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A Bright Spot in a Gloomy Sector

In an economy continuously plagued with a rising interest rate, it’s not unheard of for risk-averse investors to steer clear of businesses with high debt loads.

After all, those kinds of companies could be the most affected as climbing interest rates inevitably lead to lower profits.

The silver lining is that there’s no need to sacrifice putting money in growth stocks altogether.

You can simply load up on ultra-conservative businesses to ensure that you don’t come off the losing end in the battle of an ever-increasing interest rate.

In the biotechnology and healthcare sector, there are a handful of promising fast-growing businesses that are not saddled with tons of debt. One of them is Vertex Pharmaceuticals (VRTX).

A continuously growing business, Vertex recorded $7.5 billion in sales in 2021, showing off a 22% increase from 2020.

Its cystic fibrosis (CF) program is a major player in its growth, particularly Trikafta/Kaftrio. On its own, this blockbuster treatment contributed $5.7 billion to Vertex’s top line in 2021.

As it expands and goes after more growth opportunities, Vertex consistently ensures that it is backed by a solid balance sheet. In total, its short- and long-term liabilities amount to roughly $3.3 billion.

With a cash balance of $6.8 billion, the company has more than enough to clear that off.

In the past 12 months, Vertex has generated roughly $2.6 billion in cash from its daily operating activities.

This biotechnology company has been in such excellent shape that it managed to buy back shares with $1.4 billion last year. That’s practically three times the $539 million it allocated to repurchasing efforts in 2020.

Meanwhile, investors who feel they missed the boat on Moderna (MRNA) now have a second shot at investing in another high-growth biotechnology company.

Plus, it still has a Moderna connection and already has a strong track record of dominating a lucrative market.

Vertex and Moderna, which saw their stock price catapult to a record-breaking 800% in the past two years, are working on an mRNA-based therapy for CF patients.

Now, you might be wondering why Vertex is pursuing this program, considering its dominance in the CF market.

In fact, the closest rival would be AbbVie (ABBV). However, Phase 2 trial results for this candidate are due in two to three years. That means Vertex will likely remain the top name in the CF space for a while. Nevertheless, Vertex appears determined to keep its lead.

So, why bother with a new program instead of bolstering the existing Trikafta pipeline?

Well, right now, Vertex has virtually covered 90% of the CF market—and this is where Moderna comes in.

What the two are trying to do is to completely cover the market and target the remaining 10% not qualified to take the existing Vertex CF treatment.

As of the last update, the remaining demographic is at 25,000 patients. This would translate to another $4 billion in commercial sales.

If they succeed, the two would have created the biggest competitor to Trikafta. That means Vertex’s most formidable rival would be Vertex as well.

Needless to say, Vertex’s continuous dominance in the CF space guarantees blockbuster levels of profits in the years to come.

Vertex has been busy expanding into additional therapeutics segments despite its resounding success in the CF space.

Another potential blockbuster is CTX001, a one-time gene-editing treatment targeting blood disorders beta-thalassemia and sickle disease, developed in collaboration with CRISPR Therapeutics (CRSP). This is by far the most exciting venture of the company, with the partners expected to file for regulatory approval by the end of 2022.

Aside from these, Vertex’s pipeline is filled with promising candidates. One is VX-147, which is a groundbreaking therapy for severe genetic kidney diseases. There’s also autoimmune treatment VX-880.

VX-548 is another exciting candidate. While this drug is aimed to be an acute pain treatment, a key characteristic is the absence of drug addictiveness.

This is a breakthrough effort because it might just be the answer to the ongoing opioid crisis.

Given the unique mechanism of VX-548, this alternative aims to deliver treatment with low addictive effects.

There are roughly 75,000 deaths reported annually caused by overdose on opioid drugs in the United States alone. This could translate to $4 billion in the addressable market.

Although these candidates are not as advanced as Vertex’s CF program, they demonstrate that the company can go beyond its well-established niche and bolsters investor confidence.

With the rising inflation and economic turbulence, it’s advisable to prioritize companies with steady cash flow and promising growth prospects

Despite the rough couple of years for the broader market, Vertex easily meets these expectations and appears to be one of the positive stories in the healthcare and biotechnology sector.

April 5, 2022/by Mad Hedge Fund Trader

March 31, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 31, 2022
Fiat Lux

Featured Trade:

(A SUPERCHARGED BUY-AND-HOLD GEM FIRING ON ALL CYLINDERS)
(ABT), (PFE), (VTRS), (MRK), (OGN), (ABBV)

March 31, 2022/by Mad Hedge Fund Trader

A Supercharged Buy-and-Hold Gem Firing on All Cylinders

Biotech Letter

Sell-offs can be stomach-churning, but they also offer excellent opportunities to load up on shares of companies that are typically too expensive to purchase otherwise.

You can never go wrong when you opt for dividend stocks that are impressively stable and possess a solid track record that stood the test of time.

One name that fits this description in the biotechnology and healthcare sector is Abbott Laboratories (ABT).

Over the past years, Abbott has had its hand in diverse ventures ranging from BinaxNOW antigen tests and continuous glucose monitors to Pedialyte. That’s why it comes as no surprise that the company’s over $43.1 billion revenue in 2021 was generated from extensive sources.

While the rest of the world struggled financially during the pandemic, Abbott was able to leverage the strength of its business model.

Thanks to its diverse coverage of the healthcare market, Abbott was able to readily seize the high growth potential of diagnostic tests in the early stages of the COVID-19 pandemic.

This hold of the market expanded as more tests were needed due to the emergence of multiple variants. Since Abbott already had the technology at the ready, it was able to position itself as a first mover and leader in this segment.

In addition, its diverse portfolio and strategic partnerships translated to an increase in its quarterly revenue to more than 81% in the past five years. It has also boosted Abbott’s growth at twice the S&P 500’s pace and even flagship biotech and healthcare ETFs in the past five years.

Moreover, Abbott’s dividend has consecutively increased in the past 50 years, giving the company the title “Dividend King.”

Abbott’s dividend has increased by an impressive 77% in the last five years thanks to its significant participation in the COVID-19 testing kit market.

More importantly, a market sell-off won’t necessarily affect Abbott’s business. Given its track record, it’s safe to say that its dividend will keep rising in the years to come, thereby rewarding patient long-term investors.

Among the diverse divisions within Abbott, the most exciting is its Medical Devices segment. For years, the company’s innovations in this sector have gained praise from healthcare providers for their ability to combine technology and health under one umbrella.

This segment has greatly benefited from key acquisitions, with the $5.8 billion acquisition of Alere boosting its care diagnostics sector and $25 billion merger with St. Jude’s Medical dramatically expanding its medical device department.

So far, the company has created products for stroke prevention, electrophysiology, and cardiac monitoring—all of which have targeted high-growth segments.

In this particular area, Abbott’s key growth driver is a product called Libre Freestyle. This is an integrated continuous glucose monitoring device.

Basically, it is an implanted device that helps patients with diabetes to monitor their glucose levels. It communicates with an app and, depending on the patient’s condition, is connected to an automated insulin pump.

This effectively eliminates the need for the painful finger-sticking method or self-injecting insulin.

Abbott only has two serious competitors in this breakthrough diabetes-centered technology: Medtronic (MDT) and Dexcom (DXCM).

Despite their presence, Abbott holds the lead due to its more affordable price point, with Freestyle Libre sales increasing by $1 billion in 2021 to record a total of $3.7 billion.

Another interesting department for Abbott is its Established Pharmaceuticals sector. This segment covers established drugs like cystic fibrosis drug Creon, IBS treatment Duspatal, and influenza vaccine Influvac.

While this isn’t a fast growth segment, it has become an essential contributor to the company, with most of its sales coming from wholesale agreements overseas.

Suppose the movement from other Big Pharma companies is any indication. In that case, this segment may very well be on its way to becoming another spinoff organization like Pfizer’s (PFE) move to create Viatris (VTRS) and Merck’s (MRK) decision to develop Organon (OGN).

As a biotechnology and healthcare company, Abbott does not offer the typical buzz-worthy updates that investors in this space are on the lookout for.

Instead, the company has been actively developing products for diagnostics, medical nutrition, medical devices, and surgical tools. Moreover, it focuses on harnessing solid relationships with medical professionals and health insurers.

Unlike its spinoff company AbbVie (ABBV), Abbott is regarded as a financially traditionalistic business. It is a conservative Dividend King that’s steadily growing in its established business sectors, making it a buy-and-hold gem for patient long-term investors.

March 31, 2022/by Mad Hedge Fund Trader

July 13, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
July 13, 2021
Fiat Lux

FEATURED TRADE:

(SPINOFF STOCKS POISED FOR LONG-TERM GROWTH)
(VTRS), (OGN), (PFE), (MRK), (JNJ), (LLY), (ABBV),
(AZN), (GSK), (BMY), (GILD), (REGN), (PYPL), (EBAY), (CARR), (UTC)

July 13, 2021/by Mad Hedge Fund Trader

Spinoff Stocks Poised for Long-Term Growth

Biotech Letter

Spinoffs have historically been known to deliver healthy returns for their investors.

A good example is PayPal (PYPL), which grew sevenfold since 2015 following its spinoff from eBay (EBAY).

A more recent example is Carrier Global (CARR), which tripled its shares amid the pandemic after its spinoff from United Technologies (UTC) last year.

Basically, spinoffs allow smaller segments of companies to thrive on their own or push high-growth divisions to expand faster.

Over the past months, the cheapest stocks found in the S&P 500 have recently spun off pharmaceutical companies: Viatris (VTRS) and Organon (OGN).

Viatris is a spinoff of Pfizer (PFE), which merged with Mylan, while Merck (MRK) jettisoned Organon (OGN) just last month.

Both are brand new and still under the radar, particularly among investors who don’t follow healthcare updates.

While these two have yet to impress the market, both exhibit potential that could make them promising long-term prospects.

Viatris holds an extensive portfolio of drugs courtesy of Pfizer’s Upjohn unit and Mylan’s pipeline.

The list includes the previously top-selling Lipitor, Viagra, Lyrica, and even Norvasc from Pfizer. It also has Mylan’s income-generating EpiPen along with the company’s HIV/AIDS therapies and 7,500 marketed products across the globe.

To date, Viatris has fallen roughly 30% from its average price target. It’s not for the subpar performance of its products though. This is mostly attributed to the lack of attention from investors and possibly a bit of skepticism from some analysts.

However, Viatris has a really good value proposition.

The main goal of the biggest names in the biopharmaceutical sector, such as Johnson & Johnson (JNJ), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca (AZN), GlaxoSmithKline (GSK), Bristol-Myers Squibb (BMY), and Gilead Sciences (GILD), is to develop and launch the best-in-class treatments to market.

To achieve that, these industry giants are granted a set period to exclusively sell and market each new drug that gains approval.

This would allow them to command a premium price, which in turn would give them the money to fund the next round of research and development needed to come with the next generation of newer and improved versions of the treatment.

However, not everyone can afford those premium prices.

So when the periods of exclusivity end, there are companies like Mylan—now Viatris—that are allowed to manufacture generic versions of those branded drugs and sell them at lower prices.

The list of drugs with soon-to-expire patents for which Viatris has been working on creating biosimilars or generic versions include Humira from AbbVie, which recorded peak sales at $20 billion; Eylea from Regeneron (REGN), which peaked at $7.5 billion; and even Allergan’s Botox, which peaked at $5 billion.

Viatris is also working on biosimilars for Roche’s (RHHBY) cancer treatments Avastin, which had peak sales of $7 billion, and Perjeta, which peaked at $5 billion.

Obviously, Viatris will not reach the same height of success as the companies that created those branded drugs.

But, if it manages to achieve even only 10% of those numbers, then it can generate roughly $4 to $5 billion in sales—and that’s just the tip of the iceberg.

So far, Viatris owns at least 1,400 approved molecules applicable in roughly 10 therapeutic segments.

It has roughly 350 products in its pipeline at the moment, with each item estimated to generate approximately $100 million to $500 million in sales.

With its current performance and access to 165 countries and territories, Viatris is expected to generate roughly $224 billion in global sales annually.

With all these in mind, Viatris’ value proposition looks impressively strong to me.

More importantly, this Pfizer spinoff has the capacity to become the world’s first dominant generic and biosimilar drug manufacturer, with its revenues potentially becoming comparable to major pharmaceutical companies at some point.

The same value proposition could be behind Organon, as this newly spun-off company markets Merck’s off-patent drugs.

While the move to separate from its parent company has yet to show tangible results, Organon is projected to rake $6.1 billion to $6.4 billion in revenue for 2021, with annual sales expected to rise in mid-single digits and dividends anticipated to be about 3%.

The biosimilars market is still relatively young, with only 60 biosimilars approved in the EU and 29 in the US thus far. In total, those represent a market worth approximately $17 billion.

Conservative estimates project that the global biosimilars market will be worth $692 billion by 2027, considerably outpacing the mainstream pharmaceutical sector.

Given their potential and prospect for future gains, the low prices for companies like Viatris and Organon present rare opportunities to grab long-term investments.

viatris

July 13, 2021/by Mad Hedge Fund Trader

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