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Time to Look At One of the Least Favored Biotech

Value investing shouldn’t be an ordeal. It definitely doesn’t have to entail scouring for a needle in a haystack. The truth is, several quality discount stocks are hiding in plain sight. Unfortunately, these have fallen out of favor with investors recently.

While the market has performed quite well in 2021, the technology sector served as the primary driving force behind this positive performance.

In comparison, the healthcare sector has been besieged with negative updates throughout the year. This resulted in a number of excellent biotech healthcare names getting undervalued, and one of them is Amgen (AMGN).

Amgen is widely known as one of the biotechnology and pharmaceutical sector pioneers, alongside Genentech, which has since been acquired by Roche (RHHBY). The company focuses on specialty biologics in the fields of blood disorders, cancer, and immunology.

To date, Amgen has a market capitalization of $119 billion and has generated $25.8 billion in revenue in the past 12 months.

This biotechnology company also holds a relatively solid and steady track record of growth, having grown its revenue by roughly 65% in the past 10 years.

Amgen has also virtually not experienced any significant dip in its sales over the same period—an impressive feat considering the slowly crowding and often tumultuous biotech space.

Looking at its EBITDA margin, or earnings before interest, taxes, depreciation, and amortization, Amgen also emerges as a superior stock compared to others in the industry.

In the past five years, Amgen’s EBITDA margin has consistently been within the 50% range. This is higher than its peers, such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), and Johnson & Johnson (JNJ), which only reached 30%, while Sanofi (SNY) recorded roughly 20%.

In addition, Amgen declared a dividend worth $1.76 per share each quarter in October. This represents a 10% jump year over year.

Then, the company opened in December with another dividend increase to reach $1.94 per share by the first quarter of 2022, showing off a 10.2% increase year-over-year.

Since 2011, Amgen has been consistent in increasing its dividend payout annually—a guarantee of the company’s robust and stable business performance.

Moreover, Amgen’s dividend yield is higher than other industry leaders as well. At present, the company offers a 3.5% dividend yield. In comparison, Pfizer gives out 2.9%, while JNJ offers 2.7%.

To sustain its momentum, Amgen has been busy bolstering its pipeline.

Thus far, the company has 58 programs under development. Of these, there are 34 queued in Phase2/3 clinical trials, while there are others submitted for regulatory approval.

One of the promising programs is its collaboration with JNJ, which combines Amgen’s Kyprolis and the latter’s Darzalex Faspro.

Just this December, the US FDA approved this combination treatment for patients suffering from multiple myeloma, a rare type of blood cancer.

In terms of profitability, Kyprolis generated $1.065 billion, and Darzalex Faspro raked in $4.19 billion in sales in 2020.

The high revenues recorded for these drugs last year are indicative of the strong demand from the healthcare industry.

This means that the approval of the combination treatment could lead to a more lucrative payout for both companies moving forward.

Another promising program for Amgen is Tezepelumab, which is a severe asthma therapy it developed with AstraZeneca (AZN).

In July, this treatment was approved for Priority Review by the US FDA. The two companies expect to submit Tezepelumab for approval to the US FDA by the first quarter of 2022.

Meanwhile, Amgen is also working on its first RNA-based treatment, called Olpasiran or AMG 890. This project is for myocardial infarction patients and will work the same way as gene therapies.

Basically, its goal is to target the relevant gene to prevent any damage. Looking at its timeline, Amgen expects Phase 2 results within 6 months.

If this RNA-based project succeeds, Amgen plans to expand its portfolio to include more than 25 first-in-class therapies and three more biosimilars based on this technology.

Doing so will equip the company with a steady revenue runway while also reinforcing its position as one of the top biotechnology companies in the world.

Overall, Amgen looks extremely undervalued these days, making it attractive given how profitable this biotech is and its prospects moving forward.

December 16, 2021/by Mad Hedge Fund Trader

October 21, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
October 21, 2021
Fiat Lux

Featured Trade:

(A DIVIDEND ARISTOCRAT THAT DELIVERS LIKE CLOCKWORK)
(JNJ), (PFE), (MRNA), (BNTX), (NVS), (RHHBY), (MGTX)

October 21, 2021/by Mad Hedge Fund Trader

A Dividend Aristocrat That Delivers Like Clockwork

Biotech Letter

There have been two narratives as far as COVID-19 vaccine developers go. One story centers on companies with fortunes essentially built and exploding thanks to their COVID-19 vaccines, like Moderna (MRNA), Novavax (NVAX), and BioNTech (BNTX).

The second story involves larger biopharmaceutical companies, such as Johnson & Johnson (JNJ) and BioNTech’s partner, Pfizer (PFE), which barely felt their shares move in the past 18 months.

While it’s easy to understand the excitement over the achievements of the likes of Moderna, is it reasonable for Pfizer and JNJ investors to feel bad over the lack of movement in their shares?

Not at all, especially in the case of JNJ.

After all, these huge companies have decided to sell their vaccines on a not-for-profit basis until the major wave of the pandemic ends—a move that can be seen as a sound strategy for JNJ to rebuild some goodwill especially following the recent scandals involving the company.

Nevertheless, JNJ might still get a boost (pun intended) from its COVID-19 vaccine booster shots.

Just last week, a prominent advisory committee to the US FDA unanimously voted to recommend the booster shots, which likely means that the 15 million people who got jabbed with JNJ’s candidate will get a second shot as well.

If the FDA agrees with this recommendation, then the boosters could be available within the month. This comes after the agency also approved booster shots from Pfizer-BioNTech and Moderna.

Last month, the US government decided to provide Pfizer booster shots to the older population and high-risk groups, with Moderna following suit almost immediately.

So far, there have been 8 million people who have already received their Pfizer booster doses, while 1.6 million got the third dose for Moderna.

This is another lucrative market for vaccine makers, considering that to date, there are over 104 million people vaccinated with Pfizer, roughly 69 million with Moderna, and approximately 15 million with JNJ.

Amid the talks about the boosters, JNJ stands firm that its vaccine’s potency increases over time and doesn’t wane, unlike Pfizer’s candidate. This means there’s no urgency for a booster shot when it comes to JNJ’s candidate.

Nevertheless, considering that JNJ isn’t exactly attempting to earn from its COVID-19 vaccine aggressively, there’s no point in investors worrying about this issue too much.

The fundamental aspects that will impact the stock price can be found elsewhere.

One of the more exciting projects of JNJ lately is its move to become more active in the gene-editing field.

Following the buzz from the multi-billion dollar acquisitions of companies like Novartis (NVS) and Roche (RHHBY) several years ago, it looks like JNJ might be the next big name to enter the fray.

Since 2018, JNJ has been working closely with a small-cap gene-therapy company called MeiraGTx Holdings (MGTX).

While highly secretive of the details, MeiraGTX, which has a market capitalization of just below $600 million, has been developing a gene-regulation technology—an innovation that could revolutionize gene therapy.

For context, this kind of innovation was applied to Novartis’ Zolgensma, a one-time treatment for spinal muscular atrophy worth a whopping $2.1 million—the most expensive medication in the world.

In terms of MeiraGTX’s work with JNJ, the two companies are focusing on creating therapies for various eye diseases. Looking at their timeline, the first candidate should be ready by 2023.

While there remain questions about its COVID-19 vaccine candidate, their earnings are expected to reach roughly $2.5 billion or merely 2.65% of JNJ’s total revenue. This would barely make a dent in the overall performance of the company.

What comes clear in the performance reports from the company is that its core business remains the primary moneymakers.

In the second quarter of 2021, JNJ recorded $23.3 billion in sales, reporting a notable 27.1% from the $18.3 billion revenue it generated from the same quarter in 2020.

Its gross profit also climbed from $11.7 billion to $15.7 billion, showing a 33.8% improvement. As for its EPS, it skyrocketed by 72.8% year-over-year from $1.36 to $2.35.

Meanwhile, JNJ’s guidance for 2021 has been updated to reflect its expected 13.% to 14.% year-over-year increase between the range of $93.8 billion and $94.6 billion.

Its pipeline and current portfolio also all but guarantee that JNJ will deliver mid to high single-digit earnings in the years to come.

Another indicator of the stock’s quality is its dividend record, with JNJ priding itself on a 59-year streak—making it an undisputed dividend aristocrat.

Overall, I see JNJ as an impressive $433 billion behemoth in the biopharmaceutical sector. The company has been consistent in delivering remarkable top and bottom lines every quarter.

October 21, 2021/by Mad Hedge Fund Trader

October 12, 2021

Biotech Letter

Mad Hedge Bitcoin Letter
October 12, 2021
Fiat Lux

Featured Trade:

(AN ANTI-BUBBLE HEALTHCARE STOCK TO KEEP YOU SAFE)
(VTRS), (PFE), (SNY), (RHHBY), (REGN)

October 12, 2021/by Mad Hedge Fund Trader

An Anti-Bubble Healthcare Stock to Keep you Safe

Biotech Letter

Some stocks bring red-hot gains. These companies are thrilling. Most investors flock to these businesses like bees to honey. Then, there are stocks such as Viatris (VTRS).

You won’t hear much buzz about Viatris.

After all, this company develops generic drugs—a fairly boring business. At times, it feels like nobody even talks about this stock at all.

However, Wall Street claims that several stocks have more room to expand soon. Interestingly, the names aren’t your usual list of growth stocks that most investors expect to ascend. The largest expected gainers are boring stocks.

This is where Viatris becomes interesting.

One of the possible reasons that Viatris isn’t generating as much buzz is that it was only established in 2020. The company is the product of a spinoff between Pfizer’s (PFE) Upjohn unit and generic drugmaker Mylan.

The spinoff allowed Pfizer to concentrate more on developing its pipeline candidates, while Viatris focused on off-patent and generic drugs.

However, Viatris has been off to a slow start, with the stock down by over 28% this year. In fact, the company has reported net losses for three quarters in a row.

Needless to say, both resulted in having the stock deeply discounted.

While these can cause other investors to shy away from the stock, I look at it as part of the company’s growing pains.

And it looks like things are about to turn around soon.

By the end of this year, Viatris expects to reach cost synergies of roughly $500 million. Through major restructuring, the company anticipates doubling this to more than $1 billion by 2023.

As an early-stage business, Viatris offers a stable long-term investment.

While it recorded a somewhat flat performance at $4.6 billion in sales in June, the company’s lineup of new products signals growth ahead.

For example, Viatris estimates to generate roughly $690 million in revenue for its new products—a highly achievable projection for the company.

Just last July, Viatris scored approval for a biosimilar product called Semglee. This is an insulin biosimilar to the high-selling Lantus of Sanofi (SNY), which peaked at $6.4 billion in sales in 2015 and lost patent exclusivity in 2014.

Semglee is reported to be fully interchangeable with the reference drug, which means that Viatris’ biosimilar is the exact equal of Sanofi’s previous blockbuster.

Moreover, Semglee is priced at about $148 for five pre-filled insulin pens, offering a whopping 65% reduction from Lantus’ cost.

The significant price difference is clearly difficult to ignore, especially at a time when politics has joined the fray in drug pricing.

The ability of Viatris to undercut the prices offered by Big Pharma definitely signals long-term benefits in terms of the company’s bottom line.

Aside from Semglee, Viatris has seven more approved biosimilars on the market.

The list includes Roche’s (RHHBY) breast cancer treatment Herceptin, which peaked at $6 billion in sales, and Regeneron’s (REGN) AMD drug Eylea, which generates an average of $8 billion annually.

It even has AbbVie’s (ABBV) megablockbuster immunology therapy Humira, which averages $20 billion in sales annually.

While Viatris won’t be the only company marketing a biosimilar for Humira, the company has the advantage since its candidate, Hulio, already gained approval in Canada, Europe, and even Japan.

Meanwhile, Viatris’ near-term pipeline candidates hold the potential to generate $57 billion in sales. Adding the rest of its 31 biosimilar candidates could push the figure to $224 billion.

The expansion of the biologics market is anticipated to outpace traditional pharma in the future. From $300 billion in 2020, the biologics segment is projected to reach $690 billion by 2027.

Aside from its biosimilar programs, Viatris has also been working on its internal development plans.

This would mean developing new high-margin brand names as well as diversifying its portfolio to include novel therapies.

Viatris is projected to reach at least $35 per share in the coming months, showing off a promising 155% jump from its current price.

On top of that, investors have been enjoying a juicy payout of 3.2%—higher than the average 1.3% of the S&P 500.

Considering the risks brought by market correction, Viatris emerges as a prime candidate for a safe haven among investors.

That is, they can easily lock in on this relatively anti-bubble business that’s available at practically a bargain bin price.

viatris

October 12, 2021/by Mad Hedge Fund Trader

September 28, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
September 28, 2021
Fiat Lux

FEATURED TRADE:

(A RINSE-WASH-REPEAT PLAY FOR OPPORTUNISTIC INVESTORS)
(EXEL), (BMY), (RHHBY), (VRTX), (TDOC)

September 28, 2021/by Mad Hedge Fund Trader

A Rinse-Wash-Repeat Play for Opportunistic Investors

Biotech Letter

No matter the short-term consequences of events in the past months, what remains constant is the stock market’s ability to create wealth over the long term.

Each crash or correction that occurred in history was eventually offset by a strong bull market rally.

That’s why it pays to be prepared for when things start to turn around.

Today, I’d like to take a look at another name in the oncology sector that’s poised to skyrocket in the coming years: Exelixis (EXEL).

Here’s a quick overview of Exelixis.

Exelixis is a California-based biotech that’s focused on developing treatments for hard-to-treat types of cancer. To date, the company has three FDA-approved treatments in the market.

The stock has been trading within the $20 and $22 range and sports a market capitalization of roughly $7 billion.

For most of its existence, Exelixis’ growth story centers around its blockbuster therapy, called Cabometyx.

In the second quarter earnings report, Cabometyx’s sales went up 59% compared to its 2020 performance to contribute $275.6 million.

This comprised the bulk of Exelixis’ total revenue worth $385.2 million, which climbed an impressive 48.4% year over year.

Cabometyx is the leading treatment for first- and second-line treatment for advanced renal cell carcinoma (RCC) and advanced hepatocellular carcinoma.

Together, both indications could generate over $1 in annual sales for Cabometyx in 2021 and 2022.

To put things in perspective, the entire Cabometyx franchise was only worth about $742 million in 2020.

What makes Cabometyx an exciting revenue stream is its label-expansion capacity.

Apart from the two approved indications, Exelixis is also conducting six more clinical trials for this drug either as a monotherapy or a combination treatment.

So far, Cabometyx has proven to be effective as a combination therapy with Bristol-Myers Squibb’s (BMY) Opdivo. This additional approval has allowed Exelixis to seize an even bigger share of the RCC market today.

Considering the label-expansion opportunities for Cabometyx, this treatment is projected to become a multi-billion-dollar drug soon.

Given the solid performance of its products and successful collaborations, Exelixis has also become a cash cow.

The company estimates that it would conclude 2021 with roughly $1.6 billion to $1.7 billion in cash and investments—an amount that comprises over 20% of its market capitalization.

With this money, the company can comfortably pursue acquisitions and even strengthen its internal R&D engine.

However, not everything has been smooth sailing for Exelixis in the past months.

One of the major factors that pulled the stock down by a whopping 20% is the unimpressive results from its liver cancer clinical trial with Roche (RHHBY) last June.

However, I think the market overreacted to this piece of negative news.

If anything, Exelixis has already turned the situation around.

Unfazed by its unexpected flop with Roche, Exelixis is again pursuing a difficult-to-treat condition: prostate cancer.

The difference this time is that the company appears to have more confidence in the efficacy of its famed Cabometyx as a treatment for the condition—so much so that they intend to apply for FDA feedback in the high-risk group and possibly even an accelerated approval.

It also celebrated a recent win with the approval of Cabometyx’s label expansion to cover 12 years and older—an approval granted way ahead of their December 4 schedule.

Now, Cabometyx can also be prescribed to treat DTC, which is the most common kind of thyroid cancer in the United States.

More than that, Exelixis is the first to provide a standard treatment option to these patients, making the company a first mover in this segment.

Looking at the history of first movers, such as Vertex (VRTX) in the cystic fibrosis sector and Teladoc (TDOC) in the telehealth space, Exelixis could very well be on its way into becoming a functioning monopoly.

In terms of its pipeline, Exelixis has more than 100 studies going through different stages. These cover diverse indications including gastrointestinal cancers, neuroendocrine tumors, and lung cancer.

While Exelixis has a balance sheet akin to Fort Knox and a remarkable revenue growth, its shares remain range-bound in the past couple of years.

Nonetheless, it has continued to be an impressive “rinse-wash-repeat” covered call play during the same period and is considered a dividend stock with double-digit yields.

Moreover, Exelixis has been consistently ramping up revenue growth in the past years.

The biotech’s big cash balance along with its proven profitability indicate a minimal possibility of dilution.

Considering its price-to-earnings-growth ratio of almost 1, this company is the picture of an ideal balance of double-digit sales growth complemented with great value.

Simply put, it’s a great opportunity for long-term investors.

More importantly, its recent stock-price meltdown makes it an ideal addition to the portfolio of opportunistic investors.

September 28, 2021/by Mad Hedge Fund Trader

September 7, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
September 7, 2021
Fiat Lux

FEATURED TRADE:

(A LONG-TERM STOCK FOR PATIENT INVESTORS)
(REGN), (RHHBY), (BAYN), (SNY), (MRK), (BMY), (NTLA)

September 7, 2021/by Mad Hedge Fund Trader

A Long-Term Stock for Patient Investors

Biotech Letter

While August ushered in the end of the “dog days of summer,” with temperatures generally at their highest throughout the US, some stocks might be just starting to get warmed up this September.

This is particularly true in the biotechnology industry.

Considering that the broad market indices are reaching historic highs, the biotechnology sector, caused by its relatively low valuation, is deemed one of the appealing targets for investors who truly understand the essence of the industry and can manage the potential risks associated with it.

While not all biotechnology companies are attractive opportunities, some are great long-term investments.

One of them is Regeneron (REGN).

In fact, Regeneron is the manufacturer of a treatment projected to become the top-selling drug globally by 2030.

Annual sales of the moneymaking drug, autoimmune diseases’ medication Dupixent, could hit $21 billion by the start of the next decade—an almost fourfold jump from its current sales estimate of $5.6 billion per annum.

The projection came following Regeneron’s announcement that Dupixent can also be used to treat atopic dermatitis among children aged 6 months to 5 years old.

This makes Dupixent the first-ever biologic treatment to release positive results for that population.

Evidently, the breadth of Dupixent’s indications, complemented by the long-established safety profile of the drug, contribute to its long-term success—an achievement that’s expected to multiply and be carried over to the next decade.

While the next decade is clearly exciting for Regeneron, the company is actually performing well these days.

So far, Regeneron shares are up by roughly 40% year to date—a record-breaking rise not only for the company but also in the biotech sector.

Regeneron’s revenue skyrocketed by 163% year-over-year in the second quarter, pushing its earnings per share to leap 260% higher.

Apart from Dupixent, another catalyst for Regeneron’s impressive gains is its COVID-19 cocktail: REGEN-COV.

This treatment, albeit controversial, is anticipated to make Regeneron and its partner, Roche (RHHBY), a lot of money in the following months, especially with the delta variant wreaking havoc in the world.

Moreover, sales for all six of Regeneron’s highest-selling products, such as its eye disease drug Eylea, which it developed with Bayer (BAYN), immunology drug Kevzara, which is a product of its collaboration with Sanofi (SNY), lung cancer treatment Libtayo, and cholesterol drug Praluent, have been consistently growing by double-digit percentages.

Apart from these current treatments displaying solid sales momentum, the company also has a loaded pipeline that can easily boost Regeneron’s revenue streams in the future.

In terms of the new products under development, Regeneron has partnered with Intellia Therapeutics (NTLA), one of the leaders in the CRISPR-Cas9 gene-editing sector, to come up with next-generation treatments.

Aside from developing new products, Regeneron is expanding the indications of its top-selling drugs. Just like its efforts with Dupixent, the company is also working on expanding Libtayo’s indications.

So far, Regeneron has been working to turn Libtayo into a go-to treatment for skin cancer.

This effort could open up new avenues for Regeneron, as at least 9,000 cases of skin cancer are recorded in the US annually.

Of these, approximately 3,200 fall under the category that the company is targeting for Libtayo’s expansion.

This is a strategic move if Regeneron has any hope to dethrone the most dominant players in this competitive immunology market: Merck’s (MRK) Keytruda and Bristol-Myers Squibb’s (BMY) Opdivo.

Looking at the average net price of Libtayo, which is at $130,000 per year, the expected sales for this drug could grow to $400 million by 2026 in the US alone and roughly $700 million worldwide—and these are only for the approved indications of the drug.

In addition to its current applications, Regeneron is also working to gain approval for Libtayo to be used for cervical cancer.

Overall, Regeneron is an excellent investment for patient buy-and-hold investors. Its current portfolio of products is performing well, while its pipeline programs and partnerships offer promising growth potential.

September 7, 2021/by Mad Hedge Fund Trader

August 31, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
August 31, 2021
Fiat Lux

FEATURED TRADE:

(A CANCER PIONEER FOR THE BOOKS)
(SEGN), (MRK), (BMY), (PFE), (GILD), (RHHBY), (TAK), (GMAB)

August 31, 2021/by Mad Hedge Fund Trader

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