Mad Hedge Biotech and Healthcare Letter
August 2, 2022
Fiat Lux
Featured Trade:
(A RISING TIDE LIFTS ALL BOATS)
(MRNA), (PFE), (NVAX), (SNY), (BNTX)
Posts
Moderna (MRNA) shareholders have one major worry in recent months: that the biotech company’s billion-dollar COVID-19 vaccine sales will eventually dry up.
After all, roughly 67% of the US population has already been fully vaccinated. Hence, it’s not surprising for investors to wonder whether the company’s glory days are over.
As a result, Moderna’s share price has taken a hit. The stock has slipped by over 35% so far in 2022. However, this looks more like an overreaction rather than a response to anything the company has done.
If anything, it seems that investors have read the situation wrong since Moderna recently received a billion-dollar vaccine dollar from the US.
The deal isn’t for the original version of its COVID-19 vaccine though. Instead, it’s for an updated booster candidate that targets the original coronavirus and the emerging omicron BA.4 and BA.5 strains.
Moderna will receive $1.74 billion to supply the US with 66 million doses of the updated booster. This means the price per dose would be $26.36.
This pricing is lower than the deal with Pfizer (PFE) for a similar booster, which had an implied price per dose of $30.48. In total, Pfizer is set to receive $3.2 billion for 105 million doses.
Nevertheless, this new Moderna contract shows a substantially higher price compared to the previous deal wherein the US paid $3.3 billion for 200 million doses.
That particular deal implied that the price per dose of the vaccine was at $16.50. in comparison, Pfizer’s vaccine was priced at $24 per dose.
A probable explanation for this disparity in pricing is the fact that Moderna received approximately $1 billion in funding from the US government courtesy of its Operation Warp Speed program. Meanwhile, Pfizer refused to participate in such a scheme.
Taken together, Moderna and Pfizer are slated to deliver 171 million doses of the updated booster by fall and winter.
Admittedly, those won’t be sufficient to cover the entire US population. This is why both contracts have options that would allow the government to add 300 million doses each as needed.
In terms of delivery, Moderna announced that its candidate should be ready for the fall vaccination campaign by the end of August.
Outside its coronavirus vaccine efforts, Moderna has a promising pipeline of candidates. To date, the company has 46 programs under development including personalized cancer vaccines.
Of these, Moderna has three candidates queued for Phase 3 trials. All of them are investigational vaccines. One is for the flu, another is for the respiratory syncytial virus (RSV), and the third targets the cytomegalovirus (CMV).
The flu vaccine has competition in Sanofi (SNY) and possibly Novavax (NVAX). However, there are no CMV and RSV vaccine candidates in existence.
Needless to say, getting the green light from the FDA for one or both of these vaccine candidates would be a massive win for Moderna.
More importantly, the company would hold the precious first-to-market competitive edge.
Another exciting candidate is Moderna’s collaboration with Vertex Pharmaceuticals (VRTX). The two are working on an inhaled candidate treatment for patients with cystic fibrosis.
Considering that Vertex is practically a monopoly in this space, its partnership with Moderna could mean a potential game changer in the industry.
Overall, Moderna’s lucrative deal with the US government could be indicative of another exciting period for coronavirus vaccine stocks.
After all, a rising tide lifts all boats.
Moreover, this group had the best performers on the market in the past years. Novavax skyrocketed by 2,700% in 2020 following the announcement of its COVID-19 program. BioNTech (BNTX) jumped by 600%, while Moderna climbed by an impressive 1,200%. Even Pfizer reaped rewards from its coronavirus candidate as it rose by 59% during the same period.
While these vaccine stocks won’t likely repeat their stellar performances, there are still several investment opportunities involving these companies.
The key is to choose a business that does not simply depend on its coronavirus vaccine gains but also leverages the opportunities to expand and diversify its portfolio.
This is what Moderna has been doing. With numerous programs in its pipeline, the company has turned itself into a multi product business that offers stability and growth. Investors eager to add a vaccine stock in their portfolio should buy the dip.
Mad Hedge Biotech and Healthcare Letter
July 14, 2022
Fiat Lux
Featured Trade:
(GOODBYE BIG PHARMA, HELLO BIG BIOTECH)
(GSK), (PFE), (BMY), (VTRS), (LLY), (JNJ), (AMGN), (GILD),
(MRK), (RHHBY), (AZN), (NVO), (ABBV), (SNY), (ABT)
The moment GlaxoSmithKline (GSK) completes the spinoff of its massive segments marketing drugstore staples, such as Tums and Advil, it will become the latest name to join the list of Big Pharmas shuffling their assets and rebranding itself into a pure-play biopharma stock.
The reorganization of this UK-based company is the culmination of years-long process that has transformed practically all the biggest pharmaceutical companies globally into biotechnology companies on steroids.
This type of transformation, which gets rid of sideline businesses, has been going on for years. Pfizer (PFE) dumped its chewing-gum segment back in 2002 and established another spinoff unit, Viatris (VTRS), with Mylan in 2020.
Bristol Myers Squibb (BMY) decided to spinoff its infant-formula division in 2009. In 2018, a new animal health company came to be from Eli Lilly (LLY).
By 2023, Johnson & Johnson (JNJ) expects to complete the creation of a spinoff company and unload its consumer health segment, which offers Tylenol and Band-Aids.
Essentially, they’re turning into Amgen (AMGN) and Gilead Sciences (GILD) but with more money and resources to churn out high-priced, complex treatments for rare diseases.
However, not all Big Pharma names plan to become pure-plays. For example, Merck (MRK) still intends to retain its animal health sector while Roche (RHHBY) wants to keep its diagnostics segment.
As for the rest, including AstraZeneca (AZN), Novo Nordisk (NVO), and AbbVie (ABBV), their plan is to focus on creating new drugs and marketing these treatments—nothing more, nothing less.
The idea of Big Pharma transforming into “Big Biotech” dates back to 1992, when Henri Termeer, the CEO of Genzyme—now owned by Sanofi (SNY)—was summoned to a Senate hearing in Washington to argue and justify one of the most expensive medicines ever put to market.
The medication in question was for a rare genetic condition called Gaucher disease. A year-long treatment for one person needed tens of thousands of human placentas, and the price tag? A jaw-dropping $380,000 annually.
Amid the demand to make the treatment cheaper, Genzyme stood by its decision and the price barely budged after two years.
The company’s tenacity and insistence on standing by its pricing altered the biopharma landscape. That is, drug developers realized that rather than marketing cheaper drugs to combat common diseases, they can focus on biotech-style treatments to target rare conditions.
At that time, Big Pharma companies were battling over pieces of massive markets. They allocated considerable funds to their commercial teams, hoping to outrank one another in crowded spaces.
Meanwhile, biotechs like Genzyme decided on a different strategy.
They concentrated on more innovative approaches. Actually, the biotech focused on biologics at that point. Then, the company simply ignored the pricing rules and set its own prices, which were considerably higher.
A more recent go-to proof of concept for this strategy is Abbott Laboratories (ABT), which was initially a diversified company that offered an extensive range of products like medical devices and even infant formula.
In 2013, the company spun off its branded pharmaceutical sector into AbbVie, which became a pure-play biopharma that focused on developing and marketing the arthritis drug Humira. Since then, Humira has transformed into one of the top-selling drugs in history.
More than that, AbbVie pays substantial dividends while its shares have delivered 500% returns since the spinoff. In comparison, the S&P 500 has returned roughly 220% within the same timeframe.
While this is a shift that investors have clamored to see in the healthcare sector, it also means that the transformations could turn companies with solid revenue streams that have become reliable despite the ups and downs of the drug discovery process into riskier bets.
Although treatments for rare diseases admittedly come with very high price tags, focusing on smaller markets brings with it the inherent risk that these buy-and-stuff-under-the-mattress blue chips could no longer deliver returns as consistently.
These days, though, the advancements have made faster and safer scientific breakthroughs much more plausible.
Companies have gained a better understanding of the human genome, oncology treatments, genetic diseases, and groundbreaking modalities like gene therapies.
The science has now caught up with the demand. More importantly, Big Pharma has finally woken up and started to leverage its resources to take advantage of the opportunities.
This gradual change can be seen in the surge of new treatments in the past years. From 2016 to 2020, the FDA approved an average of 46 new therapies annually.
This is more than half the number between 2006 and 2010 when the organization only approved an average of 22 new treatments every year.
Needless to say, these changes are also partly in response to the overall dissatisfaction of investors with the diversification strategies of Big Pharma.
Basically, the general message here is that Big Pharma should let the investors worry about diversifying their own portfolios and focus on developing safe and effective drugs.
Mad Hedge Biotech and Healthcare Letter
June 7, 2022
Fiat Lux
Featured Trade:
(A LOW-KEY BIOTECH SET FOR A BULL RUN)
(REGN), (BAYG), (NVS), (RHHBY), (SNY), (ABBV), (PFE), (INCY), (MRK)
Biotechnology stocks have been sliding for months now, but scientific advancements are not slowing down.
The public’s focus on messenger RNA and gene editing may have dwindled, but the fact remains that more and more patients are benefiting from the discoveries.
More importantly, new treatments are well on their way to clinical trials.
That’s why I think Regeneron (REGN) could easily be one of the big winners in the coming years.
Despite the economic slowdown, Regeneron shares are doing okay. They have actually practically doubled since the start of 2020, when the biotech was thrust under the spotlight for its anti-COVID antibody cocktail, REGEN-COV.
Its popularity heightened when then-president Donald Trump used its treatment.
While the demand for REGEN-COV has since declined, the drug still raked in $7.5 billion in sales in 2021.
However, that would most likely not be the trend since it was proven to be not as effective against the newer strains. In addition, the FDA significantly limited the situations in which the antibody cocktail can be used.
For the foreseeable future, Regeneron shareholders’ earnings are primarily dependent on macular degeneration treatment Eylea and asthma and dermatitis drug Dupixent.
For Eylea, which Regeneron shares with Bayer (BAYG) outside the US, sales grew by 19% in 2021 to record $9.4 billion.
A vital issue Eylea faces is its expiring US patent by mid-2023, which will probably lead to more aggressive biosimilar competition as early as 2024.
Aside from that, more and more rivals are emerging, such as Beovu from Novartis (NVS) and Vabysmo from Roche (RHHBY).
Luckily for Regeneron, Beovu hasn’t gained traction due to safety issues, while Vabysmo is still struggling to establish itself as a viable alternative.
Thanks to its entrenched position as an undisputed market leader, Eylea sales will continue to be a top-selling treatment.
While things are still going well for Eylea, Regeneron has been proactive in establishing Dupixent as another key growth driver.
Dupixent, which was co-developed with Sanofi (SNY), showed off an impressive 51% jump in sales last year to rake in $6.2 billion—and this isn’t the peak yet.
Dupixent is estimated to reach over $14 billion in sales in the following years due to expanded markets.
Sales of this newer drug have caught up with Eylea’s in the past years.
In fact, Dupixent is projected to overtake Eylea sales by 2024, with the figure almost doubling by 2025 compared to the 2021 revenue.
In terms of competition in the atopic dermatitis sector, Dupixent is challenged by Rinvoq from AbbVie (ABBV), Cibinqo from Pfizer (PFE), and Opzelura from Incyte (INCY).
Nonetheless, Dupixent still looks well-positioned to expand into current and new indications in the following years and be able to fight off competitors.
It is critical for any biotechnology and healthcare business to maintain a solid pipeline to respond to upcoming patent losses and the rise of generic competition.
In this aspect, Regeneron has been performing excellently.
It has several treatments queued that complement the existing blockbusters, Eylea and Dupixent, and bolster the long-term growth prospects.
A good example is the company’s experimental treatment Aflibercept, which is slated to release Phase 3 results in the third or fourth quarter of 2022.
If this succeeds, it can enhance and strengthen Eylea’s efficacy, allowing Regeneron to retain its dominant position in the retinal market.
The company is also working on getting the green light for seven new indications on Dupixent-related treatments, which would be out by late 2022 and early 2023.
Another area under Regeneron’s radar is oncology.
While it’s cancer portfolio isn’t likely to become a significant growth driver anytime soon, there’s definitely potential here—and the potential comes in the form of in-house combos with Libtayo.
Libtayo, a cancer checkpoint inhibitor, is the most significant drug candidate in Regeneron’s oncology pipeline today.
Although it’s a latecomer to the field, Regeneron has become one of the frontrunners in the skin cancer segment with the approval of its cutaneous squamous cell carcinoma indication and the addition of the basal cell carcinoma label.
However, those are relatively minor markets. In terms of infiltrating a major market, Libtayo’s first venture is into the lung cancer sector.
But, this could be challenging since Merck’s (MRK) Keytruda has a firm hold of this market.
Still, Libtayo has the potential to achieve blockbuster status—a goal that Regeneron looks to be aggressively pursuing.
Aside from skin and lung cancer treatments, Regeneron has been developing Libtayo-based candidates for prostate cancer treatment REGN5678 and ovarian cancer therapy REGN4018. It is also working on another lung cancer treatment, REGN5093, to hopefully bolster its foothold in this lucrative market.
Needless to say, approval of these cancer treatments would be an incredible game-changer not only for cancer patients but also for Regeneron.
Overall, Regeneron is an outstanding biotechnology company and investment option. The success of its blockbuster treatments will offer a strong foundation for the company’s future growth.
If you add the more than 30 pipeline candidates of Regeneron in the mix, then it’s easy to see that a bull run might just be on the horizon for this stock.
While regulatory hurdles and emerging competitors would present challenges, it’s clear that Regeneron has these issues under control.
Moreover, the company’s pipeline has clearly shown that it’s ready to meet the challenges head-on. Hence, it would be advisable to buy the dip.
Mad Hedge Biotech and Healthcare Letter
April 21, 2022
Fiat Lux
Featured Trade:
LET’S GET READY TO RUMBLE)
(MRNA), (PFE), (BNTX), (AZN), (ABBV), (MRK), (BMY), (TAK), (GILD),
(SNY), (ALNY), (NVS), (REGN), (IONS), (GSK), (BIIB), (CRSP)
As we gradually reach the pinnacle of biotechnology formation, a war is brewing in the life sciences world.
This can be one of the most exciting times for medical innovations for patients. Meanwhile, investors can be picky when picking where to put their money.
Even up-and-coming scientists can seize the opportunities to lay the groundwork for their own dream organizations.
At the same time, those aspiring to climb the corporate ladder have better chances at becoming CEO without the need to slog through the biopharma sector and scramble for whatever opening is available.
However, as more and more companies launch practically every day, claiming to offer groundbreaking and revolutionary breakthroughs, it’s critical to keep in mind that not all biotechs will succeed.
Actually, the number of biotech companies has been steadily rising since 2015.
In that year, 177 firms were formed, with biotech birth rates breaching the 200-per-annum mark by 2017 and 2018.
Seeing as many more have emerged even during the pandemic, it looks like the biotech world won’t be slowing down anytime soon.
Even funding hasn’t been deterred by economic downturns.
From 2015 to 2018, the total funding for biotech companies averaged between $68.6 million to roughly $90.2 million.
After a bustling, record-breaking 2020, the bar leading to 2021 was expectedly high.
Surprisingly, 2021 blew those figures out of the water as private investors opted to raise the bar even higher.
It’s the type of climb that’s truly hard to believe.
Biotechs raised over $22 billion in private funds in 2020 following a sluggish 2019. In 2021, that figure rose to $28.5 billion.
The top earner in these funding rounds last year was China’s Abogen, which took $1 billion in private investors’ money across two rounds.
Abogen is an mRNA-centered firm that’s currently working on a COVID-19 vaccine.
What makes its product different and possibly better than Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), and AstraZeneca (AZN) is that it would be thermostable. That is, it could be used in areas without access to refrigeration.
Another big winner in 2021 is Massachusetts-based biotech ElevateBio, which aims to be a one-stop shop for cell and gene therapies.
The idea is to develop a technology that fuses its gene-editing platform, cell engineering structure, and manufacturing warehouse into one system to ease and accelerate the drug development process.
Although not entirely the same, this plan has similarities with the strategies of Big Pharma names like AbbVie (ABBV) and Merck (MRK).
Amid the growing number of biotechs, a key challenge is how to stand out among companies that target the same disease areas. This kind of competition could hamper innovation.
The clearest indicator of success would be receiving approval and being able to launch the products commercially.
Ultimately, the goals are to offer safe and effective treatments and provide value to their shareholders.
Unfortunately, the reality is only a handful of startups do make it all the way to the top.
The more feasible scenario is that bigger businesses would acquire these companies—and that seems to be the case these days.
Alongside the booming biotech formation rate are the increasingly aggressive biotech buyout deals.
We’ve seen this before.
It started in 2019, with Bristol Myers Squibb (BMY) buying Celgene, followed by AbbVie splurging on Allergan and Takeda (TAK) merging with Shire.
In 2020, AstraZeneca bought biotech superstar Alexion Pharmaceuticals while Gilead Sciences (GILD) snapped up Immunomedics.
Meanwhile, Sanofi (SNY) stacked its deck with the $3.2 billion acquisition of Translate Bio. As for Merck, this biopharma sneaked in a massive win with an $11.5 billion buyout of Acceleron.
For this year, several names have already been eyed by Big Pharmas.
There’s Alynlam Pharmaceuticals (ALNY), an RNA-centered company, which seems to be the target of both Novartis (NVS) and Regeneron (REGN).
Another RNA-focused company, Ionis Pharmaceuticals (IONS), appears to be a key target as well, with the likes of GlaxoSmithKline (GSK), Bayer, and even Biogen (BIIB) waiting for an opportunity to pounce.
After all, acquisitions form an integral lifeline of the biotech world. Huge businesses with the resources swoop up promising buyout candidates to bolster their own pipelines.
However, M&A isn’t the only option for biotechs. There’s also the path where they can seek companies with similar focus and consolidate to become larger and more competitive entities.
This has been the expected plan for CRISPR Therapeutics (CRSP) for a long time. Hence, it is no surprise if other biotechs with their own groundbreaking technologies decide to follow the same route.
Overall, the biotech industry is booming amid its recent struggles with the market.
The faster growth rate of companies can be attributed to more investors seeing the industry's potential and, of course, better access to technology and scientific advancement.
Moreover, the world has become more interested in the biotech world and what the industry can offer due to the pandemic.
COVID-19 has shone a light on this sector following the quick and effective results of the vaccines and treatments.
That is, people have finally caught on to the idea that there is an incredible opportunity in biotech.
While a correction is to be expected at some point, the critical thing to bear in mind is that great ideas will always generate funding no matter what.
Mad Hedge Biotech and Healthcare Letter
April 12, 2022
Fiat Lux
Featured Trade:
(CAN THIS BE THE NEXT 10-BAGGER BIOPHARMA STOCK?)
(PFE), (BNTX), (GSK), (SNY), (AZN)
Being one of the most famous names in the biotechnology and healthcare industry, Pfizer (PFE) barely needs any introduction.
Thanks primarily to its COVID-19 vaccine, Comirnaty, Pfizer’s top line has skyrocketed, with its trailing 12-month revenue exploding by over 99% in the past three years and recording a total of a whopping $81.2 billion.
Realistically speaking, it’s best not to rate the chances of this happening again in the years to come.
Still, there are several factors that make Pfizer a convincing stock to hold even when the pandemic shifts to an endemic.
First, the COVID-19 program will most likely continue to rake in blockbuster revenues. Although it won’t be as high as the previous years, Comirnaty sales are projected to reach $39 billion this 2022 and $22 billion in 2023.
Apart from this vaccine, which was developed with BioNTech (BNTX), Pfizer also recently received approval for its own COVID-19 oral treatment called Paxlovid. The addition of this pill in its portfolio all but guarantees another high-growth revenue stream for the company.
Second, Pfizer holds eight blockbuster treatments focused on diverse sectors.
While these will eventually struggle with generic competition by 2030, the company has that issue covered. To date, Pfizer has roughly 89 candidates in its pipeline with 27 undergoing Phase 3 trials.
Pfizer’s plans to expand its pipeline became particularly evident in the past week as the company made some noise in the muted M&A scene.
Right on the heels of its successes in its lead RSV vaccine candidate, Pfizer bolstered this program through a $525 million biotechnology buyout.
The company that caught this Big Pharma’s attention is ReViral, which has been hard at work in developing Sisunatovir, an oral RSV drug.
While eyebrows may have raised over the price tag for a company with a single asset, it should be noted that Sisunatovir is estimated to rake in $1.5 billion in annual sales—and this pill isn’t the only candidate in ReViral’s pipeline.
All in all, that’s obviously not a bad payback for a contract this size.
The RSV space has always been a challenging and lucrative market for biopharmas, with the global costs linked to this disease reaching $5.45 billion in 2017.
Researchers have been working on a vaccine for decades, with some experiments dating as far back as the 1960s.
With the addition of ReViral to its portfolio, Pfizer has clearly positioned itself as the frontrunner in the RSV vaccine race.
This puts it firmly ahead of GlaxoSmithKline (GSK), which had to suspend its trials for safety reasons, and even the partnership between Sanofi (SNY) and AstraZeneca (AZN).
Evidently, Pfizer’s deep pockets could indicate additional acquisitions of smaller companies with promising candidates in their pipelines.
We’ve seen this happen with ReViral and, prior to this, Arena Pharmaceuticals to the tune of $6.7 billion primarily for the smaller biotech’s encouraging anti-inflammatory treatment Etrasimod.
Although that price tag initially raised doubts about Pfizer’s spending, a deeper analysis of Arena’s pipeline showed that it could bring $28 billion per annum by 2025.
Flush with the billions it earned from its COVID-19 program, the recent ReViral deal appears to be a relatively minor one for Pfizer.
This leads me to believe that this move marks the beginning of a fresh season of biotech buyouts—and Pfizer might very well be in the lead.
Overall, Pfizer presents a compelling investment case. It is remarkably diversified, which means it offers below-average risks.
Considering its trajectory and putting it against the backdrop of the fast-growing biotechnology industry, Pfizer has the potential to become a trillion-dollar company within 20 years.
