Mad Hedge Biotech and Healthcare Letter
January 26, 2023
Fiat Lux
Featured Trade:
(SLOW AND STEADY WINS THE RACE)
(REGN), (SNY), (RHHBY), (BAYN)
Posts
If you are on the lookout for stocks that have the potential to deliver dramatic gains right away, you’d be hard-pressed to find a better place than the biotechnology industry.
Hardly a month passes without at least one or two biotech names skyrocketing or tumbling thanks to updates about clinical studies. And this year won’t be any different for this group.
A particular biotech to keep on an eye on is Regeneron Pharmaceuticals (REGN).
This 2023, Regeneron has several upcoming trial readouts that could potentially push its stock price to an all-time high. The earliest update to watch out for involves its anti-inflammatory drug Dupixent, which is already a leading treatment for asthma and eczema.
Gaining its first approval back in 2017, Dupixent has been generating over $7 billion in sales every year for both Regeneron and its co-developer, Sanofi (SNY).
Riding this momentum, Regeneron stock could climb higher courtesy of the upcoming results of experimental studies with Dupixent and patients suffering from chronic obstructive pulmonary disease or COPD.
Based on data from the World Health Organization, COPD is the third leading cause of death across the globe. Despite this, there remains a shortage of effective and accessible treatment options for patients. Needless to say, this represents an untapped potential market and a promising fresh revenue stream for Regeneron.
Meanwhile, another product in Regeneron’s portfolio could soon get a shot in the arm. After struggling with unimpressive results in the earlier months of 2022, the company’s shares soared around September. As expected when it comes to biotechs, this type of double-digit percentage is triggered by positive clinical updates.
For Regeneron, the trigger was Eylea.
Aside from its blockbuster drug Dupixent, Eylea is another top-selling product of Regeneron. It is a rare eye disorder treatment that it developed with Bayer (BAYN). Recently, Regeneron disclosed that Eylea proved to be effective in a Phase 3 clinical study that justified a higher dosage of the treatment.
For years, Eylea has been a generous cash cow for the companies. Now, it could become an even more lucrative source. However, this development is even more critical for Regeneron because Eylea’s patent exclusivity is set to expire in 2024.
With the recent development, the company could easily apply for an extension of patent protection, which is obviously excellent news for Regeneron and its shareholders.
This news could not have come at a more timely period since Regeneron stock started tumbling following the biotech’s report of lower sales for Eylea in the fourth quarter of 2022.
In a preliminary report on its fourth-quarter earnings, Regeneron shared that the sales for Eylea during this period only reached $1.5 billion, which fell short of the $1.64 billion expectation from analysts.
The disappointing update scared off some shareholders and caused interested investors to think twice before putting their money in this company. However, these results were justifiable since they coincided with the launch of a rival drug treatment, Vabysmo from Roche (RHHBY).
Nonetheless, Regeneron remains a good investment in these turbulent times. Despite the challenges, its products, especially Eylea and Dupixent, continue to deliver solid financial results.
More importantly, the company has several promising pipeline candidates. To date, Regeneron has roughly 40 clinical trials ongoing, with a quarter of these queued for Phase 3 studies. This indicates the company’s capacity and plans to extend its lineup to launch brand-new treatments.
Meanwhile, it has also been working on label extensions for its already successful products, as seen in its efforts with Dupixent and Eylea.
With these solid products in its portfolio and other promising candidates for regulatory approval this 2023 and early 2024, Regeneron looks ready to deliver solid results in 2023 and beyond. Even if it doesn’t, the company is equipped with the tools to keep churning out strong returns in the long run. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
January 12, 2023
Fiat Lux
Featured Trade:
(ALL HAIL THE KINGS)
(ABBV), (JNJ), (ABT), (BDX), (SNY), (BMY)
What is the most exclusive category of dividend stocks? The first answer that comes to mind is the Dividend Aristocrats. These are S&P 500 members that have boosted their dividends consecutively for 25 years.
However, there is another more elite category of dividend stocks that gets less attention: the Dividend Kings.
Although they do not need to be part of the S&P 500, Dividend Kings gain this title by achieving an ultramarathon-like streak—a minimum of 50 years of consecutive payout growth.
However, buying shares of Dividend Kings is not a move for some types of investors. Several of these stocks tend to deliver relatively low growth. Some of these Dividend Kings have been underperforming in the past 10 years.
So, why should you consider investing in Dividend Kings?
Companies under this elite category can be an excellent component of any investor’s retirement portfolio or for those looking for reliable sources of income. Truth be told, most of these businesses offer dividend yields that are notably higher than the average dividend yield recorded by members of the S&P 500.
The consistency and dependability of these Dividend Kings in terms of paying out and boosting their dividend payouts also offer a certain degree of confidence for investors relying on income generated by the dividend stocks they added to their portfolio.
Only a few businesses make it to this category. Two segments comprise a significant part of the Dividend Kings category: the consumer goods sector, with 12 companies, and the industrial sector, with 14. Five utility stocks made it to the list as well.
Rounding up the list are four names from the healthcare industry: Johnson & Johnson (JNJ), Abbott Laboratories (ABT), Becton, Dickinson & Co. (BDX), and AbbVie (ABBV).
AbbVie only recently celebrated its 10th birthday after its monumental spinoff from Abbott back in 2013. In each of the past 10 years, this healthcare giant has hiked its dividend.
To date, the payout has risen by a whopping 270%, all but guaranteeing its standing as a Dividend King—a title it inherited from Abbott.
At the moment, the forward dividend yield of AbbVie is somewhere north of 3.6%, paying out approximately 73.7% of its earnings as dividends.
As expected, this relatively high payout ratio has some investors anxious over the wisdom of sustained hikes. After all, a sharp downturn in earnings could easily demand the company to pay out more in terms of dividends compared to how much its earnings rake in.
Nonetheless, it is critical to put everything in the proper context.
The competitors of the company, such as JNJ, Bristol Myers Squibb (BMY), and Sanofi (SNY), all have reported payout ratios of over 60%. That means AbbVie is hardly alone in this strategy of having a somewhat limited overhead to sustain its decision to continue hiking dividends even in the absence of earnings growth.
Apart from the $57.8 billion in revenue the company generated in the trailing 12 months, AbbVie estimates that two of its newer treatments, Skyrizi and Rinvoq, would rake in more than $15 billion in annual sales by 2025. With nine more candidates submitted for regulatory approval for 2023 alone, it is clear that AbbVie has been working hard to ensure that it creates additional new revenue streams in the near term.
As long as AbbVie continues to commercialize new products and work to develop and broaden the approved indications for its existing treatments to expand the reach of its addressable markets, then it is reasonable to believe that the company’s earnings will continue to climb.
It’s highly likely that most of the Dividend Kings will remain on the list this 2023. For one, there is immense pressure on businesses that have boosted their dividends for 50-plus years to sustain the streak. Besides, no CEO would want to be known as the leader who broke an impressive track record.
As for AbbVie, this stock is an excellent addition to the portfolio of long-investors and those searching for more sources of income. Buy the dip.
Mad Hedge Biotech and Healthcare Letter
December 13, 2022
Fiat Lux
Featured Trade:
(A LONGER-TERM INVESTMENT FOR PATIENT BIOTECH HOLDERS)
(AMGN), (HZNP), (JNJ), (SNY), (ABBV)
Amgen (AMGN) announced what could be the biggest M&A deal in the biotechnology world this 2022.
The giant biotech disclosed its deal to acquire Horizon Therapeutics (HZNP) for $27.8 billion in cash, amounting to roughly $116.50 per share which is quite a move for Amgen. Prior to this, Amgen was engaged in an aggressive bidding war against fellow bigwigs Johnson & Johnson (JNJ) and Sanofi (SNY).
While they is a massive company with a market capitalization of $140 billion, shelling out $27.8 billion is still a significant risk.
Aside from that, Horizon is based in Ireland; Irish takeover rules Amgen and its competitors needed to comply with repeated disclosure of its key documents throughout the course of the negotiations.
This begs the question: Why was Horizon so sought-after by some of the biggest names in the biotechnology and healthcare world?
One reason is that all companies, regardless of size, need a blockbuster—and this doesn’t spare Amgen and its peers.
Actually, Amgen has been preparing for patent expirations of some of its top-selling drugs for years. By 2030, the company would be dealing with the threat of a very serious decline in revenue of key products Otezla and Enbrel. When that comes, these two blockbusters would need to battle it out with the slew of generics and biosimilars raring to compete with their market share.
Meanwhile, Enbrel, which is projected to rake in $4.1 billion in revenue in 2022, will face biosimilar competition as early as 2023. Its main and biggest rival, AbbVie’s (ABBV) Humira, will lose patent exclusivity next year. That opens the floodgates for biosimilars and generics, pushing back against Enbrel’s share of the market while attempting to take over Humira’s.
Looking at how much these blockbusters contribute to Amgen, it’s projected that $10 billion or approximately 40% of the company’s revenue could be lost by the end of the decade.
This is where Horizon comes in.
The most crucial among Horizon’s products is Tepezza, which targets a rare condition know as thyroid eye disease. Based on its performance since getting launched in 2020, this drug is estimated to rake in roughly $2 billion in 2022.
Another potential blockbuster from Horizon is Krytexxa, which was developed for uncontrolled gout, and is projected to record $706 million in sales this year.
The third potential blockbuster is Uplinza, which targets an autoimmune disease called neuromyelitis optics spectrum disorder. This product is anticipated to reach $159 million in sales in 2022.
These three could bring in roughly $3.3 billion in revenue for 2023.
Based on the company’s pipeline and portfolio, it can add $2 to $5 billion of new product sales from 2024 to 2030. Needless to say, this would offset the patent cliffs faced by Amgen.
In terms of pipeline, Horizon has several of promising candidates as well. In 2021, the company acquired a biotech named Viela Bio. At that time, the smaller company’s candidates focused on inflammatory diseases and are valued at $3.1 billion.
On top of these, Horizon’s pipeline has candidates targeting rare diseases like myasthenia gravis, lupus, and Sjogren’s Syndrome. With Amgen’s size, experience, and resources, the development of these products would most likely be accelerated.
Originally, Horizon’s strategy was to keep buying clinical-stage treatments from smaller biotechs then pushing them through to commercial approval. Since then, it has transformed into a company that develops its own candidates targeting rare diseases and lucrative markets. Given its portfolio and pipeline, Horizon seamlessly fits with Amgen’s strategy.
Overall, this acquisition is an excellent deal for both companies.
While Amgen shareholders shouldn’t expect any significant increase in dividends any time soon or substantial share buybacks, it’s reasonable to believe that the company is poised for more growth in the coming years.
This makes Amgen a worthwhile buy for longer-term investors who are committed to staying with the company until 2030 or longer.
Mad Hedge Biotech and Healthcare Letter
September 13, 2022
Fiat Lux
Featured Trade:
(A CROWN JEWEL SCORES A GOAL)
(REGN), (BAYRY), (RHHBY), (SNY), (ALNY), (NTLA)
A stock with high margins offers a better buffer to face adversity and increased expenses.
Suppose a business’s revenue cost is substantial and leaves minimal room for the top line to maneuver and cover overhead and other operating fees. In that case, it can be challenging to stay in the black.
A recent example is Amazon (AMZN), which reports that its cost of sales typically comprises 80% or more of its revenue. When it struggled with the rising expenses in the past quarter, this e-commerce giant posted its first-ever loss in years.
Only a handful of companies manage to stick with this principle. In the biotechnology and healthcare sector, one business that doesn’t have this issue and enjoys gross profit margins of at least 80% or better is Regeneron Pharmaceuticals (REGN).
Regeneron was recently spotlighted following a significant 19.2% jump in its price, translating to a more than $12 billion rise in market capitalization.
The catalyst for this double-digit climb is none other than Regeneron’s crown jewel: Eylea.
The anti-blindness treatment, jointly developed with Bayer (BAYRY), delivered excellent results in two late-stage trials.
This is a huge deal because it supports the application of Eylea at higher doses and longer-lasting intervals.
Previously, Eylea was only permitted to be administered in 2 mg every 8 weeks. The recent trial results proved that the medication can be given at a higher concentration of 8 mg in a more extended period of 16 weeks and can still be effective at battling the disease. Plus, it shows a similar safety profile as the currently approved dosage.
This is a timely development for Eylea, which is set to lose its patent exclusivity soon, bringing anxiety to shareholders.
For context, Eylea accounts for $3.13 billion of Regeneron’s sales in the first 6 months of 2022. In the year's second quarter alone, it generated $2.49 billion in sales, recording a 9% year-over-year increase in its global profits.
In 2021, this eye medication reported $9.4 billion in sales worldwide.
These recent developments are eyed as potential solutions to Eylea’s impending franchise exclusivity loss as it attempts to eliminate a key overhang.
This move could slam the door shut on any talks or fears of potential copycats for at least a few years. It could also make it more competitive against rising competitors in the same space like Roche’s (RHHBY) Vabysmo.
The new data is expected to be used to defend the franchise from biosimilars, generic, and branded competitors. This is because patients are now offered an option for a treatment that needs fewer injections.
Most importantly, this could establish a firmer competitive moat for Regeneron and Bayer. After all, Eylea is projected to rake in more than $6 billion in sales in the US annually in 2023 and 2024.
Looking at their timeline and progress, the new Eylea dosage should be submitted for approval by the end of 2022 and launched by early 2023.
Other than Eylea, Regeneron has also been active in the oncology space.
Leveraging its roughly $6.2 billion sales from its COVID-19 treatment, Regeneron acquired several assets to expand its oncology segment.
Recently reported deals are its $900 million payment to Sanofi (SNY) to acquire non-small lung cancer drug Libtayo and the purchase of Checkmate Pharmaceuticals, which granted it access to promising melanoma candidates.
While these deals may not be as massive as other acquisitions in the industry, adding Libtayo and Checkmate Pharmaceuticals represent critical steps toward the right direction.
On top of these, Regeneron has existing partnerships and collaborations that would last for years. One is with Alnylam (ALNY), which involves treating liver cancer, ocular conditions, and diseases targeting the central nervous system.
Meanwhile, Regeneron expanded its deal with Intellia Therapeutics (NTLA) to give more rights to their in vivo therapeutic candidate developed via CRISPR/Cas9 gene-editing technology and additional targets, particularly for hemophilia A and B.
Overall, Regeneron has been proving to be a noteworthy investment in biotechnology and healthcare. At this point, though, the recent clinical trial results have been added to its share price.
While it isn’t exactly cheap, it’s not an outlandish valuation either. In short, I suggest that you wait and buy the dip.
Mad Hedge Biotech and Healthcare Letter
August 18, 2022
Fiat Lux
Featured Trade:
(MORE THAN JUST A ONE-TRICK PONY)
(MRK), (SGEN), (SNY), (PFE), (BNTX), (GSK), (CVAC), (MRNA)
When executed correctly and sufficient time is allocated, stock market investing can be highly rewarding. But, what can investors do to make the most of their opportunities in the market?
The short answer: Choose businesses that have or are building a strong competitive advantage.
Those investing in the biotechnology and healthcare sector know that buying companies with promising portfolios and diverse pipelines is vital.
After all, a solid lineup can generate and secure steady cash flow to fund R&D efforts as well as acquisitions to expand the pipeline. Consequently, this guarantees steady growth in revenues as existing products face patent exclusivity losses.
Within this sector, one of the companies with a strong portfolio and promising pipeline is Merck (MRK).
Merck has become practically synonymous with Keytruda—the #1 cancer drug in terms of sales globally. In the first 6 months of 2022 alone, this drug already raked in $10.1 billion in sales.
While several biotechnology companies would be content with this top-tier drug in its portfolio, Merck refuses to be a one-trick pony.
Leveraging its $222 billion market capitalization, the fifth-biggest pharmaceutical company on the planet has been steadily expanding its portfolio.
In fact, Keytruda only made up 33% of its total $30.5 billion sales in the first half of the year.
Merck has built a formidable oncology lineup and developed several blockbuster treatments in this space.
Its flagship, Keytruda, climbed 30% year-over-year in its second-quarter earnings report to record $5.3 billion for that period. Other cancer treatments improved their performance as well. Lynparza grew 17% while Lenvima rose 33%.
Amid these growths, Merck remains aggressive in expanding its oncology lineup. Earlier this year, the healthcare world has been abuzz with Merck’s plan to buy cancer-centered biotech Seagen (SGEN).
The deal, if it pushes through, would be reportedly worth $40 billion and add 4 already approved cancer drugs to Merck’s portfolio.
On top of these market-ready products, Seagen will also bring numerous late-stage candidates to the table.
Merck also recently inked a smaller deal with Orion Corporation. The agreement, worth $290 million, will grant Merck access to Orion’s drug candidate for prostate cancer.
Meanwhile, Merck just announced its plan to catch up with its peers in the COVID-era race. Specifically, the biotech giant has finally become more invested in entering the messenger RNA technology segment.
Earlier this week, Merck struck a $3.7 billion deal with Cambridge-based private biotech Orna Therapeutics for the latter’s novel take on mRNA called oRNA.
Basically, Orna’s approach involves altering the mRNA strands in such a way that it creates a circle instead of a line.
According to the firm, this will be a more effective way to apply the technology to mRNA-based vaccines and therapies.
This isn’t the first time Merck collaborated with a smaller firm to pursue mRNA technology.
As early as 2015, Merck has already been investing in this segment. In fact, it was one of the early partners of Moderna (MRNA), signing a series of agreements with the latter including collaborations on infectious diseases programs.
While some of the programs have been discontinued, Merck and Moderna continue to work together on a personalized cancer vaccine program.
Amid these efforts, Merck is still regarded as a laggard compared to its Big Pharma peers in terms of making huge investments in the mRNA space.
Recent mRNA collaborations include Sanofi’s (SNY) $3.2 billion deal with Translate Bio, Pfizer’s (PFE) massive investment in BioNTech’s (BNTX) technology, and GlaxoSmithKline’s (GSK) deal with CureVac (CVAC).
Nevertheless, the deal with Orna suggests a shift with Merck’s strategy.
Overall, Merck is a premier biotech and healthcare business with a strong portfolio and a promising pipeline.
Its profitability and expansion over the past years have been proven to be top-notch, and it’s not farfetched to expect the same or even better results in the future. I recommend buying the dip.
