, most of its products still report good results. For instance, sales of its cancer drug Verzenio rose by 84% year over year to record $617.7 million in the third quarter of 2022. Revenue for the diabetes treatment Trulicity climbed 16% year over year to reach $1.9 billion.
Another factor that makes Eli Lilly attractive is its dividend. Over the past five years, the company has doubled its payout. In 2022, the company disclosed a 15% hike to its dividend payouts. This marked the fifth consecutive year Eli Lilly implemented.
In December 2022, Eli Lilly shared its updated guidance for 2023. For 2022, the company projected that its top line would be between $28.5 billion and $29 billion. That represents a modest growth rate. Eli Lilly shareholders can anticipate better performance this year.
For 2023, the company estimates sales to climb to $30.8 billion. While that amount may appear underwhelming, it’s essential to keep in mind that this is a very conservative estimate. Eli Lilly is taking into account several concerns that may affect its growth, such as patent exclusivity losses and a decline in its COVID-19 sales.
Overall, Eli Lilly has proven itself to be a good and solid business that looks in excellent shape to continue delivering market-beating returns.
With a market capitalization of over $350 billion and several candidates in its pipeline, this company has a strong potential to be worth much more in the following years. Also, it’s critical to bear in mind that since 2020, Eli Lilly shares have skyrocketed by 176%, dwarfing the S&P 500’s 20%—a trend I expect to continue. I suggest you buy the dip.
