Mad Hedge Biotech and Healthcare Letter
December 15, 2022
Fiat Lux
Featured Trade:
(HASTE MAKES WASTE)
(MRNA), (MRK)
Posts
Many quality stocks are experiencing annual declines. The bear market has heavily and negatively affected investor sentiment and, of course, the economic climate, which hurt earnings. Nonetheless, some stocks still managed to show signs of a rebound this year.
In the biotechnology and healthcare market, Moderna (MRNA) is putting up a pretty impressive fight to bounce back. In fact, it has posted a double-digit increase over the last three months. As this biotech gains more traction, it’s reasonable to wonder if it’s time to get in on it before 2023.
The latest update that pushed the stock higher was about the company’s cancer vaccine, which it has been working on with Merck (MRK).
Based on Phase 2 trial results, adding the experimental messenger RNA-based cancer vaccine of Moderna, called mRNA-4157, to the standard Keytruda treatment of Merck and administering the combination to high-risk melanoma patients lowered the risk of death or the recurrence of cancer by 44%.
Suppose this momentum is sustained until Phase 3 in the same category of patients, as well as in similar trials expected in other indications. In that case, this could signify the beginning of a monumental shift in cancer therapies. That is, it would create a market for mRNA-based personalized cancer vaccines that can be administered in combination with readily available treatments like Keytruda.
The results, which showed a decrease in the risk of relapse or death by almost half, also demonstrate a notable vindication for Moderna and represent a significant step towards realizing its ambitions to expand and diversify its profile as a COVID-19 vaccine maker.
This collaboration between Moderna and Merck on personalized cancer vaccines dates back to 2016, with the latter exercising its option to co-develop mRNA-4157 in October 2022.
Basically, mRNA-4157 is a tailored approach based on every patient’s specific tumor. According to Moderna, the procedure typically only takes a few weeks to complete. The idea behind adding Keytruda is rooted in boosting the immune response of the patient’s T-cells, while mRNA-4157 guides the T-cells to the specific tumor.
Apart from the proteins included in the personalized cancer vaccine, mRNA-4157 is actually identical to the COVID-19 vaccine distributed by Moderna across the globe. Both have the same mRNA chemistry, same lipid, same intramuscular route, and same manufacturing process.
If this treatment shows conclusive evidence that it can work on melanoma patients, then Moderna and Merck can expand their application to other indications. After all, Keytruda has several approvals under its belt, making it convenient for both companies to keep testing the combination.
To date, Moderna has fallen by roughly 30%. However, it has managed to bounce back by over 20% in the past three months. While the broader market downturn definitely hurt Moderna shares, another primary reason for its decline is the concern over its post-pandemic performance.
Realistically speaking, vaccine sales will likely not surpass the approximately $18 billion that Moderna recorded in 2021 and expects this year. Still, revenue will probably remain within the blockbuster territory.
Looking at the demand, the coronavirus booster market is projected to follow in the footsteps of the flu vaccine sector.
For context, the flu market worldwide reaches 500 million to 600 million doses yearly. Depending on the pricing, this demand could rake in somewhere between $12 billion to $24 billion.
On top of these, Moderna has been working on two additional candidates in Phase 3 trials: vaccines for the flu and respiratory syncytial virus. Both are anticipated to hit commercialization by 2024 and 2025.
Overall, Moderna could become an overwhelming success with its mRNA candidates in the years to come. However, the most challenging question is still estimating the company’s earnings for the next five years or more.
There remain notable uncertainties surrounding its pipeline. While I could always take a stab at estimating its profits, that’s just guesswork at this point. So despite Moderna’s impressive results over its personalized cancer vaccine program, I don’t think it’s a safe bet—for now.
Mad Hedge Biotech and Healthcare Letter
October 18, 2022
Fiat Lux
Featured Trade:
(JUST WHAT THE DOCTOR ORDERED)
(MRNA), (MRK), (PFE)
A newly announced collaboration extension with Merck (MRK) might just be what the doctor ordered for Moderna’s stock, which has been experiencing a decline in revenue since the public started resisting boosters.
Moderna stock rose 12% following the news that the FDA approved its collaboration deal with Merck as well as its COVID booster geared towards young kids.
Those positive updates most likely mark the end of a falling knives stage for the company, as it was coming off a 52-week low just days before the announcements.
The deal between Moderna and Merck involves a personalized cancer vaccine, which the two have been working on since 2016. The goal is to use Moderna’s technology as a combo treatment alongside Merck’s mega-blockbuster Keytruda.
The cancer vaccine, currently dubbed mRNA-4157, will be tailored for every patient. It generates a reaction according to the particular mutational signature of an individual’s tumor.
The collaboration is already in its Phase 2 trial for a high-risk melanoma vaccine.
The deal involves Merck shelling out $250 million in cash to exercise its option on this personalized cancer vaccine candidate. Had Moderna not earned copious amounts of cash over its COVID-19 vaccine over the past two years, this money would have seemed like a much bigger deal.
Nevertheless, the agreement is for a 50-50 sharing of costs and, eventually, potential profits. The results of Phase 2 should be disclosed to the public before December 2022.
Regarding how this affects Moderna’s pipeline, the collaboration demonstrates the versatility of the mRNA technology.
The other update that boosted the stock is the emergency use authorization granted to Moderna and fellow COVID-19 vaccine maker Pfizer (PFE), which allowed their boosters to be used on children.
As you know, Moderna markets and sells only a single product: SpikeVax. While this COVID vaccine is, apart from Pfizer’s Comirnaty, the most extensively used worldwide, pushing revenues to $18.5 billion in 2021, and is on track to hit roughly $21 billion in 2022, sales for SpikeVax are expected to decline now that the pandemic has been deemed “over.”
The company’s agreement to 70 million vaccine doses to the US government, on top of the option to purchase up to 230 million, which will be worth about $4.8 billion at $16 per dose, may very well be Moderna’s last to a government.
Currently, the biotech is looking into the private market, in which its vaccine may start costing up to $100.
Reviewing the demand and the current situation, my best estimate is that Moderna would earn roughly $7 billion annually from the private market for its COVID vaccine.
Nevertheless, Moderna’s vaccine has shown proof of concept. This would translate to more confidence in the company’s pipeline. Its expanded collaboration with Merck is a clear indicator of this sentiment.
In terms of the rest of its pipeline, Moderna has several candidates.
The most advanced so far are its Phase 3 programs for a flu vaccine, a respiratory syncytial virus vaccine (RSV), and a cytomegalovirus vaccine (CMV).
Considering the respiratory nature and the resounding success of its mRNA COVID vaccines, it’s reasonable to believe that the Phase 3 trials for these candidates would also be successful.
Hence, Moderna could be looking at substantial revenues once these vaccines enter the market.
While it can be argued that flu vaccines already exist, sometimes being the first to market is insufficient to keep a significant market share.
The current flu market is estimated to be worth $5 billion to $6 billion, and there are definitely a lot of competitors in the sector.
However, Moderna aims to develop a more efficacious vaccine. Needless to say, that could easily command a higher price tag and attract more customers.
Meanwhile, Moderna’s RSV vaccine—if approved—would not have any rivals. This is also another massive segment, with the market for the older adult population alone already worth $10 billion.
Both RSV and flu vaccines are anticipated to be released by late 2024 or early 2025.
When people hear Moderna, they immediately think COVID stock. Then, they immediately begin to wonder about the company’s future. Basically, Moderna has become a victim of its own success.
At the moment, the market is focused on Moderna’s potential revenue loss from its COVID vaccine. That sentiment is clearly weighing on the company’s price, making it undervalued. However, these very same fears make Moderna a steal considering the company’s long-term prospects well beyond its COVID program.
Long-term investors would see this as an opportunity to buy an innovative biotech for a bargain and reap the rewards when Moderna’s other candidates start to gain momentum.
Mad Hedge Biotech and Healthcare Letter
August 18, 2022
Fiat Lux
Featured Trade:
(MORE THAN JUST A ONE-TRICK PONY)
(MRK), (SGEN), (SNY), (PFE), (BNTX), (GSK), (CVAC), (MRNA)
When executed correctly and sufficient time is allocated, stock market investing can be highly rewarding. But, what can investors do to make the most of their opportunities in the market?
The short answer: Choose businesses that have or are building a strong competitive advantage.
Those investing in the biotechnology and healthcare sector know that buying companies with promising portfolios and diverse pipelines is vital.
After all, a solid lineup can generate and secure steady cash flow to fund R&D efforts as well as acquisitions to expand the pipeline. Consequently, this guarantees steady growth in revenues as existing products face patent exclusivity losses.
Within this sector, one of the companies with a strong portfolio and promising pipeline is Merck (MRK).
Merck has become practically synonymous with Keytruda—the #1 cancer drug in terms of sales globally. In the first 6 months of 2022 alone, this drug already raked in $10.1 billion in sales.
While several biotechnology companies would be content with this top-tier drug in its portfolio, Merck refuses to be a one-trick pony.
Leveraging its $222 billion market capitalization, the fifth-biggest pharmaceutical company on the planet has been steadily expanding its portfolio.
In fact, Keytruda only made up 33% of its total $30.5 billion sales in the first half of the year.
Merck has built a formidable oncology lineup and developed several blockbuster treatments in this space.
Its flagship, Keytruda, climbed 30% year-over-year in its second-quarter earnings report to record $5.3 billion for that period. Other cancer treatments improved their performance as well. Lynparza grew 17% while Lenvima rose 33%.
Amid these growths, Merck remains aggressive in expanding its oncology lineup. Earlier this year, the healthcare world has been abuzz with Merck’s plan to buy cancer-centered biotech Seagen (SGEN).
The deal, if it pushes through, would be reportedly worth $40 billion and add 4 already approved cancer drugs to Merck’s portfolio.
On top of these market-ready products, Seagen will also bring numerous late-stage candidates to the table.
Merck also recently inked a smaller deal with Orion Corporation. The agreement, worth $290 million, will grant Merck access to Orion’s drug candidate for prostate cancer.
Meanwhile, Merck just announced its plan to catch up with its peers in the COVID-era race. Specifically, the biotech giant has finally become more invested in entering the messenger RNA technology segment.
Earlier this week, Merck struck a $3.7 billion deal with Cambridge-based private biotech Orna Therapeutics for the latter’s novel take on mRNA called oRNA.
Basically, Orna’s approach involves altering the mRNA strands in such a way that it creates a circle instead of a line.
According to the firm, this will be a more effective way to apply the technology to mRNA-based vaccines and therapies.
This isn’t the first time Merck collaborated with a smaller firm to pursue mRNA technology.
As early as 2015, Merck has already been investing in this segment. In fact, it was one of the early partners of Moderna (MRNA), signing a series of agreements with the latter including collaborations on infectious diseases programs.
While some of the programs have been discontinued, Merck and Moderna continue to work together on a personalized cancer vaccine program.
Amid these efforts, Merck is still regarded as a laggard compared to its Big Pharma peers in terms of making huge investments in the mRNA space.
Recent mRNA collaborations include Sanofi’s (SNY) $3.2 billion deal with Translate Bio, Pfizer’s (PFE) massive investment in BioNTech’s (BNTX) technology, and GlaxoSmithKline’s (GSK) deal with CureVac (CVAC).
Nevertheless, the deal with Orna suggests a shift with Merck’s strategy.
Overall, Merck is a premier biotech and healthcare business with a strong portfolio and a promising pipeline.
Its profitability and expansion over the past years have been proven to be top-notch, and it’s not farfetched to expect the same or even better results in the future. I recommend buying the dip.
Mad Hedge Biotech and Healthcare Letter
August 4, 2022
Fiat Lux
Featured Trade:
(A SELLOFF SURVIVOR READY FOR MORE GAINS)
(PFE), (SRPT), (PTCT), (GSK), (JNJ), (MRNA)
The broader market hasn’t been putting that much faith in drugmakers these days, and this could very well be a mistake.
While 2022 has not been particularly kind to equities recently, several names in the biotechnology and healthcare sector still managed to keep themselves safe from the selloff.
Pfizer (PFE), with its COVID vaccine sales, is one of them. Admittedly, this pharmaceutical giant has not shown substantial growth in the past monthS. Nonetheless, its quarterly updates and, more importantly, pipeline have exhibited notably encouraging signals.
As a massive underperformed in the past 20 years, Pfizer has taken aggressive steps to transform its strategy. The most obvious way to shake up the business is to eliminate the bulk of its noncore products.
However, it’s not advisable to buy a company just because it has been underperforming and would then be sold at lower prices. Instead, it is critical to determine whether there’s a catalyst.
For Pfizer, the catalyst was clear: COVID.
The company was and still is at the heart of the coronavirus vaccine drives and treatments—a position that’s projected to be sustained for years to come.
The company has made a fortune from this program, and it’s still reaping the rewards in a massive way.
In the second quarter of 2022, Pfizer’s revenue climbed by 53% year-over-year to reach $27.7 billion. Based on the company’s record, this is the most significant quarterly sales during this period to date.
For context, its COVID vaccine, Comirnaty, raised $8.8 billion in sales. This is 20% higher than its reported sales in 2021 over the same period.
Meanwhile, Pfizer’s new COVID therapy, Paxlovid, recorded $8.1 billion in sales. Taken together, Paxlovid and Comirnaty comprise over half of the company’s total revenue for the second quarter.
Leveraging these growth opportunities, Pfizer has been steadily expanding its pipeline.
To date, the company has roughly 96 drugs in its pipeline. Of these, 6 drugs are in registration, while 29 candidates are queued for Phase 3 trials. There are 31 drugs in Phase 2 and 30 more in Phase 1.
Pfizer’s candidates range from treatments for inflammation, immunology, oncology, vaccines, and internal medicine to rare disease therapies.
Among the treatments in its Phase 3 study, two have been identified to bring in billions of dollars for Pfizer potentially.
One is PF-06939926, which is a treatment for Duchenne syndrome. The other is PF-06928316, which is for Respiratory Syncytial Virus (RSV).
Globally, 1 in 3,500 to 5,000 males suffer from Duchenne syndrome. This puts the number of patients at roughly 250,000, with about 10,000 to 15,000 found in the US. While it generally affects males, it can sometimes affect females as well.
In terms of market size, the Duchenne syndrome market is expected to be worth $4 billion in 2023 and $7 billion by 2027.
Currently, the major approved treatments for this condition are Sarepta's (SRPT) Exondys 51, Vyondys, and Amondys, as well as PTC Therapeutics (PTCT) Emflaza and Translarna.
PTC recorded $236 million in sales for Translarna, which is approved in Europe, and $187 million for Emflaza, approved in the US, for a total of $423 million in sales in 2021. Meanwhile, Sarepta’s overall sales reached $612 million for that same period.
Adding the rest of the minor competitors for Duchenne syndrome treatments, only $1.5 billion of the projected market value is held by the existing drugs. Clearly, there’s a lot of room for more companies to join the fray.
Meanwhile, RSV presents another lucrative market. According to the Centers for Disease Control and Prevention, this condition causes approximately 58,000 hospitalizations annually in the US.
Of these, 100 to 500 deaths are children under 5 years old and 14,000 are adults aged 65 and above. The average expense in managing adult patients alone has reached roughly $3 billion every year.
In terms of market value, the RSV market is projected to reach $4 billion by 2027. So far, the biggest competitors in this space are GlaxoSmithKline (GSK), Johnson & Johnson (JNJ), and Moderna (MRNA).
While its rivals are challenging, Pfizer still estimates sales for its RSV vaccine to reach at least $1.5 billion annually.
Thanks to its COVID programs, Pfizer has been hailed as the undisputed leader of the pack in terms of reputation and credibility in research.
Needless to say, these factors would serve as a valuable growth lever for the healthcare giant for decades.
As one of the largest biopharmas in the world, Pfizer has established a reputation for outstanding innovation. Over the years, the company has delivered several revolutionary treatments to the market like Viagra or Lyrica.
Simultaneously, it developed Lipitor, reaching $14.5 billion in sales over 14.5 years.
Since then, it has become a highly reputable industry name. Its diverse and extensive pipeline demonstrates that it remains a company highly capable of innovating and maintaining its dominance.
Mad Hedge Biotech and Healthcare Letter
August 2, 2022
Fiat Lux
Featured Trade:
(A RISING TIDE LIFTS ALL BOATS)
(MRNA), (PFE), (NVAX), (SNY), (BNTX)
Moderna (MRNA) shareholders have one major worry in recent months: that the biotech company’s billion-dollar COVID-19 vaccine sales will eventually dry up.
After all, roughly 67% of the US population has already been fully vaccinated. Hence, it’s not surprising for investors to wonder whether the company’s glory days are over.
As a result, Moderna’s share price has taken a hit. The stock has slipped by over 35% so far in 2022. However, this looks more like an overreaction rather than a response to anything the company has done.
If anything, it seems that investors have read the situation wrong since Moderna recently received a billion-dollar vaccine dollar from the US.
The deal isn’t for the original version of its COVID-19 vaccine though. Instead, it’s for an updated booster candidate that targets the original coronavirus and the emerging omicron BA.4 and BA.5 strains.
Moderna will receive $1.74 billion to supply the US with 66 million doses of the updated booster. This means the price per dose would be $26.36.
This pricing is lower than the deal with Pfizer (PFE) for a similar booster, which had an implied price per dose of $30.48. In total, Pfizer is set to receive $3.2 billion for 105 million doses.
Nevertheless, this new Moderna contract shows a substantially higher price compared to the previous deal wherein the US paid $3.3 billion for 200 million doses.
That particular deal implied that the price per dose of the vaccine was at $16.50. in comparison, Pfizer’s vaccine was priced at $24 per dose.
A probable explanation for this disparity in pricing is the fact that Moderna received approximately $1 billion in funding from the US government courtesy of its Operation Warp Speed program. Meanwhile, Pfizer refused to participate in such a scheme.
Taken together, Moderna and Pfizer are slated to deliver 171 million doses of the updated booster by fall and winter.
Admittedly, those won’t be sufficient to cover the entire US population. This is why both contracts have options that would allow the government to add 300 million doses each as needed.
In terms of delivery, Moderna announced that its candidate should be ready for the fall vaccination campaign by the end of August.
Outside its coronavirus vaccine efforts, Moderna has a promising pipeline of candidates. To date, the company has 46 programs under development including personalized cancer vaccines.
Of these, Moderna has three candidates queued for Phase 3 trials. All of them are investigational vaccines. One is for the flu, another is for the respiratory syncytial virus (RSV), and the third targets the cytomegalovirus (CMV).
The flu vaccine has competition in Sanofi (SNY) and possibly Novavax (NVAX). However, there are no CMV and RSV vaccine candidates in existence.
Needless to say, getting the green light from the FDA for one or both of these vaccine candidates would be a massive win for Moderna.
More importantly, the company would hold the precious first-to-market competitive edge.
Another exciting candidate is Moderna’s collaboration with Vertex Pharmaceuticals (VRTX). The two are working on an inhaled candidate treatment for patients with cystic fibrosis.
Considering that Vertex is practically a monopoly in this space, its partnership with Moderna could mean a potential game changer in the industry.
Overall, Moderna’s lucrative deal with the US government could be indicative of another exciting period for coronavirus vaccine stocks.
After all, a rising tide lifts all boats.
Moreover, this group had the best performers on the market in the past years. Novavax skyrocketed by 2,700% in 2020 following the announcement of its COVID-19 program. BioNTech (BNTX) jumped by 600%, while Moderna climbed by an impressive 1,200%. Even Pfizer reaped rewards from its coronavirus candidate as it rose by 59% during the same period.
While these vaccine stocks won’t likely repeat their stellar performances, there are still several investment opportunities involving these companies.
The key is to choose a business that does not simply depend on its coronavirus vaccine gains but also leverages the opportunities to expand and diversify its portfolio.
This is what Moderna has been doing. With numerous programs in its pipeline, the company has turned itself into a multi product business that offers stability and growth. Investors eager to add a vaccine stock in their portfolio should buy the dip.
