Mad Hedge Biotech and Healthcare Letter
January 19, 2023
Fiat Lux
Featured Trade:
(AN UNBEATABLE BIOTECH AMID A MARKET BEATDOWN)
(GILD), (PFE), (MRNA)
Posts
With 2022 in the books, it’s easy to assume investors won’t be reminiscing about it too fondly. The world economy and the stock market struggled the entire year, severely depleting the resources of many businesses across the globe. These headwinds dragged down several quality stocks.
This year doesn’t look like an improvement, with experts predicting a recession. Such a debilitating economic event would extensively impact practically all sectors. If this is what we’re looking forward to in 2023, then it’s high time to look for stocks that are safe to hold.
Fortunately, some businesses have proven resilient to significant downturns' adverse consequences. Actually, there are a handful of companies that managed to perform so much better than the rest despite all the economic and financial woes of the world.
One of the companies that successfully delivered market-beating returns is biotechnology giant Gilead Sciences (GILD). More importantly, this business has the tools to do it again in 2023.
Gilead Sciences recently announced promising data on its antiviral pill, dubbed GS-5245. Before this, the company had Remdesivir, now marketed as Veklury, which was the first authorized treatment for COVID-19 back in May 2020.
Unlike the ultra-blockbuster sales of the COVID-19 candidates of Pfizer (PFE) and Moderna (MRNA), Veklury only raked in $3.4 billion in 2022.
This is because the treatment is administered intravenously, which poses limitations in terms of its usefulness. With the new GS-5245, however, Gilead Sciences holds a better chance of competing against the market leaders.
While it is similar to Veklury, GS-5245 is in pill form, making it far more convenient and helpful. Although Gilead Sciences’ antiviral pill works very differently from Pfizer’s Paxlovid, the two are expected to become close competitors.
For context concerning potential revenue, Paxlovid alone could add a jaw-dropping $67.1 billion to Pfizer leading up to 2024.
Prior to COVID-19, Gilead Sciences had already been considered a top biotechnology stock that is notably safer than its peers in a recession.
A key reason for this confidence is rooted in the nature of the treatments the company develops. Most of the products in its portfolio and candidates in its pipeline are vital to patients.
HIV treatments are crucial parts of Gilead Sciences’ operations, with drugs in that sector accounting for about 75% of its core business.
For the first nine months of 2022, the company’s HIV-related sales reached $12.4 billion and climbed by 5% year over year. These figures demonstrate resiliency despite the inflation.
Its highest-selling drug in this field, Biktarvy, recorded a revenue run rate that exceeded $10 billion. Sales of this product continue to sustain their momentum and possibly grow rapidly as it expands its 45% market share in the HIV treatment market in the US.
Last December 2022, Gilead Sciences announced another development in this sector as its new drug, Sunlenca, received FDA approval.
This new treatment to the company’s portfolio is an important win.
For one, it all but cements Gilead Sciences as the leader in HIV treatment, as Sunlenca serves as a long-acting drug option. Instead of going through regular treatments, patients now have the option to receive this twice-a-year HIV regimen—the first of its kind.
Another reason is that the market for HIV treatments showed a decline during the pandemic. It has only just started to exhibit some recovery. Hence, launching a new and innovative treatment at this crucial period is a surefire way to attract a lot of eligible patients, mainly since the company provides a long-acting regimen.
With these in mind, Sunlenca has the clear marking of a potential blockbuster. In adding a new and more attractive treatment to the list of its top-selling HIV products, Gilead Sciences has set itself up to be strategically positioned to take advantage of the growing HIV treatment market.
The HIV drug market worldwide is estimated to be worth over $45 billion by 2028, rising at a compound annual growth rate of 5.9%.
On top of its solid and consistent core business, Gilead Sciences also offers an above-average dividend yield of 3.4%. In comparison, the average yield of the S&P 500 is 1.7%.
Overall, Gilead Sciences is a solid business, getting shots in the arm with its new long-term HIV treatment and antiviral pill. Although its valuation has been climbing as of late, this stock remains reasonably priced and is a good investment in the long run. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
December 29, 2022
Fiat Lux
Featured Trade:
(A PROMISING START TO 2023)
(JNJ), (PFE), (MRNA), (ABMD)
Investors will be grateful to finally leave 2022 behind as the markets weathered a challenging year. For 2023, we can anticipate much of the same, at least in the first six months, which is why it’s crucial to fill your portfolio with high-quality blue-chip stocks.
Johnson & Johnson (JNJ) fits this description.
With $469 billion in market capitalization, JNJ is the biggest drugmaker across the globe, easily surpassing its peers by over $100 billion. Its product portfolio is practically unrivaled, with the company catching up in the COVID-19 vaccine race and matching the pace of Pfizer (PFE) and Moderna (MRNA). More importantly, the company has more than a dozen treatments that are on pace to go beyond $1 billion in sales this 2022.
In the third quarter of 2022, JNJ’s revenue climbed by 1.94% year-over-year to reach $23.79 billion, beating Wall Street estimates by $357.93 million. The company also started to spend more on R&D, particularly for the expansion of its medtech sector.
Recently, JNJ closed the deal to acquire Abiomed (ABMD), a leader in the manufacture of heart pump solutions, to boost its medtech segment.
This acquisition is in line with JNJ’s plan to separate its consumer products division from its pharmaceutical and medtech segments. The addition of Abiomed aligns with JNJ’s plan to integrate a smart data approach in the creation and development of new drugs. The company is also looking into leveraging new technology to bolster its medical device division.
After the split is completed, JNJ is projected to become a $60 billion biopharmaceutical entity by 2025. The primary growth drivers would be its major brands and strategic product launches. Meanwhile, the medtech segment is expected to rack up sales as well since its growth will no longer be hampered by the consumer health division, which typically faces litigations.
Specifically, Abiomed will bring its lead product, Impella, to JNJ’s pipeline, which would be an excellent addition to its cardiovascular devices portfolio. This would be a promising revenue stream for the company since the cardiovascular devices market is estimated to climb at a CAGR of 6.9%. It is projected to expand from a market size worth $54.08 billion in 2021 to $86.27 billion by 2028.
As for Impella, this smart implantable pump is anticipated to rake in more than $3.8 billion in revenue by 2031.
The split is a good business decision for JNJ. In the nine months leading to October 2022, pharmaceutical sales were noted to be at their peak at $39.4 billion. JNJ also unveiled more innovative therapeutics in this segment, including CAR-T meds and gene therapies, on top of expanded indications for well-established treatments and investigational drugs.
Some of the treatments poised for potential blockbuster status in 2023 are oncology drugs Darzalex, pulmonary hypertension medication Opsumit, immunology treatment Remicade, and cardiovascular drug Xarelto. The company also submitted multiple myeloma treatment Talquetamab for regulatory approval next year.
Apart from these, JNJ is expected to unveil at least 14 more new treatments that hold a sales potential of over $1 billion each. Meanwhile, half of the candidates are projected to rake in $5 billion or more in sales.
In comparison, the consumer health segment recorded $11.1 billion, indicating a 1.1% slide year over year.
These reports show why the news of the company's split comes as a relief for many of its investors, especially in light of how impressive its pharmaceutical business has been performing as of late. Considering that JNJ is in dire need of evolving while integrating groundbreaking technology, keeping its pharmaceutical and medtech segments tied to its consumer health division would inevitably drag sales down.
Overall, JNJ remains an excellent choice for those looking for high-quality stocks to add to their portfolio. However, it would be advisable to buy after the split. This is because the share price would most likely drop by then, offering us the chance to invest in a company geared towards the medtech and pharmaceutical space.
Mad Hedge Biotech and Healthcare Letter
December 27, 2022
Fiat Lux
Featured Trade:
(AN UNDERRATED YET OVERACHIEVING STOCK)
(PFE), (UNH), (JNJ), (LLY), (ABBV), (BMY), (LEGN), (VRTX), (CRSP)
As we brace ourselves for another uncertain year, large-cap biotechnology and healthcare companies continue to be viewed as attractive options for a defensive play. These businesses offer a chance at insulating some capital from the slippery slope many investors still anticipate in 2023.
That perspective boosted the stock prices of several names in the healthcare industry in 2022. Some of the biggest companies in this sector are up, including UnitedHealth (UNH), Eli Lilly (LLY), and Johnson & Johnson (JNJ). In fact, the Health Care Select Sector SDPR fund (XLV) is only down by 4.6% compared to the S&P 500, which slid by roughly 20%.
With 2022 coming to a close, it’s reasonable to expect the trend to continue next year. Looking at the industry, there are still many names with a lot of room to grow.
One of them is Pfizer (PFE).
Given its performance and plans, Pfizer stands out as one of the best risk-adjusted options to own in this sector. Actually, this stock could give the likes of AbbVie (ABBV) and Bristol-Myers Squibb (BMY) a run for their money.
While its minimal gains have not kept pace with other Big Pharma names, Pfizer still easily bested the -14% recorded by the S&P 500. This is because investors remain anxious over the company’s future post-COVID. However, Pfizer has aggressively developed its pipeline and leveraged its COVID-19 profits to create more blockbusters.
One promising project is its migraine franchise, which Pfizer received following its $11.6 billion acquisition of Biohaven. The company estimates $6 billion in peak sales yearly from this program.
Another asset that Pfizer added via acquisitions is ulcerative colitis treatment etrasimod, which the company received following its $6.7 billion deal with Arena Pharmaceuticals. Given the decent-sized market for this condition, the candidate is expected to rake in $1 billion to $2 billion in peak sales.
Multiple myeloma treatment Elranatamab is projected to turn into a blockbuster as well. Although this market is already a bit crowded, with Legend Biotech (LEGN) and Johnson & Johnson leading the charge, Pfizer’s candidate can still attract its own share. So far, Elranatamab is projected to rake in $4 billion in peak sales.
The company is also leveraging its established reputation in the vaccine world. Pfizer’s vaccine candidate for the respiratory syncytial virus (RSV) is anticipated to become another blockbuster, with estimated annual sales to reach more than $2 billion.
Aside from these, there are 13 more candidates in the company’s pipeline. All these short-term catalysts are expected to deliver a compounded annual revenue growth rate of roughly 6% from 2020 up until 2025. Notably, this projection does not include the profits from its COVID-19 franchise.
Meanwhile, there are several longer-term catalysts queued in Pfizer’s R&D plans.
One is the expansion of its mRNA vaccine dominance, which is projected to become a $10 billion to $15 billion yearly business in the long run. While sales for its COVID-19 vaccines and boosters are expected to decline, the combination vaccine targeting the flu and COVID-19 could realistically be the primary driving force for this program. Even the shingles vaccine looks promising, with peak sales projected to reach $6 billion by 2030.
Its sickle cell disease program, which Pfizer received via its acquisition of Global Blood Therapeutics, is anticipated to rake in $3 billion in peak sales. If approved, this could go head-to-head against Vertex (VRTX) and CRISPR Therapeutics’ (CRSP) much-awaited candidate.
Overall, Pfizer is an excellent defensive player in this tumultuous period. Its resilience and ability to withstand recessions and bear markets are clearly top-notch. Its core business and pipeline look promising. Plus, despite its strong financial resources and incredible track record, its low valuation makes it an underrated stock with a value notably stronger than the average investor can appreciate.
Mad Hedge Biotech and Healthcare Letter
December 22, 2022
Fiat Lux
Featured Trade:
(AN INVINCIBLE STOCK THAT CAN WEATHER ANY STORM)
(MRK), (MRNA)
Given the volatility of today’s market, anxious investors look into dividend stocks for safety and security. After all, dividends are excellent sources of passive income—something that would definitely be handy when facing a 40-year-high inflation and seemingly never-ending market losses.
However, not all companies that pay out dividends are created equal. With the current economic climate and financial turmoil, choosing businesses that would less likely lower or suspend their payouts becomes even more crucial.
One of the companies that meet these qualities in the biotechnology and healthcare sector is Merck (MRK).
Merck is one of the biggest biopharmaceutical companies across the globe, with a remarkable portfolio of drugs and treatments.
Merck’s resiliency at a period when so many companies have been struggling to keep afloat has indubitably attracted investors’ attention. One of its recent accomplishments is the promising results of its personalized cancer vaccine project with Moderna (MRNA). Needless to say, this will be a massive game-changer if the two companies manage to successfully launch the product.
However, none is more widely known among its products than Keytruda, with the drugmaker continuously raking more indications for its crown jewel with no signs of stopping anytime soon.
Keytruda contributes a considerable share of the company’s total revenue. This cancer therapy is also the fastest-growing treatment when it comes to sales. In the third quarter alone, Keytruda generated $5.4 billion, growing by an impressive 20% year over year. This accounts for more than 33% of Merck’s top line, which showed off a 14% jump year over year to reach $15 billion in the third quarter.
On top of expanding the application of Keytruda to cover new indications, the company has been developing a version of the treatment that can be given subcutaneously rather than the current intravenous delivery method.
Offering Keytruda as a subcutaneous injection or a shot administered into the fatty tissues just beneath the skin would notably reduce the future damage that biosimilars could inflict on the top-selling treatment in 2028. This is because patents protecting this particular formulation of Keytruda could be extended until the late 2040s.
Apart from that, Keytruda’s subcutaneous version would be able to provide several advantages over the current intravenous delivery method. For one, the time needed to administer the drug would be substantially reduced from the current 30 minutes since patients can easily self-inject in their own homes. This will also decrease their dependency on hospitals.
This version would also ease the discomfort of patients and significantly lower their expenses, which will consequently motivate more insurance companies to opt to prescribe this branded product instead of the biosimilar alternatives.
Other critical products in Merck’s portfolio include its HPV vaccines Gardasil and Gardasil 9. The two managed to deliver combined sales of $2.3 billion in the third quarter, which recorded a 15% jump from their performance in the same period in 2021. Meanwhile, cancer treatment Lynparza racked up $284 million, which was up by 16% year over year.
Overall, Merck has a solid lineup of products and treatments and an extremely promising pipeline of candidates, which would allow the company to develop additional blockbuster drugs to beef up its portfolio. Moreover, its stable business will undoubtedly help to sustain its dividend.
To date, Merck shares offer a 2.68% yield. This surpasses the average of S&P 500, which is 1.82%. More impressively, the company has boosted its dividend payouts by roughly 20% in the last three years despite the pandemic and severe financial and economic turbulence. Looking at its history and trajectory, Merck will most likely continue to reward its investors with dividend boosts in 2023 and beyond, regardless of what the market throws at it next.
Mad Hedge Biotech and Healthcare Letter
December 20, 2022
Fiat Lux
Featured Trade:
(PATIENCE IS KEY FOR THIS BIOTECH)
(VRTX), (MRNA), (CRSP)
This year has been challenging for the majority of the stocks, with even the strongest and most dominant names struggling to keep up. The three major indexes all slipped into bear territory while economic issues such as rising inflation brought turbulent earnings seasons across virtually every industry.
Still, 2022 has revealed a handful of exceptions. Some businesses delivered good news and, against all odds, solid stock performance. Some investors lined up to buy shares of these companies. While some have soared to unreasonable prices, it’s not too late to invest in other players sold at modest prices.
A particularly promising stock that meets these criteria is Vertex (VRTX).
Vertex has risen notably this year, recording a 38% boost to date. However, it’s trading at roughly 20 times its forward earnings predictions. Hence, buying this stock could very well guarantee solid investment in the long run. After all, the following years are expected to be filled with significant turning points.
An excellent starting point in reviewing Vertex’s potential is its portfolio. Right now, the company has six drugs sold commercially, reporting $7.5 billion in revenue last year. All six focus on cystic fibrosis (CF).
Vertex has been hailed as the worldwide leader in the CF market for years. On an even more promising note, the company is projected to sustain this momentum until the late 2030s.
Specifically, Vertex’s most recent CF treatment, Trikafta, has presented plenty of room for revenue growth in the years to come, courtesy of anticipated additional approvals in more countries and younger age brackets.
Vertex is also reviewing another CF candidate, which is now in Phase 3 trials. Based on previously released data, this new product has the potential to become even better than Trikafta.
Another CF candidate queued for review is the drug Vertex has been working on in collaboration with Moderna (MRNA). If approved, this product will cover patients not eligible for the current CF roster of Vertex.
Surprisingly, however, the potential catalyst for Vertex’s share price in the coming years has absolutely nothing to do with its highly successful and established CF program.
Rather, it has something to do with the company’s new venture on blood disorders: Exa-cel. This is a one-time cure developed by Vertex and Crispr Therapeutics (CRSP), which targets two blood orders. To this day, there remain minimal options for patients with these diseases.
For two key reasons, gaining approval for Exa-cel could be a massive game changer for Vertex. One is that it can provide definitive proof that the company can expand beyond its CF programs.
The second is that it would provide an additional revenue stream for Vertex, and that’s always a desired outcome regardless of the billions of dollars the company is already generating.
CF sales have clearly powered Vertex’s net income, which increased by about 1,140% in the past five years. With exa-cel, though, it’s evident that the company has been working to diversify its market to cover other diseases.
Reviewing its pipeline, Vertex has 18 programs with excellent chances of getting commercialized in the next 10 years. These run the gamut of treatments and therapies, including promising results for sickle cell disease, type 1 diabetes, kidney disease, and acute pain relief.
While it’s impossible to accurately determine the amount of money these drugs could make by 2032, it’s not that hyperbolic to believe that they can at least contribute several billions to the company.
Overall, Vertex stock offers a bright and solid future. In the next 10 years, the business would evolve into a much bigger, more entrenched, and more diversified entity. That means it would be a less risky investment compared to today.
Vertex would be an excellent choice for patient investors seeking to start a position in some biotechnology and healthcare companies.
