Mad Hedge Biotech & Healthcare Letter
September 3, 2020
Fiat Lux
Featured Trade:
(BRACE YOURSELF FOR ANOTHER PANDEMIC)
(AMGN), (NVS), (CYTK), (GILD), (RHHBY), (LLY), (SNY), (REGN)
Posts
“Anything that can go wrong will go wrong.”
It looks like Murphy’s law is about to strike again this year. The number of COVID-19 cases has reached almost 15 million worldwide, with about 4 million found in the US alone. However, the pandemic isn’t showing signs of slowing down.
Now, another deadly virus described to manifest “all the essential hallmarks of a candidate pandemic virus” has been found.
Earlier this month, a team of scientists revealed that there’s a newly discovered influenza strain, which could be a variation of the H1N1 swine flu—the same virus that triggered a global pandemic back in 2009.
That health crisis infected roughly 61 million Americans and more than 700 million people across the globe.
Although there’s still no conclusive evidence, this H1N1 influenza strain also traces its origins in China.
We witnessed how the stock market plummeted as the COVID-19 pandemic broke out. It eventually bounced back, which provided us with insights on how to deal with this potential second deadly virus.
Taking into consideration the uncertainty caused by these health and financial crises, I no longer put all my energy on near-term investments.
Instead, I train my eyes on stable and strong stocks with attractive revenue potential.
One of the companies that meet my criteria is Amgen (AMGN).
Amid the coronavirus pandemonium, Amgen has been aggressive in keeping its stronghold, particularly in its key moneymakers.
The latest win for the company is against Novartis (NVS), which challenged Amgen’s patent rights on the blockbuster anti-inflammatory treatment Enbrel.
This patent victory secured exclusivity for the top-selling rheumatoid arthritis injection, which generated $5.1 billion in sales in 2019 and could rake in at least $4.5 billion in 2020, against low-priced copycats until 2029.
Although Amgen has been struggling with biosimilar competition in the past years, the company’s first quarter earnings reports indicate that things are turning around for them.
Amgen reported an 11% year-over-year increase in revenue for the first quarter of 2020 to reach $6.2 billion, with global product sales jumping by 12%, boosted by a remarkable 15% in volume growth.
The company’s free cash flow for the first quarter also went up to $2 billion compared to the $1.7 billion it recorded in the same period in 2019.
The spike in Amgen’s numbers could be attributed to the new products in its pipeline. Apart from Enbrel, there are several other moneymakers generating solid growth for the company.
An obvious game-changer is severe plaque psoriasis medication Otezla, which Amgen acquired from Celgene for $13.4 billion in November 2019.
In the first 3 months of 2020 alone, Otezla has already raked in $479 million in sales for Amgen.
Sales of high cholesterol drug Repatha jumped by 62%, hitting $229 million.
Meanwhile, osteoporosis treatment Evenity contributed $100 million thanks to its expansion in the US and Japanese markets.
With the improvement in its performance, Amgen reiterated its revenue forecast for 2020 of $25 billion to $25.6 billion, showing off a 9.4% gain compared to 2019.
Aside from its current roster, Amgen is also waiting for regulatory approvals on some of its products this year.
The company is hoping for good news from the FDA on its multiple myeloma drug Kyprolis in November and its Rituxan biosimilar candidate in December.
Its pipeline also features 20 late-stage studies, 15 of which are for expanded indications of the company’s already-approved products.
Next to Otezla, Amgen is eyeing another blockbuster following the Fast Track designation granted to heart failure drug Omecamtiv mecarbil.
The drug, which the company is working in collaboration with Cytokinetics (CYTK), is projected to reach a jaw-dropping valuation of roughly $16 billion by 2026.
If successful, Omecamtiv mecarbil could become a close competitor of Entresto, which raked in $569 million for Novartis in the first quarter of 2020 alone.
Meanwhile, Amgen is not only focused on harnessing its growth drivers. The biotechnology giant has been active in searching for COVID-19 treatment as well.
Following the lead of Gilead Sciences (GILD), which used an already approved drug Remdesivir to come up with a treatment, Amgen is also testing its newly acquired blockbuster Otezla.
In using an anti-inflammatory drug to treat COVID-19 patients, Amgen is taking a similar approach as other biotechnology giants like Roche (RHHBY) with Actemra, Eli Lilly (LLY) with Baricitinib, and Sanofi (SNY) and Regeneron (REGN) with Kevzara.
Amgen investors currently get $1.60 in quarterly dividend payments, receiving $6.40 annually. In comparison, shareholders received $1.45 in 2019, showing off a healthy 10% hike.
With a stock price of roughly $235, this puts the company’s dividend yield to somewhere above 2.7%.
This is better than the 2% of investors earn on average from the S&P 500, indicating that Amgen pays investors with an above-average yield. Over the past 5 years, Amgen has boosted its annual dividend by nearly 103%.
Overall, Amgen is a solid long-term investment with promising growth drivers out in the market and in its pipeline.
Mad Hedge Biotech & Healthcare Letter
August 25, 2020
Fiat Lux
Featured Trade:
(LET THE VACCINE PRICING WARS BEGIN)
(MRNA), (MRK), (PFE), (BNTX), (AZN), (JNJ), (NVAX), (SNY)
The COVID-19 vaccine race is winding down to its final lap, with at least seven candidates already undergoing Phase 3 trials.
Now, one question inevitably arises: How much will these vaccines cost?
Moderna (MRNA), one of the frontrunners in this race, revealed that its vaccine, mRNA-1273. will be priced somewhere between $32 and $37 for each dose.
The moment this pricing was announced, health advocates were up in arms to point out the high price of the vaccine especially with the funding Moderna received from the US government.
However, the company clarified that this would only apply to “small-volume” transactions.
According to Moderna, the pricing for their coronavirus vaccine should be viewed in two phases: the pandemic and the endemic periods.
During the pandemic period, the coronavirus vaccine would be given a price “well below” its actual value. The pricing will change and eventually be more in line “with other innovative commercial vaccines” when the crucial period passes.
For reference, flu shots are typically priced somewhere between $50 to $120 depending on the clinic while a single-dose HPV vaccine from companies like Merck (MRK) can cost up to $235.
Despite the clamor to further investigate this pricing scheme, Moderna sealed another deal with the US government worth $1.525 billion if the company succeeds in meeting its promised timeline.
This will translate to roughly $100 million doses.
It also stands to gain an additional $8.125 billion in follow-up doses plus the $300 million bonus if it can score an FDA approval by January 31, 2021.
Another frontrunner in this coronavirus vaccine race is Pfizer (PFE).
Among the healthcare and biotechnology companies working on a vaccine, Pfizer and its German partner BioNTech (BNTX) are reported to have the most lucrative contract with the federal government to date.
The company recently sealed a $1.95 billion deal for 100 million doses. This puts Pfizer’s coronavirus vaccine at roughly $20 per dose.
Both vaccine candidates from Pfizer and Moderna require two doses.
In comparison, Johnson & Johnson (JNJ) has a “one-and-done” vaccine candidate. That is, the Ad26.COV2-S showed potential that it could only require a single dose.
This is definitely a competitive edge as it will eventually be a cheaper and more convenient alternative to the two-dose vaccine offered by its competitors.
In terms of pricing, JNJ recently landed a $1 billion contract with the US government to deliver 100 million doses. This translates to $10 per dose.
However, AstraZeneca (AZN) appears to be the favored candidate by the US government.
In fact, recent reports suggest that the Trump administration is considering bypassing normal regulatory standards in the UK to fast track the delivery of the vaccine candidate to the US — all before election day.
What we know so far is that AstraZeneca, which is developing its vaccine in collaboration with the University of Oxford, signed a deal with the US government worth $1.2 billion.
This will amount to 300 million doses of their vaccine candidate, which puts the cost of each dose to roughly $4. At this price point, AstraZeneca offers the cheapest option.
Meanwhile, small-cap biotechnology company Novavax (NVAX) recently signed a similar deal with the government.
The Maryland-based company agreed to manufacture 100 million doses of its vaccine for $1.6 billion. This works out to approximately $16 per dose.
Next to Moderna, Novavax’s journey this year has been considered a “Cinderella story” by a lot of investors.
The company ended 2019 all banged up, with the biotechnology stock falling by almost 90%, thanks to its failed respiratory syncytial virus (RSV) vaccine candidate.
However, Novavax rose from the ashes following the encouraging results of its late-stage study for NanoFlu, another vaccine candidate.
By March 2020, Novavax’s flu vaccine released promising data that put NanoFlu in direct competition against Sanofi’s (SNY) flu vaccine Fluzone Quadrivalent.
Riding the momentum of their success with NanoFlu, Novavax joined the COVID-19 vaccine race with NVX‑CoV2373.
While companies like Pfizer, Moderna, JNJ, and AstraZeneca have been gaining media attention, an increasing number of health experts and analysts are claiming that Novavax’s candidate might just be the best in class.
Outside the companies under Trump’s Operation Warp Speed, China’s state-owned company, Sinopharm, also announced the pricing for its COVID-19 vaccine candidates.
The pricing is quite higher than those put forward by other vaccine developers, with the Beijing company quoting $145 for two doses.
Aside from China, Russia also has a vaccine candidate expected to be out in the market soon.
Vladimir Putin claims that Russia’s coronavirus vaccine candidate is similar to the one created by AstraZeneca and Oxford University.
No information has been given on either the results of the vaccine’s late-stage trials or its pricing.
To date, the World Health Organization (WHO) has recorded 7 vaccine candidates undergoing Phase 3 clinical trials, while there are 15 more going through Phase 2 expanded safety trials.
An additional 25 candidates are currently under Phase 1 small-scale trials plus another 138 pre-clinical candidates slated for human trials soon.
The development and success of at least one coronavirus would undoubtedly reverse the economic and financial damage brought by the pandemic. Hopefully, that time will come soon.
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 7, 2020
Fiat Lux
Featured Trade:
(THE BILLIONS IN CROSS-PRESCRIBING FOR COVID-19),
(INCY), (NVS), (REGN), (SNY), (RHHBY), (LLY), (AZN), (GILD)
Although there is no obvious connection between cancer and viral infections, Delaware-based biotechnology and pharmaceutical company Incyte (INCY) is optimistic that its blood cancer treatment Jakafi can offer a solution to the COVID-19 pandemic.
The research on Jakafi’s efficacy against the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) started in April. It’s rooted in the premise that since the drug works by inhibiting the immune cells, then it can be effective in suppressing the body’s response to the coronavirus attack.
This is promising considering that the immune system bears the brunt of the most deleterious effects of the virus, with the patients’ own cells attacking their bodies that subsequently leads to death.
Jakafi received its first approval back in 2011. While it was discovered and marketed by Incyte in the US, this drug is sold by Novartis (NVS) outside the country under the name Jakavi.
Apart from Incyte, other companies working on a similar strategy of using an autoimmune disease drug to treat COVID-19 complications include Regeneron (REGN), Sanofi (SNY), and Roche Holding’s (RHHBY).
Outside its COVID-19 efforts, Incyte is also looking into expanding the market for Jakafi.
In 2019, Jakafi sales grew by 21% to reach $1.7 billion. Revenues were derived from the drug’s three approved uses, namely, myelofibrosis, polycythemia vera, and acute graft-versus-host disease.
For 2020, Incyte estimates sales to grow to hit $1.8 billion to $1.95 billion, paving the way for Jakafi to become a $3 billion brand.
So far, Incyte is hoping to achieve this by expanding Jakafi’s indications to include atopic dermatitis. The goal is to submit this for approval by the fourth quarter of the year.
Another COVID-19-related effort linked to the company is testing rheumatoid arthritis drug Olumiant, which Eli Lilly (LLY) licensed from Incyte.
Eli Lilly is investigating this drug in partnership with the National Institute of Allergy and Infectious Diseases (NIAID) hoping Olumiant can be used to treat critically ill COVID-19 patients.
Other companies looking into the same plan are Roche with Actemra and AstraZeneca (AZN) via Calquence.
Aside from that, NIAID is also looking into the efficacy of Olumiant when combined with Gilead Sciences’ (GILD) lead COVID-19 candidate Remdesivir.
Looking into Incyte’s earnings history, it’s safe to say that the company is on its way to a brighter financial future.
Last year, Incyte’s total global revenue reached $2.16 billion, showing a 15% increase from 2018.
Aside from its best-selling drug Jakafi, Incyte has another potential blockbuster in its portfolio in the form of blood cancer treatment Iclusig. This drug, which the company licensed from Ariad Pharmaceuticals, added $90 million in sales last year.
In addition, Incyte earned $226 million in royalties from Novartis’ sales of Jakafi outside the US and $80 million from Eli Lilly’s Olumiant sales last year.
As for Incyte’s pipeline for 2020, the company kicked off the second quarter with an early FDA approval of bile duct cancer treatment Pemazyre.
This new medication is also anticipated to be another bestseller for Incyte, with a $17,000 price tag for every treatment cycle.
On average, each patient requires eight to nine cycles in a span of six months. This puts the cost for every patient somewhere between $136,000 and $153,000.
At this rate, Pemazyre can rake in $50 million for 2020 alone.
Given that the world is still struggling with the pandemic, the company reported a modest peak sales estimate for Pemazyre at $140 million.
While this may not be enough to move the needle, Incyte is optimistic that the number will rise once the crisis is behind us.
More importantly, Incyte offers a fast-growing portfolio along with promising pipeline candidates that could give bigger biotechnology companies a run for their money.
Mad Hedge Biotech & Healthcare Letter
June 25, 2020
Fiat Lux
Featured Trade:
(COVID-19’s STEROID ROADBLOCK)
GILD), (MRNA), (INO), (SVA), (AZN), (MRK), (SNY), (GSK), (NVAX), (JNJ), (PFE), (LLY), (REGN)
Science rarely gets communicated accurately.
Earlier this month, UK health experts said that an existing drug called dexamethasone can cut the risk of death among patients suffering from severe COVID-19.
According to the Oxford University researchers, dexamethasone lowered the COVID-19 deaths by roughly 35% among patients in ventilators and 20% among those who required oxygen.
The experts clarified that this means for every 8 patients on ventilators treated with dexamethasone, they were able to save 1 life.
In response to this study, here’s the gist of what most news outlets reported: “Miracle COVID-19 cure discovered!”
Now, health experts are scrambling to get their voices heard over the loud pronouncements of opportunistic businesses heralding the sale of this life-saving drug.
Days after the UK experts released this information, government authorities have issued warning after warning against stockpiling this drug for personal consumption.
Up until today, they’re still convincing people that dexamethasone is not a community drug and should only be used if prescribed by a medical professional.
That is, dexamethasone is a treatment for the sickest of the sick and should not be used as a preventive treatment.
Here’s how it works, and why it can only be used in severe cases.
The dexamethasone dampens the immune system for patients in ventilators or oxygen. This is effective because in severe cases, the immune system turns against the body, specifically the lungs, causing deaths. That’s what dexamethasone addresses.
This means that dexamethasone cannot be used on mild COVID-19 cases. Patients classified under this category still have relatively healthy immune systems, which would of course be more preferable tools to fight the disease.
Although there has been a misconception about this treatment, this drug is definitely a breakthrough that the world badly needs at the moment. The positive results of its efficacy make it a first-line therapy until a vaccine gets approved.
So far, the leaders in the vaccine race include Moderna (MRNA), Inovio (INO), Sinovac Biotech (SVA), AstraZeneca (AZN)/Oxford, Merck (MRK), Sanofi (SNY), GlaxoSmithKline (GSK), Novavax (NVAX), Johnson & Johnson (JNJ), and Pfizer (PFE).
Dexamethasone has been around for almost 60 years, making the drug available practically everywhere.
It’s also safe since dexamethasone is included in the WHO’s list of essential drugs.
What we know is that this drug has been approved by the UK government to be used on COVID-19 patients in ventilators and oxygen.
Before being identified as a potential COVID-19 cure, dexamethasone has been widely used as a steroid treatment for rheumatoid arthritis, asthma, bowel disorders, skin disease, and some cancers.
The average retail cost of this drug is around $50 per 10mg. Since the treatment only requires a low dosage, the price would fall somewhere between $6 to $8 per patient.
Needless to say, this cheap treatment could hurt the sales of competing drugmakers aiming to come up with their own COVID-19 cure.
To date, the leaders in this field include Eli Lilly (LLY), Regeneron (REGN), and of course, Gilead Sciences (GILD).
Among those, the only treatment to show a noticeable effect in treating severe COVID-19 patients is Gilead’s Remdesivir.
Although Remdesivir has not been hailed as a miracle cure, this Gilead product managed to offer sufficient benefits to fuel demand.
According to its Phase 3 trial data, 65% of patients dosed with Remdesivir for five days showed better clinical improvement compared to a standard-of-care group.
When the pandemic broke out, Gilead announced that it’s giving away its remaining supply of Remdesivir, which amounts to roughly 1.5 million doses.
Nonetheless, the company disclosed that it plans to invest up to $1 billion on the development of the drug for COVID-19 patients.
Since government funding also comprises a portion of Remdesivir’s development, the arrangement inevitably raises the question of how much revenue the drug can generate.
After all, pricing will definitely be crucial because the company will have to strike a balance between making an acceptable profit and offering an affordable cure to patients.
Financial analysts estimate that Remdesivir’s potential profit could reach $7.7 billion by 2022.
If these estimates turn out right, then Gilead investors are sitting on a veritable gold mine.
Regardless of Remdesivir’s sales, Gilead remains a giant biotechnology and pharmaceutical company with a market capitalization of $97.18 billion.
In fact, it’s considered as one of the recession-resistant companies today thanks to its diversified portfolio and strategic acquisitions.
One of the main reasons for its stature in the industry is the fact that Gilead continues to be the definitive leader in the HIV market today.
Its top-selling drug Biktarvy recorded an impressive $4.1 billion in sales for the first quarter of 2020 alone, a substantial increase from its $3.6 billion earnings during the same period in 2019.
On top of that, Gilead secured patent exclusivity for Biktarvy until the early 2030s. This all but guarantees that the company’s cash cow remains safe from competition for many years.
The expansion of gene therapy Yescarta to cover the European market also proved to be effective. Sales of this lymphoma treatment jumped from $96 million in the first quarter of 2019 to $140 million in the same period this year.
Meanwhile, Gilead’s $4.9 billion acquisition of Forty Seven in April this year indicated the company’s move to expand its oncology sector. Specifically, blood cancer therapy Magrolimab is projected as the next blockbuster.
All these demonstrate that Gilead is well-positioned to handle major financial and even health crises.
More importantly, Gilead’s position as a leader in the search for a COVID-19 cure indicates its capacity to withstand a possible second wave of this pandemic as well as the potential to boost its sales in the process.
