Mad Hedge Biotech and Healthcare Letter
December 12, 2023
Fiat Lux
Featured Trade:
(A REBOUNDING BLUE CHIP)
(PFE), (LLY), (NVO), (RHHBY), (AZN), (SGEN), (VKTX), (TERN), (GPCR), (ALT)
Posts
In the maelstrom of 2023, Pfizer (PFE) found itself navigating through a tempest, much to the dismay of shareholders. The aftermath? A harrowing -40% total return loss, leaving shareholders reeling.
This downturn followed Pfizer's COVID-19 vaccine triumph, a success story that lost its sheen as global government demand for the vaccine and Paxlovid antiviral dwindled.
Looking back, Pfizer's narrative in 2023 could rival a Shakespearean tragedy. The demand dip for its COVID arsenal was just the beginning; a cascade of other factors compounded the company's misfortunes.
Take, for instance, the controversial $43 billion acquisition of Seagen (SGEN) in March. While this move aimed for cancer treatment breakthroughs, it was widely seen as a Hail Mary, signaling gaps in Pfizer's drug pipeline.
I estimate this strategy might have slashed shareholder value by at least 10%, given the immediate financial aftermath of the merger.
Then, adding to the woes, Pfizer's Nash County production facility in North Carolina faced devastation by a tornado in July.
It seemed as though, for Pfizer in 2023, trouble came not just in droves but in torrents.
The final blow? The discontinuation of the twice-daily dose development for Danuglipron, Pfizer's weight-loss drug candidate.
This decision casts a shadow over the prospects of its once-a-day dosage, still in trials, and simultaneously cracks open the door for other biotech players in the oral weight-loss drug arena.
Meanwhile, the company also aimed to join the race for obesity treatment innovation. In this arena, injectable weight-loss drugs from Eli Lilly (LLY) and Novo Nordisk (NVO) have set the stage, and now, the demand for oral solutions is burgeoning.
Pfizer once pegged this market's potential at an eye-watering $90 billion a year — a target that has not gone unnoticed by keen biotechs.
Yet, with Pfizer stepping back from its Danuglipron project due to adverse side effects, it finds itself trailing in this race. In comparison, Lilly and Novo are forging ahead with their products, turning Pfizer's stumble into a potential windfall for other biotech firms.
Notably, the biotech sector is witnessing a flurry of activity in response to Pfizer’s failed attempt.
Firms like Viking Therapeutics (VKTX), Terns Pharmaceuticals (TERN), Structure Therapeutics (GPCR), and Altimmune (ALT) have seen their share prices soar following their own positive trial results or strategic announcements.
The diverse approaches these biotechs are employing in their anti-obesity drug development have piqued investors’ interest.
In effect, speculation is rife about which one might emerge as a desirable acquisition target for Pfizer — and this speculation isn't without basis.
I previously shared that Roche Holding (RHHBY) recently acquired Carmot Therapeutics for $2.7 billion, and AstraZeneca (AZN) entered a licensing agreement with Eccogene.
With a history of significant acquisitions, Pfizer might well consider a similar path to address its challenges in the weight-loss pill sector.
Pfizer's journey through 2023 was a series of unfortunate events, to say the least. As we look to the future, questions about potential challenges in 2024 loom.
While major acquisitions seem unlikely in the wake of the Seagen deal, shareholder sentiment is fragile. The immediate risks for Pfizer include the possibility of a 2024 recession impacting sales and a generally bearish stock market, potentially keeping share prices around the $30 mark.
Historically, however, Pfizer has stood as a bastion of strength during recessions and bear markets.
Looking longer term, the specter of Medicare drug price negotiations looms large, threatening to dampen growth investor sentiment.
This challenge isn't unique to Pfizer; it's a cloud hovering over all of Big Pharma.
Yet, despite these formidable challenges, there's a sense that Pfizer's tumultuous 2023 journey might be approaching a pivotal turning point. Investor sentiment is at a nadir, marred by negative press and shareholder dissatisfaction, painting Pfizer as a stock currently out of favor.
As we look ahead into 2024, a cautious optimism emerges. Should Pfizer return to operational normalcy and continue to reduce its reliance on COVID-related sales — now a smaller part of its business — the company could reassert itself as a prime value and dividend player in the Big Pharma space.
For the resilient investor willing to delve into a bruised yet potentially rebounding blue-chip, Pfizer merits a closer examination. After a year where Murphy's Law seemed the only law, Pfizer stands as a beacon of resilience and a potential phoenix in the biotech and healthcare sector.
Mad Hedge Biotech and Healthcare Letter
November 30, 2023
Fiat Lux
Featured Trade:
(A SLEEPER HIT IN THE BIOPHARMA WORLD)
(PFE), (LLY), (VTRS), (BNTX), (SEGN)
Eli Lilly's (LLY) recent strides in the weight-loss treatment market have made headlines, especially with Mounjaro, their diabetes drug doubling as a weight-loss medication. The real buzz began when Zepbound, another of Lilly’s offerings, got the green light for weight management.
These developments have propelled Lilly into a potentially profitable orbit, but let's not get carried away just yet. While this company’s stock has been climbing the ladder, partly priced in with the latest news, it's worth casting a wider net.
In the world of pharmaceuticals, opportunities abound, and sometimes the best catches are not the shiniest. Enter Pfizer (PFE), a familiar name that’s been a bit under the weather, stock-wise.
Pfizer's shares have taken a 40% hit this year, a response to the waning demand for their COVID-19 vaccine and treatment.
But let's not forget that we're shifting gears to a post-pandemic era, and such shifts in demand are part of the course. Add to this the impending loss of exclusivity on some of their key products, and you've got a recipe for some financial heartburn.
In 2023, Pfizer’s performance didn’t quite match up to the market, a stark contrast to its 2021 and 2022 glory days, driven by its COVID-19 portfolio. However, looking at Pfizer through the narrow lens of recent performance alone is like judging a book by its last chapter.
Let's rewind a bit. Pfizer took some bold steps in recent years, steps that have shaped its current narrative.
The big move was shedding its consumer health and off-patent drug business, Upjohn, which led to the creation of Viatris (VTRS). The goal? To sharpen focus on innovative pharmaceuticals.
Then came the historic collaboration with BioNTech (BNTX) on a COVID-19 vaccine, marking the first U.S. authorization for an mRNA-based vaccine and bringing in substantial revenue in 2021 and 2022.
Fast forward to 2023, and Pfizer's investment fruits are beginning to ripen. This year alone, it has launched seven new products, from Litfulo for alopecia areata to the RSV vaccine Abrysvo.
Pfizer's non-COVID revenue forecast is promising, projecting up to $84 billion by 2023.
But the plot thickens. Pfizer recently announced a $43 billion acquisition of Seagen (SEGN), an oncology-focused biotech. This isn’t just a new chapter for Pfizer; it’s a whole new book, potentially leading to groundbreaking developments in cancer treatment.
With these in mind, it’s reasonable to believe that Pfizer’s current stock-market blues are but a temporary cloud.
With 83 candidates in development and a robust pipeline, partly fueled by its COVID-19 success, a rebound is on the horizon.
The dividend yield, sitting pretty at 5.5%, along with a decade-long streak of increasing payouts, adds to Pfizer's charm as a long-term investment.
So, investors should see Pfizer’s current price not as a red flag but as a golden ticket – an opportunity to get in on the ground floor before the elevator goes up. Its revenue forecast doesn’t even include its COVID-19 products, which could continue to generate significant revenue, especially during flu season.
Now, back to Eli Lilly. Yes, its revenue has seen double-digit growth recently, and it has been facing the same headwinds as Pfizer. It’s important to note, though, that its valuation makes sense in the context of its current earnings and potential growth. That makes it difficult to truly make a fair comparison at this point.
But, if we're talking opportunity, Pfizer is the one that's looking like a hidden gem. To put it simply, it's all about opportunity cost.
Pfizer, at present, is the underdog with untapped potential. Investing in Pfizer now could mean reaping substantial rewards down the line.
I’m talking about a company with a proven track record, a solid pipeline, and a knack for innovation. And for its current valuation, Pfizer is a deal that's hard to pass up.
For investors willing to play the long game, this could be the moment to seize an opportunity that could pay dividends in the future.
Mad Hedge Biotech and Healthcare Letter
November 21, 2023
Fiat Lux
Featured Trade:
(A PRESCRIPTION FOR CAUTION)
(VTRS), (PFE), (JNJ), (LLY), (BMY), (TEVA), (ABBV), (CVS)
In the rollercoaster world of pharmaceutical stocks, 2023 has been like riding the Cyclone at Coney Island – thrilling for some, nauseating for others.
Take Pfizer (PFE), for instance. It’s seen its stock take a nosedive by 43.4%. That’s the kind of drop that makes you check if your wallet’s still there. Then there’s Johnson & Johnson (JNJ), trailing behind with a 16.4% decline. Not as dramatic, but still enough to make your stomach lurch.
Meanwhile, there’s Eli Lilly (LLY), playing the hero as it rockets up by an extraordinary 66.8%, thanks to its new weight-loss drugs. At this point, investors are practically throwing ticker-tape parades.
However, even with Eli Lilly’s star performance, the S&P 500 Pharmaceuticals index still shows a downturn of 2.3%.
Now, as we've seen earnings reports trickle in, a trend has started to stick out: positive results aren’t shielding drugmakers from a sell-off. Look at Pfizer and Bristol Myers Squibb (BMY), both hovering near their 52-week lows.
Still, investors are giving the biotechnology and healthcare stocks the side-eye for several reasons.
The new Medicare drug-price negotiation program is like a strict parent setting a curfew – it’s potentially restricting pricing power for certain medications. Plus, as interest rates climb, the allure of high dividend yields is diminishing faster than my motivation to hit the gym.
In this skeptical market, however, there are some optimistic investors who are digging through the bargain bin, hoping to strike gold.
Enter Viatris (VTRS), trading at just 3.3 times earnings and boasting a 5.1% dividend yield. It sounds promising, but only a few brave souls are recommending a buy.
Basically, this situation with Viatris is pretty much like finding a designer shirt at a discount store – sure, it’s cheap, but will it fall apart after two washes? Let’s take a closer look.
Viatris’s backstory is a bit of a soap opera. Born from the merger of Mylan and Pfizer's Upjohn unit, it carries the baggage of Mylan's EpiPen pricing scandal.
Since rebranding, Viatris has been trying to find its footing. Despite a shiny new business plan, which involves selling off assets for a potential $9 billion, investor confidence remains shaky at best.
Notably, its decision to exit the biosimilars market, where heavy hitters like Teva Pharmaceutical Industries (TEVA) and AbbVie (ABBV) play ball, has been seen as a bold move. Considering the potential of that market, it felt like leaving a high-stakes poker game just when the chips were starting to stack up. And with CVS Health (CVS) eyeing this lucrative space, Viatris might find itself wishing it had stayed at the table.
These past months, investors have been capturing this drama through a meme – comparing 'adjusted Ebitda' to 'free cash flow' with images of Jennifer Aniston and Iggy Pop. It’s a cheeky way of saying that Viatris’s financial projections might be wearing rose-colored glasses.
Looking ahead, Viatris is aiming for $2.3 billion in free cash flow next year, buoyed by recent sales. But the big question is: can it turn these assets into growth, or will it continue its high-wire act?
Reviewing its recent moves and their effects on the market, the Viatris saga has turned into a cautionary tale for investors in the pharma world – it’s a reminder that sometimes the threat of a nosedive is as real as the thrill of a skyrocket.
So, what’s the takeaway for those of us with skin in the game?
It seems wise to keep our eyes peeled and not jump on any bandwagons too hastily. Viatris, amidst its strategic transformations and market challenges, is worth watching with a careful eye. While its cash flow looks steady through 2027, thanks to planned asset sales, the long-term picture is as clear as mud.
As we navigate the unpredictable waves of the pharmaceutical market this year, let’s remember – it’s not just about holding on for the ride. It’s about knowing when to get on, when to get off, and maybe, just maybe, when to enjoy the view from the sidelines with some popcorn in hand. I say hold off from buying Viatris shares at the moment.
Mad Hedge Biotech and Healthcare Letter
October 31, 2023
Fiat Lux
Featured Trade:
(A SEA OF POSSIBILITIES)
(PFE), (MRNA), (NVAX)
In the cutthroat world of pharmaceuticals, Pfizer (PFE) seems to be having a bit of a moment. And not the kind you'd want to experience yourself. With shares flirting dangerously close to their 52-week low, investors are left scratching their heads. Is this a rare stock market sale, or is Pfizer showing us warning signs?
Pfizer, a leader in the biotechnology and healthcare world, is currently wrestling with the whims of COVID-19 product sales, resulting in a not-so-insignificant 40.7% shrinkage in share value year to date. The Big Apple-based giant is feeling the heat, with revenues taking a hit and the company's crystal ball now showing a less rosy sales and profit forecast for 2023.
But let's not get lost in the sea of stock market blues. After all, Pfizer is no one-trick pony.
The company has actually been busy beefing up its portfolio with some promising assets. I’m talking Oxbryta for sickle cell disease and Nurtec ODT for those pesky migraine headaches. And let's not forget the potential show-stoppers in their pipeline: the respiratory syncytial virus vaccine Abrysvo and the mid-stage weight loss/diabetes drug Danuglipron. These could very well be the next big things in pharma.
Still, the numbers don't lie. Pfizer's second quarter showed a 54% year-over-year drop in revenue to $12.7 billion, and earnings per share took a 77% hit, plummeting to $0.41. And yes, there's the looming patent cliff, threatening to push 11 of its drugs, including heavy hitters like Eliquis, Ibrance, and Xeljanz, off the financial ledge by 2030.
But before you jump ship, consider this: Pfizer's not just sitting around waiting for the other shoe to drop. Aside from its potential blockbusters, it has a pipeline bursting at the seams with 90 programs, 23 of which are in the final stage of trials. And it’s planning to launch a whopping 19 new products in the next year and a half. Not too shabby, right?
Now, let's talk about FDA approvals. Pfizer's been collecting them like a kid collects baseball cards. Just recently, it added Velsipity for ulcerative colitis and a combination therapy for non-small-cell lung cancer to their collection. It's clear Pfizer is not just resting on its laurels.
In the vaccine arena, Pfizer, in collaboration with BioNTech (BNTX), is making waves with their combination vaccine trials. And they're not just dipping their toes in the water; they're diving in headfirst, ready to take on competitors like Moderna (MRNA) and Novavax (NVAX). It's another vaccine race, and Pfizer is in it to win it — again.
Then there's the $43 billion cherry on top: the acquisition of Seagen (SGEN). This move will inject some serious oncology magic into Pfizer's portfolio and contribute a hefty chunk of change to their revenue stream in the coming years.
Then, there’s the company’s dividend. Pfizer's not stingy when it comes to sharing the wealth. It has upped its quarterly dividend to $0.41 per share, marking 14 years of consecutive increases.
So, what's the verdict? Is Pfizer a sinking ship or a stock market treasure waiting to be discovered? The short-term might be a bit rocky, but Pfizer's long-term game looks strong. With a diversified portfolio, a robust pipeline, and a commitment to innovation, Pfizer is poised to ride out the storm and come out on top.
While the waters might be turbulent now, Pfizer's got the goods to navigate through and come out stronger on the other side. For the savvy investor with an eye on the future and a stomach for a bit of volatility, this pharma leader just might be the hidden gem you've been searching for. So, grab your financial compass and set your sights on Pfizer. It's time to dive in and discover the treasure that awaits.
Mad Hedge Biotech and Healthcare Letter
October 24, 2023
Fiat Lux
Featured Trade:
(INNOVATION OVER EXPIRATION)
(ABBV), (ALPMY), (PFE), (BAX)
In the current investment landscape, with the nearly 5% annualized yield from the 10-year U.S. Treasury bond casting a formidable shadow, making a case for investing in stocks might seem like an uphill battle. Especially so when one considers the sluggish performance of several stocks over the past two years, excluding those in niches like artificial intelligence and weight loss.
Yet, history teaches us a vital lesson: high-quality dividend stocks, especially in the biotech sector, tend to outpace most other asset classes in the long run. While the broader market has seen fluctuations and shifts towards safer options like CDs, dividend magnates in the biotech space, like AbbVie (ABBV), command attention for value and income investors.
Ever since its spin-off from Abbott Laboratories in 2013, AbbVie has carved a niche for itself. The sheer numbers are a testament to this: an eye-catching 270% growth in its dividend payouts over the last decade.
This performance positions it with a current yield of 3.99%, making it one of the most attractive propositions within the biopharma dividend landscape.
Further sweetening the pot is its moderate cash payout ratio of 42%, indicating a strong potential for more generous dividend increases in the foreseeable future.
Still, as with any investment, it's paramount to factor in the challenges ahead. AbbVie's journey with Humira, the anti-inflammatory drug, serves as a case in point.
Commanding a price tag of $50,000 annually, Humira wasn't just another drug in the market; it was a pharmaceutical marvel that earned the accolade of being the highest-grossing drug in history. But the winds of change are inevitable.
AbbVie's U.S. patent protection for Humira has expired, signaling an era where the company has to look beyond this blockbuster drug for its revenue streams.
The spotlight now is on Skyrizi and Rinvoq, AbbVie's next-gen immunology therapies. These drugs have shown commendable performance since their introduction to the market. However, the looming question is whether they can step into Humira's colossal shoes.
While some analysts remain skeptical about Skyrizi and Rinvoq matching up to Humira's performance benchmarks before 2030, AbbVie's internal projections are more bullish, eyeing a turnaround by 2025.
But amidst these contrasting forecasts, there's a silver lining that both skeptics and optimists agree upon: buoyed by its robust cash flows, AbbVie is expected to sustain, if not enhance, its dividends for at least the next decade.
Pivoting slightly and shining a light on its innovative pursuits, AbbVie unveiled promising results for Rinvoq in a mid-stage trial for vitiligo treatment.
For the uninitiated, vitiligo is a condition where individuals experience a loss of skin pigment, affecting varied parts of the body. The potential market for vitiligo treatments is substantial, with current valuations at $410.5 million, projected to burgeon to $625.8 million by 2031.
The increasing number of vitiligo cases globally plays a significant role in this growth trajectory. To put things in perspective, the Global Vitiligo Foundation in 2021 estimated that nearly 70 million people worldwide are affected by this condition, with a sizable fraction being children.
Navigating this emerging and competitive landscape is no small feat. Powerhouses like Astellas Pharma (ALPMY), Pfizer (PFE), and Baxter (BAX) are just a few of the giants that dot this arena. Every move by AbbVie, especially its endeavors with Rinvoq, is more than just corporate strategy; it's a tango in a fiercely competitive ballroom.
Now, coming full circle to the heart of the matter: What does this all mean for an investor with a keen eye on biotech dividends? AbbVie's journey is both a testament to its past prowess and an indicative nod to its future trajectory. While Humira's glory days might be seeing a horizon, the dawn of Skyrizi and Rinvoq offers a fresh chapter filled with both risks and rewards.
For those already holding AbbVie stocks, the prudent strategy might be a blend of patience and perseverance, enjoying the dividends while staying attuned to the market's pulse. Investments, after all, are as much about the art of patience as they are about the science of numbers. Today's challenges could well be the stepping stones to tomorrow's successes. I suggest you wait for a better entry point and buy the dip.
