(VRTX) Archives

Slicing Through Doubt

In the intricate world of medical breakthroughs, September 14, 1990, stands out like a sore thumb—or perhaps, a healing one.

On this day, the baseball world was left agog as Ken Griffey Jr. and Sr. knocked out back-to-back home runs, a feat as rare as hen’s teeth.

Meanwhile, in a quieter corner of the planet, a medical marvel was unfolding. Ashanti DeSilva, a 4-year-old with a genetic disorder ravaging her immune system, was about to become the poster child for gene therapy, receiving a groundbreaking treatment that involved a cocktail of modified white blood cells. The aim? To supercharge her immune system and give her a fighting chance at a normal life.

But let’s not sugarcoat it—the road from there to here was anything but a walk in the park. Gene therapy, the promising prodigy of the biotechnology and healthcare sector, had its fair share of teenage rebellion, grappling with safety concerns and delivery vehicle dilemmas. It wasn’t until the early 2010s when gene correction technologies got their act together and safer delivery systems stepped onto the scene, that gene therapy started living up to its potential.

Enter Sickle Cell Disease (SCD), the blood disorder that’s been playing hard to get, affecting around 70,000 Americans and causing everything from anemia to organ damage.

The cure seemed as elusive as a winning lottery ticket until exa-cel, the brainchild of CRISPR Therapeutics (CRSP) and Vertex Pharmaceuticals (VRTX), entered the scene.

This therapy, wielding the mighty CRISPR/Cas9 like a genetic scalpel, takes a patient's stem cells on a rollercoaster ride—harvesting, modifying, and infusing them back into the patient, with the end goal of producing healthy red blood cells.

Looking ahead, CRISPR Therapeutics and Vertex are gearing up for a potential launch of exa-cel in 2024, assuming all the stars align. This innovative gene therapy is poised to be a significant growth catalyst for both companies in the coming decade. Initially, the focus will be approximately 32,000 patients suffering from SCD and TDT.

However, investors need to brace themselves for the price tag, as gene editing therapies don't come cheap. The cost for exa-cel is anticipated to be well north of $1 million, reflecting the complexity and value of this cutting-edge treatment.

At this point, it's crucial to acknowledge that exa-cel is not the only player in this high-stakes game.

A variety of other gene therapies are also vying for the spotlight, with contenders like Bluebird Bio's (BLUE) lovo-cel, Beam Therapeutics' (BEAM) innovative base-edited candidates, and Editas Medicine's (EDIT) competitive CRISPR/Cas9 therapy all in the running.

Now, let’s talk turkey. The financial forecast for exa-cel is looking bright, with CRISPR Therapeutics poised to tap into a $48 billion market opportunity.

Although the treatment has yet to gain FDA approval, the company already has its ducks in a row. It set up 50 treatment centers in the US and 25 in Europe, as well as schmoozed with commercial payers to ensure exa-cel is as accessible as a cold beer on a hot day.

Still, let’s not put on our rose-colored glasses just yet. The biotech sector is as fickle as a cat on a hot tin roof, with CRISPR Therapeutics’ market cap doing the cha-cha in response to industry volatility. With a slew of gene therapies for SCD waiting in the wings, it’s a stark reminder that in biotech, it’s not enough to keep up—you’ve got to lead the pack.

Meanwhile, CRISPR Therapeutics is flexing its muscles with six other clinical trial programs targeting a spectrum of conditions from various cancers to type 1 diabetes, where it is ambitiously seeking a functional cure. With a robust $1.8 billion in cash, equivalents, and marketable securities as of the second quarter and a market capitalization of $3.2 billion, the company is in a strong financial position.

For the astute investors, the real gold is in playing the long game. Rather than getting caught up in the short-term ebbs and flows of the biotech market, the savvy should be pondering how to leverage the current market conditions to their advantage.

After all, CRISPR Therapeutics, with its pioneering gene-editing technology, has the potential to follow in the footsteps of biotech titans like Amgen (AMGN) and Regeneron Pharmaceuticals (REGN), both of which have turned early investments into veritable treasure troves.

Moreover, its financial stability, bolstered by its partnership with Vertex, ensures that funding woes common among smaller biotechs are less of a concern. While it may not be the largest or most prominent player in the biotech arena, the next decade could very well see CRISPR Therapeutics delivering returns that outpace the market. I suggest you buy the dip.

November 2, 2023/by april@madhedgefundtrader.com

The Rise, Fall, and Imminent Resurgence

Biotech Letter

The investing world is a roller coaster where investors' enthusiasm can experience sharp rises and precipitous drops.

One classic case study is CRISPR Therapeutics (CRSP), whose stock is currently hovering around $61 per share, a far cry from its zenith of $220.20 back on January 15, 2021.

But don't write off this biotech player yet; it's poised for a resurgence, and here's why.

The company is in the final stages of commercializing its pioneering gene therapy, exa-cel. This novel treatment, developed in collaboration with Vertex Pharmaceuticals (VRTX), aims to redefine the treatment landscape for patients battling transfusion-dependent beta-thalassemia (TDT) and sickle cell disease (SCD).

With approval requests already lodged with regulatory bodies, the company could be on the cusp of a financial windfall by Q2 2024, sending its stock skyward.

Shining a spotlight on this exa-cel opportunity, it's important to understand that current treatment options for blood disorders are far from ideal, involving blood transfusions and frequent hospital stays. Both physicians and patients are likely ready for a less disruptive alternative.

Exa-cel could be a game-changer for CRISPR, obviating the need for lifelong blood transfusions for certain SCD and TDT patients.

The Institute for Clinical and Economic Review (ICER) recently suggested that the therapy could fetch a staggering $1.9 million per treatment. Meanwhile, the treatment is projected to reach global sales of $1.7 billion by 2028, propelling it into the blockbuster category.

Even with Vertex claiming a majority 60% share of profits, the opportunity remains substantial for CRISPR.

CRISPR and Vertex are primed to address the needs of the most critically ill patients, estimated to be around 32,000 in the U.S. and Europe.

The real charm, however, lies in CRISPR's potential for sustainable long-term growth.

The approval of exa-cel doesn't just promise immediate benefits but also unlocks the potential of the company's pipeline, acting as a proof of concept for CRISPR's gene-editing methodology.

Fast-forward a decade, and the company might boast a portfolio of blockbuster therapies.

Among these potential stars is CTX310, set to enter clinical trials soon. CTX310 is one of the company's few in-vivo therapies, delivering therapeutic genes, gene modulators, and gene-editing tools directly into patient cells.

CTX310 targets angiopoietin-related protein 3 (ANGPTL3) to mitigate the risk of cardiovascular disease, a prevalent concern linked to high rates of coronary artery disease.

In contrast to the relative rarity of SCD and TDT, coronary artery disease is the most common heart disease in the U.S., claiming 375,476 lives in 2021, according to the Centers for Disease Control and Prevention.

Another contender in the pipeline is CTX110, currently under testing for B-cell cancers, including B-cell lymphomas, acute lymphoblastic leukemia (ALL), and chronic lymphocytic leukemia (CLL).

The drug showed promising results in a phase 1 trial to treat large B-cell lymphoma, reporting an objective response rate of 67% and a complete response rate of 41% in patients with significant prior treatment.

The future looks promising for CRISPR's quartet of chimeric T-cell (CAR-T) therapies -- CTX119, CTX130, CTX112, and CTX131 -- being developed as cancer therapies. These therapies target specific proteins to suppress tumors or provoke an immune response.

Contrasting the typical clinical-stage biotech company, CRISPR, thanks to collaborative revenue, is in a healthier financial position.

As of Q1, CRISPR had $1.89 billion in cash reserves, ample to fund operations for the next three years. With potential exa-cel approval, these funds could further fuel research and development.

While it's hard to predict precisely where CRISPR will stand in a decade, its roadmap sets it apart from most clinical-stage biotech firms. The company has already demonstrated its ability to advance its science. Its success, though, will hinge on its capacity to transition into marketing and to manufacture its products.

Given its promising future, I see CRISPR Therapeutics as an excellent investment. Even though I've tempered my expectations about the market opportunity and challenges confronting both Vertex and CRISPR, the potential for exa-cel, which could rake in billions of dollars and serve as a functional cure, lends itself to investor optimism.

In the past, CRISPR shares have breached the $190 mark, translating to a near $20 billion market cap, or over 4x its current valuation. Granted, a fully commercialized pharma typically trades at around 5x sales, but an experimental pharma with a robust pipeline can trade at 50x sales without necessarily appearing overvalued. After all, pharma investing is about betting on future potential, or as we call it, "jam tomorrow."

Taking a long-term perspective and factoring in the cash reserves of over $1 billion, the potential to broaden the SCD/TDT market with Exa-cel 2.0 and 3.0, the technology validation, other pipeline assets, and a solid partner in Vertex, I believe CRISPR's stock is poised to reclaim a price above $100 in due time. There may be some turbulence along the way, but I anticipate exa-cel will one day fuel blockbuster sales exceeding $1 billion annually.

For context, consider Alnylam (ALNY), a drug developer in the field of RNA interference, which generated just over $1 billion in sales last year at a net loss of over $1 billion, yet sports a market cap of $25.1 billion.

With this perspective, the future for CRISPR looks bright indeed.

exa-cel

June 29, 2023/by Mad Hedge Fund Trader

June 29, 2023

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June 29, 2023
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June 29, 2023/by Mad Hedge Fund Trader

A Monster Stock on the Rise

Biotech Letter

Biotech companies possess an extraordinary power: the ability to soar to great heights with just a handful of successful drugs.

An excellent example of this phenomenon is the remarkable ascent of Moderna (MRNA), a visionary biotech firm that catapulted from a $4 billion valuation to an astounding $52 billion.

The secret behind its meteoric rise? The resounding triumph of its coronavirus vaccine not only sparked hope in the hearts of millions but also propelled its stock price to a staggering 100% surge over the past three years.

But it's not just about a momentary triumph. Some biotech geniuses focus on concocting life-altering remedies for tricky-to-tackle diseases, which demand regular treatment for the long haul.

This is where Vertex Pharmaceuticals (VRTX) truly shines.

Vertex, the biopharmaceutical juggernaut born in 1989, has orchestrated a stunning 636% surge in annual revenue over the past decade. While maintaining such an astronomical growth trajectory might prove challenging, the company’s formidable pipeline harbors the potential to fuel its rise for yet another decade.

The shining star of Vertex’s portfolio these days is none other than Trikafta, a groundbreaking medicine combatting the relentless foe known as cystic fibrosis (CF).

This blockbuster drug singlehandedly generated $7.6 billion in revenue in 2022, constituting the lion's share of the company's overall product revenue, amounting to $8.9 billion.

In fact, in the first quarter of 2023, Trikafta contributed an astounding $2.1 billion to Vertex's $2.3 billion total product revenue.

At present, Vertex's revenue stream flows exclusively from CF medications, with the company projected to rake in $9.5 billion to $9.7 billion for the entire year from these products alone.

Here's another fun fact that further cement Vertex’s dominance in the CF world: other contenders in the cystic fibrosis domain have stumbled and faltered, leaving the landscape desolate with scarce rivals.

AbbVie (ABBV) has thrown in the towel, abandoning its CF program altogether. It's no wonder Vertex's triumphant creation is now in higher demand, hailed as a proven champion in the ring of battle.

However, Vertex is no stranger to the importance of diversifying its revenue streams.

While the company has a standout product, it recognizes the risks of relying solely on its success. That's why Vertex is boldly venturing into various other programs.

Teaming up with CRISPR Therapeutics (CRISP), it recently wrapped up the regulatory submissions for exa-cel, an innovative gene therapy designed to combat both beta-thalassemia and sickle cell disease.

The potential approval of exa-cel could catapult Vertex into a whole new realm of breakthrough treatments.

But that's not all.

Vertex's pipeline boasts a promising therapy called inaxaplin, currently in pivotal studies, which targets APOL1-mediated kidney disease—a condition affecting more patients globally than CF. Furthermore, the company's early-stage clinical testing program holds the potential to cure type 1 diabetes. Vertex also has its sights set on tackling type 1 diabetes, harnessing the power of CRISPR's cutting-edge gene-editing technology known as CRISPR-Cas9.

Evidently, Vertex has aggressively invested in new ways to expand its portfolio. Its first-quarter report showed that the company allocated a staggering $742 million in research and development.

This substantial investment underscores Vertex’s determination to continue launching groundbreaking therapies worldwide.

Vertex also has significant milestones on the horizon, including the completion of a late-stage study for its vanzacaftor triple-drug therapy targeting cystic fibrosis (CF) by the end of 2023.

Additionally, late-stage testing for VX-548, a potential acute pain treatment, is expected to conclude later this year or early 2024.

Although it may take time for these therapies to reach the market, even with positive results, it’s reasonable to believe that their future regulatory approvals seem to be slam-dunks.

Moreover, both therapies hold tremendous revenue potential for Vertex. The vanzacaftor triple-drug therapy has the potential to become the company's most profitable CF treatment, while VX-548 could serve as a blockbuster non-opioid painkiller.

To add to its strengths, Vertex enjoys a strong balance sheet with a substantial cash stockpile of $11.5 billion as of last March. I fully expect Vertex to leverage this financial strength for strategic business development deals and stock buybacks.

With a strong balance sheet, ongoing drug development efforts, and the potential to become a frontrunner in the biotech industry, I believe that Vertex has the potential to become a monster stock over the next decade.

May 30, 2023/by Mad Hedge Fund Trader

Monopoly is the Name of the Game

Biotech Letter

No other industry has ever been watched as closely in 2020 as the healthcare and biotechnology sector, with drug developers placed under pressure to deliver COVID-19 treatments and vaccines within an unprecedented timeframe.

Despite all the attention and fanfare, the overall performance of the sector’s stocks remained underwhelming. However, 2021 promises to bring in better returns and bring back the industry to pre-pandemic performance.

For perspective, the S&P 500 Health Care Sector Index rose by 8% through mid-December compared to the 13% increase of the S&P 500.

The financial and health crises affected the performance of the subgroups in different ways. For example, the diagnostics subgroup jumped by 31% while the demand for clinical labs was up 18%.

Meanwhile, biotechnology stocks rose by 13%. In comparison, traditional pharmaceutical stocks and even hospitals only managed to record a measly 3% increase.

As for retail pharmacies, this subgroup sank by 18%.

Despite the underperformance of the industry, there are still companies that stood out this year and are poised to soar come 2021.

One of them is Vertex Pharmaceuticals (VRTX).

Vertex is possibly one of the most undervalued large-cap biotechnology stocks in the market today.

This company, which has $61.7 billion in market capitalization, has been continuously growing and transforming into the most dominant player in the cystic fibrosis (CF) space.

Truth be told, Vertex holds the monopoly on the approved drugs used to treat CF, namely, Trikafta, Kalydeco, Orkambi, and Symdeko.

With the recent approvals the company received, this momentum is expected to grow.

Vertex just won additional EU approval for its CF drug Kaftrio. This indicates another cash cow for the company as the drug, also known as Trikafta, already transformed itself into a megablockbuster in the US market.

Apart from its efforts to continuously dominate the CF sector, Vertex also has several moonshots that can eventually turn into major catalysts.

Among those is its partnership with CRISPR Therapeutics (CRSP).

The two biotechnology companies are developing a gene therapy, called CTX001, which can cure rare genetic blood diseases. Specifically, CTX001 is designed to cure beta-thalassemia and sickle cell disease.

Apart from its partnership with CRISPR Therapeutics, Vertex also acquired Semma Therapeutics in 2019 with the goal of coming up with a cure for Type 1 diabetes.

If things go as planned, a gene therapy for this genetic disease will advance to clinical testing by early 2021.

Another under the radar biotechnology stock set to soar in 2020 is Illumina (ILMN).

Illumina, with a market capitalization of $54.10 billion, is the leader in the genomics market.

Since the pandemic broke, the biotechnology sector’s leading manufacturer of hardware for genetic sequencing has been supplying testing kits for hospitals across the US.

Apart from Illumina, other companies in the genomics sectors include Vertex’s partner, CRISPR Therapeutics, which has a market capitalization of $4.48 billion, and bluebird bio (BLUE) with $4.03 billion.

In a nutshell, genomics refers to the analysis of the genetic information found in human cells. Companies working on this field aim to not only develop more accurate and efficient disease testing processes but also come up with more personalized treatments for a range of diseases including cancer.

Looking at Illumina’s profile and even taking into consideration the effects of the recession along with the competitive pressure to be expected soon enough, this biotechnology company is still set to deliver solid returns over the next 3 to 5 years.

Ever since its establishment, Illumina has been hailed as the leader in the gene-sequencing segment.

To date, the company holds almost 90% of the market.

Apart from that, the company has been an active participant in the move to lower the costs of gene-sequencing processes. In effect, Illumina managed to expand its customer reach.

Illumina’s participation in the 13-year Human Genome Project, which started at $3 billion per genome submitted for sequencing in 2003.

Nowadays, the cost has dropped to $800 for each genome, with Illumina eyeing to drop the price to $100 via its NovaSeq platform.

Based on the company’s performance in the past years, Illumina’s revenue is expected to climb higher annually in the next 5 years.

By 2021, the company is projected to report a 21.16% year over year growth in annual revenue to reach 4.23 billion.

Meanwhile, its 2022 annual revenue is estimated to hit $4.79 billion, showing off a 13.37% increase.

Despite the attention it has been receiving, Illumina remains a bargain buy.

This is because the company’s gene-sequencing projects have been moving along at a decent pace even before the COVID-19 crisis hit.

Given the company’s growth and future plans, Illumina is a no-brainer long-term investment. However, investors looking for quick returns might find the company’s pace a bit sluggish for their liking.

Among the biotechnology companies out there today, I think Vertex and Illumina stand out the most because both hold a monopoly in their respective fields.

Sure, there would be competition eventually but the combination of all their strengths and the strong potential of their pipeline put them in a league of their own.

illumina

December 31, 2020/by Mad Hedge Fund Trader

Buy Before the Rally

Biotech Letter

Over the past month, COVID-19 vaccine developers like Pfizer (PFE), Moderna (MRNA), and AstraZeneca (AZN) have offered the world a bit of good news.

For the first time since the pandemic started, we have seen a light at the end of this crisis’ tunnel.

This time around next year, the economy should be close to its normal state.

Before we see the struggling financial market completely recover, you might want to consider buying shares of an under-the-radar COVID-19 vaccine developer that could be on its way to performing better in 2021: Merck (MRK).

Major healthcare and drug stocks rarely get this cheap relative to the S&P 500 in the last 15 years, Merck is a prime example of this once-in-a-blue-moon phenomenon.

Although it was slow to start and report on updates in its COVID-19 vaccine, Merck has been making strides in emerging as a major competitor against Gilead Sciences (GILD) when it comes to developing a COVID-19 drug.

To date, Merck landed a $356 million supply agreement with the US government to deliver 60,000 to 100,000 doses of its oral antiviral drug for COVID-19.

While vaccines are definitely valuable in helping prevent the spread of the virus, there is another important market that healthcare companies are targeting: the hospitalized COVID-19 patients.

With this recent announcement from Merck, it’s obvious that the company has its hands on both the vaccine market and the hospitalized patient group.

In terms of vaccine development, Merck may be behind Pfizer and Moderna but this New Jersey-based titan has one of the leading vaccine franchises in the industry.

The frontrunner in Merck’s vaccine franchise is its cervical cancer vaccine Gardasil, which is estimated to be worth half of its current market value of approximately $200 billion.

The company is also anticipated to record high single-digit earnings growth in the years to come, thanks to the 2021 spinoff of its Organon unit.

Following Pfizer and Mylan footsteps in the newly formed Viatris (VTRS), Organon will be used to unload the slower-growth products from Merck’s current portfolio.

With the purging of its product portfolio of the low-performing treatments comes the expansion of Merck’s R&D courtesy of its $2.75 acquisition of biotechnology startup VelosBio.

Thanks to this deal, Merck will gain access to VelosBio’s prized VLS-101, which is basically a miniature chemotherapy grenade that would disintegrate cancer cells.

This collaboration could turn out into another moneymaker for the company.

Merck is no stranger when it comes to picking winning oncology investments.

The last massive deal it completed was a $1.16 billion deal with AstraZeneca in 2017, with the two companies agreeing to milestone payments of up to $6.15 billion.

This partnership brought to life one of the highest-selling cancer drugs in the world today, Lynparza.

To date, Lynparza is not only used for prostate cancer but also gained expanded approval for breast and pancreatic cancer.

In the third quarter of 2020 alone, even with the pandemic still wreaking havoc everywhere, Merck’s share of profits for Lynparza jumped 59% year over year to reach $196 million—a number that is projected to continue to climb as the drug awaits more approvals from the EU.

Merck offers the most attractive upside case among the healthcare stocks today, with the company projected to report consistent revenue growth until at least 2025.

Moreover, this pharmaceutical company has a strong balance sheet, as seen in its recent acquisitions and potential partnerships still underway.

So far, Merck’s shares are down 12% this year to only $80, with the stock trading 13 times its projected earnings in 2021 at $6.29 per share.

This pharmaceutical giant has a stable dividend yield of 3.3%, which is double the S&P 500.

As the economy continues with its recovery, you can expect Merck to get stronger and the stock should rally sooner rather than later.

Hence, buying it before it completely bounces back could allow you to cash in some spectacular returns.

December 29, 2020/by Mad Hedge Fund Trader

How Vertex is Curing the Uncurable

Biotech Letter

Erratic. Unpredictable. Volatile. Take your pick of the descriptions used when it comes to biotechnology stocks. Each of these adjectives can be a fitting descriptor to the industry most of the time.

However, not all biotechnology companies fall under that category. Some are reasonably stable, offering steady and increasing profits.

Vertex Pharmaceuticals (VRTX) is one of those biotechnology stocks that you can simply buy and hold for over a decade without losing any sleep.

One of the key factors in Vertex’s success is its monopoly on the cystic fibrosis (CF) market.

CF is a rare and life-threatening genetic disease that affects a patient’s digestive system and lungs. To date, there is no cure for this condition that overshadows the lives of 68,000 individuals in the US and the EU. However, there are treatment options for it.

Vertex developed the first-ever FDA-approved drug, Kalydeco, for the condition. As expected, it gained the much-coveted head start that led to its dominance today.

Its closest rivals, Proteostasis Therapeutics (PTI) and Galapagos NV (GLPG), are years away from ever catching up to the Massachusetts-based biotechnology stalwart. Neither has an approved drug as of today.

Since the approval of Kalydeco in 2012, Vertex stock has been enjoying an upward trajectory. With the recent addition of another CF blockbuster, Trikafta, the company is anticipated to keep its momentum.

From the moment Trikafta was released to the market, Vertex’s revenue and bottom line showed impressive growth. The drug, which is a triple combination therapy, is projected to capture almost 90% of the CF market worldwide.

Needless to say, Vertex has made it in the shade for at least the next 5 years, thanks to its CF market dominance.

In its second quarter earnings report, Vertex showed a 62% jump in its revenue year over year to hit $1.52 billion. Its net income of $837 million demonstrated a whopping 213% increase compared to the same period in 2019.

As anticipated, the star of the show was Trikafta.

The drug raked in $918 million in the second quarter alone – an amount higher than the combined sales of all the drugs in Vertex’s product line and an impressive growth from the $420 million it contributed last year.

As Vertex’s bottom line grew, its margins showed substantial improvement as well. Its operating margin for the second quarter of 2020 is at 57% compared to 44% during the same quarter last year.

With Vertex’s key metrics topping expectations, the company changed its 2020 revenue guidance from $5.7 billion to $5.9 billion, showing off a noteworthy increase from the $4 billion in sales it reported in 2019.

Although its CF pipeline has a number of promising candidates, Vertex is also looking outside the market for additional avenues of growth.

One of the most promising and exciting partnerships it forged in the past decade is with gene-editing company CRISPR Therapeutics (CRSP).

Just looking at this collaboration makes it clear that Vertex is once again playing the long game.

What we know so far is that the two companies are working on a treatment, called CTX001, for rare genetic blood disorders sickle cell disease and transfusion-dependent beta-thalassemia.

They are also developing two potential treatments for alpha-1 antitrypsin deficiency (AATD), which is a rare genetic liver and lung disorder that is similar to CF.

Detractors might point out that Vertex is a pricey stock. However, this biotechnology company currently has $71.2 billion in market capitalization.

More notably, it has no debt and holds $5.5 billion in cash. That puts the true value of Vertex at roughly $65.7 billion.

I believe that the biotechnology company’s overall outlook more than does justice for its valuation.

Granted that it is trading at 11 times its revenue and 26 times its adjusted EPS, its consistent performance and promising future ensure that its investors will be getting more bang for their buck.

In a word, Vertex remains a first-rate biotechnology stock to buy.

December 24, 2020/by Mad Hedge Fund Trader

November 13, 2020

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November 13, 2020
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November 13, 2020/by Mad Hedge Fund Trader

Play Your Cards Right With Moderna

Biotech Letter

The COVID-19 race is entering the home stretch, and it could only be a matter weeks before the world finds out which among the leading vaccine candidates will work.

For months, Moderna (MRNA) has been dubbed as the leader of the pack, with the company’s shares reaping the rewards thanks to this year’s wild growth and promising clinical results.

Now, it looks like Moderna is on the verge of officially claiming the crown as promising reports surfaced from its late-stage clinical trials.

If the Moderna’s COVID-19 vaccine candidate, called mRNA-1273, is proven to be at least 70% effective, the company will immediately ask for an emergency authorization to use it on high-risk patients.

Like Pfizer (PFE), Moderna is also expecting results to come as early as October. With potential delays in the trials, the company thinks the data would be released by November at the latest.

Moderna is also looking into building footprints outside the United States.

Part of its efforts to expand its potential market reach for mRNA-1273, Moderna opened a commercial hub – its first ever – in Switzerland, where it has already been collaborating with Swiss drug manufacturer Lonza (SWX: LONN).

This is a good move for Moderna.

After all, Europe presents a substantial market for the COVID-19 vaccine. For context, the European Union has over 446 million people while the US only has 328 million.

To date, Moderna has agreed to supply 100 million doses of its COVID-19 vaccine to the US government for up to $1.525 billion. The contract also provides for an optional additional 400 million doses, depending on mRNA-1273’s performance in the trials.

Meanwhile, Moderna already secured a deal with the Swiss federal government to deliver 4.5 million of mRNA-1273.

While it has yet to announce a similar deal with the rest of the EU, the company is reported to be in the advanced stages of its negotiations with other member countries, where it is estimated to provide an additional 160 million doses.

Overall, the global manufacturing projection for Moderna falls somewhere between 500 million and 1 billion doses starting in 2021.

Looking at the agreements, we can conservatively say that mRNA-1273 could rake in $12.4 billion in sales for Moderna by 2022.

Despite the current payment plans implying that each dose of Moderna’s vaccine would only cost $15.25, the company already received government funding of roughly $2.5 billion.

Taking those expenses into account, the actual value would be somewhere between $25 and $30 per dose.

In comparison, Pfizer’s vaccine candidate with BioNTech (BNTX) is estimated to cost less than $19.50 per dose while Johnson & Johnson (JNJ) announced that it will offer its vaccine at $10 per dose.

Meanwhile, AstraZeneca’s (AZN) candidate with Oxford University is expected to be even cheaper at $2.96 to $4 per dose.

With its COVID-19 vaccine rivals offering decidedly cheaper options, Moderna will need to leverage its first-mover advantage if it hopes to fight for a decent market share.

Outside COVID-19 vaccine efforts, Moderna has a rich pipeline, with 23 candidates distributed over 22 programs and 6 modalities.

Aside from the urgent need to offer a vaccine to the world, there is another reason why Moderna is focusing on the COVID-19 program right now.

If proven successful, the program can be used to validate another experimental vaccine, called mRNA-1647, which targets congenital cytomegalovirus infection.

Although CMV is identified as one of the leading causes of birth defects in the US, there remains no approved vaccine for it.

However, there is a catch.

Moderna will not be able to reap the full benefits of the CMV vaccine.

In fact, it will only be able to receive 50% of its profits if it becomes successful since mRNA-4157 is being developed alongside Merck (MRK).

The idea is for the drug to boost the oncology sector of Merck, with the goal of finding another blockbuster like the melanoma drug Keytruda.

As impressive as the CMV vaccine is as a product to launch in the market, there is a huge possibility that Moderna would not necessarily benefit from a large windfall because of it.

Aside from Merck, Moderna is also working with another biopharmaceutical giant and competitor in the COVID-19 vaccine race: Vertex (VRTX).

Moderna and the Massachusetts-based giant are collaborating to develop a treatment for cystic fibrosis, a niche that Vertex has dominated for years.

This is actually their second collaboration, but this project seems a tad more ambitious than the earlier one: Moderna and Vertex are working to develop a one-time treatment for cystic fibrosis using mRNA technology.

Basically, the two companies want to use gene-editing techniques to modify a patient’s DNA and correct the cells that cause cystic fibrosis.

The collaboration will span 3 years, with Vertex paying Moderna $75 million upfront. The smaller biotechnology company is also eligible for an additional $380 million in milestone payments plus royalties.

Notably, this is not the first cystic fibrosis treatment collaboration that Vertex formed with gene-editing companies.

Earlier this year, the company also secured a license option with CRISPR Therapeutics (CRSP) to work on practically the same thing.

Clearly, Vertex is hedging its bets on two potential options with this second partnership with Moderna.

Thanks to its trailblazing COVID-19 vaccine candidate, Moderna has become one of the most sought-after stocks of 2020, with its year-to-date growth reaching a stunning 360% last July.

Despite the temptation to bet big on Moderna stocks, bear in mind that early leaders like this biotechnology company will be facing incredible pressure from pharmaceutical titans like Pfizer, Johnson & Johnson, and AstraZeneca – all of which have the capacity to meet the manufacturing and distribution demands across the globe.

At best, a company with Moderna’s size would probably receive a slice of the market in the early days.

At worst, it might struggle to keep a foothold as stronger and larger competitors flood the market with cheaper but equally effective alternatives.

Nonetheless, this is not to say that you should completely avoid smaller biotechnology companies just because they are too small to compete with the larger fish.

Rather, I think it would simply be prudent to invest based on each player’s proven ability and outlined plans to meet the demand at a mass scale.

Doing so would guarantee that you not only limit your risks but also allow you to reap the rewards of successful vaccine deployment. If you play your cards right, then you might even get a handful of different COVID-19 vaccine winners in your back pocket.

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