Mad Hedge Biotech & Healthcare Letter
August 13, 2020
Fiat Lux
Featured Trade:
(HOW ROCHE’S STRATEGIC MOAT KEEPS IT AFLOAT)
(RHHBY), (MRK), (GILD), (LLY), (BPMC), (PFE), (JNJ), (ABBV), (NVS)
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Moat is a concept that Warren Buffett's followers are well-acquainted with.
In a nutshell, it describes a company’s capacity to keep its competitive edge over its rivals. For the Oracle of Omaha, the safest bets are businesses with large moats because it indicates a strong ability to ward off competitors.
One company that has a particularly strong moat is Roche (RHHBY).
Roche has been at the forefront of the fight against the COVID-19 pandemic.
In mid-March, Roche became the first-ever commercial company to receive an FDA Emergency Use Authorization for its COVID-19 tests. What made this kit, called Cobas SARS-CoV-2 test, impressive is that the turnaround time of less than 4 hours was incredibly fast compared to others.
By April, Roche’s tests were already administered to roughly 4 million people, with some users paying as low as $5 for every test.
Following the success of its tests, Roche ventured into developing a COVID-19 cure.
While there’s still no conclusive data on its tests, Roche secured agreements with the European Commission to be one of the suppliers of the experimental COVID-19 drugs to any of the 27 EU members looking to buy for their constituents.
The deal involves Roche’s RoActemra. Meanwhile, the other supplier is Merck (MRK) with its Rebif.
Aside from that, Roche is also working alongside Gilead Sciences (GILD) in investigating whether Remdesivir could work better when combined with RoActemra.
The other drug undergoing similar compatibility tests with Remdesivir is Eli Lilly’s (LLY) Olumiant.
However, there remains a much bigger story for Roche outside its COVID-19 efforts.
Looking at the company’s first-quarter earnings report, Roche’s pharmaceutical arm generated over 80% of its total revenue for that period.
This is primarily thanks to its strong lineup of drugs, which recorded a 7% increase to reach roughly $13 billion in sales compared to the previous quarter. Overall, Roche recorded a 52.9% growth in its year-over-year quarterly earnings.
The key growth drivers of the company came from its oncology sector.
Leading the charge is bladder and urinary tract cancer treatment Tecentriq, followed by breast cancer drug Perjeta.
Roche’s efforts to expand the label of its blockbuster drug Tecentriq sets expectations for further growth as well.
To further boost its dominance in the oncology field, Roche recently signed an agreement with Blueprint Medicines (BPMC) to gain commercial rights to market thyroid and lung cancer treatment Pralsetinib outside the U.S., excluding Greater China.
This will allow Roche to directly compete with Eli Lilly’s newly gained blockbuster drug Rotovmo, which the company got from its $8 billion takeover of Loxo Oncology in 2019.
Apart from its oncology sector, Roche also saw promising results from other treatments like hemophilia medicine Hemlibra and multiple sclerosis treatment Ocrevus.
On top of Roche’s 37 approved treatments in the market today, the company is expected to submit regulatory findings for almost 20 products this year alone.
Meanwhile, Roche’s $4.3 billion acquisition of Spark Therapeutics in 2019 provided a much-need boost to the company’s gene therapy space.
Despite the uncertainties brought about by the pandemic, Roche’s shares still saw a 10.5% jump this year. In fact, the company increased its 2020 earnings estimate by 0.8% while it expects a 1.4% rise in 2021.
For context, Roche generated $61.5 billion in revenue in 2019 and raked in approximately $13.5 billion in profits. To date, the company pays its shareholders a dividend that yields close to 2.5%.
These reports highlight Roche’s financial stability and strength.
So far, Roche has been able to corner three of the major diseases today: cancer, hemophilia, and multiple sclerosis.
This makes the company one of the biggest names in the biotechnology and healthcare sector in terms of sales.
In fact, Roche is projected to be the No.1 in the field by 2026 with an annual revenue of $62 billion, achieving a compound rate of over 3.6% since its 2019 numbers.
Pfizer (PFE) is expected to land second place, with sales estimated to reach over $56 billion. The rest of the list includes companies poised to record more than $50 billion in sales, namely, Johnson & Johnson (JNJ), AbbVie (ABBV), and Novartis (NVS).
Mad Hedge Biotech & Healthcare Letter
August 4, 2020
Fiat Lux
Featured Trade:
(MERCK’S SLOW BUT STEADY COVID-19 HEADWAY)
(MRK), (GILD), (REGN), (AZN), (PFE), (MRNA), (ABBV), (BMY), (RHHBY)
Is it truly better late than never?
Merck has been decisively cautious in its approach of potential COVID-19 treatments and even more so when it comes to their vaccine candidates.
Recently though, the company has finally offered a glimpse of its progress.
The first promising update is Merck’s work on MK-4482, which is an antiviral candidate aimed at treating COVID-19 patients. Basically, this candidate works by preventing the SARS-CoV-2 from replicating.
The laboratory results showed that an increasing dose of MK-4482 can effectively halt the progress of the virus in a patient’s system.
Judging from the timeline followed up to this point, Merck plans to begin huge trials by September.
The MK-4482 is expected to compete with Gilead Sciences’ (GILD) Remdesivir, with the Merck candidate possibly edging out the latter.
This is because the SARS-CoV-2 tends to mutate, rendering Remdesivir less potent the next time it is administered to patients. In comparison, MK-4482 has demonstrated an ability to fight off the mutated versions of the virus.
MK-4482 also comes in tablet form, making it a preferable and more convenient option compared to Gilead’s intravenous infusion and even Regeneron’s (REGN) injectable antiviral cocktail REGN-COV2.
On the COVID-19 vaccine front, Merck has been working with Thermis Biosciences in developing a candidate based on a measles virus vector platform originally developed by the Institut Pasteur researchers.
However, this is not Merck’s only shot on goal.
The company is also collaborating with the International AIDS Vaccine Initiative to develop another vaccine candidate, V590.
The two are using the same platform that Merck created for its already approved Ebola vaccine. The goal is to start human testing by the third quarter of 2020.
Merck is also looking into offering a single-dose vaccine instead of the double dose shots its competitors are working on, with one of its candidates developed to be taken orally instead of via injectibles.
If they succeed, then Merck’s vaccines will be more accessible and convenient for a lot of patients.
Aside from developing V590, Merck plans to use the same approved technology to advance its other antivirals in its clinical testing pipeline.
In fact, Merck’s move to acquire Thermis Bioscience demonstrates the company’s resolve to focus on strengthening its vaccine program. The primary expectation for this newly formed partnership is to come out swinging and eventually win big on the COVID-19 vaccine race.
The victory will then serve as a springboard for a new and powerful revenue stream for Merck, which would serve to quiet the fears of the company’s investors fretting over the patent expiration of blockbuster drug Keytruda.
The impending loss of exclusivity for cancer treatment Keytruda has been hanging over Merck’s head for quite some time now.
Aside from the potential biosimilar competition, Keytruda has been facing stiff competition against biotechnology giants like Bristol Myers Squibb (BMY), Roche (RHHBY), and Regeneron.
Needless to say, fears over this have been overshadowing the company’s impressive internal pipeline – a reaction that pretty much mirrors the experience of AbbVie (ABBV) on the pending patent loss of its blockbuster Humira.
However, Merck has been working on products that could rake in an additional $13 billion to $18 billion to its sales every year.
The list includes immuno-oncology antibody candidates, additional vaccines, and even HIV treatments.
The company also has more than $40 billion on its balance sheet, putting it in a favorable position to acquire more companies or products that could bolster its franchise.
Since the pandemic broke out, Merck has lagged behind its COVID-19 rivals AstraZeneca (AZN), Pfizer (PFE), and Moderna (MRNA).
Looking at its progress and future plans though, it looks like the company has set out to achieve a tortoise over the hare victory particularly in the COVID-19 vaccine race.
With incredible uncertainty hovering over the rest of 2020, it is only natural to seek stocks for an all-weather portfolio.
While there are many factors to consider, looking at businesses that allocated sensibly to capital expenditures and R&D is definitely a great way to start.
Merck’s strategic partnerships with companies like Thermis Biosciences, Taiho Pharmaceuticals, and Astex Pharmaceuticals also play significant roles in this aspect.
Although Merck has not provided a particularly strong performance so far this year, this biotechnology and health care giant is poised to stage a strong comeback when the dust settles.
Global Market Comments
August 4, 2020
Fiat Lux
Featured Trade:
(MEET THE ITALIAN LEONARDO FIBONACCI)
(MRK), (GILD), (REGN), (AZN), (PFE), (MRNA), (ABBV), (BMY), (RHHBY)
Mad Hedge Biotech & Healthcare Letter
July 21, 2020
Fiat Lux
Featured Trade:
(WHY PFIZER AND BIONTECH ARE NOW VACCINE FRONTRUNNERS)
(PFE), (MRNA), (BNTX), (NVAX), (MY), (RHHBY), (SNY)
Pfizer (PFE) and BioNTech (BNTX) have stealthily positioned themselves as the new leaders in the COVID-19 vaccine race.
They recently received an FDA fast-track label for BNT162, pushing the timeline for their vaccine candidate to start late-stage trials for 30,000 patients this July as well — a timeline similar to Moderna’s plans.
Like Moderna’s vaccine candidate, Pfizer and BioNTech also use mRNA technology.
Basically, this system takes advantage of our own biological building block to trigger our body to create proteins. These can then help us protect ourselves from pathogens such as the coronavirus.
The announcement of the FDA fast-track pushed Pfizer stock to immediately jump by 5%, an impressive leap for a company with almost $200 billion in market capitalization. Meanwhile, BioNTech stock rose by 15%.
While the vaccine is anticipated to be launched by December 2020, Pfizer executives appear to be more bullish on the timeline.
In fact, the company expects a release date for the late-stage trial data to be available by September with a potential FDA approval by October.
If Pfizer’s vaccine candidate does manage to pass muster, then the two companies are expected to manufacture almost 100 million doses by the end of the year, with the number reaching 1.2 billion by December 2021.
Other than BNT162, Pfizer and BioNTech also received FDA fast track designations for two of the most advanced candidates in their pipeline, BNT162b1 and BNT162b2.
Having all these vaccine candidates under FDA fast track reviews is a welcome reprieve in this ongoing pandemic.
To say that we need an effective vaccine now more than ever is an understatement. This health crisis has been pushing not only the US but also the entire world on the brink of a financial shutdown.
So far, we have recorded over 13 million cases globally—3.5 million of those come from the US alone. With the increasing number of cases, more and more hospitals are crying out for help because they’re getting overburdened.
Apart from its coronavirus program, Pfizer offers a plethora of opportunities for investors.
In 2019, the company raked in $51.8 billion in revenue.
For this year, Pfizer has been zeroing in on improving its pipeline with eight potential blockbuster products anticipated to generate an additional $1 billion or more in annual sales.
Outside its own pipeline, Pfizer is also expected to reap the rewards from its spinoff Upjohn and the merger of this particular unit with Mylan (MYL).
The new company, called Viatris, will inherit some previous blockbusters from Pfizer.
This move is aimed to pave the way for Pfizer to focus on its rising stars like blood clot treatment Eliquis and heart failure medication Vyndaqel. Overall, these changes are projected to provide a bigger impact on Pfizer’s growth.
Meanwhile, BioNTech is also an interesting company to check out.
As with any typical biotechnology stock with no product out in the market yet, BioNTech remains speculative despite its $17.83 billion market capitalization.
However, its involvement with Pfizer in the development of a COVID-19 vaccine will definitely light a fire under this German company.
With that in mind, BioNTech shouldn’t be considered a one-trick pony.
Prior to its work with Pfizer, the company has been focused on creating individualized cancer treatments. So far, it has 10 cancer drug candidates in the 11 clinical trials underway.
Aside from Pfizer, BioNTech has also been working on other biotechnology and healthcare bigwigs like Sanofi (SNY) and Roche (RHHBY).
The race to complete the Phase 3 of the late-stage clinical trials for the COVID-19 vaccine has been tight.
Initially, it was only Moderna that held the top spot—and the stock definitely flourished because of it. Since the pandemic broke out, this biotechnology company’s stock skyrocketed to a jaw-dropping 202% year to date.
At the time, the close second was another small biotechnology with a market capitalization of $6.44 billion, Novavax (NVAX). The company’s stock also soared by a whopping 252.1% thanks to its COVID-19 efforts.
Now, Pfizer and BioNTech are well on their way to dethroning Moderna—if they haven’t done so already.
With a market capitalization of $198.42 billion compared to Moderna’s $31.9 billion, Pfizer has the upper hand in terms of resources, more extensive access to manufacturing partners, and of course, distribution.
Mad Hedge Biotech & Healthcare Letter
July 16, 2020
Fiat Lux
Featured Trade:
(BIOGEN’S LONG TERM UPSWING HAS BEGUN),
(BIIB), (SGMO), (RHHBY)
Biogen (BIIB) is a stock that perfectly fits the biotechnology mold.
Over the past 5 years, this Massachusetts-based company was down for roughly 25%. Five years before that though, Biogen stock catapulted 700%. A decade or so prior that, the company’s performance was flat, with a couple of extreme swings now and then.
However, the next decade could see Biogen stocks going upswing once again.
In the past 20 years, the biotechnology and healthcare sectors have been obsessed with finding a cure for cancer. With over 1.8 million fresh cases diagnosed every year, it’s understandable why the oncology space has received the most attention over the years.
Apart from cancer, companies have also made significant progress in other pressing issues like infectious diseases and cardiovascular disorders.
Now, a new market is starting to demand attention as well: the neuroscience field.
With all the demands for treatments for other diseases though, companies pulled R&D dollars away from the neuroscience budget and poured those into less risky efforts.
In comparison, Biogen doubled down spending on its neurology research.
In fact, the company has spent over $10 billion in this sector in the last 5 years. This amounts to roughly 5% of its annual market capitalization.
To bolster its neuroscience efforts, Biogen is investing in gene therapy as drivers of future growth.
Just last April, the company bought $225 million of Sangamo Therapeutics (SGMO) stock. On top of that, Biogen paid the smaller company $125 million for technology licensing. The deal also included up to $2.37 billion in royalties and milestone payments.
This newly established collaboration will see Sangamo working with Biogen to come up with gene therapies for various disorders, including Alzheimer’s disease and Parkinson’s disease.
At the moment, Biogen is focusing on the development of its Alzheimer’s treatment Aducanumab.
Alzheimer’s is a huge untapped market opportunity that presents a substantial unmet clinical demand. Right now, there are no approved treatments that could alter the natural progression of the disease.
In the US alone, there are more than 5.8 million people living with Alzheimer’s and about 500,000 new cases added annually.
This target makes Biogen’s Alzheimer’s treatment Aducanumab a potential mega-blockbuster.
Biogen’s estimated annual cost per patient for Aducanumab is $30,000.
With the number of Alzheimer’s patients in the US at the moment, back of the napkin math shows that Aducanumab can easily generate $15 billion in sales for Biogen.
Meanwhile, peak sales for this treatment could hit $20 billion — and this could even be an underestimate.
Projecting it further to 10 years down the line and putting Biogen’s market penetration at just 50%, assuming that the number of cases remains flat, then Aducanumab could reach 2.9 million users.
This means an annual astronomical cost of $87 billion for the Alzheimer’s market.
Let’s say Biogen is eventually asked to lower the price for the treatment to be accommodated by Medicare.
We use just a third of the $30,000, which puts the Alzheimer’s treatment at $10,000 each year for every patient instead. This would still rake in an impressive $29 billion for Biogen -- and these numbers only cover the US.
If we assume that the demand from the rest of the world matches the US sales, then global demand for Aducanumab could generate over $60 billion in a year based on our $10,000 per patient each year estimate.
Going back to Biogen’s initial $30,000 projection, then annual sales would reach a jaw-dropping $180 billion.
Sticking to the $60 billion per year estimate, Biogen can easily climb to $250 billion in market capitalization in the next 10 years --- an incredible jump from the $42.79 billion it has right now. The company’s shares could trade north of $1,500, providing its investors with over 400% return.
As a Roche (RRHBY) leader aptly described, “neuroscience has the potential to be in the ‘20s what oncology has been in the last decade.”
Now, Biogen is the undisputed leader in terms of pipeline candidates for the field. It has transformed itself into a research powerhouse in anticipation of its dominance in what could be the most important medical breakthroughs over the next decade or two.
After all, scientific breakthroughs allow us to live longer. In effect, a good part of our population will eventually face neurological problems that crop up later in life.
Hence, Biogen is poised to lead the charge in this grossly underserved market. The fact that the company has been keeping its pedal to the metal in terms of its R&D efforts further all but guarantees its dominance in the years to come.
Global Market Comments
July 14, 2020
Fiat Lux
Featured Trade:
(UPDATE ON THE COVID-19 VACCINE FRONTRUNNER)
(AZN), (MRNA), (RHHBY), (LLY), (PFE), (JNJ)
