Mad Hedge Biotech & Healthcare Letter
December 3, 2020
Fiat Lux
FEATURED TRADE:
(IT’S TIME TO JOIN THE COVID-19 VACCINE BANDWAGON)
(PFE), (BNTX), (MRNA), (NVAX), (AZN), (JNJ), (MRK)
Posts
In the history of corporate ventures, Pfizer (PFE) is one of the select few that can claim that their contributions genuinely contribute to the betterment of mankind.
This giant biopharmaceutical company has rapidly developed a promising vaccine candidate for the deadly COVID-19—an achievement that could potentially put an end to the global pandemic that has transformed 2020 into an apocalyptic year.
To date, Pfizer and its partner BioNTech (BNTX) have submitted the vaccine, BNT162b2, to the FDA for review—a move that could take us all a step closer to returning to our normal everyday lives, where we can be with our friends and loved ones without fretting over deadly infections.
If BNT162b2 gains approval, Pfizer and BioNTech can start the distribution by Christmas.
As expected, the COVID-19 vaccine will provide a quick and substantial boost to the company’s revenue this year.
Outside its COVID-19 program, Pfizer has a number of blockbuster treatments that have been generating steady growth despite the health and financial crises this year.
At the top of the list are breast cancer drug Ibrance and stroke and blood clot medication Eliquis. Other stars of Pfizer’s strong lineup include rheumatoid arthritis medication Xeljanz, heart failure treatment Vyndaqel, and prostate cancer drug Xtandi.
In terms of its pipeline, Pfizer has at least six programs queued for regulatory approval and an additional 21 candidates undergoing late-stage trials.
While Pfizer and BioNTech are leading the charge in the COVID-19 vaccine race, this is not necessarily a winner-take-all-market.
Days after Pfizer announced the results of its trials, fellow vaccine developer Moderna (MRNA) also released promising data. Another biotechnology company, Novavax (NVAX), has been sending out impressive results as well.
Even AstraZeneca (AZN), which has been working with Oxford, offered good news despite the delays in its own trials.
Meanwhile, Johnson & Johnson (JNJ) and Merck (MRK) have been making progress in their own COVID-19 programs as well.
However, there’s a crucial role played by Pfizer’s success.
It introduced to us the possibility of jumpstarting a vaccine program and shortening the development period that typically takes at least 10 to 15 years to complete.
More impressively, Pfizer has managed to come up with a vaccine with 95% efficacy – an amazing feat considering that 90% to 95% of vaccine trials tend to fail from the very beginning.
Most importantly, Pfizer’s recent results showed that we can now explore new options in vaccine development.
Taking BNT162b2 into consideration, this program opened doors for treatments created based directly on the molecular and even genetic structure of viruses.
Needless to say, Pfizer is a compelling stock to buy at a time when it is the norm to complain about having nothing to purchase at a reasonable price.
Additionally, Pfizer shares offer a dividend yield of 4.2% – a major advantage in a financial market that appears to be starved for any sort of security.
For those patient enough, the current conditions look to be ripe to use options to make the most of the short-term volatility to position yourselves for long-term gains.
By selling puts and buying calls, you can get the options market to pay them to purchase stock at cheaper prices and even participate in any rallies.
With Pfizer stock priced at around $36.18 these days, you can sell the January $36 put and buy the January $38 call for a credit of roughly 60 cents.
If Pfizer stock rallies, then you profit.
If the stock falls, then you can just buy it at the put strike price, although at a minimal discount because of the credit, or simply cover the put and move on.
If Pfizer stock hits $43 at the January expiration though, the call would be worth $5.
This risk-reversal plan is based on the prediction that good things are expected to happen to Pfizer—and to the world—soon.
Obviously, the key risk is that the stock rolls over and falls before the January expiration.
Given the new COVID-19 vaccine, however, that seems highly unlikely.
Mad Hedge Biotech & Healthcare Letter
December 1, 2020
Fiat Lux
FEATURED TRADE:
(BET LIKE WARREN BUFFETT)
(MRK), (BRK.A), (AAPL), (JPM), (GILD), (PFE), (ABBV)
Warren Buffett’s moves via Berkshire Hathaway (BRK.A) showed some telling signs this third quarter.
For one, the Oracle of Omaha has surprisingly trimmed his holdings in Apple (AAPL) and even JPMorgan Chase (JPM).
Another telltale sign that change is coming can be seen in his positions in biopharmaceutical titans.
Let’s take a closer look at one of the three biggest biopharma investments of Berkshire to date: Merck.
While the New Jersey-based pharmaceutical titan has not been as widely reported as its counterparts in the COVID-19 race, Merck has actually been working on a promising coronavirus program.
In fact, the company is part of the first five COVID-19 programs included in Donald Trump’s Operation Warp Speed.
Just last week, the company added another promising COVID-19 treatment to its pipeline via the $425 million cash acquisition of Oncolmmune—a move that would give Merck access to the privately-owned company’s COVID-19 treatment, called CD24Fc.
If successful, CD24Fc will be a powerful treatment for mild to severe cases of COVID-19.
To date, only Gilead Sciences’ (GILD) Veklury has received FDA approval and even that treatment failed to address all the health concerns.
In comparison, CD24Fc is expected to undergo a smooth sailing journey from clinical trials to its market launch in 2021.
Meanwhile, Merck may have another ace in the hole with its COVID-19 program.
While the company is already months behind the frontrunners, Merck has a competitive advantage over the COVID-19 vaccine candidates submitted by Pfizer (PFE), Moderna (MRNA), and even AstraZeneca (AZN).
Its experimental COVID-19 vaccine does not require any freezing.
This means that unlike the candidates of Pfizer and Moderna, Merck’s vaccine does not need ultra-special handling and transportation.
On top of that significant advantage, Merck has been working with the nonprofit organization International AIDS Vaccine Initiative to develop a COVID-19 vaccine that only requires a single dose.
In contrast, the leading candidates today require two shots of their vaccines to become effective.
Apart from betting big on its COVID-19 program, Merck is also upping the stakes in its oncology pipeline.
Its recent move is the $2.75 billion acquisition of VelosBio—a partnership that adds another potent arrow to Merck’s already powerful quiver of cancer drugs.
This deal with VelosBio provides Merck with access to cancer treatments under development. Most of these home in on the deadly cancer cells but manage to spare the patients from several horrible side effects.
Prior to this, Merck shelled out $1 billion to gain an equity stake in Seagen (SGEN). The deal also grants Merck access to an extensive antibody drugs pipeline.
Aside from its oncology-related acquisitions—all of which have been home runs for its investors—Merck’s existing cancer pipeline has been consistent moneymakers.
Apart from lung cancer treatment Keytruda, which generated a whopping $11.9 billion in sales in 2019 alone, Merck has a virtually unbeatable arsenal against cancer.
In fact, its thyroid cancer drug Lenvima, which was initially approved for thyroid cancer in 2015, already expanded its indications to cover renal cell carcinoma and potentially even melanoma, endometrial cancer, NSCLC, and bladder cancer.
This could bring Keytruda-like success for Merck in the future.
Aside from Merck, Warren Buffett also invested in biopharmaceutical titans Pfizer and AbbVie.
As of September, Berkshire Hathaway holds 3.7 million Pfizer shares, 21.3 million AbbVie shares, and 22.4 million Merck shares.
These moves are especially noteworthy since the company has not owned any of these biopharma giants at the end of June.
Looking at the profile of these companies, there is no obvious connection or theme.
As discussed, Merck is heavily investing in its oncology pipeline.
AbbVie has been busy diversifying and building a pipeline independent from its megablockbuster Humira.
In fact, this biopharmaceutical giant has delved into dermatology with its massive acquisition of Allergan, aka the Botox-maker.
Meanwhile, Pfizer has been in the news thanks to its COVID-19 vaccine.
Aside from its coronavirus program, Pfizer has been focused on completing the merger between its Upjohn unit and generic drugmaker Mylan (MYL) to form a new company, called Viatris.
Analyzing all three closely though, one thing becomes clear: They are trading off their all-time highs and have been doing it for the entire 2020.
Do you know what that means?
Warren Buffett has been bargain shopping.
Mad Hedge Biotech & Healthcare Letter
November 24, 2020
Fiat Lux
FEATURED TRADE:
(WATCH OUT FOR BIONTECH’S HOCKEY STICK GROWTH)
(BNTX), (PFE), (AZN), (MRNA), (JNJ), (REGN), (DNA)
BioNTech (BNTX) is the perfect example of an old saying, “Timing is everything.”
Coming from its humble IPO in 2019, this biotechnology company now sports a $25 billion market capitalization—a number that could still go up once its COVID-19 vaccine candidate with Pfizer (PFE) receives US and EU nods.
What we know so far is that their COVID-19 vaccine candidate could secure an emergency approval as early as December and start delivery before Christmas.
Although it’s still not available in the market, the effect of its COVID-19 vaccine candidate, called BNT162, has made itself known in BioNTech’s earnings report.
The company reported roughly $80 million in revenue in the third quarter of 2020 alone—an impressive 135% jump from its previous performance in the same period last year.
To date, BioNTech and Pfizer are estimated to supply roughly 1.3 billion doses by the end of 2021.
Additional orders could still come in though, which is why the two companies have been busy scaling their manufacturing capacities.
If all goes according to plan, then the expected returns from their COVID-19 vaccine sales could come sooner than initially thought.
Recent reports reveal that Moderna’s (MRNA) COVID-19 vaccine candidate also showed over 90% efficacy. Even AstraZeneca’s (AZN) candidate with Oxford University disclosed promising results.
However, BioNTech and Pfizer’s candidate has a couple of competitive advantages.
The first would be its 95% efficacy, which gives the two companies the commanding position and effectively relegates the rest as second grade options.
Their candidate showed no safety concerns—a major issue for AstraZeneca and Johnson & Johnson’s (JNJ) candidates.
Third, the partners have been able to reassure their capability to manufacture at scale—an issue that would pose problems for other developers like Moderna.
In fact, BioNTech acquired a vaccine manufacturing plan in Germany just last September to meet the demand for 250 million doses by mid-2021 and another 80 million doses monthly thereafter.
In terms of manufacturing capacities, the two potential competitors of BioNTech and Pfizer here are AstraZeneca and JNJ. Both have already paused their trials and are now falling behind in terms of the rigid schedule.
As for the other COVID-19 vaccine leader, Moderna has yet to prove that it can manufacture at scale.
BioNTech and Pfizer even shut down the red herring about the cooling and storage of their COVID-19 vaccine candidate. The two companies released their plans for distribution and detailed a strategy that’s not only feasible but also cheap.
Since the vaccine requires extremely low temperatures to maintain its efficacy, Pfizer and BioNTech will ship them from centralized warehouses via a thermal shipper.
This will ensure that the temperature is maintained for 10 days without the need to re-ice and up to 15 days with re-icing. A GPS will be used to monitor and track the integrity of the vaccine in real-time.
The impact of its sales from the COVID-19 vaccine would dwarf practically everything else in BioNTech’s financial statements.
However, this does not mean the biotechnology company will revert to its 2019 status once the peak of its COVID-19 vaccinations is over.
Instead, BioNTech will be in possession of an extremely valuable IP of an effective and working mRNA vaccine platform.
This will allow the company to apply the technology to other infectious diseases.
If it continues with its partnership with Pfizer, it can even develop vaccines for farm animals and domestic pets and market those under the bigger company’s animal healthcare spinoff, Zoetis (ZTS).
Here’s a bit of background on BioNTech.
Founded in 2008, BioNTech was created to develop hyper-personalized medicine and treatments.
At the center of its mission, the company’s basic idea is that the tumor found in each cancer patient is one of a kind.
To help find a cure or treatment, the company analyzes the tumor for its genetic signature.
Once they identify this unique element, they would develop gene-based therapies to limit the spread or even put an end to that particular occurrence of cancer.
If you think this is a lofty goal for a small biotechnology company, then you’d be surprised to find out that BioNTech proved their theories in 2017.
At the time, all 13 patients who underwent the analysis and received injections for genetically personalized therapies for their advanced-stage cancers.
Essentially, the cancer patients developed immunity from their own cancer.
Apart from COVID-19 and cancer treatments, BioNTech is also working on treatments for tuberculosis, HIV, and several rare diseases.
Outside its partnership with Pfizer, it has been partnering with Regeneron (REGN) and Genentech (DNA).
Biotechnology stocks have the tendency to move when the companies release updates about their treatments under development.
For momentum investors, it’s crucial to be prepared for whatever happens in the aftermath.
Looking at the developments and other updates, BioNTech’s COVID-19 vaccine work could send this stock to the moon.
After all, its partnership with Pfizer resulted in what could be the most effective and efficient candidate to battle the pandemic.
This means that the demand for the vaccine would exponentially exceed the supply in the near future, with the majority of what can be manufactured getting pre-sold or call option reserved.
To date, BioNTech stock is trading at roughly $104 per share. However, I estimate that it could reach a target price of $600 by the first quarter of 2021.
Mad Hedge Biotech & Healthcare Letter
November 19, 2020
Fiat Lux
FEATURED TRADE:
(A STOCK FOR ALL AGES)
(JNJ), (PFE), (BNTX), (MRNA), (BRK-A) (BRK-B)
November has been an action-packed month so far.
The US election has concluded, and on top of the political drama, Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA) have released COVID-19 vaccine trial data that look extremely promising.
Since Pfizer and BioNTech (BNTX) announced that their vaccine BNT162b2 offers roughly 95% efficacy, the development resulted in a market-wide rally, particularly in value stocks, with investors starting to anticipate the economy to show signs of meaningful recovery and bounce back to pre-pandemic levels.
Hence, it makes sense to position your portfolio in a manner that reflects these macro developments.
However, the coming months could still push the markets to be even more volatile.
That’s why my advice is to hold investments that have been historically proven to be dependable even in the most uncertain times.
One of the most reliable stocks in today’s tumultuous financial climate is Johnson & Johnson (JNJ).
Aside from Pfizer and Moderna, JNJ has also joined the ranks of COVID-19 vaccine developers brandishing their success.
In the latest update, the company announced that JNJ-78436735 could be ready for FDA approval by February 2021.
Although JNJ is months behind Pfizer and Moderna, JNJ-78436735 holds a huge advantage: it’s a one-jab vaccine.
In comparison, both Moderna and Pfizer require booster shots for their COVID-19 vaccine candidates. The second shots for these are expected to be given roughly a month after the first shot.
Despite not being the first in the market, JNJ still stands to reap the benefits from the recent developments, as the promising COVID-19 vaccine report could boost the company’s sales for its medical devices and consumer health products—a projection that is already coming into shape as JNJ stock gained over 7% since Pfizer’s announcement.
For the third quarter of 2020, JNJ raked in $21.1 billion in global sales, recording a 1.7% increase from the same period in 2019.
While this growth rate is not as exciting as previous reports, it signified a substantial improvement from the year-over-year sales decline in the second quarter, which was at 10.8%.
Sales for its pharmaceutical chapters rose by 4.7%, while its consumer health sector climbed by 3.1%.
More impressively, JNJ raised its 2020 sales guidance by $1 billion.
The company’s revenue guidance is now up to be somewhere in the range of $81.2 billion to $82 billion from its initial forecast of $79.9 billion to $81.4 billion.
Thanks to the diversity in its product portfolio, broad geographic reach, and of course, brand power, JNJ has been able to thrive despite the pandemic.
After all, JNJ has been in business since 1886, which indicates the company’s resilience and capacity to survive crises.
Historically, this company has been known as a safe stock primarily due to its growing dividends.
In fact, Warren Buffett’s Berkshire Hathaway (BRK-A) (BRK-B) has held on to JNJ stock for the past 14 years.
For context, JNJ reported $74.3 billion in sales back in 2014. By 2019, this Dividend Aristocrat’s top line has jumped to reach $82.1 billion. Even more impressively, JNJ has recorded a profit margin of at least 18%.
As a longstanding member of the S&P Dividend Kings, which lists companies that managed to boost their dividends for at least 50 consecutive years, JNJ offers an impressive dividend yield of 2.8%—significantly higher than the S&P 500’s average at 1.8%—translating to roughly $4.04 per share.
JNJ is a good long-term stock to hold.
Although it is admittedly not cheap, its valuation is still reasonable, especially if you think about the dearth of high-quality and safe assets available in today’s extremely volatile market.
So whether you’re a budding investor or a veteran of the market, I advise that you buy JNJ stock on the next dip at its share price to be one of the dividend investors enjoying this company’s revenue.
Mad Hedge Biotech & Healthcare Letter
November 3, 2020
Fiat Lux
FEATURED TRADE:
(TESTED AND PROVEN COVID-19 STOCK FOR THESE UNCERTAIN TIMES)
(ABT), (PFE), (AZN), (MRNA)
As we hold our breath for the results of the presidential election, it’s no surprise that investors are wondering how their portfolios will be impacted.
That’s why now is the right time to pick a stock or two that can thrive regardless of who emerges as the victor.
To do this, it’s wise to look at a company that has already experienced a boost under Trump’s presidency and could continue to enjoy the rewards even with a Joe Biden administration.
The obvious common denominator is Trump and Biden’s goal to be aggressive in COVID-19 testing for as long as the virus is around.
Pfizer (PFE), AstraZeneca (AZN), and Moderna (MRNA) are undoubtedly three of the most widely reported coronavirus stocks in the past months.
These companies were the first to launch their COVID-19 vaccine candidates in human trials and are the leaders in the race towards the finish line.
However, long-term investors may find more value betting on one of my preferred COVID-19 stocks: the $188 billion healthcare behemoth Abbott Laboratories (ABT).
Let me tell you why.
In either Trump’s or Biden’s presidency, Abbott stands to benefit.
Regardless of the winner of the 2020 election, Abbott remains a winner for as long as COVID-19 continues to threaten the world.
While the majority of COVID-19 vaccine companies have yet to generate income from their coronavirus programs due to pending FDA approvals, Abbott has been leveraging its pipeline to boost its growth even with the pandemic.
Since the early days of this health crisis, Abbott has been working to stay ahead of the pack.
To date, the company has at least seven COVID-19 tests with emergency use authorization from the FDA and are available in the market.
These tests, which boosted Abbott’s diagnostics sales by 39% in the third quarter, range from detecting active cases to identifying whether a person has been infected with the virus in the past.
The latest swab test to join Abbott’s growing lineup of COVID-19 products is called the antigen test and is designed to deliver results in as fast as 15 minutes and costs only $5.
To add convenience, this test is connected to a mobile to allow users to access their results right away.
Prior to the antigen test, Abbott launched a rapid detection test called BinaxNOW. This test can also return results on-site within 15 minutes. It has a free digital app, which sends users with negative results a “digital health pass” right on their phones.
When BinaxNOW was launched in August, the Trump administration spent $760 million for 150 million tests.
This company has supplied over 100 million COVID-19 tests and generated roughly $881 million in sales in the third quarter, up from the $615 million it reported in the second quarter.
Abbott is one of the safer stocks to own in the healthcare sector, with sales estimates for this company expected to grow by 14% in 2021 and 2022.
So far, Abbott shares have climbed 22% this year. Even amidst the pandemic, Abbott raised its full-year guidance for its earnings per share from $3.25 to $3.55.
While the company has been focused on its COVID-19 programs, this strategy is not a one-time deal.
On the contrary, the popularity of its COVID-19 testing kits serves as the much-needed door-opener for Abbott to expand its medical venues—an effort that generally takes years to develop.
For instance, its diabetes care segment alone managed to achieve a 26.9% year-over-year jump in sales to reach $843 million in the third quarter.
On top of that, Abbott has an incredibly diverse pipeline with over 100 new products across its different business units.
Abbott is a widely known dividend aristocrat, paying quarterly dividends consistently since 1924. It has a proven track record of solid performance and a carefully curated suite of businesses that promises future rewards.
At the rate the company is growing and the future projects it has in its pipeline, this dividend aristocrat would no doubt continue with this proud tradition of rewarding its investors generously.
