Mad Hedge Biotech and Healthcare Letter
June 13, 2023
Fiat Lux
Featured Trade:
(BUCKING THE TREND)
(VRTX), (ABBV), (CRSP)
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The notion of "Sell in May and go away" hasn't exactly proven true this year in 2023. Surprisingly, the stock market has been experiencing an impressive upward trend, especially in June, and there may still be further potential for growth.
Allow me to share one of my favorite examples that embody both profitability and consistent expansion, all while enjoying a significant competitive edge.
In the biotechnology and healthcare sector, Vertex Pharmaceuticals (VRTX 1.94%) fits the description perfectly.
This company stands out as the undisputed leader in the market for cystic fibrosis treatments, offering a unique portfolio of drugs that specifically target the underlying cause of this genetic condition.
These groundbreaking medications, known as CFTR modulators, have successfully been introduced to the market, with Vertex Pharmaceuticals spearheading the way by bringing forth four of them.
Vertex has been continuously making remarkable progress in the field of cystic fibrosis (CF) treatment.
A notable achievement is the expanded approval of their drug, Kalydeco, by the U.S. Food and Drug Administration. It can now be used to treat CF patients as young as one-month-old, marking a groundbreaking milestone as the first CFTR modulator ever approved for this age group.
Kalydeco has also been a significant revenue generator for Vertex, ranking as their second highest-earning drug with an impressive $553 million generated over 12 months.
But there's more to Vertex's success.
Their flagship medication, Trikafta, takes the lead as their best-selling drug, raking in a staggering $7.7 billion in revenue in 2022 alone.
Recently, Trikafta received approval to treat children as young as two years old with specific mutations, providing relief to nearly 1,000 more individuals in the cystic fibrosis patient community.
The long-lasting patent protection of Trikafta, with approximately 14 years remaining before expiration, holds great significance for Vertex Pharmaceuticals. With a relatively modest patient population of 88,000, the company has ample opportunities for further growth.
The robust revenue and profits of Vertex's CF franchise speak to their success in this area. Additionally, AbbVie's (ABBV) decision to discontinue its CF program further solidifies Vertex's monopoly in the cystic fibrosis field, strengthening its position for continued success.
While capitalizing on the expanding market for cystic fibrosis treatments, Vertex Pharmaceuticals also targets underserved areas to drive long-term growth.
One promising drug candidate in their pipeline is VX-548, a non-opioid medication designed to address acute pain conditions, which is nearing commercialization.
Moreover, Vertex has a highly promising candidate in its pipeline that goes beyond cystic fibrosis.
Collaborating with CRISPR Therapeutics (CRSP), the company eagerly awaits regulatory approvals for exa-cel, an innovative treatment for sickle cell disease and transfusion-dependent beta-thalassemia, in both the United States and Europe.
Exa-cel represents just the tip of the iceberg when it comes to Vertex's upcoming arsenal of new drugs.
The company holds great optimism for VX-548, a cutting-edge non-opioid therapy targeting acute pain, as well as its triple-drug combination for cystic fibrosis, which features vanzacaftor.
Both treatments are undergoing Phase III trials, with expectations for completion in late 2023 or early 2024.
Additionally, Vertex is conducting a pivotal trial for inaxaplin, a potential treatment for APOL1-mediated kidney disease that impacts a larger patient population than cystic fibrosis.
Needless to say, Vertex has been experiencing an exceptional streak, consistently outperforming the market over the past year. The best part is that its potential to generate significant returns extends well into the next decade.
While Vertex possesses a variety of potential approvals for treating cystic fibrosis, some of which may materialize before 2028, its CF-related revenue is expected to grow substantially even without factoring in those additional approvals.
Analysts anticipate a solid annual increase of 8.2% in the company's overall revenue over the next five years. Although this growth rate is commendable for a biotech industry heavyweight, it falls short of Vertex's impressive 38% annual growth achieved in the previous five years.
From my perspective, the projected 8.2% growth appears rather conservative.
This sentiment is particularly amplified when considering the imminent potential approval of exa-cel, an innovative gene-editing therapy targeting sickle cell disease (SCD) and beta-thalassemia (TDT).
After all, the initial market value of exa-cel could soar to a staggering $64 billion, and given the life-altering impact it offers, a price tag of approximately $2 million per treatment is justifiable.
Honestly, I'm hard-pressed to find anything negative to say about Vertex. This prominent biotech company is constantly delivering positive news and making significant strides on all fronts. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
May 30, 2023
Fiat Lux
Featured Trade:
(A MONSTER STOCK ON THE RISE)
(VRTX), (MRNA), (ABBV), (CRSP)
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.
Mad Hedge Biotech and Healthcare Letter
April 20, 2023
Fiat Lux
Featured Trade:
(ANOTHER WILD RIDE IN BIOTECH)
(CRSP), (VRTX), (BLUE), (MRK), (MRNA),(RXDX)
The biotech industry is a rollercoaster of investment opportunities, where great successes and flops can easily be the difference between riches or ruin.
Companies like Moderna (MRNA) have seen this firsthand - going from a $4 billion valuation to nearly 15-fold that amount in just one successful drug launch resulting from their COVID vaccine development program. To rekindle investor interest in what may seem like an erratic space, giants such as Merck (MRK) are also putting money into promising companies; with its recent acquisition of Prometheus Biosciences (RXDX) evidence enough that even long-established pharmas recognize the potential rewards available within biotechnology markets.
Investors seeking the next big win in biotech should look beyond household names for potential gems.
Take CRISPR Therapeutics (CRSP), whose collaboration with Vertex Pharmaceuticals (VRTX) is taking exa-cel to new heights, and Bluebird Bio's (BLUE) progress on lovo-cel as just two examples of lesser-known science ahead of its time that could pay off handsomely in your portfolio.
Recent news shows that two upcoming treatments for sickle cell disease, exa-cel and lovo-cel, could be cost-effective if priced below $1.9 million - a figure the Institute of Clinical and Economic Review (ICER) concluded after conducting an extensive assessment of their financial aspects. Momentum is building as both companies aim to secure FDA approval soon; investor optimism in CRISPR continues to grow increasingly evident due to this good news.
Here’s a quick recap of the treatment’s market opportunity.
Sickle cell disease and thalassemia patients face a hefty financial burden over their lifetime, with disease-related expenses ranging from $4 million to $6 million.
As a gene-editing therapy, exa-cel is a complex treatment to manufacture and administer, which further justifies its potentially high price tag. With this innovative therapy, Vertex Pharmaceuticals and CRISPR Therapeutics aim to target 32,000 sickle cell disease (SCD) and thalassemia (TDT) patients in the United States and Europe, emphasizing the significant market opportunity for the companies.
The potential market for exa-cel, assuming a price point of $2 million, amounts to a staggering $64 billion opportunity.
While this price tag may seem steep, it is not unprecedented in the industry. Bluebird Bio, for instance, secured approval for its gene-editing medicine Zynteglo last year, pricing it at $2.8 million.
The question remains whether third-party payers will be willing to cover the high costs associated with these treatments. Case in point – Bluebird Bio exited the European market after being unable to secure favorable deals with third-party payers. As such, how exa-cel will fare in this challenging reimbursement environment is yet to be determined.
As CRISPR Therapeutics and Vertex Pharmaceuticals chart their path for the launch of exa-cel, they are keenly aware that pricing gene editing therapies rightly is critical.
Both companies have been in active dialogue with insurance providers and governmental programs like Medicaid to ensure this goal comes to fruition. Even if it means accepting modest prices for its product, there's still immense potential for exa-cel due to the lack of existing treatments meeting SCD and TDT patients' needs.
Given these details, where does CRISPR currently stand?
Investing in clinical-stage biotech stocks can be a tricky, with the potential rewards marred by the risks of what still lies ahead. However, for those brave enough to take on this challenge, there's an astronomical market opportunity at stake—the CRISPR Therapeutics and Vertex Pharmaceuticals tag team are vying against formidable foes like Bluebird’s Zynteglo as well as lovo-cel, one that could transform how SCD gene editing is treated if approved soon by FDA.
With a bigger war chest, however, Vertex may have an edge in the race, but CRISPR is no slouch, with an agreement in place to retain 40% of exa-cel's profits. It remains to be seen who will come out on top remains to be seen, but the potential rewards are undeniably huge.
As investors eagerly await the approval of exa-cel, CRISPR Therapeutics' promising gene-editing therapy for sickle cell disease, the company's market capitalization may not reflect the therapy's massive potential.
Assuming that exa-cel delivers and truly becomes a multi-billion-dollar opportunity, CRISPR Therapeutics and Vertex Pharmaceuticals are poised to capture a significant market share with their forthcoming therapies. With the advantage of a stronger cash position, Vertex could push the scales in its favor, helping with the therapies' launch.
Even conservatively assuming profits of $12 billion, CRISPR Therapeutics' market cap of $3.6 billion does not do justice to the company's potential.
While it's still early days, CRISPR Therapeutics' other promising programs should not be ignored. The company is somewhat fairly valued, but exa-cel's approval could send its shares soaring.
Beyond the financial benefits, the success of exa-cel could also bolster CRISPR Therapeutics' position as a leader in gene editing technology.
The company's pipeline includes promising programs in immuno-oncology and rare diseases, and the sustained revenue generated by exa-cel could fuel further research and development efforts. This bodes well for the stock's prospects, as CRISPR Therapeutics continues to advance the frontiers of innovative medicine.
Meanwhile, another possibility for CRISPR is a buyout.
The gene-editing market may be small, but its rapid growth rate of nearly 30% until 2030 presents an enticing opportunity for healthcare businesses to pursue. The market is estimated to reach less than $15 billion by then. With an approved gene-editing therapy, CRISPR Therapeutics could be a valuable asset for a larger healthcare company seeking growth.
At a market cap of less than $4 billion, CRISPR Therapeutics is an affordable acquisition for a top healthcare company looking to expand its portfolio. The company's favorable balance sheet, with over $1.8 billion in cash and short-term investments and modest debt of just over $244 million, makes it even more appealing as a potential acquisition.
The acquisition of CRISPR's business wouldn't come with a lot of headaches, and it could instantly boost a company's growth prospects.
With the sustained revenue from exa-cel and the potential for more clinical and regulatory wins in its other programs, CRISPR Therapeutics' gene-editing pipeline is worth considering for any healthcare business looking to capitalize on the promising growth opportunities in this market.
Overall, the potential for significant upside in the short and mid-term, combined with the company's pioneering spirit, makes CRISPR Therapeutics an attractive investment opportunity for discerning investors.
Mad Hedge Biotech and Healthcare Letter
April 18, 2023
Fiat Lux
Featured Trade:
(A BEAR MARKET BARGAIN)
(VRTX), (CRSP), (BLUE)
When the Nasdaq Composite fell by 33%, it created the ideal excuse for savvy investors to pounce on high-quality discounted stocks.
While it can be one of the most uncomfortable learning experiences, Wall Street reminded investors last year that even the most promising stocks can and will plunge into unimaginable depths as quickly as they can skyrocket.
However, here’s a fascinating thing about the slipping prices courtesy of the bear market: These present a rare red-carpet chance for long-term investors. Although the Nasdaq Composite has been experiencing back-to-back double-digit corrections, a bull market almost always recoups its losses eventually.
Vertex Pharmaceuticals (VRTX) stands out as one of the most exciting growth stocks that investors should consider in the biotechnology and healthcare sector.
For the uninitiated, Vertex has become synonymous with cystic fibrosis (CF) treatments.
CF is a genetic disorder that affects the respiratory, digestive, and reproductive systems. It causes the production of thick and sticky mucus in these organs, leading to serious health problems. The global market for cystic fibrosis treatments is projected to reach $18.9 billion by 2027.
Vertex currently holds six approved CF treatments. Among these, the combination therapy Trikafta, also known as Kaftrio in the EU, stands out as their top-selling product. In 2022, Trikafta's sales surged to $7.6 billion from $3.8 billion in 2020, driving revenue growth.
Given its dominance in the market, it’s clear that no other drugmaker comes even close to challenging Vertex when it comes to CF. To boot, this biotech leader has several new areas of focus that hold the potential of not only delivering fresh revenue streams but also turning into blockbusters soon.
Actually, Vertex is a step closer to launching a new blockbuster in the form of a new type of treatment called exa-cel, which uses gene-editing technology to fix the genetic defect that leads to rare and often untreatable diseases.
The biotech and its co-developer, CRISPR Therapeutics (CRSP), recently submitted their application to the FDA to approve their sickle cell disease and beta-thalassemia treatments. The two companies are also waiting for approvals from the EU.
Based on the prevalence of these genetic blood disorders, the lack of effective treatments, and the potential of Vertex and CRISPR’s candidates to provide a one-time cure, the market size for exa-cel treatments for beta-thalassemia and sickle cell disease is estimated to be worth a total of $3.5 billion annually.
But, Vertex appears to have more plans for exa-cel.
For context, here is how exa-cel is applied to treatments for sickle cell disease and beta-thalassemia: the patient's own stem cells are collected and edited using CRISPR/Cas9 technology, creating exa-cel cells. These cells are then infused back into the patient after a conditioning process, which is currently done through chemotherapy with the drug Busulfan.
However, this approach is risky and has caused adverse effects in clinical trials. As a result, some patients with these conditions may not be able to benefit from exa-cel.
This concern prompted Vertex to explore new conditioning agents for exa-cel treatments that may be less aggressive on the body. They have licensed ImmunoGen's (IMGN) antibody-drug conjugate (ADC) technology, which is commonly used in cancer treatments to deliver cancer-killing agents directly to cancer cells without harming other cells.
ADCs are often used in cancer treatments to target cancer cells, specifically, sparing healthy cells from damage. This technology can potentially make the exa-cel treatment safer and more accessible for patients.
Regarding competitors, the frontrunner would be Bluebird Bio (BLUE). This was the first biotech to submit a sickle cell disease treatment candidate to the FDA. Unfortunately, its approval has faced delays. Still, Bluebird remains the only biotech that could be considered a direct rival of Vertex and CRISPR.
Apart from these, Vertex has two additional pipeline programs queued for launch by 2024.
The biotech expects to finalize its late-stage clinical trials for VX-548, a non-opioid pain treatment, by the first quarter of 2024. Vertex is also assessing a triple-drug combo targeting CF. Both candidates hold the promise of delivering over $2 billion in sales annually.
In addition, Vertex has been aggressive in acquiring companies to expand its portfolio.
Just last year, the biotech signified its plan to become an active player in the diabetes space when it bought ViaCyte and Catalyst Bioscience. Based on the portfolio of the acquired companies, Vertex appears to be making headway in developing stem cell treatments for Type 1 diabetes.
What do these developments mean? Well, it’s critical to review the whole picture.
Vertex already rakes in billions of dollars from its CF treatment franchise, and it’s highly plausible that the biotech will sustain its monopoly of the market for years to come.
At the same time, the company is also aggressively widening its reach and expanding into more lucrative segments. In short, the company is clearly on a roll. Given its track record and steady progress, it is an excellent long-term stock. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
March 9, 2023
Fiat Lux
Featured Trade:
(TRUE GAME-CHANGERS OF BIOTECH)
(SPRT), (CRSP), (VRTX)
These days, the stock market is so scrutinized that there are only a handful of sectors where an investor can find undervalued stocks capable of outperforming an index fund.
The biotechnology world is one of these industries, and now is a great time to invest in it.
The potential for the majority of biotechnology companies is not really their current earnings or even their valuations. It’s actually hinged on whether these businesses could deliver positive clinical results for potential blockbuster treatments and whether the FDA approves the candidates. No matter how hard you look, you can’t easily find these types of information in companies' income statements and balance sheets.
Actually, the widely diversified SPDR S&P Biotech (XBI) has declined by over 50% since its peak of $174 per share in February 2021. One of the critical reasons biotech dropped in the past two years is the rise of dodgy IPOs, which inevitably collapsed and notably lowered investors’ confidence in the sector. Another reason is the rising interest rates, particularly in 2022, which forced many biotech companies to borrow money just to sustain their research operations.
These past weeks, though, valuations have become attractive. Rates have also been noticeably rising, and opportunities are starting to present themselves. Since 2022 was the year that focused on multiple clinical trials, 2023 is anticipated to be the year for new product launches.
Currently, the FDA has at least 75 new biotech candidates awaiting regulatory approval. This means 2023 could easily surpass 2018, when 56 drugs were approved, as the year with the most approvals.
All these will only benefit you if you find the right biotechs, especially with the word “game-changing,” which seems to get tossed around too casually in the biotech world. The truth is, many things are described as “game-changing” and “groundbreaking” when they are not. Still, there are exceptions.
One of the exceptions is Sarepta Therapeutics (SRPT). This biotech has a gene therapy treatment targeting muscular dystrophy, which is anticipated to receive FDA approval by May 2023.
Duchenne muscular dystrophy (DMD) is a genetic disorder that primarily affects boys, although in rare cases, it can also affect girls. It is caused by a mutation in the gene that provides instructions for making a protein called dystrophin, which is essential for muscle function and stability.
Without enough functional dystrophin, muscles become weak and damaged over time, leading to progressive muscle weakness and wasting. There is currently no cure for DMD, but there are treatments available that can help manage symptoms and improve quality of life.
Aside from Sarepta, other companies working on treatments for this condition include Pfizer (PFE) and Solid Biosciences (SLDB). However, Sarepta leads the rest in terms of clinical progress.
The global market for Duchenne muscular dystrophy treatment was valued at USD 2.4 billion in 2020 and is projected to increase at a compound annual growth rate (CAGR) of 40.5% between 2021 and 2028.
Another exception is CRISPR Therapeutics (CRSP), which is poised to play a significant role in the gene editing movement in the biotech world.
The company has been working with Vertex Pharmaceuticals (VRTX) on an exciting gene-editing treatment, named exa-cel, which targets rare blood diseases, sickle cell disease and beta-thalassemia.
Exa-cel uses CRISPR/Cas9 gene-editing technology to modify a patient's own blood-forming stem cells outside the body, with the goal of correcting the genetic mutation that causes these blood disorders. Aside from being a game-changer for patients with these conditions, this therapy could alter the financial landscape of CRISPR Therapeutics as it would rake in billions in revenue for the company.
If the FDA gives the green light for exa-cel, CRISPR and Vertex become red hot stocks to own. Meanwhile, having an approved rare disease gene-editing therapy in its lineup, plus its modest valuation of $3.8 billion, would make CRISPR an extremely attractive acquisition candidate.
The biotechnology sector has experienced significant growth in recent years, driven by advances in technologies such as genomics, gene editing, and synthetic biology. These technological advancements have enabled biotech companies to develop more precise and targeted therapies, potentially revolutionizing the healthcare industry.
While the biotechnology sector offers many promising opportunities, it is also a highly competitive and risky industry. Biotech companies often face significant regulatory hurdles and long development timelines, and many of their products fail in clinical trials. Additionally, biotech companies require substantial capital investments, which can be challenging to secure.
Investors looking into adding game-changing companies to their portfolio should consider Sarepta, CRISPR, and Vertex. I recommend you buy the dip.
