Mad Hedge Biotech and Healthcare Letter
June 11, 2024
Fiat Lux
Featured Trade:
(THE CAPITAL CURE)
(ABBV), (MRK), (PFE), (RHHBY), (JNJ), (AZN), (GSK), (MRNA), (BNTX), (CRSP), (NTLA), (BEAM), (TPTX), (ZNTL), (MRTX), (BPMC), (MGNX), (TYRA), (SPRT), (VRTX), (FOLD), (RARE), (CRBU)
Imagine you're the CEO of a major pharmaceutical company. You've got blockbuster drugs that are raking in billions, a cushy corner office, and a corporate jet at your disposal. Life is good.
But then, you look at the calendar and realize that your patents are about to expire. Suddenly, that jet feels more like a crop duster, and your corner office starts to feel like a broom closet.
That's the reality facing Big Pharma right now. These pharma big shots are sweating bullets over losing their golden geese like AbbVie's (ABBV) Humira and Merck's (MRK) Keytruda.
That’s roughly $300 billion in products about to get kicked to the curb.
But these guys didn't get to the top by sitting on their hands. They've got a war chest of $1 trillion, and they're not afraid to use it.
Major pharmaceutical giants like Pfizer (PFE), Roche (RHHBY), Johnson & Johnson (JNJ), AstraZeneca (AZN), and GlaxoSmithKline (GSK) are about to go on the mother of all shopping sprees.
Why the rush? Because they're staring down the barrel of a patent cliff that's going to make the Grand Canyon look like a pothole.
We're talking $198 billion worth of branded drugs going off the patent cliff between 2021 and 2025. That's a gut-wrenching 56% jump from the last five years.
But don't think for a second that they're just going to sit back and watch their profits go up in smoke. No sir, they're on the hunt for the next big thing, and they've got their sights set on some juicy targets – and biotech is at the top of their list.
Leading the biotech charge are mRNA pioneers Moderna (MRNA) and BioNTech (BNTX), each sitting on a gold mine of potential blockbusters taking on everything from flu to cancer vaccines.
Underdogs like CRISPR (CRSP) biotech stars Intellia (NTLA) and Beam Therapeutics (BEAM) are also squarely in Big Pharma's acquisition crosshairs for their cutting-edge work in genetic disease treatments.
But beyond the headliners, don't overlook the sleeper hits that could catalyze the next big boom.
Oncology, in particular, is a prime hunting ground, accounting for 37% of pharma M&A deal value in 2023 as the $392 billion global cancer drug market continues to boom.
Companies like Turning Point Therapeutics (TPTX) and Zentalis Pharmaceuticals (ZNTL), with their promising targeted therapies for various solid tumors, are particularly attractive prospects.
Mirati Therapeutics (MRTX), focused on KRAS inhibitors, and Blueprint Medicines (BPMC), specializing in precision therapies, have also caught the eye of big pharma with their innovative approaches.
Additionally, companies with late-stage assets like MacroGenics (MGNX), Mereo BioPharma (MREO), and Tyra Biosciences (TYRA) could offer promising near-term revenue opportunities for acquiring companies looking to bolster their oncology portfolios.
Close behind are rare disease treatments, snagging 16% of new drug approvals and 9 of the top 100 deals last year in this $262 billion market ripe for more growth.
This lucrative sector has captivated pharma giants, who see potential in companies like Sarepta Therapeutics (SRPT) and Vertex Pharmaceuticals (VRTX), leaders in rare disease therapies with strong financial performance and consistent growth.
Aside from these, smaller biotechs like Amicus Therapeutics (FOLD) and Ultragenyx Pharmaceutical (RARE), focused on developing innovative therapies for a range of rare diseases, are attracting attention for their potential to address unmet medical needs and deliver substantial returns on investment.
But the real wild card everyone wants a piece of is cell and gene therapies. This medical Wild West is projected to explode to $66.8 billion by 2030, with the FDA already greenlighting 6 cutting-edge therapies like next-gen CAR-T treatments from Caribou Biosciences (CRBU) in 2023 alone.
Notably, the buying frenzy is very much already underway. In fact, 2023 saw the biggest biotech M&A spree in a decade, with a staggering $122.2 billion changing hands as the FDA approved 50% more new therapies.
Pharma mega-mergers also hit $135.5 billion as firms raced to reload pipelines.
Interestingly, these deals are only the tip of the iceberg. As Wall Street predicts, with record-smashing deals, sky-high demand, and new approvals surging, "biotech's got plenty of reasons to be cautiously optimistic."
Especially if interest rates finally cooperate, throwing gasoline on the M&A bonfire and making biotech the belle of the ball as soon as late 2024.
So keep your eyes peeled and your powder dry. I suggest you add these innovative biotech names to your watchlist, and you might just discover the next blockbuster drug or breakthrough therapy that could reshape medicine – and deliver explosive returns in the process.
Mad Hedge Biotech & Healthcare Letter
September 9, 2021
Fiat Lux
FEATURED TRADE:
(A STOCK FOR BARGAIN HUNTERS)
(SRPT), (MRNA), (BNTX), (FGEN), (ACAD), (RARE), (BLUE), (CRSP), (PFE)
Biotechnology stocks that have fallen by over half since 2021 started are strewn around in the market.
While the share prices of COVID-19 stocks, such as Moderna (MRNA) and BioNTech (BNTX), have skyrocketed, the others in the sector are not as fortunate.
The biotechnology segment has been filled with relative horror stories from previous favorites like FibroGen (FGEN), Acadia Pharmaceuticals (ACAD), and Ultragenyx Pharmaceutical (RARE).
Among the companies hit with disappointing news, the gene therapy sector, which has stocks like bluebird bio (BLUE) and CRISPR Therapeutics (CRSP), appears to be having a tougher time than most.
So, where does this situation leave investors? Where should we look for value?
One tactic that would help value investors take advantage of this abysmal situation is studying Wall Street analysts' moves.
Look at target prices they set for the stocks they cover and then choose the companies trading the farthest below the expected price points.
Among the biotechnology stocks struggling these days, one of the names that emerged as a truly promising investment is Sarepta Therapeutics (SRPT).
To say that Sarepta has been experiencing a disappointing year is an understatement. Shares of this company have gone on a 57% heart-stopping plunge since 2021 started.
In fact, this biotech’s nosedive is the third-worst in the midcap or larger stock sector based on the two key exchange-traded funds: iShares Biotechnology ETF (IBB) and SPDR S&P Biotech ETF (XBI).
Despite Sarepta’s abysmal performance, Wall Street still labels the stock a buy.
Sarepta’s decline started in early January when the trial results for its gene therapy for Duchenne muscular dystrophy (DMD) failed to impress investors.
However, the subsequent trial for the same gene therapy, dubbed as SRP-9001, is anticipated to yield better results.
Although the results are expected to be released by late 2022 or early 2023, holding the stock for now is estimated to deliver remarkable profits for patient investors.
At this point, Sarepta stock is trading at roughly $80 per share.
However, experts predict that the next results for SRP-9001 would push the shares to climb to over $200.
DMD, which is a rare degenerative condition characterized by gradual weakening of the muscles, affects about 16,840 people in the US.
So far, the US FDA has only approved a handful of treatments for DMD—three of which are RNA-based drugs developed by Sarepta.
Evidently, the company has a firm grasp of the condition and a proven track record of launching and marketing DMD-centered products.
More importantly, this makes Sarepta a dominant—if not the most dominant—force in the DMD market.
What makes their newest treatment, SRP-9001, different is that it works on DNA. Despite the extended timeline, Sarepta’s candidate remains the frontrunner in this endeavor.
Its closest threat is PF-06939926, an investigational drug from Pfizer (PFE) that uses the same technology as SRP-9001.
At the very least, this competitor is two years away from producing any tangible result.
By the time Pfizer reaches Phase 3, Sarepta’s SRP-9001 has already generated roughly $1 billion in sales.
Apart from the three approved drugs, Sarepta still has 34 drug development programs focused on two niches: RNA and AVV gene therapies. Among them, 7 are already in the clinical stage, including SRP-9001.
If successful, the company will reach $1 billion in revenues by 2023.
Another reason that makes Sarepta an attractive opportunity is its notably intact cash flow backbone—an achievement that’s worth pointing out considering its underwhelming SRP-9001 results.
The company also has an impressive history.
Sarepta has blossomed from its humble beginnings working as a contractor for the Department of Defense on the Ebola virus. Since then, it has developed its pipeline through acquisitions and launching effective treatments for rare diseases.
While Sarepta’s treatments are effective, they cannot cure DMD. They can only slow its progression.
This means continuous and life-long use among patients. For context, one treatment costs an average of $300,000 per patient annually.
Although it lost over 50% of its value, Sarepta still has enough capacity to rebound soon.
The factors that would help the company achieve this include the strong lineup of products generating solid and predictable revenues as well as its promising pipeline.
More importantly, its struggles with SRP-9001 don’t seem enough for the company to scrap the project altogether.
If anything, it proved that Sarepta can explore more potent treatments for DMD by looking into RNA technology—a path that the likes of Moderna and BioNTech have already found success in.
Overall, I think Sarepta still has a lot left in the tank. It operates in one of the most exciting sectors.
It’s worth bearing in mind that the biotech sector is ripe with innovation from companies with the ability to conjure up life-changing treatments—a value perceived as a crucial hallmark for massive gains.
Needless to say, Sarepta’s achievements in the DMD sector and its growth trajectory make it a shoo-in in this category.
