Mad Hedge Biotech and Healthcare Letter
December 5, 2024
Fiat Lux
Featured Trade:
(GRANT EXPECTATIONS)
(TXG), (ILMN), (TMO), (DHR)
Posts
The first time I visited the National Institutes of Health (NIH), I got lost trying to find the bathroom and ended up in a lab where someone was studying glow-in-the-dark zebrafish.
"Wrong door," the researcher said, "but at least you didn't walk in on the fruit fly mating experiments."
Such wrong turns seem oddly fitting now as the NIH, with its $45 billion research budget, navigates its own unexpected direction under new director Dr. Jay Bhattacharya.
This reminds me of a conversation I had with a university tech transfer officer who once described the grant distribution process as "academic musical chairs but with billion-dollar stakes."
Bhattacharya seems determined to change the tune, proposing limits on how many grants individual researchers can hoard like squirrels before winter.
It's a move that has some biotech companies sweating through their lab coats, particularly 10x Genomics (TXG), whose financial statements show a quarter of their revenue sprouting from NIH grants like bacteria in a petri dish.
The last time someone tried to cap grants—back in 2017—the scientific community reacted as if someone had suggested replacing peer review with a Magic 8-Ball.
The proposal was quietly buried in the bureaucratic equivalent of a drawer labeled "Ideas We'd Rather Forget." But like that mysterious experiment growing in the back of the lab fridge, it's back.
Meanwhile, Robert F. Kennedy Jr. has been making noise about trimming the NIH's organizational chart. While Kennedy's influence carries weight, Congress still holds the purse strings, and they've historically treated the NIH like their favorite child at allowance time.
Bhattacharya's critique of the NIH's traditionally cautious approach to funding feels like watching someone suggest skydiving to their risk-averse aunt.
He's pushing for more high-risk, high-reward projects, which could be a windfall for companies playing in cutting-edge sandboxes like CRISPR and AI-driven diagnostics.
Illumina (ILMN) and 10x Genomics are practically salivating at the possibilities, while established institutions might find themselves feeling like that last teenager picked for the dodgeball team.
The global picture adds another layer of intrigue to these changes. While we're debating grant caps and organizational reshuffling, China has been quietly doubling its biotech investments over the past decade, particularly in regenerative medicine and precision oncology.
If NIH reforms stumble, U.S. companies could find themselves playing catch-up. For those who want to take part in the action, this presents an opportunity to diversify.
International markets with increasing government funding for biotech offer new avenues for growth. Global biotech ETFs could also serve as a hedge against domestic uncertainties.
Against this backdrop, diversification becomes key. Consider companies with revenue streams less tethered to NIH funding.
Thermo Fisher Scientific (TMO) and Danaher (DHR), for example, boast a global footprint that cushions them against domestic policy shifts.
After all, the global life sciences tools market, valued at $52 billion today, is projected to grow to $95 billion by 2030, with a Compound Annual Growth Rate (CAGR) of nearly 15.89%.
Emerging frontiers like gene therapy and personalized medicine also deserve attention. These fields aren’t just buzzwords—they’re the future of biotech.
ETFs focused on genomic innovation, like the ARK Genomic Revolution ETF (ARKG), provide exposure to high-growth sectors while spreading risk.
So, what’s the play here? Well, investment opportunities in this space will depend on your appetite for disruption.
10x Genomics presents an intriguing case at $15.90. Yes, up to 25% of its revenue comes from NIH funding, making it vulnerable to policy shifts.
But this same connection positions them perfectly to benefit from Bhattacharya's high-reward research initiative. The upside potential here is massive for those willing to weather some volatility.
Illumina stands out at $144.15 as a different kind of opportunity.
Their lock on the genomic sequencing market combined with aggressive R&D investments offers that rare combination: steady performance with genuine growth potential. Think of it as smart defense for your biotech portfolio.
Then there's Thermo Fisher Scientific, trading at $529.63. Their global reach and diverse revenue streams make them remarkably resilient to NIH policy changes.
The stock won't double overnight, but it offers the kind of reliability that lets you sleep soundly.
In the end, the NIH's transformation under Bhattacharya feels a bit like watching a scientist redesign an experiment mid-trial. Some see doom and gloom in these changes, while others spot golden opportunities.
But if you ask me whether the biotech glass is half empty or half full, I'd say we're missing the point entirely—in this industry, the glass has always been refillable.
Mad Hedge Biotech and Healthcare Letter
October 31, 2024
Fiat Lux
Featured Trade:
(BORN WITH A SILVER SEQUENCE)
(ILMN), (PACB), (TMO)
Let's face it. Cancer is still kicking our collective butts.
Despite all the fancy lab coats and high-tech gadgets, cancer remains the second-leading cause of death in the U.S. It's like that annoying party guest who just won't leave, no matter how many hints you drop.
This year alone, more than 2 million Americans are expected to hear those dreaded words: "You have cancer." And sadly, over 600,000 of our fellow citizens will lose their battle with this relentless foe in 2024.
Before you start thinking I'm all doom and gloom, let me flip the script for you. Where there's a problem, there's opportunity. And in this case, we're talking about a massive opportunity to put your investment dollars to work.
Back in 2020, America shelled out a whopping $200 billion on cancer treatments. By 2030, that number is projected to skyrocket to over $245 billion. That's a growth trajectory that’s worth our attention, don’t you think?
So, let's dive into the world of cancer-fighting stocks. There are some heavy hitters in this space that deserve your attention.
First up, we've got Illumina (ILMN), the gene-sequencing giant. These folks are like the Sherlock Holmes of the genetic world, helping researchers crack the cancer code.
With over 21,600 of their systems installed worldwide, Illumina is the go-to company for anyone looking to dive deep into our genetic makeup.
But here's the thing - Illumina isn't just about cancer. Their tech is used in everything from studying infectious diseases to figuring out if your unborn baby is likely to be the next Einstein.
And while they're tight-lipped about their exact market share, word on the street is they're still the big fish in the gene-sequencing pond.
In fact, let me throw some numbers at you. Illumina holds a whopping 80% market share among the seven main pure-play next-generation sequencing companies.
Even if we toss in some non-pure-play heavyweights like Thermo Fisher Scientific (TMO), Agilent Technologies (A), and Qiagen (QGEN), Illumina's still sitting pretty with roughly two-thirds of the global market.
And get this - despite the industry facing some macro headwinds, Illumina's market share has held steady over the past couple of years. Talk about staying power.
Speaking of big fish, Illumina recently spun off Grail (GRAL), but they've still got their fingers in that pie with a 14.5% stake.
Grail is all about liquid biopsy products – fancy talk for finding cancer through a simple blood test. It's a promising field, but Illumina's not the only player in town.
Enter the new kids on the block: Element Biosciences and Ultima Genomics. Backed by venture capital and hungry for a piece of the action, these upstarts are shaking things up. Element's focusing on accuracy, while Ultima's all about high-volume, low-cost sequencing.
While we're on the topic of liquid biopsies, let's talk about Guardant Health (GH). These folks are the pioneers in finding tiny bits of tumor DNA floating around in your blood. Their Guardant360 product was the first FDA-approved liquid biopsy for all advanced solid tumors. That's like hitting a home run in your first major league at-bat.
But Guardant Health isn't resting on its laurels. They've got a whole suite of products, from tissue biopsies to tests that can tell if your cancer treatment is working. And get this – they're looking at a $30 billion annual market just in cancer treatment selection and recurrence monitoring.
But it doesn't end there. Early-stage cancer detection could add another $50 billion to that pot in the U.S. alone.
As if that wasn't enough, Guardant Health just got FDA approval for their Shield blood test for colorectal cancer screening in July 2024. Next stop? Lung cancer. These folks are aiming to create a test that can catch multiple cancers early.
And let's not forget the big boys. Pfizer (PFE), the pharmaceutical giant, is throwing its considerable weight into the cancer fight.
They've already got three blockbuster cancer drugs – Ibrance, Xtandi, and Inlyta – each raking in over a billion dollars a year. And that's just the tip of the iceberg. Pfizer's got about 40 more cancer programs in clinical testing.
Still, Pfizer isn't just relying on its own lab coats. They're not afraid to open up their wallet either. In 2021, they snatched up Trillium Therapeutics to beef up their blood cancer portfolio. And in 2023, they added Seagen to their collection, giving them a leg up in antibody-drug conjugates for cancer treatment.
Now, I know what you're thinking. "But what if the cancer market dries up?" (As if!) Well, Pfizer's got that covered too. They're big players in the vaccine market, with their new respiratory syncytial virus vaccine, Abrysvo, looking set to bring in some serious cash.
So there you have it. The war on cancer is far from over, but these companies are leading the charge. And while they're fighting to save lives, they might just help fatten up your portfolio too. I suggest you add these names to your watchlist and buy the dip.
Mad Hedge Biotech and Healthcare Letter
August 29, 2024
Fiat Lux
Featured Trade:
(ONE TEST TO RULE THEM ALL)
(ILMN), (BAYRY), (LLY), (MRK), (BMY), (AZN), (RHHBY), (NVS), (GH), (TEM), (TMO)
“One test to rule them all, one test to find them, one test to bring them all, and in the lab bind them,” the scientists at Illumina (ILMN) whispered – probably.
Their latest creation just got the FDA nod, and it's set to turn the world of cancer diagnostics on its head. It's as if Gandalf himself handed oncologists a palantír that reveals tumors' deepest secrets.
For those less versed in Middle-earth lore, this is like inventing a universal remote for tumor profiling, and oncologists can't wait to start channel surfing.
Now, you might be thinking, "What's the big deal?" Well, let me break it down for you.
This test, called TruSight Oncology Comprehensive (TSO for short), is the first FDA-approved genomic in vitro diagnostic kit that can make pan-cancer companion diagnostic claims.
In plain English, that means it's a single test that can be used across multiple cancer types. We're talking about a game-changer in precision oncology here.
Let's get into the nitty-gritty. This TSO test is a beast. It screens for a whopping 517 genes and provides comprehensive information on tumor mutational burden (TMB) and microsatellite instability (MSI).
These are crucial biomarkers that help determine how a patient might respond to immunotherapies. The breadth of data this single FDA-approved test can collect is unprecedented.
Now, you might be wondering, "Haven't we had companion diagnostics before?" Sure, but they've typically been limited to specific drugs or cancer types.
This pan-cancer test from Illumina is different. It can be applied to a wider range of solid tumors, and let me tell you, oncologists are loving it.
In fact, about 39% of U.S. oncologists have already said they strongly prefer using multi-gene panels over single-gene tests for guiding treatment decisions. That's a clear signal that there's demand for comprehensive diagnostic solutions like TSO.
Illumina's been busy across the pond, too. A version of this test has been available in Europe since 2022. But the U.S. version's got some new tricks up its sleeve.
It can help identify patients who might benefit from specific immunotherapies, including Bayer's (BAYRY) Vitrakvi and Eli Lilly's (LLY) Retevmo. The latter is a new addition compared to the EU version of the test.
Let's talk about these therapies for a second. Vitrakvi is used for adult and pediatric patients with certain NTRK mutations, regardless of their type of cancer. That's pretty cool, right?
But here's the kicker - these NTRK gene fusions are only found in about 0.1% to 0.3% of solid tumors, and they're tough to detect.
TSO's ability to scan both RNA and DNA means it can find multiple forms of this biomarker. That's a big deal for companies like Bayer, who've sometimes struggled to find eligible patients for this targeted therapy.
But Illumina's not resting on its laurels. They've got a growing pipeline of companion diagnostic claims in development, working hand in hand with drugmakers. They're planning to seek these in future regulatory submissions.
You see, Illumina's been playing the long game, forging partnerships with big pharma to co-develop companion diagnostics that align with targeted therapies.
Take their 2019 partnership with Merck (MRK), for instance. They teamed up to develop and commercialize a companion diagnostic using Illumina's TruSight Oncology 500 assay.
The goal? To identify genetic mutations in cancer patients that would respond to Merck's cancer drugs like Keytruda. This partnership boosted the adoption of Illumina's NGS platform in clinical oncology settings, contributing to both companies' growth.
The market liked what it saw at the time. Illumina's stock got a nice bump following the partnership announcement. And why wouldn't it?
The deal strengthened Illumina's position in the oncology diagnostics market, which is projected to grow at a CAGR of 12.4% from 2023 to 2030.
But Merck's not the only dance partner Illumina's got. They've also teamed up with Bristol-Myers Squibb (BMY) to use their TSO 500 assay as a companion diagnostic for immuno-oncology therapies.
This collaboration expanded Illumina's reach into new oncology applications, allowing BMY to use the TSO platform to identify patients most likely to benefit from its immune checkpoint inhibitors.
And there's more - Illumina's also forged partnerships with AstraZeneca (AZN), Roche (RHHBY), and Novartis (NVS) to develop companion diagnostic tests.
Next, let's talk numbers. Each new FDA-approved indication could potentially add $100 million to $200 million annually to Illumina's revenue. That's no chump change.
Unsurprisingly, Illumina's not the only player in this game.
Companies like Foundation Medicine (a Roche subsidiary), Guardant Health (GH), Tempus (TEM), Caris Life Sciences, Thermo Fisher Scientific (TMO), and GRAIL (another Illumina subsidiary) are all working towards pan-cancer or multi-cancer diagnostics.
Still, Illumina's TSO test is the first to secure FDA approval for pan-cancer companion diagnostic claims. This lead could translate into a significant market advantage.
Actually, Illumina already holds more than 70% market share in the global NGS market as of 2022. This means it’s well-positioned to benefit from this growth, and this latest FDA approval could further consolidate its market dominance.
Speaking of the FDA, they’ve been busy too. They've ramped up their support for precision medicine in recent years, approving a growing number of companion diagnostics and genomic tests.
From 2017 to 2021, they approved over 25 new companion diagnostics, a significant increase from the 5-10 approvals per year in the early 2010s. And a substantial portion of these approvals has been for oncology-related tests.
In 2021 alone, 68% of the FDA's new drug approvals were for cancer treatments.
Now, let's zoom out and look at the bigger picture. According to the World Health Organization, there were an estimated 19.3 million new cancer cases and 10 million cancer deaths worldwide in 2020.
The global cancer burden is expected to rise to 28.4 million cases by 2040, a 47% increase from 2020.
In the U.S., about 1.9 million new cancer cases are expected to be diagnosed in 2023.
The economic impact is also staggering. The economic burden of cancer in the U.S. was estimated at $157 billion in 2020, and it's projected to increase to over $246 billion by 2030.
These numbers stress the growing need for early detection and personalized treatment solutions.
But, unlike other companies, here's where advanced diagnostics like Illumina's TSO can make a difference. By ensuring patients receive the most effective treatments based on their genetic profiles, these tests can reduce unnecessary treatments and improve outcomes.
Studies have shown that using precision diagnostics can lower overall healthcare costs by 15% to 20% by avoiding ineffective therapies and hospitalizations.
Essentially, what we're seeing here is more than just a new test. It's a glimpse into the future of cancer treatment - more precise, more personalized, and potentially more effective.
For patients, it could mean better outcomes. For healthcare systems, it could mean more efficient use of resources. And for us? Well, it could mean significant opportunities in a rapidly growing market.
As Gandalf might say, "All we have to decide is what to do with the time that is given us." Illumina's chosen to use their time crafting this powerful new tool.
The quest to conquer cancer continues, and Illumina’s TSO might just be the ring-bearer we've been waiting for.
Keep your eyes peeled, fellow adventurers. The journey into precision oncology is only just beginning, and it promises to be an epic saga indeed.
Mad Hedge Biotech and Healthcare Letter
August 22, 2024
Fiat Lux
Featured Trade:
(BITING OFF MORE THAN THEY CAN CHEW)
(LLY), (NVO), (CTLT), (ZLDPF), (RHHBY), (AMGN), (PFE), (LZAGY), (TMO)
"If you build it, they will come." But what happens when they come before you've finished building?
That's the billion-dollar question facing the makers of GLP-1 weight loss drugs.
GLP-1 drugs, the newest darlings of the pharmaceutical world, are selling like hotcakes. Eli Lilly (LLY) and Novo Nordisk (NVO), the current heavyweights in this arena, raked in a whopping $10.4 billion and $6.85 billion respectively last year.
Basically, the demand is there, but the supply? Well, that's another story.
So far, Lilly and Novo have been throwing money at the problem like it's going out of style. We're talking billions here. Novo's earmarked $6.5 billion for production this year alone, while Lilly's already shelled out $5.3 billion to beef up its manufacturing muscle. They're expanding facilities faster than you can say "miracle weight loss drug."
But even that's not enough. Lilly admits the industry needs at least 10 to 15 dedicated sites to even come close to meeting demand.
It's like trying to serve a five-course meal to a packed restaurant with just one chef and a microwave.
And let's not forget about the price tag on these manufacturing sites. Novo just dropped $11 billion to buy three fill-finish sites from Catalent (CTLT). Talk about paying a premium for prime real estate.
While Lilly and Novo scramble to ramp up production, their manufacturing woes have created a window of opportunity for competitors eyeing a slice of the GLP-1 pie.
Boehringer Ingelheim and Zealand Pharma (ZLDPF) are closest to market with their Phase 3 drug survodutide.
Meanwhile, Roche (RHHBY) and Amgen (AMGN) aren't far behind in Phase 2. Even Pfizer's (PFE) dipping its toes in the water with an early-stage drug.
But here's where it gets interesting for us who want a piece of the action. These newcomers are facing a manufacturing dilemma of their own.
Do they build their own facilities and risk being late to the party? Or do they outsource and potentially lose control over production?
Some, like Boehringer and Roche, are already talking about using third-party manufacturers. It's like hiring a catering company instead of building your own restaurant – less upfront cost, but you're at the mercy of someone else's kitchen.
Enter the contract manufacturing organizations (CMOs), the unsung heroes of the pharmaceutical world who might just hold the key to unlocking the full potential of the GLP-1 market.
Let’s take a look at the big players in this space.
Lonza Group (LZAGY), with its $6.6 billion in annual revenue and 10% market share in biologics contract manufacturing, is a force to be reckoned with. They're not just sitting on their laurels either – they're pumping $850 million into a new biologics facility in Switzerland.
Then there's Thermo Fisher Scientific (TMO), the 800-pound gorilla of the industry. With a cool $44.9 billion in revenue last year and an 8% to 10% market share in contract manufacturing, they're a go-to partner for big pharma.
They've been on a shopping spree too, scooping up Pharmaceutical Product Development (PPD) for $17.4 billion to boost their manufacturing capabilities.
And, of course, let's not forget about Catalent. They might have sold some facilities to Novo, but they're still a major player with $4.8 billion in revenue last year. They're betting big on biologics, with plans to increase capacity by 40% by 2025.
As for those looking for growth potential, keep an eye on Samsung Biologics. They're the new kid on the block, with a 30% compound annual growth rate over the past five years and the world's largest single-site biologics manufacturing facility.
So, there you have it. The obesity epidemic is a tragedy, but it's also a trillion-dollar opportunity.
With half the population projected to be obese by 2030, this isn't just a health crisis—it's a financial frontier.
The GLP-1 market is poised to balloon to $130 billion, creating a feeding frenzy for those ready to capitalize on the supply squeeze.
But here's the real meat of the matter: in this gold rush, it's not just the drug developers who are striking it rich. The real winners are the manufacturers—those with the capacity to meet the insatiable demand. They're the ones handing out the "shovels" in this weight loss bonanza.
So while everyone else is focused on the flashy GLP-1 drugs, I suggest you also keep a watchful eye on these behind-the-scenes players.
Now, if you'll excuse me, I'm off to patent my groundbreaking idea: GLP-1-infused kale chips. Who says you can't have your cake and eat it too?
Mad Hedge Biotech and Healthcare Letter
August 20, 2024
Fiat Lux
Featured Trade:
(POX POPULI)
(BVNRY), (EBS), (GOVX), (SIGA), (CMRX), (TNXP), (TMO), (ABT), (MRNA), (PFE)
Hold onto your hazmat suits because the world of infectious diseases just got a lot more interesting. And if you're someone with a stomach for volatility, you might want to pay attention.
Mpox is back, and it's brought a nasty new cousin to the party. The World Health Organization (WHO) just hit the big red button, declaring the mpox outbreak a public health emergency of international concern (PHEIC). That's fancy talk for "this is serious, people."
Let's break it down. We're not dealing with your garden-variety mpox here. This is a new strain, dubbed Clade Ib, and it's tearing through central Africa like a bull in a china shop.
The Democratic Republic of Congo (DRC) has seen over 15,600 cases so far this year, more than all of last year. And it's not staying put.
Kenya, Burundi, Rwanda, and Uganda are all reporting their first-ever mpox cases. It's like watching a virus go on a world tour, minus the t-shirts and overpriced concessions.
Now, before you start panic-buying toilet paper again, the Centers for Disease Control and Prevention (CDC) says the risk to the U.S. is very low.
But they're still telling healthcare providers to keep their eyes peeled for any funky rashes on patients who've been globe-trotting lately.
So, what do we do with this information? Well, let's talk vaccines.
Bavarian Nordic (BVNRY), the company behind the most widely used mpox vaccine, has seen its stock jump more than 30% since the WHO's announcement. It's like they won the pharmaceutical lottery.
And Uncle Sam's not shy about showing them some love – the U.S. Department of Health and Human Services just placed a $156.8 million order for a bulk vaccine product.
But they're not the only player in town.
Emergent Biosolutions (EBS), another vaccine manufacturer, also saw its stock surge when the news broke.
Even GeoVax Labs (GOVX) saw its stock shoot up 40% yesterday morning. Not bad for a company most people had never heard of last week. They're working on an MVA vaccine – that's Modified Vaccinia Ankara for you science nerds out there. It's the go-to choice for folks with weakened immune systems.
But it's not all sunshine and rainbows in vaccine land.
Siga Technologies (SIGA) released some disappointing trial data for their antiviral drug TPOXX. Turns out, it's not much better than a sugar pill for treating mpox.
Other companies are also jockeying for position.
Chimerix (CMRX) is developing brincidofovir, an antiviral that could potentially treat mpox. Tonix Pharmaceuticals (TNXP) is working on TNX-801, a live-virus vaccine candidate.
And let's not forget the diagnostic giants like Thermo Fisher Scientific (TMO) and Abbott Laboratories (ABT). After all, in the world of infectious diseases, being able to spot the bad guy quickly is half the battle.
Even the big guns of the COVID-19 vaccine world, Moderna (MRNA) and Pfizer (PFE), might decide to flex their mRNA muscles in the mpox arena. And with their track record, who's going to bet against them?
But here's the million-dollar question: Is this a golden opportunity for investors, or a potential minefield? The answer, as always in the stock market, is "it depends."
On one hand, companies directly involved in mpox vaccines, treatments, and diagnostics could see their stocks soar if the outbreak worsens.
On the other hand, the biotech sector is about as stable as a jenga tower in an earthquake. Today's miracle drug could be tomorrow's cautionary tale.
The smart money isn't putting all its eggs in the mpox basket. Diversification is still the name of the game. Remember, this outbreak could fizzle out as quickly as it started, leaving one-trick ponies high and dry.
Plus, let's always keep in mind the wild card in all this: government contracts.
In the world of infectious diseases, Uncle Sam often holds the purse strings. Keep your ear to the ground for any whispers of government funding or contracts. That kind of news can send stocks into the stratosphere faster than you can say "public health emergency."
So, what's the bottom line? The mpox outbreak is creating some intriguing opportunities in the biotech sector. But as with any investment, don't let the fear of missing out cloud your judgment.
And remember, in the stock market, as in epidemiology, it's all about managing risk.
In the meantime, maybe skip that bushmeat sandwich on your next African safari. Just a thought.
