Mad Hedge Biotech & Healthcare Letter
February 16, 2021
Fiat Lux
FEATURED TRADE:
(SHORT-SQUEEZE DRAMA: BIOTECH EDITION)
(SRNE), (NVAX), (AZN), (MRNA), (PFE), (GILD), (GME)
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The fuss over GameStop (GME) has aimed the spotlight on several small- and even mid-cap stocks that hold a high level of short interest.
For quite some time now, retail investors have been identifying others with similar qualities as GME: a short interest standing at more than 20% of the total float, a market capitalization above $1 billion, and a stock price of roughly $20 per share or even less.
Now, these traders have turned their attention to the biotech industry and one stock that caught their attention is Sorrento Therapeutics (SRNE).
In 2020, Sorrento was hailed as one of the hottest COVID-19 stocks as it jumped an impressive 135% since the year started.
However, the hype dissipated quickly, with the stock falling almost 50% by August that same year.
The company’s volatility was expected considering Sorrento’s early entry, but delayed progress in the COVID-19 race.
As 2020 rolled out, investors started ditching the stock in favor of other developers like Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), Novavax (NVAX), and AstraZeneca (AZN).
Come 2021, however, the stock seems to bounce back.
Sorrento’s shares have been climbing since the year started following the company’s encouraging data on COVI-MSC, which is its entry in the race to find a potent COVID-19 treatment.
COVI-MSC works as a stem cell treatment developed for COVID-19 patients suffering from acute respiratory distress.
Based on its report in January, Sorrento disclosed that the first three individuals who went through their COVI-MSC treatment were discharged from the hospital within only a week.
Meanwhile, the fourth patient, the one who needed mechanical ventilation due to deteriorating respiratory condition, experienced rapid improvement of his condition and was discharged from the hospital the night of his third COVI-MSC infusion.
On a more promising note, none of the patients experienced any adverse effect following their COVI-MSC treatment.
Outside its COVID-19 treatment program, this San Diego-based biotechnology company has been working on therapies for cancer, neurodegenerative, autoimmune, and inflammatory conditions.
It has multiple “shots on goal” particularly in the oncology department, with its non-small cell lung cancer treatment Abivertinib as the leading candidate to date.
Sorrento’s pain management pipeline, which is headlined by Ztildo, is ripe for expansion thanks to its strategic collaboration with SCILEX.
The company also has its hands in other high-growth sectors in the biotech world, paying particular attention to non-opioid pain relief and immunotherapy.
These projects indicate that Sorrento is no one-trick pony.
In fact, even if its COVID-19 program falls flat – a very real possibility considering that COVI-MSC still needs to go through multiple trials – Sorrento has several initiatives to fall back on.
With three shots on goal, namely, its COVID-19 program, its oncology platform, and non-opioid pain treatment, Sorrento has ensured that it’s well-positioned for success.
If approved, Sorrento’s current pipeline comprising diagnostic kits and therapies could generate over $2 billion in short-term sales.
At the moment though, Sorrento’s $4.02 billion market capitalization makes it a tiny biotechnology company compared to its competitors.
Given its robust pipeline, it’s evident that Sorrento still needs to boost its capitalization to push through with all the plans.
For context, its most dominant rival in the COVID-19 treatment market is Gilead Sciences (GILD), which has $84.38 billion in market capitalization, rakes in $800 million each quarter from sales of Remdesivir.
Let’s say Sorrento expands to the vaccine market, it still cannot catch up with the leader in that arena, Moderna (MRNA), which has $70.97 billion in market capitalization.
Looking at Sorrento’s performance, this company remains an underappreciated stock loaded with potential.
From a business perspective, Sorrento offers a solid pipeline of candidates that could present promising results to push the stock price up.
At this point, the positive updates on its COVID-19 program can cause the stock price to rise exponentially, putting short sellers looking in an unfortunate position.
Overall, Sorrento has the potential to double in value. However, bear in mind that it still has a long way to go. Hence, this company is best as a long-term investment.
Mad Hedge Biotech & Healthcare Letter
February 4, 2021
Fiat Lux
FEATURED TRADE:
(IS THIS THE NEXT BIOTECH DARLING?)
(VXRT), (MRNA), (PFE), (BNTX), (AZN), (NVAX)
If you were given the chance to choose, how would you prefer to get vaccinated against COVID-19: by getting an injection or by taking a pill?
For a lot of people, it’s a no-brainer to choose the pill—and one biotechnology company has been working hard to turn that into a reality: Vaxart (VXRT).
Last January 2020, Vaxart was only a micro-cap stock focused on developing a lineup of oral-tablet vaccines as treatments for viral infections.
When news broke that the company has been developing a COVID-19 vaccine in the form of a pill, its shares rocketed by over 1,250% in the past 12 months.
From a micro-cap stock trading for as little as $0.70 last year, Vaxart has been trading somewhere between $21 to $23 per share since 2021 started.
In fact, Vaxart even managed to outpace other biotechs already leading in the coronavirus market like Pfizer’s (PFE) partner BioNTech (BNTX), and Moderna (MRNA).
If Vaxart’s vaccine, VXA-CoV2-1, receives regulatory approval, then its COVID-19 vaccine candidate offers key advantages over its rivals.
The first is that VXA-CoV2-1 comes in the form of pills, making it a more convenient and generally preferable option for a lot of patients.
The second is that VXA-CoV2-1 can be stored at room temperature, which eliminates any type of special handling unlike the vaccines of Pfizer-BioNTech, Moderna, and even AstraZeneca (AZN).
The third is that you can take VXA-CoV2-1 on your own. Since these are pills, there is no need for a healthcare worker to administer the COVID-19 vaccine.
This means that VXA-CoV2-1 can be delivered for at-home use.
These advantages effectively eliminate barriers in the healthcare systems, making it easier and more convenient to purchase and deploy VXA-CoV2-1.
Looking at all potential markets, Vaxart could find a niche in underdeveloped regions.
On top of all these conveniences, the technology used to develop VXA-CoV2-1 can also be utilized in creating an oral vaccine against other diseases.
So far, VXA-CoV2-1 is only in Phase 1 of its clinical trials, with new data expected to be released this February.
Prior to this, results showed that VXA-CoV2-1 eased lung viral load and alleviated lung inflammation in hamsters that were infected with COVID-19.
While all these definitely sound amazing, everything is still in very early stages. Plus, results from hamster studies are a far cry from showing efficacy in human beings.
This makes the Phase 1 data release a sort of make-or-break event for Vaxart.
Other than its COVID-19 vaccine candidate, Vaxart has been working on an oral vaccine for influenza as well.
This product is currently undergoing Phase 2 clinical trials and has so far surpassed the efficacy of Sanofi’s (SNY) Fluzone by 8%.
In terms of pipeline growth, Vaxart is still no match to Moderna, which has developed technology that could cure cancer and other rare diseases. It’s probably closer to Novavax (NVAX), which is also working on an influenza vaccine.
So, is Vaxart the new darling of the biotech world?
It definitely has the potential.
However, its success hinges on everything aligning perfectly. But as a certain guy named Murphy has pointed out, that oftentimes does not happen.
Vaxart is subject to forces beyond its control.
There’s no absolute guarantee that its COVID-19 vaccine candidate will fare well in all the clinical trials.
Vaxart has a viable path of delivering humongous gains this year. However, this path is also riddled with lots of risks.
It is a highly risky stock and is best left to aggressive investors.
Moreover, Vaxart is in a precarious position right now, wherein a failed clinical result in human studies would be devastating for the shares.
On the other side, a positive human data readout would send the shares soaring in the next months.
Truth be told, sky would be the limit for Vaxart’s stock price if FDA actually approves its oral vaccine candidate.
Undoubtedly, Vaxart will be at the center of debates between short-sellers and passionate bulls throughout 2021. The bottom line is that will always be a trade-off of risk and reward in any type of investing.
If you have faith in Vaxart’s science and are confident that you have the stomach for a crazy roller-coaster ride, then you can give this biotech stock a chance.
Otherwise, play it safe and invest in less volatile biotechnology stocks instead.
Mad Hedge Biotech & Healthcare Letter
February 2, 2021
Fiat Lux
FEATURED TRADE:
(2021: GILEAD SCIENCES’ YEAR OF MILESTONES)
(GILD), (NVAX), (JNJ), (MRK)
Stocks are tumbling on the back of substandard vaccine updates, with investors growing more wary of the whole COVID-19 vaccine narrative.
January ended with Novavax (NVAX) announcing that its COVID-19 vaccine candidate is roughly 90% effective, but doesn’t work as well against other more contagious strains in South Africa.
Johnson & Johnson (JNJ) reported that its candidate is only 66% effective at stopping moderate to severe strains of the coronavirus, but is 100% effective in preventing hospitalizations and even death 28 days after it gets administered.
However, the real kicker is Merck’s (MRK) decision to completely drop out of the COVID-19 vaccine race when both its candidates showed disappointing results in the early stages.
This is disappointing news considering that Merck is one of the biggest vaccine developers in the world today.
Nonetheless, Merck’s still not out of the COVID-19 race yet as it appears to be following the lead of Gilead Sciences (GILD) instead.
That is, it plans to focus on developing COVID-19 treatments in the hopes of benefiting from it the same way Gilead did in the past months.
Since the pandemic started, Gilead has been at the forefront of the fight – so much that its COVID-19 treatment, Remdesivir, is evidently having a major impact on the company’s top line.
In its third-quarter earnings report in 2020, Gilead reported $6.6 billion in total revenue, showing off a 17% jump from its performance during the same period last year.
If you exclude its COVID-19 sales, Gilead would have only earned $5.6 billion, with the increase in its year over year performance changing from 17% to just 2%.
As for its overall performance in 2020, Gilead announced that it’s raising its previous guidance from the $23 billion and $23.35 billion range to be somewhere between $24.3 billion and $24.35 billion.
This new guidance indicates a 10% year over year growth, but without Remdesivir, its product sales would actually show a slight decline compared to 2019.
Outside Remdesivir, Gilead has been active in searching for additional growth drivers.
So far, the most promising segment is its HIV lineup led by its top-selling product, Biktarvy, also known as "the gold standard in HIV treatment."
In the third quarter of 2020, sales of Gilead’s HIV line climbed by 8% to reach $4.5 billion.
While generic competition has entered the market, Biktarvy is expected to continue to gain steam in 2021.
Another catalyst in its HIV line is the drug Lenacapavir, which can either be developed as a twice-a-year injection or a weekly pill.
If successful, Lenacapavir can bring an additional $9 billion in revenue for Gilead.
Aside from HIV, Gilead has also been working toward becoming a leader in the oncology sector.
To achieve this, the company spent $21 billion for the acquisition of Immunomedics.
Specifically, Gilead bought the New Jersey-based company for its new breast cancer treatment, Trodelvy.
Gilead’s massive bet on Trodelvy raised a lot of eyebrows, but the product offers a very real chance for an enormous payoff for its shareholders.
Trodelvy lowers the risk of death among breast cancer patients by an impressive 52% when compared to those who receive standard care.
Annually, Trodelvy is estimated to rake in at least $1.8 billion in revenue for Gilead --- and that’s only for breast cancer application.
Gilead also intends to expand Trodelvy’s application to include more complex fields of oncology and even for some viral diseases.
Beyond its COVID-19 program, Gilead has an impressive portfolio of diverse assets that the company is focused on developing.
It currently has 42 clinical programs queued in its pipeline and at least a handful of these are anticipated to become steady sources of revenue.
As expected, it spent 2020 acquiring the necessary partners for its big picture plans, making 2021 a year of milestones for the company.
Mad Hedge Biotech & Healthcare Letter
January 26, 2021
Fiat Lux
FEATURED TRADE:
(EMERGING COVID-19 ALLIANCES)
(CVAC), (PFE), (MRNA), (TSLA), (NVAX), (JNJ), (SNY), (GSK), (BAYN)
Tesla (TSLA) has been sizzling hot for months now, and it looks like its Midas touch has reached the biotechnology world.
It seems that almost everything linked to Tesla achieves success. That could indicate terrific news for a particular biotech: CureVac (CVAC).
CureVac, an under-the-radar biotech stock, is closing in on the leading COVID-19 vaccine developers today.
A differentiating factor it has from the likes of Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA) is its bonafide tie-in with Tesla. Although it sounds like quite a stretch for an electric car company to have any involvement with a biotech stock, the connection actually makes sense.
Like Moderna and BioNTech, CureVac has also been working on utilizing messenger RNA (mRNA) technology to develop various vaccines and other treatments. If all goes well, this could even lead to finding a way to immunize people against cancer.
Where does Tesla come in?
It all started in 2019 when CureVac was awarded $34 million in funding by the Coalition for Epidemic Prepared Innovations (CEPI).
The goal was to create and eventually build a prototype of an mRNA “printer.” This high-tech tool would be used to produce mRNA doses in areas that suffer from viral outbreaks. It could be used by hospitals to create personalized medicines.
Having an mRNA printer would be groundbreaking in fighting off viral diseases, particularly in remote regions. As expected, this project faced many technology obstacles along the way.
Here’s where Tesla can offer a solution since one of the companies it acquired in the past years is Grohmann Engineering, which specializes in automated manufacturing.
This makes Tesla Grohmann Automation the logical partner for CureVac to turn for help in building its mRNA printer prototype.
What we know so far is that the two companies have been working closely on the project.
It’s only a matter of time before we find out if Tesla’s magic would once again blow our expectations out of the water and we are presented with yet another breakthrough.
Other than its alliance with Tesla in the mRNA race, CureVac has forged another partnership to transform itself into a stronger candidate in the COVID-19 vaccine competition.
CureVac has tapped into the global reach of Bayer (BAYN) to help it distribute its vaccine once it gains approval.
In terms of its own COVID-19 vaccine candidate, CureVac is anticipated to release positive results.
This is because its technology closely mirrors that used by Moderna and BioNTech, which strongly indicates that the efficacy levels could be just as good.
However, CureVac’s vaccine candidate offers a competitive advantage over the others: it doesn’t require cold storage.
This means it would be easier and more convenient to distribute it compared to Moderna’s and Pfizer’s.
It also requires a much smaller dose compared to Moderna’s COVID-19 vaccine candidate. This translates to cheaper manufacturing costs.
CureVac has secured a deal with the EU to deliver an initial 405 million doses for half of the year plus 300 million doses more in 2021 alone. It also agreed to produce 600 million doses in 2022.
Meanwhile, its alliance deal with Bayer indicates that it has secured a powerful distribution partner.
Therefore, we could expect CureVac to leverage Bayer’s global supply network to deliver its vaccines worldwide.
However, CureVac and Bayer are thinking way ahead of 2022.
The alliance formed by the two companies sees to it that the CureVac vaccine candidate would become the strongest contender in the post-pandemic years.
As per Bayer’s projection, the companies estimate 12 billion to 14 billion vaccine doses just to bring this pandemic under control.
Considering that COVID is expected to become an endemic disease, annual or even bi-annual vaccination programs would become the norm.
While Pfizer, Moderna, and AstraZeneca have been well ahead of the vaccine race, the door is still firmly open for other developers like Novavax (NVAX), Johnson & Johnson (JNJ), GlaxoSmithKline (GSK), Sanofi (SNY), and, of course, CureVac to launch their own COVID-19 vaccines.
Only going public in August 2020, this German biotech company already has $18.2 billion in market capitalization.
Its public offering of 15.3 million shares sold at $16 each generated $245.3 million for the company back in August.
By early December 2020, CureVac shares were already being traded somewhere around $150 as investors quickly began to realize the value proposition.
If I am to look to invest in a COVID-19 vaccine developer at this point, CureVac would surely be one of my choices.
Mad Hedge Biotech & Healthcare Letter
January 21, 2021
Fiat Lux
FEATURED TRADE:
(IS JOHNSON & JOHNSON THE BEST CORONAVIRUS STOCK?)
(JNJ), (MRNA), (PFE), (AZN), (NVAX)
To date, some coronavirus vaccine stocks have managed to offer investors huge gains within short periods.
Moderna (MRNA) is a prime example, climbing to over 400% in 2020 as more and more investors bet on the biotech’s COVID-19 program.
Interestingly, Pfizer (PFE) fell by less than 1% during the same period despite the fact that both companies led the COVID-19 vaccine race.
Actually, it was Pfizer that eventually won the first Emergency Use Authorization.
Investing in COVID-19 vaccines brought about vastly different outcomes.
Now, let’s take a look at the next company to potentially enter the market: Johnson & Johnson (JNJ).
At the moment, JNJ’s candidate is in Phase 3 trials. What makes this trial interesting is the dosing regimen.
JNJ is evaluating two options in its Phase 3 trials.
The first option, called “Ensemble,” studies the effect of a single dose of its COVID-19 vaccine.
The second option, “Ensemble 2,” examines how the vaccine works when administered in two doses.
Results are expected to be released before January 2021 ends.
If all turns out positive, then JNJ will be the third company to cross the COVID-19 vaccine race finish line.
Both Moderna and Pfizer require two doses. Even its close-to-market competitors like AstraZeneca (AZN) and Novavax (NVAX) have developed two-dose products.
Needless to say, a proven safe and effective one-dose regimen would provide JNJ’s vaccine a significant competitive advantage.
Obviously, people would prefer the idea of a one-jab vaccine instead of getting two. More importantly, this regimen would make it easier to vaccinate more individuals.
For example, Moderna’s goal is to supply 1 billion doses in 2021. However, that will only cover half or 500 million people.
In comparison, JNJ’s promise of producing 1 billion doses per year will be sufficient to immunize 1 billion individuals.
Another advantage is JNJ vaccine’s storage requirement.
Unlike Pfizer and Moderna’s vaccines, JNJ’s candidate can be stored at refrigerator temperatures for at least 3 months.
Taking all these into consideration, JNJ’s vaccine is looking promising.
Now, let’s check out its revenue potential.
Taking cue from AstraZeneca, JNJ has announced its decision to offer its vaccine on a not-for-profit basis during the COVID-19 pandemic.
This means it plans to sell the product at cost.
Without any profit from this venture, we can’t count on the COVID-19 vaccine to add to the company’s earnings in the near future.
Post-pandemic, though, the company could eventually raise the price and start benefiting from its sales.
While there’s no definitive timeline, this could be around the later parts of 2021. Based on that prediction, JNJ could start benefiting from its COVID-19 vaccine sales by early 2022.
JNJ can easily become a leader in the coronavirus market if its one-dose vaccine gains regulatory approval from health agencies across the globe.
However, I don’t expect major gains in its share price even if it does happen.
From what I’ve observed so far with Moderna and Pfizer, the shares of clinical-stage biotechnology companies tend to soar while those of bigger biopharmaceutical counterparts do not.
That’s most likely because the smaller companies will rely heavily on the COVID-19 vaccine revenue while the more established companies, with their extensive range of commercialized products, won’t.
With the sheer size of JNJ, which has a market capitalization of over $427 billion, its shares seldom make huge moves.
Still, JNJ continues to show incremental and steady growth in profits, revenue, and even share price.
In fact, the company is up by over 10% over the previous year. More importantly, investors can always count on the company for dividends.
So, I wouldn’t buy JNJ shares only for its COVID-19 vaccine candidate. It’s not the best idea to buy a stock because of a single product anyway.
But, I would definitely buy JNJ shares for its overall portfolio and its ever-reliable increasing dividend payouts.
