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Mad Hedge Biotech & Healthcare Letter
April 28, 2020
Fiat Lux

Featured Trade:

(THE FIVE FRONTRUNNERS IN THE RACE FOR A COVID-19 VACCINE)
(GSK), (SNY), (REGN), (TBIO), (VIR)

We’re finally pulling out the big guns.

Almost five months into this debilitating global pandemic, GlaxoSmithKline (GSK) and Sanofi (SNY) announced a collaboration to come up with a coronavirus disease (COVID-19) vaccine.

These vaccine heavy-hitters not only assured that the product would be ready by the second half of 2021 but also that they would be able to manufacture hundreds of millions of doses every year.

This is actually pretty impressive considering that the typical timeline for a vaccine takes at least a decade.

What we know so far is that Sanofi will conduct tests on its experimental vaccine using GSK’s adjuvants.

Adjuvants are added to improve the efficacy of some vaccines. These can also lower the amount of vaccine protein needed for every dose, boosting the likelihood of creating a shot that can be manufactured in large quantities.

According to GSK and Sanofi, human trials will begin in the second half of 2020.

GSK’s coronavirus adjuvant already demonstrated its value during the H1N1 influenza pandemic back in 2009 when this technology played a major role in the success of the Shingrix shingles vaccine.

As for Sanofi, the giant biotech company will be using a previously approved influenza vaccine for this joint effort.

GSK shares rose by 2% following the announcement while Sanofi got a 4.1% increase.

While both companies shared that they don’t really expect much profit from this COVID-19 vaccine, they plan to reinvest any short-term earnings in preparatory measures to better handle future pandemics.

Aside from this joint effort, GSK and Sanofi are also taking multiple shots in the hopes of solving this COVID-19 health crisis.

Sanofi is testing its malaria drug which contains hydroxychloroquine.

If you recall, this is the same drug that Donald Trump hailed as a “miracle” coronavirus cure earlier this year. Days following the president’s announcement, Sanofi offered to donate 100 million doses of hydroxychloroquine to 50 countries.

On top of that, Sanofi is also working with Regeneron (REGN) to assess whether its existing arthritis treatment Kevzara can work as a coronavirus medication.

It also has an ongoing collaboration with Translate Bio (TBIO) to come up with another COVID-19 vaccine using messenger RNA.

Outside its coronavirus efforts, Sanofi has been looking into streamlining the company’s focus to improve margins and shift into more lucrative growth areas. So far, so good.

One of the more drastic measures is eliminating diabetes and cardiovascular research sector of the company.

Funding for these was reallocated, with the acquisition of cancer and auto-immune biotechnology company Synthorx serving as a strong indication of the direction the company plans to take.

Apart from growing its immuno-oncology department, Sanofi is also betting on eczema treatment Dupixent — a move that saw them rewarded almost immediately.

The company’s recent earnings report showed that Dupixent sales jumped 135% in the fourth quarter of 2019, with annual sales soaring to an impressive $2.3 billion. This indicates a 152% increase from the year prior.

Riding this momentum, Sanofi received FDA approval to expand the use of multiple myeloma drug Sarclisa in April.

This marks another significant win for the company.

Multiple myeloma ranks second in the list of most common blood cancer types, with the disease affecting roughly 32,000 Americans annually. It cannot be cured as well, which means that treatments are needed throughout the patients’ lives.

Needless to say, Sanofi has several platforms to contribute to finding the cure and even a vaccine for COVID-19. More importantly, the company has managed to transform itself into a more streamlined and innovative business.

Sanofi would be a wise choice for investors interested in a stock to hold for the long term. This company doesn’t only hold a starring role in the search for a coronavirus vaccine but also offers more opportunities beyond the current pandemic.

Meanwhile, GSK is also not limiting its adjuvant technology to Sanofi but to other companies developing COVID-19 vaccines as well. The list includes Vir Biotechnology (VIR) and even Chinese biotech company Clover Biopharmaceuticals.

Despite its active participation in the coronavirus vaccine race, GSK tumbled down to over its 10-year low in March.

Although the pandemic’s negative impact looks discouraging, I think the overreaction is good news for value and dividend traders as the stock now trades at bargain-bin valuations.

Hence, investors could enjoy GSK’s lucrative 5.8% dividend at relatively cheap costs.

It also doesn’t hurt that GSK offers a diversified portfolio that all but guarantees minimal losses for its investors.

Its biggest revenue driver is the pharmaceutical arm of the business, which raked in total revenue of roughly $21.68 billion in 2019.

GSK’s vaccine segment contributed 8.87 billion while the consumer healthcare sector brought in over 11 billion.

Although smaller than its pharmaceutical arm, both segments are quickly catching up to GSK’s biggest moneymaker. In fact, its vaccine segment recorded revenue growth of 21% while its consumer healthcare arm jumped by 17%.

Overall, GSK is a compelling addition to any investor’s portfolio. Its impressive dividend combined with its diversified business makes this biotechnology company a wise choice as well.

The collaboration of GSK and Sanofi is considered as the most significant and promising COVID-19 vaccine effort to date.

This partnership not only maximizes the expertise of the two leading vaccine makers in the world but take advantage of their manufacturing capacity as well, which is a critical concern given that a COVID-19 vaccine would have to be distributed to millions, if not billions, of individuals across the globe.

The global economy has been dealt a massive blow because of the coronavirus disease (COVID-19), which has now spread across 181 countries — and it’s showing no signs of stopping anytime soon.

The recent situation report reveals that COVID-19 has caused over 53,975 deaths and more than 1,030,000 confirmed cases worldwide.

To add to that, the International Monetary Fund recently disclosed their concerns that the pandemic could push the world economy on the brink of a depression. What’s worse is that the fear brought by this possibility is already mirrored by major stock indexes across the globe.

Amid the economic turmoil, the Trump administration came up with an emergency package worth $2 trillion in an effort to help companies particularly in the aviation and healthcare sectors.

However, that won’t be enough in the long run, not even by a little bit.

This is why several biotechnology companies have been scrambling to find a vaccine and a treatment for this quickly spreading disease.

In March, Biogen (BIIB) announced its decision to team up with Vir Biotechnology (VIR) to join the race in looking for a cure for COVID-19.

Due to the urgency of the situation, both companies took an unusual move to simply start working together before even finalizing the details of the agreement. What they only have at the moment is a signed letter of intent.

What we know so far is that Biogen will take charge of the cell line and process development along with the manufacturing of Vir’s monoclonal antibodies.

Vir is a biotech company developing treatment for infectious diseases; its partnership with Biogen will help the smaller biotech to manufacture its COVID-19 drug candidate on a bigger scale. It’s also interesting that the company’s current CEO served as Biogen’s CEO up until 2016.

Prior to this deal, Vir has long been regarded as a biotech company with a strong financial position.

In the third quarter of 2019, the company raked in $320.2 million in cash, cash equivalents, as well as short-term investments. Vir’s balance sheet shows roughly $22.5 million in terms of long-term liabilities. Its recorded $1.4 million in revenue for the quarter.

In terms of its COVID-19 efforts, the company started working on a potential cure in January. Basically, Vir is looking into its library of antibodies to find which one could be used to neutralize the novel coronavirus.

This is actually promising since the company already succeeded in utilizing the same technique for Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS), which are also caused by coronaviruses.

Apart from its COVID-19 efforts, Vir’s pipeline includes a number of potential vaccines and treatments for tuberculosis, HIV, and Hepatitis B Virus (HBV).

If you’re planning to buy this stock, make sure to do so before its lock-up period expires on April 8 to maximize your money’s worth.

Between the two companies though, Biogen has been gaining more attention as a more attractive investment since it’s a blue-chip stock selling for cheap these days.

Biogen is a frontrunner in the multiple sclerosis and spinal muscular atrophy space. The giant biotech is also a leader in the development and manufacturing of biosimilars, which are cheaper versions of biologically based therapies.

Its pipeline also has a number of high-value clinical assets particularly for hard-to-treat neurodegenerative diseases like Alzheimer’s and Parkinson’s.

Its acquisition of Nightstar Therapeutics and recent partnership with Sangamo Therapeutics (SGMO) have also transformed Biogen into one of the red-hot players in the emerging gene therapy market.

Biogen is also sitting on $4.5 billion in cash with a relatively reasonable debt-to-equity ratio of 48.2.

Hence, this giant biotech has no issues paying a dividend and can also be considered more or less immune to the threats of COVID-19. This makes it a stock capable of weathering the ongoing pandemic and even the resulting economic crisis.

Looking at the pipeline of the company, Biogen currently has over 25 drug candidates. Five are already in Phase 3. Meanwhile, its win against Mylan’s (MYL) for its blockbuster Tecfidera ensures that Biogen won’t face competition for this moneymaker until 2028.

However, all eyes are focused on its Alzheimer’s drug Aducanumab.

Since the company’s announcement of this treatment, investors have been on a rollercoaster ride with Biogen withdrawing and eventually going back in.

If it gains approval, Biogen shares will definitely soar. If the drug gets rejected, then the stock will suffer from short-term losses.

According to the Alzheimer’s Association, there are 5.8 million people afflicted by the disease in the United States alone. Needless to say, this represents a lucrative market for Biogen.

With a healthy balance sheet overall and a steady near-term outlook, Biogen is an attractive stock for bargain hunters looking to add a pretty cheap large biotech stock in their portfolio.

The indiscriminate wave of selling brought about by the pandemic has clearly opened a once-in-a-lifetime opportunity, particularly for patient investors. The fact that Biogen is part of Buffett’s own portfolio doesn’t hurt its case either.

biogen

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