Mad Hedge Biotech and Healthcare Letter
July 11, 2024
Fiat Lux
Featured Trade:
(FORGET THE CASINO, INVEST IN THE HOUSE)
(TMO), (BIO), (DHR), (A)
Posts
I've always had a soft spot for healthcare innovation. But let me tell you, picking winners in this sector is trickier than trying to nail jello to a wall. You've got regulatory hurdles, fierce competition, and funding risks that'd make a Vegas bookie sweat.
That's why I'm a big fan of buying the arms dealers in this war on disease. I'm talking about the suppliers. These companies are calmly sitting pretty, ready to cash in on the general need for innovation without getting their hands too dirty.
Enter Thermo Fisher Scientific (TMO), the Waltham, MA-based behemoth that's supplying everyone from big pharma to your local hospital. They're slinging lab equipment faster than a short-order cook at a greasy spoon, and business is booming.
Just look at the numbers. Over the past decade, TMO's delivered a 400% total return. That's not just beating the S&P 500 – it's leaving it in the dust by 170 points.
And recently, Thermo Fisher just got the green light from those sticklers at the UK antitrust office to close a $3.1 billion deal for Olink, a Swedish outfit that's cooking up some serious magic in protein analysis.
We're talking about technology that can analyze hundreds of proteins faster than you can say "proteomics."
Speaking of proteomics, for those of you who slept through biology class, it's the study of proteins in biological systems. These little buggers are the muscle behind everything your body does.
While DNA is the blueprint, proteins are the construction crew that brings that blueprint to life. Figuring out how these microscopic workers operate is the golden ticket to a treasure trove of new drugs and therapies.
It's a growing field, with the global market expected to explode from $32.8 billion in 2023 to a whopping $161.9 billion by 2035. That translates to a compound annual growth rate of 14.2%.
As expected, Thermo Fisher isn't the only player in this game. You've got heavyweights like Bio-Rad Laboratories (BIO), Danaher Corporation (DHR), and Agilent Technologies (A) all jockeying for the top position.
But thanks to this recent Olink acquisition, Thermo Fisher's looking to pull ahead like a thoroughbred at the Kentucky Derby.
For better context, let's break down what this means for TMO's bottom line. Their mass spectrometry business, already a cash cow, could see a 5% bump in market share.
We're talking about an extra $475 million in revenue by 2028, with profit margins that'd make a hedge fund manager blush.
And that's just the tip of the iceberg. Their protein assays and kits business could see a 10% boost in market share, translating to another $450 million in revenue.
Despite these, Thermo Fisher isn't resting on its laurels. They're also partnering up with the likes of Bayer (BAYRY) to develop next-generation sequencing tools.
Next, let's talk dividends. I know, I know, a 0.3% yield isn't going to have you popping champagne. That's barely enough for a value meal at McDonald's. But don't let that fool you.
This company's been growing its dividend faster than a beanstalk on Miracle-Gro, with a five-year CAGR of 15.5%. It's not TMO's fault their stock price keeps outrunning their dividend.
Looking ahead, Thermo Fisher is projected to reach a 12% EPS growth in 2025 and 11% in 2026. It's like watching a rocket take off in slow motion.
Before you jump aboard though, I'll be honest with you.
At a P/E ratio of 26.6x, TMO isn't exactly on the bargain rack. It's priced like a fine wine, not a box of Franzia. But hey, quality costs money, and this is a company that's been delivering returns of 16.7% per year since 2004.
So, what's the takeaway here? Well, it’s clear that Thermo Fisher Scientific is a powerhouse in the healthcare and biotech sectors.
But, it's not going to give you the cheap thrills of a biotech startup that might cure cancer or go belly-up next week.
Instead, it's the steady Eddie that's going to keep chugging along, supplying the tools that make those moonshots possible.
If you're looking for income, well, this ain't your horse. But if you want growth with a side of stability, Thermo Fisher might just be the ticket. It's got more potential than a kid with a 4.0 GPA and a mean fastball.
Mad Hedge Biotech and Healthcare Letter
June 18, 2024
Fiat Lux
Featured Trade:
(PHARMAGEDDON AVERTED)
(ILMN), (NVTAQ), (NTRA), (GH), (EXAS), (TMO), (QGEN), (NVS), (RHHBY), (AZN), (CRSP), (EDIT), (FATE)
Global Market Comments
November 16, 2023
Fiat Lux
SPECIAL STEM CELL ISSUE
Featured Trade:
(THE STEM CELLS IN YOUR INVESTMENT FUTURE)
(TMO), (REGN)
I’ll do anything to postpone aging, as regular readers of this letter already know.
So when my doctor told me that she could extend the life of my knees by ten years with a stem cell injection, I was all for it.
You better pay attention too.
Stem cells, along with CRISPR gene editing (CRSP), are two hyper-accelerating medical technologies that promise to cure your ills, extend your life, and make you fabulously rich along the way.
Have I got your attention?
When my doc confirmed that she was already getting spectacular results from her other elderly patients, such as the dramatic regrowth of knee cartilage, it was like pushing on an open door.
Yes, these are the famous well-worn 71-year-old knees you have heard so much about over the past 15 years that hike and snowshoe 2,000 miles a year with a 50-pound backpack.
My doc is not lightweight. She is the orthopedic surgeon for the US Ski Team at Lake Tahoe, which is why I sought her out in the first place.
As a UCLA-trained biochemist, I have known about stem cells for most of my life. They only left the realm of science fiction two decades ago.
Early sources of stem cells relied on stillborn human fetuses, creating a religious and political firestorm that led to severe restrictions, a funding drought, or outright bans.
During the 2000’s, California was almost the only state that permitted stem cell research.
Since then, the technology has developed to the point where it can be easily harvested throughout the human body.
Easy, except when the source is the bone marrow in your backbone.
“You may feel a slight twinge,” said my doctor, as she flushed the air out of a gigantic horse needle the width of a straw. “I only have to hammer this needle into your hip bone 20 or 25 times to get the marrow I need.”
This was NOT in the glossy brochure I had been provided.
I said, “Don’t worry, Marines are immune to pain.”
“Does that work?” she asked.
“No, not really,” I replied, grimacing. “But it sounds good.”
I felt every single blow and tried to imagine myself on a faraway tropical island. It turned out to be 55 blows. I counted.
Once she obtained the 10cc she needed, she popped it into a small centrifuge to separate the stem cells (clear) from the red blood cells (red).
She then used an ultrasound machine to inject my stem cells at the exact right spot in both of my knees.
Being the true journalist that I am, I took pictures throughout the entire procedure with my iPhone 15 (see below).
The problem with advanced, experimental treatments is that they are not covered by your health insurance. Still, I thought $2,000 for ten years of extra life for both knees was a bargain.
Stem cells are undifferentiated cells that can transform into specialized cells such as the heart, neurons, liver, lung, skin, and so on, and can also divide to produce more stem cells.
You can think of stem cells as chemical factories generating vital growth factors that can help to reduce inflammation, fight autoimmune diseases, increase muscle mass, repair joints, and even revitalize skin and grow hair.
Goodbye, Rogaine!
When you are young, you have oodles of these cells, which is why kids so rarely die from dread diseases.
However, as you age, your exposure to too much sunlight at the beach, too many chemicals in the food and water you eat and drink, and natural background radiation degrades your DNA and reduces your stem cell supply.
Supplies of stem cells diminish as much as 100 to 10,000-fold in different tissues and organs. Welcome to old age, and eventually death.
The procedure I underwent is called Autologous Adult Stem Cells Treatment.
The great thing about it is that since you are using your cells, the risk of rejection or infection is minimal. And they are free!
This approach has become the must-go treatment for the wealthy seeking to repair aging, sagging parts of their bodies.
They are often sold with vacation packages in exotic third-world countries where regulation and medical malpractice suits are nonexistent.
The fact that the treatments are now becoming widely available in the US testifies to their effectiveness.
Do any search on stem cell treatments, rejuvenation, or life extension and you will find hundreds and hundreds of private clinics offering to do so for high prices.
California leads the nation with 109 clinics (including 18 in Beverly Hills alone), followed by New York and Texas.
Just follow the money.
The market is now on fire and is expected to reach $270 billion by 2025.
As a result, several breakthroughs in longevity are just around the corner.
The industry is now branching out into fields considered unimaginable just a few years ago. I’ll cover some of the highlights.
Imagine using your stem cells to repair not only your knees but any other organ. This is already being done in the lab with animal trials.
In Japan, they are growing human eyes from scratch, including lenses and corneas.
At Stanford, stem cells are bringing dramatic improvements in stroke victims.
At USC they are deployed to bring rapid repairs to those with severe spinal cord injuries.
Several private firms have sprung up to facilitate the banking of your stem cells through cryogenic freezing, such as Lifebank. Just harvest them when you are young for future use.
Better yet, get born to wealthy parents who will pay to have your birth placenta and umbilical cord frozen, the two richest sources of stem cells known.
The key term to search for your investment strategy is Mesenchymal Stem Cells, the major stem cells for cell therapy, or MSCs.
These cells can differentiate into vital cells that can be used to cure autoimmune disease, cardiovascular disease, liver disease, and cancer.
There are now several hundred clinical trials involving these cells underway.
A more adventurous strategy is to buy the stem cells of others and have them injected into yourself, a procedure known as parabiosis.
A company in Monterey, CA named Ambrosia is doing exactly this for $8,000 a patient. The goal here is to reverse aging across every major organ system.
Of course, I think there’s got to be a trade here.
Not so fast.
Almost all stem cell efforts are now confined to the research labs of major universities or are buried inside large biotech and drug companies.
A few researchers have spun off to set up their own private companies with substantial venture capital backing.
That said, there are a few peripheral listed plays.
Celgene is one of my favorites and is an early entrant in the field. They are using placenta-derived cells to cure a whole host of diseases, which you can find listed on their site at http://www.celgene.com/research-development/rd-locations/celgene-cellular-therapeutics/cell-therapy/
Thermo Fischer Scientific (TMO) provides a range of tools and supplies scientists need to pursue stem cell research (click here for their site at https://www.thermofisher.com/us/en/home.html
Regeneron (REGN) uses stem cells to pursue a broad range of serious medical conditions, including ophthalmology, cancer, rheumatoid arthritis, asthma, atopic dermatitis, pain, and infectious diseases. Visit their site at
https://www.regeneron.com
The problem with the entire biotech sector is that it can take a long time to deliver new drugs and procedures to market. So these may be next year's investments, instead of next week's ones.
And how are my knees doing? I knew you would ask.
A little swelling in my knees went away in a day. I sat funny for a few more days, thanks to my bone marrow extraction.
It will take about six months before any real growth in new cartilage in my knees can be measured with an MRI scan, which I have scheduled. So far, the results have been great.
But you know what?
My knees have not hurt an iota, despite my regular tortuous exercise regime. And I think that, right there, is a win.
If it works, my doctor wants to extract fat cells from my middle, known as Adipose Cells, and inject their stem cells, into my knees.
Talk about killing two birds with one stone!
This Won’t Hurt a Bit
Mad Hedge Biotech and Healthcare Letter
September 14, 2023
Fiat Lux
Featured Trade:
(A PIGGYBACK RIDE TO THE FUTURE)
(BMY), (NVS), (PFE), (MDT), (ABT), (TMO), (HCA), (UHS), (DGX), (LH)
As I walked the sterile, fluorescent-lit hallways of a leading biotechnological institute last summer, I overheard snippets of a conversation that immediately piqued my interest: “human-pig kidney,” “game-changer,” and “investor's goldmine.”
We often think of medical advancements in terms of their immediate patient benefits. Yet, in this chance encounter, the talk of the town was how these breakthroughs could cascade into lucrative opportunities in the stock market.
But how close are we to realizing this future?
Imagine a world where organ shortages, a grim reality for over 106,000 hopeful recipients in the U.S., could become a thing of the past. This isn’t a whimsical daydream but a tangible reality we're inching towards.
The mastermind behind this evolution? Kidneys grown inside pig embryos with a human cell composition ranging between 50% to 70%. This meticulous procedure, entailing 1,820 genetically modified pig embryos transplanted into 13 surrogate mothers, brought forth five specimens that met research criteria.
Switching our perspective, from a purely financial lens, the world of biotechnology is ripe with promise. But with the emergence of this organ transplant technology, investors should sit up and pay attention.
Consider giants like Bristol Myers Squibb (BMY), Novartis AG (NVS), and Pfizer Inc. (PFE). Their R&D teams are burning the midnight oil to roll out immunosuppressive drugs, pivotal for post-transplant procedures. Influenced by such groundbreaking endeavors, their stock trajectory could be a sight to behold in 2023.
Transitioning to medical equipment, Medtronic plc (MDT), Abbott Laboratories (ABT), and Thermo Fisher Scientific Inc. (TMO) aren't just names in the medical devices sphere. They represent the zenith of innovation, manufacturing state-of-the-art equipment integral to organ transplant procedures. If this biotechnological marvel scales, they stand at the precipice of unprecedented growth.
Moving onto healthcare, HCA Healthcare, Inc. (HCA) and Universal Health Services, Inc. (UHS) are the custodians of transplant centers. Their potential upswing is directly proportional to the success of human-pig kidney transplantations. And not to be overlooked, Quest Diagnostics Incorporated (DGX) and LabCorp (LH) are at the heart of organ compatibility diagnostics. As this transplant technology forges ahead, they are poised for a meteoric rise as well.
However, a word of caution is due.
While the financial forecasts appear rosy, any discerning investor is well aware of the need to balance enthusiasm with caution. The stock market's volatile nature, coupled with regulatory shifts and unpredictable research outcomes, can be game-changers. It is extremely crucial to keep your finger on the pulse of the sector and maybe even conduct more in-depth research on the potential of each company before making investment decisions.
Also, beyond finance, it would be remiss not to address the elephant in the room. The melding of human cells into pig embryos has raised eyebrows and ethical concerns. With human cells found in the embryos' brains and spinal cords, it prompts uneasy questions about the potential integration into the pigs' cognitive or reproductive systems. How the scientific community and regulators address these concerns will undoubtedly influence both the pace and direction of research, as well as investor sentiment.
Looking back, my chance encounter in that research institute was an omen of the times to come. On the brink of a scientific revolution, we are witnesses to a watershed moment in healthcare. But for the astute observer, it’s not just about saving lives. It's about understanding how such advancements can recalibrate the entire financial landscape.
To encapsulate the mood, let me leave you with this quote from the infamous Marie Curie: "Nothing in life is to be feared; it is only to be understood. Now is the time to understand more so that we may fear less.”
Mad Hedge Biotech and Healthcare Letter
May 16, 2023
Fiat Lux
Featured Trade:
(FROM PANDEMIC HERO TO UNDERRATED STOCK STAR)
(PFE), (BNTX), (JNJ), (LLY), (MRK), (ABBV), (BMY), (AMGN), (GILD)
For investors grappling with the classic dilemma of whether to jump into the stock market or wait for a market dip, here’s a compelling solution: healthcare stocks.
These stocks offer the best of both worlds, combining elements of both defensive and growth investments, providing a potential way out of this conundrum.
The defensive nature of healthcare stocks was vividly displayed in 2022, when the Health Care Select Sector SPDR exchange-traded fund (XLV) only saw a minimal decline of 2.1%, significantly outperforming the broader market's 18% slump.
This resilience stems from a simple truth: regardless of economic conditions, people will always require medical care and medications. As a result, healthcare companies tend to experience less volatility in terms of revenue and earnings compared to the overall market.
However, this year has been a different story. Technology and communication services shares have taken the lead, causing healthcare stocks to dip by 2.3%. Meanwhile, the S&P 500 has surged by 8.4% as investors view healthcare as a defensive sector.
Nonetheless, don't overlook the significant growth potential in this sector. In fact, healthcare has consistently delivered an average annual earnings growth rate of 12% since the mid-1980s, surpassing even the tech sector.
This impressive growth has been driven by factors such as aging populations in developed countries, the rising affluence of consumers in emerging markets, and groundbreaking advancements in the treatment of previously incurable conditions.
Interestingly, the recent decline in healthcare stocks has made their valuations more attractive. Currently, healthcare trades at a 5% discount compared to the broader S&P 500, whereas historically it has commanded a premium of around 11%.
Considering this, it's evident that the fundamental outlook for healthcare remains promising, making it an enticing opportunity for investors.
In the realm of defensive downside protection combined with compelling long-term growth prospects, a few notable companies shine brightly.
One standout is Pfizer (PFE), the pharmaceutical titan that truly hit it out of the park during the tumultuous COVID-19 pandemic.
Not only did it swiftly develop and commercialize its highly successful vaccine in collaboration with BioNTech (BNTX), but it also demonstrated an innovative approach that can be leveraged for future drug and vaccine advancements.
The COVID-19 vaccine proved to be an extraordinary cash cow for Pfizer, catapulting their revenue in 2021 and 2022 to double the figures of the previous two years.
Meanwhile, their free cash flow nearly tripled, presenting the company with abundant financial opportunities.
When we examine Pfizer in comparison to its US Big Pharma counterparts like Johnson & Johnson (JNJ), Eli Lilly (LLY), Merck & Co (MRK), AbbVie (ABBV), Bristol Myers Squibb (BMY), Amgen (AMGN), and Gilead Sciences (GILD), though, it becomes evident that this stock is appearing significantly undervalued across various metrics.
A fascinating observation emerges when we consider that Pfizer's revenue in 2022 was 3.5 times higher than that of Eli Lilly, yet Pfizer's market capitalization is $150 billion lower than Lilly's.
Furthermore, Pfizer surpassed Merck and AbbVie in revenue by nearly 2 times while achieving a substantially higher profit margin.
Still, Pfizer's market capitalization of $220 billion is nearly $50 billion lower than AbbVie's and approximately $70 billion lower than Merck's.
These comparisons suggest that Pfizer's stock price is curiously undervalued, presenting an opportunity for growth. However, the market has arrived at a different conclusion.
The rationale behind this perspective lies in the belief that the additional revenues generated by Pfizer through Paxlovid and Comirnaty due to the COVID-19 pandemic are not expected to be a permanent fixture.
As fewer individuals receive COVID vaccinations and require antiviral treatments, the demand for these products is predicted to decrease significantly. Consequently, this perceived compromise in Pfizer's growth trajectory has influenced its valuation in the market.
Moreover, several moneymaking drugs are set to lose patent exclusivity, which again underlines why analysts and the market are reluctant to buy the company's stock.
Rather than opting for a special dividend or engaging in additional stock buybacks, Pfizer's management embarked on an impressive acquisition spree, replenishing the company's drug development pipeline.
Pfizer has been making major moves in the pharmaceutical industry since mid-2021.
In a series of high-profile acquisitions, the company has added some promising drug candidates to its already impressive portfolio. In fact, Pfizer is aiming to generate $20 billion in revenues from its product pipeline by 2030, while adding another $25 billion to the top line through business development.
Some of the notable deals completed by Pfizer include the $2.3 billion acquisition of Trillium Therapeutics, which brought in two CD-47 targeting blood cancer drug candidates.
The company also acquired Arena Pharmaceuticals for $7 billion, gaining access to its late-stage autoimmune candidate Etrasimod.
It then completed an $11.6 billion deal for Biohaven and its lead candidate Nurtec, which is indicated for migraine treatment.
Global Blood Therapeutics was acquired for $5.4 billion, adding the commercial-stage drug Oxbryta to Pfizer's portfolio, which is indicated for sickle cell disease.
Pfizer acquired Reviral for $525 million and gained access to its antiviral therapeutics targeting the respiratory syncytial virus.
In March, Pfizer made another bold move by announcing its intention to acquire Seagen for $43 billion. Seagen is a pioneer in the antibody-drug conjugate space, with a portfolio that includes ADCETRIS, TIVDAK, and PADCEV. These drugs earned $839 million, $451 million, and $63 million, respectively, in 2022.
Despite all these acquisitions and the ambitious revenue targets set by Pfizer, some analysts have expressed doubts about the company's ability to achieve its goals.
This is because Pfizer does not currently have any "mega-blockbuster" drugs in its portfolio, which are drugs that generate more than $15 billion in annual sales.
For instance, Merck's Keytruda and Lilly's Tirzepatide are both expected to generate more than $25 billion in annual sales, while AbbVie's Humira has generated more than $15 billion in annual sales for many years.
Nonetheless, Pfizer remains optimistic and is determined to reach its revenue targets by 2030.
Aside from the splashy acquisitions, Pfizer has exciting prospects on the horizon, promising accelerated revenue growth from its non-COVID products in the latter half of this year. The company is gearing up for a series of key product launches that are set to make waves in the market.
One notable launch is Cibinqo, a breakthrough treatment for eczema. With its approval in January, Pfizer anticipates peak sales of approximately $3 billion.
Later in the year, the company has high hopes for Ritlecitinib, a potential therapy for alopecia, as well as Zavzpret, a migraine therapy that gained approval in March. These innovative products are poised to capture significant market share.
Pfizer's portfolio expansion doesn't stop there.
It has set its sights set on Elranatamab, a promising blood cancer therapy projected to reach peak annual sales of $4 billion.
Additionally, the company plans to introduce a new RSV vaccine and pursue label expansions for Xtandi and Braftovi.
Let's also not forget the potential approval for Etrasimod, a blockbuster-in-waiting that could revolutionize the industry.
Overall, Pfizer emerges as a compelling investment opportunity, presenting a unique blend of defensive strength and promising growth potential, while its valuation remains attractive and aligned with historical levels. While it may require a measure of patience, it's crucial to recognize that this stock won't stay affordable forever. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
May 11, 2023
Fiat Lux
Featured Trade:
(UNLEASHING GENOMIC SUPERPOWERS)
(TMO), (PFE)
