Mad Hedge Biotech and Healthcare Letter
November 3, 2022
Fiat Lux
Featured Trade:
(INVEST LIKE IT’S 2009)
(VRTX), (CRSP)
Posts
Some investors look at a glass of water as half-empty, while hardcore pessimists believe that the glass is drizzled with arsenic. I’m neither.
You can count me as one who constantly looks at the glass of water as half-full.
Admittedly, it has been challenging to continue being optimistic, given the current conditions of the stock market. Some stocks in my portfolio have suffered a beating, too. Nevertheless, I’m still optimistic about the next 10 or 15 years.
Why? Because this horrible bear market has presented us with one of the most exciting and promising investment opportunities in over a decade.
If you don’t believe me, think back to 2009. Unquestionably, that was an incredible year to buy stocks. The S&P 500 index skyrocketed over 320% from January 2009 to today. Meanwhile, the Nasdaq 100 index soared 830%.
However, there's a crucial detail: this realization comes in retrospect. Remember, around early 2009, the Great Recession was still well underway. It didn’t feel like any investment was a promising opportunity at that time.
Stocks only showed signs of bottoming out at the very end of the first quarter of that year, and no one could confidently say when the bear market would end.
Fast forward to 2022. While there’s still no official word on whether we are in a recession, analysts have insisted that we’re well on our way to another one soon.
Although the present situation is obviously distinct from what happened in 2009 because of the COVID-induced recession and the continuation of the 2020 bear market, I fully believe that investors will look back to this period and realize that it’s the prime time to buy stocks.
So, how can investors make the most of this buying opportunity?
First, don’t focus on waiting for the market to bottom. A better way to deal with the situation is to determine the stocks of companies with solid core businesses that currently trade reasonably priced (or if you can find them, bargain) valuations.
Second, choose stocks that you can buy incrementally. It’s definitely possible that the market will fall even more. If that happens, investing gradually or in stages rather than dropping all your money into stocks at a single time could be a failsafe strategy.
Third, be patient. This tip cannot be highlighted enough. It’s critical to provide stocks with sufficient time to run. Investors who bought stocks early in 2009 and sold them by 2010 or 2011 missed out on most of the best and longest bull run in history.
The good news is that many excellent stocks meet the criteria mentioned above.
A particular name stands out in the biotechnology and healthcare industry: Vertex Pharmaceuticals (VRTX).
Unlike other businesses, Vertex has been trouncing the broader market this year, climbing by over 35% year to date. More importantly, the company’s pipeline of candidates looks even brighter.
One of the reasons this biotechnology giant is performing well is its monopoly of the cystic fibrosis (CF) market. In the third quarter of 2022, Vertex’s CF programs generated $2.33 billion in sales and $931 million in profits.
It doesn’t end there, as Vertex has plans to maximize its monopoly of the CF market.
More therapies are under development to target more patients in this sector, which means Vertex would eventually become its own biggest rival. Needless to say, this will make its hold in the CF market much stronger.
In terms of adding more monopoly money to its portfolio, Vertex has been working on a treatment for APOL1-mediated kidney disorder. To date, there remains no therapy for this condition.
On top of these, Vertex has been collaborating with CRISPR Therapeutics (CRSP) to develop treatments for two rare blood disorders. Given the timeline released by both companies, these candidates should be ready for regulatory approval by December 2022 or early 2023.
Another promising candidate in its pipeline is the non-opioid pain treatment VX-548 for moderate to severe acute pain. Ultimately, Vertex’s goal is to offer this alternative to end the opioid epidemic.
Meanwhile, its acquisition of Viacyte has catapulted Vertex into one of the Type 1 diabetes market leaders.
Overall, Vertex’s forward earnings multiple of 20 may not look all that attractive, but the biotech’s growth prospects are up-and-coming. Hence, I view this stock as a bargain at the moment.
Again, Vertex is only one of the examples of companies that could be an excellent investment in this bear market. The healthcare and biotechnology sector has more great stocks to buy in this crisis. Indeed, the glass of water is most definitely half-full.
Mad Hedge Biotech and Healthcare Letter
October 4, 2022
Fiat Lux
Featured Trade:
(A POWERHOUSE BIOTECH GOING HIGHER)
(VRTX), (BIIB), (CRSP)
There is no single recipe for building wealth over the years. There are several ways to achieve this goal. However, a particularly effective one is recognizing solid businesses that deliver revenue and profit over time.
You can easily find many excellent candidates in the biotechnology and healthcare world. Actually, a lot of biotech stocks have managed to outperform the struggling market this 2022.
One name that emerged virtually unscathed from the onslaught of economic, political, and financial crises is Vertex Pharmaceuticals (VRTX).
Admittedly, the market downturn has yet to end. That means the company could still experience the effects of macro headwinds and tensions in the near future.
With that said, Vertex is one of the few companies equipped with the right tools to deliver excellent returns in the long run.
One of the reasons Vertex is at the top of the list in the biotech world is its history. The company has been generating solid returns for investors for quite a while now.
In fact, it has impressively surpassed the S&P 500 Index in the past 10 years.
Apart from that, Vertex continues to boost its revenue and profits courtesy of its monopoly in the market for treatments that target the underlying reasons or causes behind cystic fibrosis (CF).
Vertex is the market leader in the CF space worldwide. The company sells four therapies targeting this condition.
The company’s latest approval in this segment was for Trikafta, which received the green light in 2019. By 2021, Trikafta was already able to rake in over $5.6 billion in revenue.
Trikafta can be used as a treatment for up to 90% of CF patients. This number goes beyond any of those delivered by other Vertex products. More importantly, Trikafta will keep its patent exclusivity until the late 2030s.
That provides Vertex with plenty of time to make headway and expand the application of the product to cover previously untapped markets—a strategy that the company has been perfecting over the years.
Vertex has been busy winning approvals in new age groups and more reimbursements in several countries to ensure longer-lasting dominance in this segment.
Recently, the biotech has launched its Phase 3 trials for a candidate that may be an even better product than Trikafta.
While details have been kept under wraps, Vertex shared that the product would be a one-time curative treatment. Needless to say, this would translate to a massive payday for Vertex.
If everything goes according to plan, this new candidate might be launched by the first quarter of 2023.
At the same time, the biotech has been working on promising candidates for much-needed treatment areas, projected to generate billions of dollars in revenue.
This move is aligned with the strategy Vertex has been using over the years: target diseases with only a handful (if any) of safe and effective therapy options.
Among Vertex’s promising but ambitious programs is VX-880, a potential treatment for Type 1 diabetes.
While this could be a long shot, Vertex’s decision to buy ViaCyte for $320 million speaks volumes of the biotech’s seriousness about the endeavor. For context, ViaCyte is a private company focused on developing a functional cure for Type 1 diabetes.
This acquisition enables Vertex to add researchers who have been working on the same goal for years to contribute their expertise to the pipeline. Plus, ViaCyte can bolster Vertex’s manufacturing expertise for cell-based therapies targeting Type 1 diabetes.
Of course, there’s the work with CRISPR Therapeutics (CRSP) to develop gene therapies. Combining this collaboration with ViaCyte’s pipeline, which includes gene-edited cells created to evade the immune system, means Vertex could design a program eliminating the necessity for immunosuppressive therapy.
Meanwhile, there are other solid candidates in the biotech pipeline.
So far, Vertex has been having discussions with the FDA. The company has recently provided proof of concept data for its candidate for Exa-cel in sickle cell disease and transfusion-dependent thalassemia. Given the progress, the product should be slated for release by early 2023.
Another is VX-147, which is a kidney disease candidate that’s currently in crucial development. To date, the product is on track for accelerated approval and could start generating sales by late 2024.
On top of these, Vertex has been working on alternatives for opioids to avoid overdoses. Amid the growing concerns and data on the addictiveness of opioids, these continue to be prescribed as treatments.
This epidemic shows no signs of slowing down, with the CDC’s recent estimate increasing to 75,000 Americans dying from an overdose. According to the CDC, over 2 million Americans are addicted to opioids.
One explanation for this issue is that there is no effective alternative. While Vertex’s initial candidates failed to show an optimal profile, its latest candidate may very well be the answer.
The new candidate, VX-548, was created based on observations and research on families in Pakistan with the rare ability not to feel or experience any pain.
Due to this particular genetic abnormality, members of these families are able to walk on hot coals, get stabbed with knives, and jump from heights, and experience absolutely no pain at all.
The genetic mutation stops the peripheral nervous system from sending pain signals to the brain.
Vertex and other developers like Biogen (BIIB) are attempting to develop drugs that mimic the pain-blocking ability resulting from this genetic mutation.
If successful, VX-548’s greatest asset is its non-addictive potential, thereby making premium pricing more likely justified.
The current market for acute pain treatments annually is $4 billion, and that number is for generic pricing.
Considering that the pricing of a branded treatment would probably be at least double, then the commercial potential is massive.
Over the next 10 years, Vertex is expected to launch new biotech treatments which, combined with its current CF franchise, will propel its earnings, profit, and share price to even higher heights.
It’s currently facing the bear market without so much as breaking a sweat, with stock prices climbing by roughly 28% so far this 2022 compared to the market’s 19% decline. I suggest you don’t wait too long to buy into Vertex, as this is a top-tier biotech.
Mad Hedge Biotech and Healthcare Letter
July 12, 2022
Fiat Lux
Featured Trade:
(THE LEADERSHIP BATON IS IN BIOTECH’S HANDS NOW)
(MRK), (SGEN), (CRSP), (VRTX), (BLUE), (BIIB), (LLY), (RHHBY)
Biotechnology companies have taken the reins and are expected to outperform the general market in the near future.
To date, the Nasdaq Biotech Index (NBI) has been up by 2.41% while the iShares Biotechnology (IBB) exchange-traded fund has climbed by 2.47%.
Numerous crucial factors place this industry in an advantageous position for growth. Alongside other segments of the pharmaceutical and healthcare industries, the biotechnology sector is essentially recession-proof.
With a roughly 40% fall in the biotech sector from 2021’s high, it’s highly likely for us to witness a boost in takeover activity in this space.
This is evident in recent reports of Merck (MRK) attempting to acquire cancer biotech Seagen (SGEN), as discussed in the June 30 issue of this biotech and healthcare letter.
The talks have progressed, and it appears that Merck is nearing the end of the process. The goal is to have the details worked out by the time the quarterly earnings report is released on July 28.
While no specifics have been made public, it is estimated that the larger healthcare company will pay a staggering $40 billion for this Seagen acquisition.
If this goes through, Merck will pay more than $200 per share for Seagen.
The news of this acquisition bolstered Seagen’s business as the stock rose by 4.6% at the time of the announcement.
This is welcome news given the perceived slowdown in biotech M&A activity since 2020. As a result, the idea fueled pessimism among investors who failed to see the big picture during this time period.
Analysis of 101 contracts signed by small, medium, and large biotechnology companies between January 2015 and June 2022 reveals that this year's contract volume and size are comparable to those of previous years.
In fact, there have been $17.7 billion in transactions so far in 2022. This translates to more than $13.9 billion in 2020 and $7.2 billion in 2021.
Some investors may be concerned about the quality of these acquisitions.
Even though the companies involved paid good premiums, the last 12 months' acquisitions were done at a big discount to the highest share prices of the businesses being bought.
To put it simply, there has been a problem with pricing in the sector as of late.
This is admittedly a "bittersweet" reality of recent biotech M&A transactions. As a result, market perceptions are clouded and investors are misled into believing that a much larger problem is brewing in the sector.
Executing megadeals is an obvious solution. This is why the Merck-Seagen merger is such good news for the industry.
The impact of this report suggests that large-scale M&A could be part of the path to the biotech sector's recovery.
The mere possibility of this transaction has already increased the SPDR S&P Biotech exchange-traded fund by approximately 20%.
In addition to Merck and Seagen, other biotechnology companies have been widely discussed as potential acquisition targets.
CRISPR Therapeutics (CRSP), which has a long-term partnership with Vertex Pharmaceuticals (VRTX), is a fan favorite. By the fourth quarter of 2022, the two intend to submit their sickle cell and beta-thalassemia treatment for approval.
Bluebird Bio (BLUE) is another company that has been on the radar whenever acquisition discussions begin.
This gene therapy and cancer biotech has been unnerving investors for months, even before the pandemic triggered an economic crisis, due to its lackluster performance. Despite this, its gene-editing program has enormous potential.
With a market capitalization of $368 million, it is an ideal candidate for Merck and even Moderna (MRNA). After all, both have been considering expanding its oncology program, and a dirt-cheap acquisition target appears to be an appealing option.
Biogen is another name associated with multiple interested parties (BIIB). Since its Alzheimer's treatment failed to materialize and deliver despite the biotechnology company exhausting virtually all available options to salvage the situation, the stock has yet to exhibit any signs of recovery.
After betting the farm on this candidate, Biogen has struggled to maintain its financial stability. In an effort to improve its cash flow and pay off its debts, the company has also been working overtime to advance the other programs in its pipeline.
Eli Lilly (LLY) and Roche (RHHBY), which have been working on their own Alzheimer's treatment, have recently been linked to Biogen.
With a market capitalization of $32 billion and a money-losing program, however, any transaction involving this biotech would require significantly more time.
Overall, it appears that biotechs are gradually regaining their footing. It is only a matter of time before all the pieces fall into place and the sector begins to move forward with full force.
Mad Hedge Biotech and Healthcare Letter
July 7, 2022
Fiat Lux
Featured Trade:
(A BIOTECH WITH A QUIVER FULL OF ARROWS)
(VRTX), (UNH), (SIGA), (CRSP)
Even with the decline of the general market, several stocks have managed to buck the trend and thrive.
However, no stock is worthy of serious consideration if it isn’t at least delivering some positive returns.
In the biotechnology sector alone, there are roughly 750 biotech stocks on the major US exchanges.
Approximately 50 of these have been in the positive territory in the last 12 months. Among them, only 25 have shown a 20% or above jump.
In this very short list of promising biotechnology stocks in 2022, one name stands out as a huge winner amid a growing number of losers: Vertex Pharmaceuticals (VRTX).
Vertex shares have increased and soared near 50% over the past 12 months. In fact, the stock is up by over 30% thus far this year.
On top of stock performance, another factor to consider is the quality of the underlying business.
At the very least, the company needs to show potential to grow sales and deliver profits. Vertex once again delivers on these aspects.
The durability and dependability of revenue and earnings growth are critical.
This year, only three of the surviving biotechnology companies from the whittled-down list managed to generate positive top- and bottom-line growths over the past five years.
These are United Therapeutics (UNH), Siga Technologies (SIGA), and, of course, Vertex.
Vertex’s recent performance is a complete 180 from earlier times. The stock fell more than 30% from October 2020 until October 2021. This decline was primarily due to the investors’ anxiety over the company’s heavy reliance on its cystic fibrosis (CF) program.
Evidently, the tide has turned for Vertex. More importantly, this could only be the start.
While a biotech with an excellent track record is a good indicator, it’s not a guarantee that it can deliver the same results in the future.
However, Vertex appears to be doing an exceptional job of continuing its winning streak.
The company holds a rare advantage that only a handful of biotechs have: a rock-solid moat.
While investors may not like Vertex’s complete reliance on its CF business, it’s critical to remember that expansion is far from over for this particular therapeutic segment.
Moreover, Vertex is the market leader in this field worldwide—and it’s expected to keep this position until the late 2030s at the very least.
Four CF treatments have been approved in both the US and Europe, and Vertex makes all of them.
Sure, several companies are attempting to enter this market and compete against Vertex, but none of them have gotten past Phase 2. Actually, most of the potential rivals are still in the preclinical testing phase.
This monopoly enables Vertex to generate solid revenue and earnings growth continuously. In the first quarter of 2022, the company’s cash position reached $8.2 billion.
If that’s not enough to secure Vertex’s position in this market, then here’s another one. The biggest threat to Trikafta, one of Vertex’s CF blockbusters, is a candidate being studied and developed by none other than Vertex itself.
That’s right: Vertex’s biggest threat is another Vertex candidate.
In terms of patent exclusivity, Vertex has this concern covered as well because its best-selling CF treatment won’t expire until 2037.
Nonetheless, investors aren’t the only people hoping to expand Vertex’s portfolio. The company has been steadfastly working on that, too.
Aside from working on a potential groundbreaking mRNA-based CF treatment with Moderna (MRNA), Vertex has been developing candidates in several key segments, including diabetes, blood disorders, and pain.
Vertex and CRISPR Therapeutics (CRSP) are expected to seek regulatory approval for exa-cel (CTX001), a potential one-time cure for sickle cell disease and transfusion-dependent beta-thalassemia, within 2022.
It also moved its kidney disease candidate, VX-147, into late-stage trials last March. If this works out, the treatment can target a larger patient population than CF.
Another program expected to move into late-stage trials in the second half of 2022 is VX-548, an experimental non-opioid pain drug.
Meanwhile, its Type 1 diabetes pipeline is anticipated to grow soon. The company already has at least one cell therapy queued for early-stage testing, and the plan is to advance another program into clinical trials by the fourth quarter of this year.
Simply put, Vertex’s pipeline is akin to a quiver full of arrows. Considering the company’s track record, it would no longer be surprising if it hits all its targets.
Mad Hedge Biotech and Healthcare Letter
June 9, 2022
Fiat Lux
Featured Trade:
(THE FUTURE OF BIOTECH IS IN GOOD HANDS)
(CRSP), (VRTX), (EDIT)
No advancement in the biotechnology and healthcare sector is quite as mysterious, promising, and powerful as CRISPR.
It has long captivated the attention and imagination of serious scientists and researchers alongside the media and the public. It’s an understatement to say that it’ll be a significant area of development for decades to come, thanks to its capacity to remodel our genetic code accurately.
Among the frontrunners in the burgeoning CRISPR segment are CRISPR Therapeutics (CRSP) and Editas Medicine (EDIT).
Both biotechs have promising pipelines packed with innovative and potential cures for previously incurable genetic conditions.
The CRISPR programs appear to be the most advanced among their candidates despite still being in the early stages.
Nevertheless, any progress reported could likely push the entire CRISPR group to surge substantially.
Fortunately for this sector, there are at least two major catalysts in 2022.
CRISPR Therapeutics, which leverages the CRISPR technique, aims to submit its blood disorder treatment candidate, CTX001, for regulatory review by the end of 2022.
This program, which is developed in collaboration with Vertex Pharmaceuticals (VRTX), specifically plans to target sickle cell disease and beta-thalassemia.
So far, results have been positive, and the consensus is that it’s only a matter of time before both companies finally launch the much-awaited treatment commercially.
Another catalyst opportunity for CRISPR stocks this year is from Editas Medicine.
While this stock is not as popular as CRISPR Therapeutics, I think it holds the potential to become a massive star in the CRISPR gene-editing sector. What makes this biotech fascinating is the sheer number of candidates in its pipeline and the variety of options and applications they have for the technology.
At this point, Editas is focused on exploring the application of its in-vivo CRISPR genome editing therapy, called EDIT-101, to patients suffering from Leber congenital amaurosis 10 (LCA10).
LCA10 is an inherited and severe eye disorder that primarily affects the cornea and leads to a severe loss of vision or even blindness at an early age. This is caused by the mutation of the CEP290 gene.
This condition is an ideal target for Editas because CEP290 gene mutation can be found among 20% to 30% of LCA10 patients.
More than that, there is no existing approved treatment for it. This means that if Editas successfully completes the clinical trials for EDIT-101, it will possess a monopoly of this market.
Thus far, Editas has been delivering promising results on this treatment, and shareholders can expect definitive results from the study by the second half of 2022. Needless to say, positive data from the trials would tremendously boost Editas shares.
Aside from EDIT-101, Editas is also working on EDIT-301, which could be a competitor of CRISPR Therapeutics and Vertex’s CTX001.
However, the more exciting development for Editas is its advanced cell treatments in the oncology sector.
Recently, Editas announced its new gene-editing technology, called “SLEEK,” which means SeLection by Essential-gene Exon Knock-in.
This is groundbreaking because it improves cell therapies in a couple of factors. For example, it can deliver better knock-in of trans gene cargos. This means that SLEEK is more efficient in terms of artificially introducing a new gene into the genome of a patient.
It remains to be seen how Editas plans to take advantage of SLEEK in its future candidate. One thing’s for sure, though; this biotech has multiple shots on goal, making it hard for Editas to miss.
Taking all these into consideration, it’s safe to say that it’s not yet too late for investors to position themselves for lucrative long-term gains courtesy of these CRISPR stocks.
Despite the sharp decline in the gene-editing biotechnology sector over the past months, practically all the applications of CRISPR technology remain untapped to this day.
The most convincing tailwind for CRISPR-focused stocks is that the market for CRISPR-based treatments is estimated to multiply in value by approximately 13-fold between 2019 and 2030.
For that target to be reached, cutting-edge biotechnology companies should step up and develop the first generation of CRISPR-centered treatments. Considering where things stand right now, it looks like they are on the right track.
