Mad Hedge Biotech and Healthcare Letter
May 16, 2024
Fiat Lux
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Global Market Comments
November 16, 2023
Fiat Lux
SPECIAL STEM CELL ISSUE
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In the intricate world of medical breakthroughs, September 14, 1990, stands out like a sore thumb—or perhaps, a healing one.
On this day, the baseball world was left agog as Ken Griffey Jr. and Sr. knocked out back-to-back home runs, a feat as rare as hen’s teeth.
Meanwhile, in a quieter corner of the planet, a medical marvel was unfolding. Ashanti DeSilva, a 4-year-old with a genetic disorder ravaging her immune system, was about to become the poster child for gene therapy, receiving a groundbreaking treatment that involved a cocktail of modified white blood cells. The aim? To supercharge her immune system and give her a fighting chance at a normal life.
But let’s not sugarcoat it—the road from there to here was anything but a walk in the park. Gene therapy, the promising prodigy of the biotechnology and healthcare sector, had its fair share of teenage rebellion, grappling with safety concerns and delivery vehicle dilemmas. It wasn’t until the early 2010s when gene correction technologies got their act together and safer delivery systems stepped onto the scene, that gene therapy started living up to its potential.
Enter Sickle Cell Disease (SCD), the blood disorder that’s been playing hard to get, affecting around 70,000 Americans and causing everything from anemia to organ damage.
The cure seemed as elusive as a winning lottery ticket until exa-cel, the brainchild of CRISPR Therapeutics (CRSP) and Vertex Pharmaceuticals (VRTX), entered the scene.
This therapy, wielding the mighty CRISPR/Cas9 like a genetic scalpel, takes a patient's stem cells on a rollercoaster ride—harvesting, modifying, and infusing them back into the patient, with the end goal of producing healthy red blood cells.
Looking ahead, CRISPR Therapeutics and Vertex are gearing up for a potential launch of exa-cel in 2024, assuming all the stars align. This innovative gene therapy is poised to be a significant growth catalyst for both companies in the coming decade. Initially, the focus will be approximately 32,000 patients suffering from SCD and TDT.
However, investors need to brace themselves for the price tag, as gene editing therapies don't come cheap. The cost for exa-cel is anticipated to be well north of $1 million, reflecting the complexity and value of this cutting-edge treatment.
At this point, it's crucial to acknowledge that exa-cel is not the only player in this high-stakes game.
A variety of other gene therapies are also vying for the spotlight, with contenders like Bluebird Bio's (BLUE) lovo-cel, Beam Therapeutics' (BEAM) innovative base-edited candidates, and Editas Medicine's (EDIT) competitive CRISPR/Cas9 therapy all in the running.
Now, let’s talk turkey. The financial forecast for exa-cel is looking bright, with CRISPR Therapeutics poised to tap into a $48 billion market opportunity.
Although the treatment has yet to gain FDA approval, the company already has its ducks in a row. It set up 50 treatment centers in the US and 25 in Europe, as well as schmoozed with commercial payers to ensure exa-cel is as accessible as a cold beer on a hot day.
Still, let’s not put on our rose-colored glasses just yet. The biotech sector is as fickle as a cat on a hot tin roof, with CRISPR Therapeutics’ market cap doing the cha-cha in response to industry volatility. With a slew of gene therapies for SCD waiting in the wings, it’s a stark reminder that in biotech, it’s not enough to keep up—you’ve got to lead the pack.
Meanwhile, CRISPR Therapeutics is flexing its muscles with six other clinical trial programs targeting a spectrum of conditions from various cancers to type 1 diabetes, where it is ambitiously seeking a functional cure. With a robust $1.8 billion in cash, equivalents, and marketable securities as of the second quarter and a market capitalization of $3.2 billion, the company is in a strong financial position.
For the astute investors, the real gold is in playing the long game. Rather than getting caught up in the short-term ebbs and flows of the biotech market, the savvy should be pondering how to leverage the current market conditions to their advantage.
After all, CRISPR Therapeutics, with its pioneering gene-editing technology, has the potential to follow in the footsteps of biotech titans like Amgen (AMGN) and Regeneron Pharmaceuticals (REGN), both of which have turned early investments into veritable treasure troves.
Moreover, its financial stability, bolstered by its partnership with Vertex, ensures that funding woes common among smaller biotechs are less of a concern. While it may not be the largest or most prominent player in the biotech arena, the next decade could very well see CRISPR Therapeutics delivering returns that outpace the market. I suggest you buy the dip.
Global Market Comments
May 3, 2021
Fiat Lux
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It’s not unheard of in the biotechnology industry to watch the stock prices of small or even mid-cap drug developers rise and fall by 30% following trial results or new drug approval.
However, when the company is Eli Lilly (LLY), which holds a $179 billion market capitalization, then biotech investors need to pay attention.
After all, the only plausible conclusion to draw from this is that there have been some seismic advancements done by the company.
Two potentially breakthrough treatments are the culprit behind the volatility in Eli Lilly stock these days.
The first is Eli Lilly’s COVID-19 program, in which the company is looking into using Bamlanivimab (LY-CoV555) solo or combining it with Etesevimab (LY-CoV016).
What we know so far is that the combo drug can lower the risk of death and hospitalization among high-risk COVID-19 patients by as high as 87%.
In November 2020, the FDA granted Eli Lilly’s Bamlanivimab Emergency Use Authorization.
The solo treatment was also authorized for the same usage in Morocco, Europe, Canada, Rwanda, and some regions of the Middle East, where Eli Lilly is collaborating with the Bill and Melinda Gates Foundation for distribution.
Last February 2021, its combo treatment received the same approval.
To date, Eli Lilly has shipped roughly 1 million doses of Bamlanivimab and is committed to supplying an additional 1 million this quarter.
To meet the demand for the Bamlanivimab-Etesevimab combo, Eli Lilly will be working with pharmaceutical titan Amgen (AMGN).
In the company’s 2020 earnings report, Eli Lilly disclosed that Bamlanivimab accounted for $871 million of their sales.
For 2021, the market for COVID-19 treatments is valued at $27.25 billion.
Taking into consideration the competitors coming up with similar medications, such as Gilead Sciences (GILD), Regeneron (REGN), and Sanofi (SNY), the conservative estimate for the sales for Bamlanivimab alone is estimated to reach roughly $1 billion to $2 billion this year.
The second potential breakthrough that’s affecting Eli Lilly’s prices is its Alzheimer’s disease treatment, Donanemab.
Eli Lilly recently released positive data from the Phase 2 trial of Donanemab, with the treatment slowing down cognitive decline by 32% after 76 weeks.
In fact, a notable decline was already observed among the patients as early as 36 weeks.
This is an impressive result, and there’s talk that Eli Lilly’s plan of possible commercialization of Donanemab by 2024 could be fast-tracked to as early as the first half of 2023.
Interestingly, the positive news was met with negative reactions by the investors.
Eli Lilly fell by 9% following the Donanemab update, sending shares tumbling from $208.18 to $189.16.
This reaction effectively erased almost $20 billion in the company’s market value.
The negative reaction to Eli Lilly’s news may be stemming from the pending application of Biogen’s (BIIB) own Alzheimer’s drug, Aducanumab, which is expected to receive word from the FDA by June.
Investors anticipate that Aducanumab’s performance would be indicative of Donanemab’s future.
Looking at the trial results though, I can say that this shouldn’t be the case. Since the beginning, Donanemab has outperformed Aducanumab in practically every aspect.
Either way, what cannot be denied here is the market opportunity.
When the market thought that Aducanumab would get FDA approval in November 2020, the share price of Biogen saw a whopping 44% jump from $246 to $354 overnight.
Meanwhile, Donanemab’s potential sales volumes have been estimated to reach over $10 billion annually.
Other than Donanemab, Eli Lilly has been developing more contenders to boost its neuroscience division. Right now, this segment generates 6.3% of the company’s total revenues.
One of the promising drugs in the portfolio is migraine treatment Emgality, which recorded a 123% increase in sales last year to hit $362 million.
Thus far, Emgality holds at least 31% of the migraine market and still has room for growth and expansion.
This is a remarkable performance considering that its competitors include Amgen’s Aimovig and Teva’s (TEVA) Ajovy.
Another solid earner is antidepressant treatment Cymbalta, which generated over $768 million in sales last year, up by 5% year-on-year.
Outside its neuroscience efforts, one of Eli Lilly’s strongest growth drivers is its diabetes franchise.
This segment accounts for roughly 47% of its revenues and is led by Trulicity with $5 billion in sales last year, up 23% year-over-year.
Eli Lilly’s diabetes program has grown so much in the past years that it now aggressively competes against Novo Nordisk (NVO), a monopoly-like presence in this space.
In fact, Trulicity has been able to successfully protect its own market share against Novo’s heavily marketed Rybelsus, with data showing that users of Eli Lilly’s diabetes injectable recorded 60% adherence levels compared to Novo’s 43%.
In terms of expansion, Eli Lilly also won a new approval for Trulicity to be used to treat cardiovascular conditions as well.
This additional indication puts Trulicity’s peak sales at roughly $7.43 billion.
In an effort to corner the diabetes market, Eli Lilly also developed Tirzepatide.
Basically, this treatment is a long-term hedge against the pending loss of Trulicity’s patent exclusivity by 2027.
However, Tirzepatide is projected to surpass its predecessor in sales and reach double-digit billions.
Overall, Eli Lilly has positioned itself well in the diabetes market.
While it’s engaged in an aggressive battle for dominance against Novo Nordisk, there’s a lot of room for both.
The diabetes treatment segment is a continuously expanding market, with its value doubling in size from 2015 to 2015. Within this period, this market is projected to grow from $31 billion to $59 billion.
Aside from its diabetes and neuroscience programs, Eli Lilly has also been active in developing its immunology and oncology segments.
This is an ambitious plan, considering that practically all pharmaceutical companies are working on treatments in this space.
After all, the auto-immune market is massive as it’s worth well over $50 billion.
One of the bestsellers in Eli Lilly’s portfolio is plaque psoriasis treatment Taltz, which grew its sales by 31% year-over-year to reach $1.8 billion last year.
Some of the major competitors in this space are Bristol Myers Squibb (BMY) with Zeposia, Sanofi’s Dupixent, and AbbVie’s (ABBV) Skyrizi.
What could be promising news for Eli Lilly is the fact that AbbVie’s ultra-bestseller Humira is going off-patent by 2023.
This means that it could open up the market to allow both Taltz and Olumiant, another top-selling Eli Lilly treatment, to grab part of the lucrative market share.
Ultimately, Eli Lilly is a business that offers a promising commercialized portfolio and a remarkable near-term pipeline, which can reasonably support an annual revenue growth rate of roughly 10% even if we don’t factor in the effects of Donanemab.
Apart from the potential aftermath of the pending Biogen news, the fall in Eli Lilly’s shares could also be attributed to the extremely high expectation of investors.
Alzheimer’s has no approved cure, and there are only a handful of treatments developed from this neurological disease—none of which are even marginally effective.
It’s normal for investors to be wary of positive data results since they’ve been down this road before and are merely attempting to temper their excitement.
Amid the selloff, I believe that Donanemab is far from a lost cause. More importantly, I think the drop in Eli Lilly’s share price presents a rare buying opportunity for investors.
Therefore, I advise buying the dip.
Global Market Comments
August 4, 2020
Fiat Lux
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Global Market Comments
July 10, 2020
Fiat Lux
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Global Market Comments
July 8, 2020
Fiat Lux
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Credit where credit is due.
Tiny Moderna Inc (MRNA) has been at the forefront ever since this pandemic broke, with its vaccine program growing in leaps and bounds compared to competitors, like Novavax (NVAX), which has $3.02 billion in market capitalization, and Inovio (INO), which has $2.20 billion.
The latest report on Moderna’s progress pushes it much further ahead of its competitors.
Looking at its timeline, Moderna could have efficacy data on its COVID-19 vaccine, called mRNA-1273, by Thanksgiving.
Moderna’s vaccine, which is similar to the work of Pfizer’s German collaborator BioNTech (BNTX), utilizes a novel approach that inserts small doses of genetic instructions into the cells of humans.
These then trigger the production of harmless proteins, which mimic the SARS-CoV-2 virus. The proteins subsequently alert the body to produce antibodies, making the vaccine a proactive measure that protects people from infection by the actual virus.
Right now, Moderna is in the second stage of the trials. The final stage involving 30,000 people is expected to begin in July.
With the vaccine program well underway, Moderna secured manufacturing capabilities through a strategic collaboration with Swiss biotechnology company Lonza (LZAGF).
This partnership with a manufacturing site ensures that Moderna is on track to deliver approximately 500 million doses of the mRNA-1273 vaccine every year and could handle up to 1 billion doses annually starting from 2021.
With such massive competitors like Pfizer (PFE) and Johnson & Johnson (JNJ) but also other healthcare heavyweights, such as Regeneron (REGN), AstraZeneca (AZN), Eli Lilly (LLY), and Merck (MRK), the best-case scenario for Moderna is to launch its COVID-19 vaccine before its peers.
Considering the progress it has made so far and the 208% jump in Moderna’s shares this year, it looks like investors anticipate that the company can win the COVID-19 vaccine race and capitalize on its future cash-making machine.
After all, no other biotechnology stock has taken more advantage of this health crisis than Moderna. The company exploded from having the biggest IPO in biotechnology history to now being celebrated as the COVID-19 vaccine leader.
Moderna grew from being a biotechnology company worth roughly $4 billion to $5 billion to an impressive $25 billion frontrunner in a few months’ time.
This is especially impressive since Moderna commanded this kind of valuation without having any approved product in the market. In fact, this clinical stage biotechnology company is valued more than several companies with marketed treatments.
While it has no product in the market today, Moderna actually has a robust pipeline that boasts 22 mRNA candidates, with 12 of these already in clinical studies. The lineup includes potential vaccines for the Zika virus along with a promising oncology pipeline.
Prior to the COVID-19 pandemic, Moderna’s lead candidate was its cytomegalovirus (CMV) vaccine called mRNA-1647. CMV, which affects almost 80% of adults in the US alone, is caused by a virus related to those that cause chickenpox and mononucleosis.
Moderna expects the Phase 2 study analysis for mRNA-1647 to be completed by the third quarter of 2020, with Phase 3 set to start by early 2021.
The company is also working with fellow biotechnology companies on potential cancer vaccines.
So far, Moderna has been focusing on two candidates which are also currently undergoing Phase 2 testing.
The first candidate is called mRNA-4157, which is a personalized cancer vaccine developed for melanoma patients.
Moderna is evaluating the combination of this vaccine with Merck’s top-selling cancer treatment Keytruda. This could turn out to be a potent combination considering Keytruda’s track record.
The second candidate is a collaboration with AstraZeneca. The latter licensed the rights to one of Moderna’s heart disease drug candidate called AZD8601. If successful, this drug will be marketed to patients in need of coronary artery bypass grafting (CABG) surgery.
Riding the momentum of its COVID-19 vaccine program, Moderna conducted a secondary stock offering last May. With $1.34 billion in gross proceeds from that sale alone, the company ensured that it’s well-capitalized to fund its development programs.
While its $25 billion market capitalization is pennies compared to fellow COVID-19 vaccine leaders JNJ and Pfizer, the smaller biotechnology company is definitely giving these behemoths a run for their money.
