Mad Hedge Biotech and Healthcare Letter
February 25, 2025
Fiat Lux
Featured Trade:
(WALL STREET'S MYOPIA IS YOUR OPPORTUNITY)
(REGN), (RHHBY), (AMGN), (AZN), (ABBV), (LLY)
Posts
While preparing my presentation for this week's Online Traders Conference, I came across a pattern that made me stop cold. You see, I've been gathering examples of how institutional investors quietly accumulate positions while retail traders are looking the other way.
And there it was, right in front of me - Regeneron Pharmaceuticals (REGN), displaying exactly the kind of setup I'll be warning traders about starting February 24.
You see, while everyone's been obsessing over the latest AI darlings, Regeneron has been quietly crushing it. Their Q4 revenue hit $3.79 billion, up 10.5% year-on-year.
But here's where it gets interesting - they beat consensus estimates by $43 million, and that's with their flagship eye drug Eylea taking a hit.
Speaking of Eylea, let's address the elephant in the room. Its sales dropped 11% to $1.19 billion, thanks to Roche's (RHHBY) Vabysmo muscling into their territory and Amgen's (AMGN) biosimilar crashing the party.
Four more biosimilars are waiting in the wings, held back only by patent disputes. Normally, this would send investors running for the hills.
But here's what the panic-sellers are missing.
Despite Eylea's challenges, Regeneron's non-GAAP EPS still climbed to $12.07, beating analyst expectations by 88 cents.
In fact, they've been playing jump rope with analyst estimates, leaping over them in 10 of the last 12 quarters. Yet their stock price has been doing its best impression of a sleeping cat - just lying there, barely moving.
As someone who's spent decades watching market cycles, I recognize this pattern.
We're in what technical analysts call an “accumulation phase.” While retail investors yawn and look elsewhere, institutional money is quietly building positions.
It's like watching a spring being compressed - boring until it isn't.
But here's what really got my attention: Regeneron just joined the dividend club. Starting March 20, they're paying $0.88 per quarter. Sure, the yield won't make income investors swoon, but that's not the point.
It reminds me of how AstraZeneca (AZN) played it - first, dominate growing markets, then gradually turn on the dividend spigot to attract the steady-money crowd.
They're also backing up the dividend with a $3 billion share buyback program.
With $9 billion in cash and short-term investments, they've got more dry powder than a Revolutionary War armory.
In Q4 alone, Regeneron spent $1.23 billion buying back shares - up 64.1% from last year.
And here's where it gets even more interesting. Their oncology franchise, led by Libtayo, is looking like a dark horse winner. Libtayo sales jumped 50.4% year-over-year to $367 million.
While that might not sound earth-shattering compared to cancer drug heavyweights like Merck's (MRK) Keytruda, Libtayo just pulled off something remarkable.
In their Phase 3 C-POST trial for high-risk skin cancer patients, Libtayo reduced death and disease recurrence risk by 68% compared to placebo.
Even better? Merck's competing trial for Keytruda in the same indication fell flat on its face. In this business, that's like watching your main competitor trip at the Olympic finals.
Looking ahead to 2029, I'm seeing revenue hitting $20.4 billion - think high single-digit growth each year. That would bring their price-to-sales ratio down from 5.12x to 3.53x.
Their non-GAAP EPS should hit $76.5, implying double-digit growth most years. With the stock currently trading at just 14.76x earnings - below most peers like AbbVie (19.06x) and Eli Lilly (64.96x).
On top of these, 2025 is packed with potential catalysts - clinical trial results and FDA decisions that could light a fire under the stock.
Analysts' average target is $929.37, suggesting about 38% upside. But in my experience, when you combine strong fundamentals, multiple growth drivers, and a market that's sleeping on the story, those targets often end up looking conservative.
Remember, the market loves nothing more than a comeback story.
With Regeneron, we might just be watching one unfold in slow motion. The question is: will you be holding shares when the spring finally releases?
For those who want to learn more about spotting these kinds of opportunities, I'll be diving deeper into institutional accumulation patterns at the Online Traders Conference running February 24 through March 1.
But don't wait for my presentation to take a serious look at Regeneron - the smart money isn't.
Mad Hedge Biotech and Healthcare Letter
January 16, 2025
Fiat Lux
Featured Trade:
(THE EYES HAVE IT)
(REGN), (SNY), (PFE), (BMY)
Last week, while waiting for my annual eye exam, I couldn't help but notice the parade of elderly patients shuffling in for their regular Eylea injections. My optometrist tells me these folks show up like clockwork every 4-8 weeks, rain or shine.
That's about to change, and therein lies a multibillion-dollar story.
You see, when Regeneron reported Q3 earnings on Halloween, boy, they sure had some treats for investors. Revenue hit $3.72 billion, up 11% YoY, with EPS coming in at a sweet $11.54.
But here's what really caught my attention: their cost of revenue was $1.762 billion, while R&D and SG&A expenses ran $1.271 billion and $714.4 million respectively.
Net income? A cool $1.34 billion. Not too shabby for a company whose main product is under siege from copycats.
Speaking of copycats, let's talk about Eylea. The original formula saw revenues drop 21% YoY to $1.145 billion – that's what happens when biosimilars crash your party.
This is where it gets interesting though: Eylea HD (think of it as Eylea's muscled-up big brother) jumped from a mere $43 million to $392 million YoY.
Sure, about $40 million of that came from wholesalers stocking up like it's Black Friday at Costco, but still – that's what I call a growth story.
I've been watching Regeneron since they were just a gleam in Wall Street's eye, and they've always had a knack for turning scientific breakthroughs into cold, hard cash.
Take Dupixent, their inflammation blockbuster co-developed with Sanofi (SNY). It just got FDA approval for COPD with an eosinophilic phenotype.
Why does this matter? Because we're talking about a $6 billion market opportunity here, folks.
About 36% of COPD patients have this particular flavor of the disease and trust me, there are more of them than you'd think still wheezing away on their old inhalers.
Want to know what else is cooking in their labs? They're working on antibodies that could make blood clots a thing of the past – think better than Eliquis, which pulls in $10 billion annually for Pfizer (PFE) and Bristol Myers Squibb (BMY). Their secret? Something called Factor XI, which could be a game-changer for the 1 in 5 patients at high risk for bleeding.
And because no self-respecting biotech can resist the siren call of the obesity market, they're also cooking up their own weight loss cocktail. Results won't drop until late 2025, but if they crack the code on keeping weight off AFTER stopping treatment, they'll have something Wegovy and Zepbound can't match.
The financials are rock solid, too: $2.012 billion in cash, $7.785 billion in marketable securities, and current assets of $19.334 billion versus current liabilities of just $3.661 billion.
They've generated $3.158 billion from operations in the first nine months of 2024 alone.
Yes, there's $1.984 billion in long-term debt, but with cash flow like that, it's about as worrying as a paper cut.
I've already started nibbling at Regeneron, and I'm looking to add more if it dips further. After all, this is a company that's proven it can grow revenues at upper single digits year over year while maintaining 25% free cash flow margins - the kind of numbers that make a value investor's heart skip a beat.
Sure, there are risks lurking around every corner – biosimilars nipping at Eylea's heels, Medicare negotiations that could squeeze margins, and clinical trials that might go sideways.
But with multiple growth catalysts and a pipeline that reads like a wish list for modern medicine, Regeneron's got more upside than my daughter's college tuition bills.
As my optometrist likes to say - in the land of the blind, the one-eyed man is king. But in the land of biotech, Regeneron's got a 20/20 vision for what's coming next.
Mad Hedge Biotech and Healthcare Letter
August 13, 2024
Fiat Lux
Featured Trade:
(THE RISE OF THE STEADY EDDIES)
(CNC), (UNH), (PFE), (JNJ), (ABBV), (LLY), (BIO), (UHS), (WAT), (AMGN), (REGN), (VRTX), (CRSP), (MRNA)
Think of the market as a body fighting off an infection. Tech stocks might be the flashy antibodies, but healthcare is the steady, reliable immune system, keeping things stable when the going gets tough. And right now, that immune system is looking stronger than ever.
Skeptical? I get it. We've heard the hype about healthcare before. But this time, it's different.
The Healthcare Select Sector SPDR ETF (XLV) has been on a tear, up 9.3% this year as of Thursday's close. That's nearly keeping pace with the broader S&P 500's 12% gain - a remarkable feat in a market that's been anything but stable.
But what's even more impressive is the turnaround. Back in mid-July, XLV was lagging behind like a three-legged horse in the Kentucky Derby, up only 8.3% while the S&P 500 was showing off with an 18% gain.
In fact, out of the 63 healthcare stocks in the S&P 500, only a dozen have been slacking off since July. The rest? They've been outperforming like it's going out of style.
So what changed?
Well, it wasn't so much that healthcare stocks suddenly discovered the fountain of youth. No, my friends, it was more like the rest of the market decided to take a swan dive off the high board.
You see, while tech stocks were busy doing their best Icarus impression – flying too close to the sun and then plummeting back to earth – healthcare stocks were steady as she goes. It's like the old tortoise and hare story, except in this version, the hare got distracted by shiny objects and ran off a cliff.
Now, let's shine the spotlight on some of the key players driving this healthcare rally.
Remember those health insurers everyone was worried about back in spring? The ones that had investors biting their nails over the future of Medicare Advantage? Well, they've made a comeback.
The S&P 500 Managed Health Care index was down 12% in mid-April, looking about as healthy as a chain smoker with a Big Mac habit. But now? It's up 4.5% since the start of the year.
Companies like Centene (CNC) and UnitedHealth Group (UNH) have bounced back faster than a rubber band on steroids.
And it's not just the insurers. Big Pharma's been flexing, too.
Pfizer (PFE), the company that became a household name faster than you can say "vaccine," is holding steady. Johnson & Johnson (JNJ) is up 2.2%, probably thanks to all that baby powder they're not selling anymore.
Meanwhile, AbbVie’s (ABBV) up 11% since July. These guys are like the Energizer Bunny of the pharma world – they just keep going and going.
But the real showstopper? Eli Lilly (LLY). This biopharma has been on a tear since the beginning of 2024. Up 45% on the year at one point, they've been climbing faster than a squirrel up a tree with a dog in hot pursuit.
Then, there are companies like Bio-Rad Laboratories (BIO), up 20% since July. Universal Health Services (UHS)? Up 18% since July. Waters (WAT), the life sciences tools folks? Up 15%.
Even the biotechs are out to impress.
Amgen (AMGN), the granddaddy of biotech, is up 10% year-to-date. They're selling drugs like Prolia and Enbrel faster than hotcakes at a lumberjack convention.
And Amgen’s pipeline? It’s packed with potential blockbusters, setting the stage for further expansion in the future.
Gilead Sciences (GILD)? Up 15% year-to-date. Turns out, their COVID-19 treatment, Remdesivir, is back in vogue like bell-bottom jeans. And their HIV and hepatitis C drugs? They're still growing stronger.
But the real rock star of biotech? That'd be Regeneron Pharmaceuticals (REGN). These guys are up over 30% year-to-date. They're treating everything from eye diseases to cancer to inflammation.
Vertex Pharmaceuticals (VRTX) is another one to watch. Up 12% this year, they've got the cystic fibrosis market cornered. And they're not stopping there – they're expanding faster thanks to their collaboration with the likes of Crispr Therapeutics (CRSP).
Now that I’ve mentioned gene therapy, I know you're wondering about Moderna (MRNA). After all, weren’t they the darlings of the COVID era? Well, yes and no.
Their stock's down about 35% year-to-date, but don't count them out just yet. Their mRNA technology is hotter than a jalapeño popper fresh out of the fryer. They might be down, but they're definitely not out.
So, what's the takeaway here? I suggest you keep your eyes peeled on the biotechnology and healthcare sectors. After all, in this market, the best offense might just be a good defense – and what's more defensive than betting on the sector that keeps us all alive and kicking?
Mad Hedge Biotech and Healthcare Letter
May 16, 2024
Fiat Lux
Featured Trade:
(THE COMEBACK KID OF VACCINES)
(NVAX), (SNY), (BNTX), (PFE)
Mad Hedge Biotech and Healthcare Letter
May 14, 2024
Fiat Lux
Featured Trade:
(EARS TO THE GROUND)
(REGN), (LLY), (FENC)
When your kid is part of a cutting-edge trial for hearing restoration, you're practically glued to their every reaction. That's the case for the parents of the first little one to receive Regeneron's (REGN) experimental gene therapy, DB-OTO.
This groundbreaking treatment delivers the missing otoferlin protein to the sensory hair cells in the ear, restoring signal transmission and, theoretically, giving these kids the gift of hearing.
The baby, part of the CHORD trial, started responding to sounds at home way before the docs officially confirmed it.
"Beautiful" is Regeneron described this early sign of progress. Turns out, nothing beats seeing your kid react to the world of sound for the first time.
Let me give you the basics of this therapy. So, imagine the sensory hair cells in your ear as a team of tiny dancers. They groove to the vibrations of sound, signaling to your auditory nerve and ultimately your brain.
Kids with this specific genetic hearing loss have the dancers, but they're out of sync – they can't communicate that signal to the brain. DB-OTO is like giving these dancers a choreographer, delivering the missing otoferlin protein, and restoring the signal transmission.
Actually, DB-OTO isn't entirely a Regeneron creation. They snagged it up when they acquired Decibel for $109 million in 2023. But this wasn’t a hostile takeover – these two companies had been working hand-in-hand on DB-OTO since 2017, making the deal a no-brainer. Heck, Regeneron even brought over the team behind the project to keep things running smoothly.
And as it turns out, Regeneron and Decibel didn't have to reinvent the wheel (or the eardrum) with their delivery method.
They took a page from the cochlear implant playbook, making it easier for ear, nose, and throat docs (ENTs) to jump on board when this therapy eventually hits the market. They figured that they could just take this groundbreaking technology and make it work with techniques surgeons already know like the back of their hands. Smart move, right?
One unexpected twist? The family noticed the kid's voice sounded less harsh without the cochlear implant.
Now, that's not a hard data point, but it hints that DB-OTO might offer something unique: a more natural hearing experience compared to cochlear implants, which tend to have a robotic sound that takes some getting used to. Cochlear implants bypass the ear altogether, zapping the auditory nerve directly. Effective, sure, but not exactly the most elegant solution.
It's not just about regaining hearing – it's about unlocking a child's world. Regeneron’s ASGCT presentation showcased patient 1's incredible journey: responding to sounds at 3 weeks, meaningful sounds by 6 months, and even hearing with the cochlear implant turned off at 24 weeks.
A second 4-year-old patient is also showing promising signs, with improved hearing at the same early time points. Side effects? Nothing more than a common ear infection, which was easily treated.
But this wasn't an overnight miracle. Regeneron and Decibel brainstormed this idea six years ago, putting their heads together to figure out where they could make a real difference. They seem to have found their niche.
And they didn't just buy one therapy – they snagged a whole pipeline of possibilities. There's AAV.103 for a different type of hearing loss, and AAV.104 for another genetic form. They're even tackling balance issues, because apparently, ears do more than just listen. These additional therapies fit into Regeneron's broader strategy of becoming a leader in the auditory space.
Next, let's talk dollars and cents, shall we?
Regeneron shelled out $213 million (if you include those fancy CVRs) for Decibel. That's a hefty bet, but they're banking on DB-OTO getting regulatory approval in multiple countries by 2028. Ambitious? Absolutely. But the potential payoff for patients – and investors – could be worth it.
As expected, Regeneron's not the only one with their stethoscope in this growing market.
Eli Lilly (LLY) wasn't far behind, scooping up Decibel's rival Akouos for a whopping $487 million in late 2022. Plus, they're also gunning for that otoferlin gene therapy prize.
And don't forget Fennec Pharmaceuticals (FENC), who snagged FDA approval for their chemo-induced hearing loss treatment last year. Looks like everyone wants a slice of this pie.
Now, for the data geeks (I know you're out there).
Regeneron's Q1 results were a tad underwhelming for Wall Street, with EPS at $9.55 (below the $10.17 estimate) and revenue dipping slightly to $3.15 billion, mostly due to the COVID drug Ronapreve drying up.
But take that out of the equation, and revenue actually grew 7%. Not that bad.
And there's good news elsewhere. Sales of Dupixent and Libtayo are soaring, up 24% and a whopping 45% respectively. That's where the future lies.
Sure, they've had some bumps in the road (the FDA rejecting odronextamab wasn't ideal), but their Eylea HD launch is gaining steam, with $200 million in sales already.
These successes, coupled with the potential of DB-OTO and the other auditory therapies, paint a promising picture for Regeneron's future growth.
So, what should you do? Keep your eyes on their pipeline, especially those new oncology and weight-loss treatments. And with a $3 billion stock buyback plan, Regeneron's showing they're confident in their future.
This might not be a slam dunk, but it's a bet on a company that's not afraid to swing for the fences in the biotech game. With a strong pipeline, a track record of innovation, and the financial muscle to back it up, Regeneron is positioning itself to be a major player in this growing market.
For those willing to ride out the bumps, the long-term payoff could be music to their ears.
Mad Hedge Biotech and Healthcare Letter
May 7, 2024
Fiat Lux
Featured Trade:
(PACKING A HEAVIER PUNCH)
(AMGN), (NVO), (LLY), (REGN)
