Mad Hedge Biotech and Healthcare Letter
May 30, 2024
Fiat Lux
Featured Trade:
“SCALING THE CLIFF”
(PFE), (BMY)
Posts
Bob Dylan was right: "The times they are a-changin'". And for Pfizer (PFE), those changing times mean navigating a post-pandemic world and a looming patent cliff. Can they rise to the challenge, or will they be singing the blues?
Pfizer hardly needs an introduction. Founded 175 years ago in 1849 and publicly listed in 1942, Pfizer boasts a market cap of over $160 billion, with highly liquid options trading against its equity.
However, this stock has been on a bit of a rollercoaster lately.
With revenues exceeding $240 billion between 2021 and 2023, largely from vaccines and cancer treatments sold in over 200 countries, Pfizer's reach is undeniable.
But after hitting a record high of $61.71 a share in December 2021, it's taken a nosedive – more than a 50% drop.
So, what gives? Well, it's mostly a combo of waning demand for their Covid-19 products and the dreaded patent cliff looming over some of their top-selling drugs.
At the moment, Pfizer's portfolio paints a mixed picture, with some drugs shining brightly and others facing a cloudier future.
Their pneumonia vaccine duo, Prevnar 13 and 20, remains a reliable workhorse, raking in $6.4 billion in FY23, a 3% increase. With Prevnar 20's patent secure until 2033, it's a safe bet for continued success.
Eliquis, the blood thinner co-marketed with Bristol-Myers Squibb (BMY), is also holding its own, bringing in a respectable $6.7 billion in FY23, up 5%. However, the looming threat of generic competition in 2028 could put a damper on its future prospects.
On the other hand, Vyndaqel, a combination heart and nerve drug, has been a true standout, boasting a remarkable 36% jump in revenue to $3.3 billion in FY23.
Doctors have embraced it for treating a heart condition called ATTR-CM, but its patent situation remains uncertain with a potential expiration in 2024, unless Pfizer's extension to 2028 is approved.
Not all is rosy in Pfizer's garden though.
Comirnaty, their COVID-19 vaccine, may still be pulling in a hefty $11.2 billion in FY23, but it's a far cry from its FY22 peak. Sales have plummeted 70%, and those booster shots aren't exactly flying off the shelves anymore.
As for Paxlovid, the once-promising COVID-19 treatment, this drug has suffered an even more dramatic fall from grace, with revenue crashing 92% to $1.3 billion in FY23. To add insult to injury, Uncle Sam returned a staggering 6.5 million treatment courses.
Meanwhile, Ibrance, their breast cancer treatment, is also feeling the heat, with sales down 6% to $4.8 billion in FY23. It's facing tough competition overseas and its patent is set to expire in 2027, adding further pressure on its future performance.
To make matters worse, several other Pfizer blockbusters – Inlyta, Xeljanz, and Xtandi – are also staring down the barrel of patent expiration in the next few years.
This looming patent cliff poses a significant challenge for Pfizer, as these drugs have been major contributors to their revenue stream.
The company will need to rely on its pipeline of new drugs and strategic acquisitions to offset the potential losses and maintain its position as a leading player in the pharmaceutical industry.
Does that mean, then, that the $43 billion Seagen acquisition in December 2023 could become a lifeline for Pfizer?
Facing a double whammy of declining blockbuster sales and the looming patent cliff, Pfizer isn't sitting idly by. Seagen brings a fresh arsenal of patent-protected cancer-fighting drugs to the table, including three promising antibody-drug conjugates (ADCs).
Two of these, Adcetris for Hodgkin lymphoma and Padcev for urothelial cancer are already showing blockbuster potential, having raked in $751 million and $479 million, respectively, in the first nine months of 2023, despite the acquisition's timing.
But Pfizer's ambition doesn't stop there.
With five new therapies and six label expansions slated for oncology alone by 2026, they're banking on biologics like ADCs to fuel their growth.
They predict these cutting-edge treatments will surge from 6% to 60% of their cancer revenues by 2030, potentially yielding eight new blockbusters.
For now, Seagen's arrival is a much-needed boost to their oncology sales, which dipped 4% to $11.6 billion in FY23, even with Seagen's $120 million contribution in the final weeks of the year.
While the Seagen acquisition helps Pfizer tackle its goals of dominating oncology and fueling pipeline innovation, it's not the whole picture.
Pfizer's got a few other tricks up its sleeve: maximizing new product performance, trimming costs, and playing the capital allocation game to keep shareholders happy.
They're even planning a $3 billion spending spree from late 2023 through 2024, aiming for a cool $4 billion in annual cost savings. Talk about tightening the belt while expanding the empire.
Speaking of empires, Pfizer's 4Q23 results were a bit of a wake-up call.
Earnings per share (EPS) tanked to $0.10 (non-GAAP) on revenue of $14.2 billion, a far cry from the $1.14 EPS and $24.3 billion revenue of the previous year.
For the full year, EPS dropped a whopping 72% to $1.84 (non-GAAP), with revenue down 42% to $58.5 billion.
But, if you ignore those pesky Covid-19 products (Comirnaty and Paxlovid), the top line actually grew a bit – 8% in Q4 and 7% for the whole year.
Just remember, that Paxlovid revenue reversal in Q4 wasn't pretty, slashing both GAAP and non-GAAP EPS by $0.54.
Fast forward to Q1 2024, and Pfizer's numbers were a bit more cheerful, at least compared to what the analysts expected.
Non-GAAP EPS came in at 82 cents, a solid 30 cents above the consensus.
Revenue did fall 19.5% year-over-year to $14.9 billion, but even that beat estimates by $900 million.
Management's still sticking to their FY2024 guidance of $58.5 billion to $61.5 billion in revenue and $2.15 to $2.35 in non-GAAP EPS. We'll see if they can deliver.
That Seagen deal wasn't cheap, though, adding a hefty $31 billion to Pfizer's debt pile. As of March, they had about $12 billion in cash and marketable securities against over $61 billion in long-term debt. Yikes.
Still, management's determined to keep raising those quarterly dividends, now up to $0.42 a share in early 2024. That's a lot, considering it ate up 91% of their non-GAAP earnings in FY23 and is projected to gobble 78% in FY24.
With all that debt, don't expect any more stock buybacks in 2024. Pfizer's taking a break from that game, just like they did last year.
Despite Wall Street's lukewarm reception to Pfizer's patent cliff strategy, it's important to remember that this pharmaceutical giant is far from down for the count.
So, sure, Pfizer's 2023 revenue took a 42% nosedive compared to 2022, but let's not forget: over 620 million people worldwide still rely on their meds.
They actually scored nine FDA approvals, sold more pharmaceuticals than anyone else on the planet, and they're not sitting idly by while their product sales decline. Clearly, they're making moves.
The current bargain-basement price of Pfizer's stock, trading at a P/E of 10.4 on FY25E EPS, coupled with a juicy 5.9% yield, might just be the cherry on top for savvy investors willing to bet on the company's ability to navigate these turbulent times. Whether they can pull it off is anyone's guess, but at this price, it might be worth a gamble.
Mad Hedge Biotech and Healthcare Letter
May 21, 2024
Fiat Lux
Featured Trade:
(THE FAT’S IN THE FIRE)
(RHHBY), (LLY), (NVO), (AMGN), (VKTX), (PFE), (MRK), (SNY), (ABT)
Well, well, well, look who's decided to crash the obesity-drug party. Roche (RHHBY), the Swiss pharmaceutical giant, has just unveiled some pretty impressive early-stage results for its weight-loss drug, CT-388. And let me tell you, this could be the start of something big.
Now, I know what you're thinking: "Another weight-loss drug? Yawn." But trust me, this is no ordinary contender.
In a small trial, patients who received CT-388 saw an average placebo-adjusted weight loss of 18.8% after just 24 weeks. That's right, 18.8%.
While it's hard to compare trials, experts are saying these numbers might even give Eli Lilly's (LLY) Zepbound, the current king of the market, a run for its money.
Let's take a step back and look at the bigger picture. The obesity drug market has been on fire lately, with everyone going gaga over these miracle pills.
Lilly and Novo Nordisk (NVO) have been dominating the scene with their drugs, Zepbound and Wegovy, but that hasn't stopped a whole host of other companies from trying to get a piece of the pie.
Merck (MRK), Sanofi (SNY), Abbott Labs (ABT), and Eisai have all tried their hand at weight-loss drugs and ultimately thrown in the towel.
More recently, Pfizer's (PFE) daily oral pill, danuglipron, has faced hurdles due to side effects. Amgen's (AMGN) drug, MariTide, is in Phase 2 studies and showing promise. And let's not forget Viking Therapeutics' (VKTX) VK2735, which has earned the nickname "twincretin" for its dual targeting of GLP-1 and GIP receptors.
So, what makes Roche's CT-388 so special?
Well, for starters, it's a GLP-1/GIP receptor agonist, which is similar to Lilly's Zepbound. In the Phase 1 trial, all participants achieved more than 5% weight loss, with 85% losing more than 10%, 70% shedding more than 15%, and a whopping 45% dropping more than 20% of their body weight. That's some serious weight loss.
Of course, there were some side effects, mainly mild to moderate gastrointestinal issues, but hey, that's the price you pay for looking fabulous, right? Roche is also testing CT-388 in patients with Type 2 diabetes, so stay tuned for updates on that front.
Now, I know you're all dying to know how CT-388 stacks up against the competition.
Notably, the drug's data looks strong compared to earlier studies of Zepbound. In fact, CT-388's efficacy results appeared "numerically higher" than Zepbound's.
But let's not get ahead of ourselves. Lilly still has a multi-year lead on Roche, so CT-388 isn't an immediate threat. However, it does suggest that the future of this rapidly growing market is up for grabs.
Now, let's talk about Roche. It’s the world's seventh-largest pharma company by market cap, sitting at around $205 billion. They pulled in $65 billion in revenue in 2023, second only to Johnson & Johnson (JNJ).
But here's the kicker—they've been struggling with growth, and their share price has taken a hit, down more than 25% over the past three years.
Contrast that with Eli Lilly and Novo Nordisk. Lilly's share price shot up 290% in three years, and Novo's climbed 226%.
Even though their revenues were less than half of Roche's in 2023, their market caps are sky-high. Why? Because of their blockbuster GLP-1 agonist drugs, Zepbound and Wegovy, which have shown jaw-dropping weight-loss results.
But could CT-388 be the underdog story Roche needs?
With the obesity market estimated to reach a staggering $100 billion by 2030, and over 1 billion people worldwide suffering from obesity, the potential is enormous.
Of course, there's still a long way to go for CT-388. Cross-trial comparisons can be tricky, and Roche's Phase 1 trial was much smaller than Lilly's pivotal study of Zepbound.
Plus, we don't have all the juicy details on patient characteristics, dose titration, and long-term weight loss just yet.
But here's the thing: Roche has scale and infrastructure on its side. It could potentially outmuscle smaller players like Viking and Boehringer Ingelheim.
And if CT-388 can match or even surpass the performance of current and future GLP-1 agonists? Well, let's just say those peak revenue forecasts might be in for a surprise.
So, is Roche the dark horse you should bet on in the obesity-drug race? If you're looking to get in on the action without paying the premium commanded by Lilly and Novo, or taking on the higher risk of smaller players, Roche might just be the ticket.
With promising mid-single-digit revenue growth on the horizon and a strong position in other areas like oncology and autoimmune disorders, Roche could be a smart play for anyone keen on the obesity drug market.
As for me? Well, you know I love an underdog story. And CT-388 might just be the Cinderella story of the year. I suggest you buy the dip.
What a rollercoaster it’s been for Novavax (NVAX). Their latest Q1 2024 earnings were a mixed bag—they beat EPS expectations but missed on revenue. A far cry from when they were the undisputed rising star of the biotech world, their stock soaring a mind-boggling 6000% during the peak pandemic days.
Back then, they were the hotshots, but lately, the big leagues with the right connections had been sweeping opportunities right out from under them. Until now.
Earlier this week, Novavax’s shares took off like a rocket, even hitting a mind-blowing 175% jump in premarket trading at one point. That's right – 175%!
Turns out, those Q1 earnings weren't all doom and gloom. Sure, they missed on revenue, but their net loss got chopped in half compared to last year, and revenue still managed to grow by a respectable 16%. This isn't just a rebound; it's a sign that Novavax might just be back in the game.
But let's be real, the main reason behind this stock explosion is their shiny new deal with Sanofi (SNY), a heavyweight in the pharma world. We're talking a cool $1.2 billion.
Remember, Novavax was once the darling of the biotech scene during the pandemic, their stock soaring a mind-boggling 6000%. But lately, they've struggled to secure the big partnerships needed to really make a splash in the market. This Sanofi deal? It's the lifeline they've been waiting for.
This isn't just any partnership. Sanofi's shelling out a cool $500 million upfront, with another $700 million on the line if certain milestones are met, all for a piece of the Novavax COVID-19 vaccine pie and a chance to collaborate on future projects.
Now, Sanofi isn't exactly known for throwing money around willy-nilly, so this is a major vote of confidence. What's got them so excited?
Novavax's not-so-secret weapon: Matrix-M, a revolutionary adjuvant technology that's got the potential to shake up the vaccine world.
Think of Matrix-M as a personal trainer for your immune system. It doesn't fight the disease itself, but it whips your body's defenses into shape, making them stronger and more effective at fighting off infection.
To understand this better, imagine you're going into a boxing match. The vaccine is the boxer, ready to throw punches at the virus. But Matrix-M is the coach in their corner, giving them the extra training and conditioning they need to deliver a knockout blow.
Novavax isn't just using this personal trainer for their COVID vaccine. They're exploring how to use it to coach our immune systems in fighting all kinds of diseases, even the heavyweights like cancer. It's like having a secret weapon that could revolutionize how we approach health and wellness.
That means Matrix-M technology has the potential to open up a whole new world of treatment options and revenue streams. It's like investing in a gym that's developing a revolutionary new training program – the potential gains could be huge.
Now, this tech isn't a sure thing yet, but Sanofi's backing is a big deal. It's a vote of confidence that screams, "We believe in you, Novavax!"
And when a pharma giant like Sanofi puts their money where their mouth is, you know they see serious potential in those nanoparticle innovations and adjuvant magic. After all, who better to mass-produce a vaccine than one of the biggest players in the game?
This isn't just about COVID-19, either. This is about building a foundation for a whole new generation of vaccines, the kind that could rewrite the rules of healthcare as we know it.
Novavax isn't just sitting back and waiting, either. They're already gearing up for Phase III trials of a combo COVID-19-Influenza vaccine and diving headfirst into cutting-edge mucosal vaccine technology and high-density nanoparticles.
And let's not forget the cold, hard cash this deal brings to Novavax.
With half of Sanofi's investment expected to hit their bank account in just 10 days, Novavax's 2024 financial outlook is looking a lot brighter. They're now projecting revenues between $970 million and $1.17 billion – a serious boost for a company that's seen its share of financial turbulence.
Novavax might have been down for the count, but they're not out of the fight. With Sanofi backing them up, they've got a real shot at becoming a major player in vaccine innovation again.
For investors, this could be a chance to get in on the ground floor of a comeback story that could be the stuff of legend.
Mad Hedge Biotech and Healthcare Letter
April 30, 2024
Fiat Lux
Featured Trade:
(HITTING CTRL+ALT+DELETE ON DRUG R&D)
(DNA), (GOOGL), (JNJ), (ILMN), (JNJ), (ALTO), (GROIV)
Mad Hedge Biotech and Healthcare Letter
April 25, 2024
Fiat Lux
Featured Trade:
(RACING TO SWAP A GOLDEN GOOSE FOR A NEW FLOCK)
(MRK), (NVO), (LLY), (JNJ), (ABBV), (PFE)
Big pharma usually makes investors smile - fat profits, juicy dividends, and stocks that crush the market.
Lately, though, some of these giants are looking more like grumpy old men. Sure, there are exceptions like Novo Nordisk (NVO) and Eli Lilly (LLY) printing money with their obesity blockbusters.
But what about the rest? Even with Washington breathing down their necks, patent cliffs, and a shaky economy, you'd think these drug titans wouldn't be lagging the market, right? Wrong.
Check out the "Big Eight" top dogs - Johnson & Johnson (JNJ), Merck (MRK), AbbVie (ABBV), Pfizer (PFE), and the rest. Only a few have really delivered the goods in the past five years. AbbVie and Merck have been alright, but the others? They make me want to take a nap.
Now, I'm not saying give up on pharma entirely - there's still money to be made. But you've got to do your homework. Today, let's take a look at Merck.
They raked in $60.1 billion in 2023, making them a heavy hitter. But without their COVID cash machine Lagevrio, growth is...less impressive. Still up, but not setting the world on fire.
The real story is spending - Merck went on a spree, burning through cash on R&D. Why? Their golden goose Keytruda, that $25 billion cancer blockbuster, is facing generic competition soon.
Merck isn't just sitting around waiting for the Keytruda patent cliff either. They're furiously throwing money at new drugs, acquisitions, cancer, heart disease, immune disorders - hoping to find the next Keytruda before the current one fades away. It's like an aging rockstar desperately trying to write another big hit.
But let's be real, finding billion-dollar breakthroughs is a gamble, even for giants like Merck. They've got potential in the pipeline for sure, but it's a long road from the lab to pharmacy shelves. Plenty of drugs flame out along the way.
Looking back, 2023 wasn't a victory parade for Merck. It was more like a mad dash to spend their way out of the looming Keytruda patent cliff. But hey, sometimes you've gotta break a few eggs to make an omelet, right?
Speaking of potential winners, let's talk about those newly approved lung drugs – sotatercept could be a major player.
Merck's vaccine department is looking strong too, with potential blockbusters targeting lung infections and RSV in the pipeline.
Of course, it hasn't all been smooth sailing. That new cough drug, gefapixant, getting rejected by the FDA again? Merck took a hit on that. Still, this biotech’s not giving up. This is a company buying time to build up a whole new arsenal, and the Keytruda cliff might hurt, but they'll come out swinging.
So, let’s forget about that 2023 earnings dip. Merck's forecasting a serious jump in 2024 profits as they dial back the crazy spending. Yes, their balance sheet took a hit, but look at what they're building. They're hunting big deals to bolster that pipeline, and that's a good thing in my book.
Speaking of big moves, Merck's been on a shopping spree. Wall Street might get nervous if they drop another bombshell, but I trust their judgment. These aren't just random buys; this is how they protect their future cash flows. Besides, any short-term drama from a big deal could be a sweet buying opportunity.
And while Merck’s still figuring out which one could be the next big thing, the true star of the show, until that patent cliff arrives, is still Keytruda.
That beast is still growing and could keep going strong for years, especially in early-stage treatments. Plus, that new subcutaneous version of this blockbuster treatment? Talk about extending the gravy train well past the generic competition.
Let's also check out the other horses in this race: sotatercept's early sales numbers, a potential FDA approval for that HER2 drug, the saga of gefapixant's third shot (or not), and the cash potential of V116 and Welireg. Not to mention, juicy updates on that Moderna (MRNA) partnership…Merck’s next months could be packed with surprises.
As for this company’s dividend? Decent track record, but don't expect fireworks after the recent hike. As for buybacks, Merck seems to have...other priorities right now. Those profits are pouring straight into the growth pipeline.
The bottom line: While some of Big Pharma looks pale lately, Merck is still bringing it, share price gains and all. Sure, that gefapixant rejection stings. But Keytruda keeps roaring, and Merck's pipeline is buzzing with potential. I'm not sweating earnings.
Merck's got contingencies lined up for the Keytruda patent apocalypse - new drugs, deals, maybe even extending Keytruda itself. They're playing for the long game here. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
March 21, 2024
Fiat Lux
Featured Trade:
(THE TOP DOG IN ANIMAL HEALTHCARE)
(ZTS), (AMGN), (PFE), (JNJ), (ELAN)
You've likely witnessed a scene like this: You're at the park, and you see a young couple playing fetch with their golden retriever.
The dog is absolutely loving life, jumping and bounding after the ball, tail wagging furiously. It's a heartwarming scene, and it's one that's becoming more and more common these days.
In fact, just the other day, over coffee, a veterinarian buddy of mine spilled the beans.
"You wouldn't believe how people are pampering their pets these days," she said, shaking her head in amusement. "It's no longer just about the basics—food and health. Nope, we're talking top-tier, VIP treatment. They're ready to drop serious cash to ensure their furry friends are living their best lives."
It's a whole new world for pets, and their owners are leading the charge, wallets wide open.
And that is where Zoetis (ZTS) comes in. This company is the top dog (pun intended) in the animal healthcare space, and it's been making some serious waves in the market lately.
Now, I know what you're thinking - "What about those big-shot human healthcare stocks like Amgen (AMGN), Johnson & Johnson (JNJ), and Pfizer (PFE)?"
Well, let me tell you, Zoetis has been giving them a run for their money since spinning off from Pfizer back in 2013. This company has been posting positive annual EPS growth every single year, with an average annual EPS growth rate of a whopping 15.9%.
But that's not all — Zoetis has also been dishing out some seriously impressive dividend growth, with a CAGR of nearly 25% since it was spun off. That's right, this stock is checking all the boxes for dividend growth investors.
And if you think this is just an income play, think again.
Zoetis has been absolutely crushing the S&P 500, posting price returns of 492% compared to the market's measly 176% gains over the last decade.
So, what's the secret behind Zoetis' success?
Well, it all comes down to our furry (and sometimes scaly) friends. You see, people are lonelier than ever these days, and they're turning to pets for that much-needed companionship.
The US Surgeon General even called loneliness an epidemic, sounding the alarm on its dire impacts on health, likening its risks to smoking up to 15 cigarettes a day.
From the gripping claws of loneliness among young adults to the isolation felt by mothers with young children, the pandemic has only deepened this crisis, affecting a staggering 36% of Americans.
More than that, this loneliness trend isn't just about having a buddy to binge-watch Netflix (NFLX) with. It's actually impacting our species' survival. Studies show that sexual activity is on the decline, and technology is distorting the way we interact with each other.
It's a bit of a downer, I know, but here's where Zoetis shines through. As people turn to pets for love and affection, they're also shelling out some serious cash to keep their furry friends healthy and happy.
The American Pet Products Association says that nearly 87 million U.S. households own pets (roughly 66%), and it's not just the younger generations who are getting in on the action. Baby Boomers and Gen Xers are also big-time pet owners.
What does all this pet love mean for the industry? Well, the pet industry is expected to be a $150 billion behemoth in 2024.
Now, what really sets Zoetis apart from the pack? It all comes down to pricing power and growth potential.
In the animal health market, drug prices aren't determined by pesky regulations, government buyers, or PBMs. That means Zoetis can charge premium prices for their trusted, name-brand drugs without having to jump through hoops.
Plus, with less competition in the animal health space, Zoetis' products have longer growth runways and aren't constantly battling generic copycats.
For context, Elanco (ELAN), Zoetis' pure-play competitor, only managed to bring in $4.4 billion in sales.
So, what's the bottom line here?
Zoetis is a best-in-breed play on the booming animal healthcare market, with a safe and growing dividend to boot. As this sell-off continues, Zoetis keeps climbing higher on my personal watch list. I'm ready to back up the truck and load up on shares come April when I put my March dividends to work.
If you're looking for a unique way to play the healthcare space with a company that's got plenty of bark and bite, Zoetis might just be the stock for you.
