Mad Hedge Biotech and Healthcare Letter
December 30, 2021
Fiat Lux
Featured Trade:
(“WHOLE-PERSON CARE” IS THE FUTURE OF HEALTHCARE)
(TDOC), (PFE), (BNTX), (MRNA)
Posts
Alongside the likes of Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA), another name stood out during the pandemic: Teladoc (TDOC).
This telehealth company was one of the biggest breakout stars amid the worst periods of the COVID-19 pandemic, with its shares skyrocketing 138%—a feat sustained throughout 2020.
However, Teladoc’s narrative faltered in 2021.
The change wasn’t in terms of the company’s financial future. If anything, the company had been consistent in recording increasing revenues and visits. Teladoc actually even boosted its earnings guidance this year.
Despite all these, the stock fell by roughly 50%.
Looking at the reasons for this baffling fall, it became evident that investors started to fret over the gradual reopening of the economy and the return of people to offices.
They believed that these would result in patients abandoning virtual health consultations and opting to go back to their doctor’s clinics.
As far as we can see, though, that has not happened yet.
Moreover, the recent events and predictions about the future all but guarantee that these fears are baseless. Now, this raises the question of whether or not Teladoc is set to rebound in 2022.
It’s sort of obvious that the company has been moving alongside the COVID-19 headlines, but this doesn’t necessarily mean that Teladoc’s long-term plans depend heavily on the pandemic.
The vital thing we need to understand is that telehealth is here to stay. The pandemic merely accelerated the adoption of this groundbreaking technology.
There’s actually a widespread misunderstanding of Teladoc’s goal over the long term. Some investors seem to assume that the company aims to replace physical healthcare services.
This is extremely far from the truth.
What Teladoc wants to do is simply provide a complementary platform for the physical system.
That is, the company aims to virtualize all the things that can be virtualized and serve as the front door to the actual physical care.
Doing so will offer a more convenient option for patients and for the entire healthcare industry because this new and improved system can generate savings and better allocate resources in one of the most woefully managed and inefficient sectors across the globe.
Our current traditional healthcare system is extremely fragmented. Patients visit an average of 19 doctors in their lifetime, and every new doctor typically necessitates a new practice, a new professional relationship, and another set of medical records.
To get rid of the stress, prevent “wasting time” in waiting rooms, and sometimes receive unsatisfying experiences, which can even lead to unresolved or undetected health issues, Teladoc has come up with a comprehensive system.
It built Primary360, which it dubbed as the “whole-person care” platform.
The idea behind “whole-person care” is to bring all the services, including mental health, primary healthcare, and even treatments for chronic conditions, in one virtual package. This can then be easily accessed via the patient’s phone.
Teladoc integrates data and analytics to develop personalized healthcare experiences for its users, which became even more accurate and comprehensive thanks to its $18.5 billion acquisition of Livongo.
Another advantage in acquiring Livongo is its ability to work with AI.
Virtual care has the ability to offer more proactive solutions as opposed to reactive treatments.
Having a massive set of data, Teladoc can provide proactive measures to manage or prevent symptoms instead of mitigating them when they manifest.
After all, what would patients want more?
Their doctors informing them that they have a high risk of a heart attack in the following month if they fail to receive treatment or wait until it actually happens?
Wearables, such as smartwatches and Oura rings, can send data to Teladoc, which can then be used to prevent these kinds of health crises from arising.
Aside from Livongo, Teladoc has also acquired BetterHelp in 2015 for $4.5 million to form part of its “whole-person care” platform.
This acquisition, which has been on track to rake in $100 million in revenue in 2021, is geared towards mental health services.
Teladoc’s earnings reports in 2021 have been reassuring. In the third quarter, for instance, the company’s revenue skyrocketed 81% while patient visits rose 37% to reach over 3.9 million.
Meanwhile, the company estimates the “whole-person care” to be worth roughly $75 billion within its current client base.
Moreover, the National Labor Alliance of Health Care Coalitions, the largest organization of labor groups, announced that it will make Teladoc’s complete set of services available to all its members.
For context, these members pay for the health services of over 6 million individuals.
Going back to the question of whether Teladoc shares will bounce back in 2022, I think it’s clear that it can easily recover given its current trajectory.
In 2020, the telehealth industry was valued at $62.45 billion. By 2030, the telemedicine segment worldwide is projected to reach more than $431 billion.
Meanwhile, the compound annual growth rate (CAGR) from 2021 until 2030 is estimated to be at 26%.
Given Teladoc’s pioneering status, the company may even surpass the expectations from the industry. At a target 2022 revenue of $2.6 billion and $4 billion by 2024, the company’s projected CAGR is at 25% to 30% in the next three years.
Undeniably, Teladoc has fallen out of favor this year. However, the company is far from underperforming.
In fact, it has been doing an excellent job at sticking to its long-term objectives.
Looking at its low valuation at the moment, Teladoc holds the potential to become a highly rewarding venture for long-term investors who are capable of focusing on the fundamentals instead of the short-term noise.
Mad Hedge Biotech and Healthcare Letter
December 28, 2021
Fiat Lux
Featured Trade:
(ANOTHER VICTIM OF OVERBLOWN FEARS)
(BMY), (PFE), (BNTX), (MRNA), (MRK)
Inflation is one of the primary concerns of investors these days, and rightly so.
Just last month, the consumer price index (CPI) climbed at an astonishing 6.8% year over year — the highest increase ever recorded in almost four decades.
In response, many investors have decided to focus their attention on stocks that protect their portfolios from inflationary pressures.
While some are looking at cryptocurrencies and, of course, gold as their preferred hedges against inflation, I don’t think it’s wise to ignore dividend stocks.
History dictates that stocks that offer above-average dividend yields have been known to surpass expectations during the difficult periods of high inflation.
An excellent example of this is Bristol Myers Squibb (BMY).
BMY is one of the biggest names in the healthcare sector, with a market capitalization of over $125 billion.
Unfortunately, BMY’s shares have experienced a 9% fall in 2021 to date.
The company has also been underperforming compared to the broad market, which went up by more than 20% during the same period.
While this is unfavorable for investors who bought BMY in 2020, the current situation offers an attractive entry point for those looking to inject new money here.
Looking at the reasons for BMY’s relatively weak performance, one key point to consider is that the company is a major player in an industry that is not particularly sought after at the moment.
This year, most investors poured money on stocks that would benefit firsthand from the reopening efforts of the economy.
Consequently, the dependable, non-cyclical healthcare and biotechnology sectors have been generally disregarded—barring the COVID-19 vaccine stocks like Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA).
Apart from that, some company-specific issues plagued BMY as it faces impending patent expirations on a few key products in the following years.
Oral cancer drug Revlimid, which generated $12.1 billion in 2020, is expected to face patent loss by 2025.
Meanwhile, blood clot treatment Eliquis, which raked in $9.2 billion last year, will be dealing with the same issue by 2027.
This will be followed by lung cancer medication Opdivo, which recorded $7 billion in sales, in 2028.
Taken together, these key drugs generate roughly $28 billion in annual revenue, which comprises more than half of the company’s $46 billion revenue per year.
While this can be a cause of concern, it doesn’t necessarily mean that these products will generate zero revenues for the company when their patents expire.
In fact, a previous study revealed that top-selling drugs typically lose about 50% of their sales in the 5 years after their patent expiration.
That means that BMY can still expect well above $10 billion each year from these three key drugs through the 2020s.
Moreover, worries over the patent expirations appear to be overblown, considering that these will happen several years from now. Considering that BMY has an extensive list of growth assets and a robust pipeline, I think this situation has been more than accounted for.
The fear of patent expirations is well-founded, though. If companies fail to navigate a patent cliff, it can have serious ramifications for a company
However, a company that’s well-diversified and wisely invests in lucrative growth assets in advance of these impending patent expirations—even the losses of exclusivity of top-selling drugs—can handle the situation easily.
So far, BMY has shown three clear ways in terms of handling patent losses. One is expanding the indications of their newer drugs. Another is launching new products to the market. The third is acquiring new assets through beneficial deals.
The first cluster of drugs that BMY has brought to market and is growing rapidly includes anemia medication Reblozyl, which recorded an impressive 67% increase in its revenue in the third quarter of 2021
This translated to $160 million, or over $600 million in annual sales.
Recently, the FDA has accepted BMY’s collaboration with Merck (MRK) to use Reblozyl as part of the treatment for beta-thalassemia. The approval for this work is anticipated to be released by the second quarter of 2022.
Following this growth rate, it wouldn’t be a surprise to discover in the future that Reblozyl has transformed into a blockbuster drug with yearly sales reaching over $1 billion.
Another potential blockbuster is multiple sclerosis treatment Zeposia, which has boosted its sales 20x since 2020.
While it started from a low base of $2 million, this drug has the ability to reach peak sales of $5 billion annually.
Aside from these, BMY has a deep pipeline filled with drugs holding blockbuster potential in the coming years.
Meanwhile, BMY just hiked its dividend by 10%, pushing its dividend yield to 3.5%—easily doubling what investors can receive from the broad market, with the S&P yielding 1.3%.
In terms of its acquisitions, BMY has been on a buying spree lately. The most massive deal following its $75 billion acquisition of Cologne is its $13 billion deal with MyoKardia.
Simply put, BMY is cheap. At current prices, this healthcare company is trading at only 7.5x this year’s earnings, while the estimates for 2022 look to be even lower.
However, BMY is an impressive company with a remarkable portfolio of assets.
Moreover, the impending patent losses of its top-performing drugs have already been dealt with thanks to the company's solid revenue replacement strategy.
Hence, this issue should no longer sound any alarm bells.
Overall, BMY is an attractive option for the long-term and buy-and-hold type of investors, particularly those aiming for a sizable and steadily growing dividend stream.
Mad Hedge Biotech and Healthcare Letter
December 21, 2021
Fiat Lux
Featured Trade:
(A BREAKOUT BIOTECH WITH A STRONG STAYING POWER)
(MRNA), (PFE), (BNTX), (MRK), (AZN), (VRTX), (CRSP), (GILD)
The biotechnology and healthcare sector has been ruthlessly hammered in 2021.
In fact, the largest exchange-traded funds that keep track of the biotechnology industry have been in the negative in the past months.
However, the string of bad news doesn’t automatically mean that none of the biotechs can deliver strong returns in the coming days.
An excellent example of a biotech that’s an exception to the general theme of the sector these days is none other than the famous Moderna (MRNA).
Moderna stock has already delivered a 434% gain in 2020. Meanwhile, it has so far recorded a 160% rise this year—a number that’s expected to go higher before 2021 ends.
These gains came after the biotech became one of the market leaders in the COVID-19 vaccine race, alongside Pfizer (PFE) and BioNTech (BNTX).
Considering how COVID-19 catapulted the stock to dizzying heights, some investors fear that Moderna’s performance will decline in a post-pandemic setting.
That’s not necessarily the case.
Viruses present complex problems. Right now, we’re dealing with yet another coronavirus variant, Omicron.
This latest strain appears to be more contagious than the previously discovered Delta variant, which was then reported to be more virulent than the original.
What’s the takeaway here?
COVID-19 isn’t going to disappear anytime soon. Since the vaccines and boosters seem to wane gradually, these are expected to become staples moving forward.
This means everyone will need ongoing protection, which translates to ongoing sales for vaccines and boosters for companies like Moderna.
Moreover, the continuous demand for new and more potent vaccines makes it a no-brainer that Moderna will once again deliver market-crushing performances in the next few years.
For context, the company estimates that Spikevax, its COVID-19 vaccine, will rake in roughly $15 billion to $18 billion in sales in 2021.
Orders for 2022 have been secured as well, with Moderna already locked in for over $22 billion worth of Spikevax doses through advance purchase deals.
This is still expected to rise, considering the vaccines under development for the new variants getting discovered.
But even when the panic and anxiety over the viruses subside, we can still reasonably expect roughly $15 billion in annual sales from Spikevax
After all, the vaccine and boosters are expected to become the norm eventually.
Believe it or not, though, the best reason to buy Moderna isn’t its coronavirus vaccine.
Outside Spikevax, Moderna has a long list of promising pipeline candidates under development—the majority of which are based on the mRNA technology that’s behind its potent COVID vaccine.
While that does not guarantee that all the candidates will gain approval, the fact that the technology has been proven to work on humans presents a bright future for these candidates.
The company has been actively advancing its programs using its cash on hand, with over half a dozen queued in Phase 2 trials.
A potential blockbuster is its cytomegalovirus (CMV) vaccine candidate.
CMV, a virus that can be deadly to unborn babies and individuals with compromised immune systems, currently has no vaccine.
This represents an untapped market with high demand. Conservatively speaking, Moderna can generate roughly $2 billion to $5 billion in peak sales for this vaccine if it gains regulatory approval.
Other impressive programs in the biotech’s pipeline are its HIV vaccine candidate and a personalized cancer vaccine, which Moderna has been developing with Merck (MRK).
Needless to say, both hold the potential to become game-changers not only for Moderna but also for the entire industry.
Aside from its personalized cancer vaccine, another relatively advanced program in its pipeline is its work with AstraZeneca (AZN) on the AZD8601 program.
The AZD8601 program aims to use mRNA therapies to encode for vascular endothelial growth factor-A in people who are supposed to go through a coronary artery bypass grafting.
In layman’s terms, AstraZeneca and Moderna want to develop a treatment that induces the heart blood vessels of heart bypass surgery patients to repair themselves.
However, the most exciting collaboration is Moderna’s work with Vertex (VRTX) to develop a cystic fibrosis (CF) treatment.
Considering that Vertex is practically a monopoly in the CF space, this can turn out to be a lucrative direction for Moderna as well.
In terms of competition, the biotech might go head-to-head against Vertex’s other partner, CRISPR Therapeutics (CRSP).
Until two years ago, Moderna was an obscure biotechnology company with no product out on the market.
Today, it is hailed as one of the biggest biotechs worldwide thanks to its market capitalization of roughly $120 billion, surpassing long-established names in the sectors like Gilead Sciences (GILD) and even Vertex.
Some investors point out that Moderna’s breakneck rise to the top might also mean a steady descent.
While I agree that its climb was faster than the usual biotech, I still believe that Moderna possesses the right tools to sustain its momentum for the years to come.
Mad Hedge Biotech and Healthcare Letter
December 16, 2021
Fiat Lux
Featured Trade:
(TIME TO LOOK AT ONE OF THE LEAST FAVORED BIOTECHS)
(AMGN), (RHHBY), (PFE), (MRK), (GSK), (JNJ), (AZN)
Value investing shouldn’t be an ordeal. It definitely doesn’t have to entail scouring for a needle in a haystack. The truth is, several quality discount stocks are hiding in plain sight. Unfortunately, these have fallen out of favor with investors recently.
While the market has performed quite well in 2021, the technology sector served as the primary driving force behind this positive performance.
In comparison, the healthcare sector has been besieged with negative updates throughout the year. This resulted in a number of excellent biotech healthcare names getting undervalued, and one of them is Amgen (AMGN).
Amgen is widely known as one of the biotechnology and pharmaceutical sector pioneers, alongside Genentech, which has since been acquired by Roche (RHHBY). The company focuses on specialty biologics in the fields of blood disorders, cancer, and immunology.
To date, Amgen has a market capitalization of $119 billion and has generated $25.8 billion in revenue in the past 12 months.
This biotechnology company also holds a relatively solid and steady track record of growth, having grown its revenue by roughly 65% in the past 10 years.
Amgen has also virtually not experienced any significant dip in its sales over the same period—an impressive feat considering the slowly crowding and often tumultuous biotech space.
Looking at its EBITDA margin, or earnings before interest, taxes, depreciation, and amortization, Amgen also emerges as a superior stock compared to others in the industry.
In the past five years, Amgen’s EBITDA margin has consistently been within the 50% range. This is higher than its peers, such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), and Johnson & Johnson (JNJ), which only reached 30%, while Sanofi (SNY) recorded roughly 20%.
In addition, Amgen declared a dividend worth $1.76 per share each quarter in October. This represents a 10% jump year over year.
Then, the company opened in December with another dividend increase to reach $1.94 per share by the first quarter of 2022, showing off a 10.2% increase year-over-year.
Since 2011, Amgen has been consistent in increasing its dividend payout annually—a guarantee of the company’s robust and stable business performance.
Moreover, Amgen’s dividend yield is higher than other industry leaders as well. At present, the company offers a 3.5% dividend yield. In comparison, Pfizer gives out 2.9%, while JNJ offers 2.7%.
To sustain its momentum, Amgen has been busy bolstering its pipeline.
Thus far, the company has 58 programs under development. Of these, there are 34 queued in Phase2/3 clinical trials, while there are others submitted for regulatory approval.
One of the promising programs is its collaboration with JNJ, which combines Amgen’s Kyprolis and the latter’s Darzalex Faspro.
Just this December, the US FDA approved this combination treatment for patients suffering from multiple myeloma, a rare type of blood cancer.
In terms of profitability, Kyprolis generated $1.065 billion, and Darzalex Faspro raked in $4.19 billion in sales in 2020.
The high revenues recorded for these drugs last year are indicative of the strong demand from the healthcare industry.
This means that the approval of the combination treatment could lead to a more lucrative payout for both companies moving forward.
Another promising program for Amgen is Tezepelumab, which is a severe asthma therapy it developed with AstraZeneca (AZN).
In July, this treatment was approved for Priority Review by the US FDA. The two companies expect to submit Tezepelumab for approval to the US FDA by the first quarter of 2022.
Meanwhile, Amgen is also working on its first RNA-based treatment, called Olpasiran or AMG 890. This project is for myocardial infarction patients and will work the same way as gene therapies.
Basically, its goal is to target the relevant gene to prevent any damage. Looking at its timeline, Amgen expects Phase 2 results within 6 months.
If this RNA-based project succeeds, Amgen plans to expand its portfolio to include more than 25 first-in-class therapies and three more biosimilars based on this technology.
Doing so will equip the company with a steady revenue runway while also reinforcing its position as one of the top biotechnology companies in the world.
Overall, Amgen looks extremely undervalued these days, making it attractive given how profitable this biotech is and its prospects moving forward.
Mad Hedge Biotech and Healthcare Letter
December 14, 2021
Fiat Lux
Featured Trade:
(FROM AN UNKNOWN mRNA PIONEER TO BIG PHARMA PLAYER)
(BNTX), (PFE), (MRNA), (AZN), (JNJ), (SNY), (CVAC), (REGN), (MRK), (BMY)
Almost everything that could go right has gone right for BioNTech so far.
Its COVID-19 vaccine with Pfizer (PFE), Comirnaty, has been breaking records left and right, and more and more approvals in other countries are piling up.
Needless to say, BioNTech has transformed into one of the most profitable biotechnology companies with a rapidly growing cash stockpile.
Now, the company is up for another challenge: the Omicron variant.
Although BioNTech and even Moderna (MRNA) insist that they offer more than COVID vaccines, the reality is that their pipelines still have not reached the stage where they can generate as much revenue.
Hence, it is no surprise that their share prices have climbed since discovering the Omicron strain.
The emergence of this new mutation sparked another competition among COVID-19 vaccine developers, specifically in the mRNA segment dominated by BioNTech and Moderna.
Since news broke about the Omicron variant, these companies have been racing to come up with the most effective vaccine against it.
BioNTech holds a competitive advantage between the two since the company reportedly has been working with Pfizer on a vaccine candidate for this type of situation months before the discovery.
In comparison, Moderna has yet to determine where their candidate stands in terms of fighting off the new variant.
The same can be said about other vaccine developers like AstraZeneca (AZN) and Johnson & Johnson (JNJ).
What happens to their efforts if the Omicron variant turns out to be less dangerous and possibly closer to the common flu?
In this case, the vaccine developers would most likely boost the prices of their products 10-fold because then they’d end up with fewer orders to private customers instead of sealing agreements with governments.
The flu vaccine market is worth roughly $8 billion annually, while the COVID vaccination market is projected to bring in approximately $25 billion each year in the post-pandemic period.
Either way, this situation could offer speculative investors a solid stream of price catalysts.
The uncertainty will result in a higher valuation for BioNTech in the short term because the company has already proven its ability to deliver an effective vaccine within a short period.
Prior to its COVID work, BioNTech was actually known as one of the “Big 3” and a pioneer in the mRNA world. At that time, it shared this title with Moderna and CureVac (CVAC).
Since then, the segment has grown, and new challengers have joined the mRNA industry.
Some of the promising ones include China’s Abogen Biosciences, which managed to raise over $700 million in funding for its own mRNA COVID vaccine, and of course, Sanofi (SNY), which splurged in a $3.2 billion acquisition of Translate Bio to access the latter’s mRNA pipeline for cystic fibrosis and several genetic conditions.
Meanwhile, BioNTech has retained its focus on cancer, with 16 of the 18 programs targeting oncology in its Phase 1 pipeline.
If BioNTech successfully develops an mRNA treatment for cancer, they’ll be breaking into a massive and lucrative market.
By 2024, the market for cancer treatments is projected to grow and reach over $200 billion.
Apart from its work on oncology therapies, BioNTech is also known for its infectious disease pipeline, including vaccines for HIV, malaria, and tuberculosis. It’s also collaborating with Pfizer on 2 influenza vaccines.
By the end of 2021, BioNTech is anticipated to release 5 updates on its vaccine trials involving solid tumors that target head and neck cancer, melanoma, and colorectal cancer.
Other than Pfizer, the company has been working with Regeneron (REGN), Genentech, Merck (MRK), Bristol Myers Squibb (BMY), and Sanofi.
In terms of performance so far, BioNTech has raked in $15.2 billion in revenues for the first three quarters of 2021, with full-year earnings expected to reach $18.1 to $19.2 billion.
Overall, I view BioNTech as a long-term investment.
While many still see it as a pure COVID play, this German company is increasingly starting to act more and more like the Big Pharma organizations.
It’s realistically expecting that its profit-generating asset, Comirnaty, may not have a very long shelf life. Therefore, it understands the necessity to come up with new products to sustain its current valuation over the longer term.
