Mad Hedge Biotech and Healthcare Letter
February 22, 2022
Fiat Lux
Featured Trade:
(AN ATTRACTIVELY VALUED BIOTECH ON THE VERGE OF BREAKTHROUGHS)
(VRTX), (IBB), (ABBV), (CRSP)
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Some stocks bring quick and easy gains, and those are thrilling. However, a key strategy behind a successful portfolio is always including solid players that deliver excellent returns in the long run.
One of the things I appreciate about investing in the healthcare sector is that this industry is primed to perform well no matter what happens to the market.
After all, people will continue to depend on their products and services regardless of the situation in the financial and economic world.
In the biotechnology and healthcare sector, an excellent way to ensure this is to evaluate a company’s pipeline.
This serves as a good indicator of whether the business has the capacity and potential to generate revenue in the years to come. It’s also advisable to check out a company’s general financial picture and, of course, its strategy. Those elements play critical roles in tomorrow’s performance.
With these criteria in mind, one of the biotechnology names that stand out in the field is Vertex Pharmaceuticals (VRTX).
With a market capitalization of $58.45 billion, Vertex is considered one of the biggest biotechnology companies in the world.
To date, it is included in the Top 5 list of iShares Nasdaq Biotechnology ETF (IBB). Over the years, the company has primarily concentrated on the cystic fibrosis (CF) field.
With its leading CF treatment, Trikafta, gaining approval for a triple combination back in 2019, Vertex has cornered practically 90% of the market.
Unfortunately, Vertex’s share price has remained relatively unchanged for the past two years.
This stagnant performance could be attributed to the disappointing Phase 2 results of its rare liver disease treatment VX-814 in October 2020 and respiratory medication VX-864 in June 2021.
Due to the setbacks from these studies, investors have started to question Vertex’s ability to come up with a marketable treatment outside its CF portfolio.
Vertex posted revenue increases in its recent reports despite these disappointing results.
In the fourth quarter of 2021, the company reported $2.073 billion in revenues, indicating a 27% increase year-over-year, along with an impressive 31% profit growth.
As expected, the revenue boost was courtesy of Trikafta, which recorded a 55% increase in its annual sales.
For the entire 2021 fiscal year, Vertex raked in $7.57 billion in revenues and $3.38 billion in profits, showing off a notable 45% net margin.
Prior to this report, Vertex’s initial guidance for its 2021 revenues was at $6.8 billion.
At that time, experts already believed that the company might be overestimating its capacity, especially considering the setbacks of the trials.
However, it managed to exceed expectations.
Surprisingly, Vertex disclosed an even higher fiscal outlook for 2022 at $8.5 billion. Considering that the company tends to be conservative in its estimates, the following months would definitely bring exciting breakthroughs for Vertex.
In fact, if we look at its track record, there’s a very good chance that the $8.5 billion annual revenue estimate would reach $8.8 billion or even hit $9 billion by the end of 2022.
In terms of its pipeline, Vertex has been working on strengthening its hold in the CF market. This becomes even more necessary with AbbVie (ABBV) hot on its heels with its own version of a triple combination CF therapy expected to rival Trikafta.
Outside its CF program, there are roughly 10 assets queued in various stages of clinical trials.
So far, the most advanced is its mRNA-based cell therapy collaboration with CRISPR Therapeutics (CRSP). The treatment, called CTX001, is being developed to target sickle cell disease and beta-thalassemia.
To date, CTX001 is already in Phase 3. It’s slated for regulatory submission to the FDA sometime in the third or fourth quarter of 2022. In terms of profits, CTX001’s peak sales is projected at $1.3 billion.
Another promising candidate is kidney disease treatment VX-147, which is in Phase 2.
Two more candidates are in Phase 2, diabetes cell therapy VX-880 and potential opioid substitute VX-548. While additional trials are still needed, both are anticipated to become blockbuster treatments and game-changers when they enter the market.
Looking at Vertex’s pipeline and the progress of its candidates, it’s safe to say that the company has the capacity to come up with blockbusters outside its CF program.
Moreover, Vertex has an outstanding investment ability due to its high cash balance worth more than $7.5 billion and an impressive balance sheet.
This means that Vertex has the capability to participate in a significant acquisition in the following years in an effort to bolster its pipeline. In this vein, an obvious and alluring candidate would be CRISPR Therapeutics, which is currently valued at $4.49 billion.
Overall, Vertex is a remarkable biotechnology company that has specialized in a lucrative niche for several years, equipping it with the ability to successfully monopolize the sector.
Although market volatility has recently affected it, Vertex still managed to report revenue growth and promising data from its trials. With its relative financial strength and excellent pipeline, I believe this makes the stock a good investment in the long term.
Mad Hedge Biotech and Healthcare Letter
February 15, 2022
Fiat Lux
Featured Trade:
(AN EMERGING LEADER IN THE HEALTHCARE REVOLUTION)
(CRSP), (VRTX), (EDIT), (NTLA), (PFE), (NVS), (GILD), (RHHBY), (BMRN), (QURE), (SGMO), (CLLS), (ALLO), (BEAM)
Mankind has always imagined a future filled to the brim with technological advancements serving as the panacea to all our ills.
One of the prevailing ideas focuses on the developments found in the healthcare sector.
Movies, television shows, graphic novels, and books have all pictured a world with such revolutionary technologies capable of not only diagnosing but also curing any and all types of diseases.
Since the introduction of these ideas, many have believed that these would remain in the fictional universe. However, these “ideas” have slowly transformed into reality.
One of the biggest indicators that we’re heading in that direction is the 2020 Nobel Prize in Chemistry by Jennifer Doudna and Emmanuelle Charpentier. The two were recognized for their pioneering work in CRISPR-Cas9.
Basically, Crispr-Cas9 functions like molecular scissors.
What makes this technology incredible is that Crispr-Cas9 can classify a single address out of 3 billion letters within the genome by using only a particular sequence. With this, we can repair thousands of genetic conditions and even offer more potent ways to battle cancer.
This Nobel Prize led to commercializing the 2012 discovery, Crispr-Cas9, at breakneck speed, with gene-editing companies like CRISPR Therapeutics (CRSP), Editas Medicine (EDIT), and Intellia Therapeutics (NTLA) gaining a considerable boost in their values.
Surprisingly, the trajectory of these gene-editing stocks took a tragic turn in 2021.
In fact, the once-upon-a-time-market-darling CRISPR Therapeutics saw its market capitalization brutally shaved off from $8.7 billion to $4.55 billion in the past months.
No matter how we look at it, there’s genuinely no way to sugarcoat the reality: the market has been second-guessing CRISPR Therapeutics’ ability to truly deliver on its promise.
That is, investors have started to wonder whether the company’s early stage success would amount to anything commercially.
CRISPR Therapeutics is currently working on a treatment that would implant tumor-targeting immune cells on cancer patients. The company is also prioritizing therapies that could edit cells to treat diabetes.
So far, it has made significant progress in developing treatments for a genetic disorder called sickle cell.
In the US alone, at least 100,000 people suffer from sickle cell disease, with 4,000 more born every year. Conservatively, we can estimate at least 3,000 patients availing of this one-time treatment at over $1.6 million a pop.
To date, CRISPR Therapeutics has five candidates under clinical trials for diseases like B-thalassemia, sickle cell disease, and other regenerative conditions.
It has four more queued, which target diabetes, cystic fibrosis, and Duchenne muscular dystrophy.
Compared to its rivals in the space, it’s clear that CRISPR Therapeutics is ahead when it comes to product development and trials.
Two of its candidates, transfusion-dependent beta thalassemia treatment CTX001 and sickle cell disease therapy CTX110, have already been submitted for clinical tests for safety and efficacy.
Recently, Vertex (VRTX) boosted its 2015 agreement with CRISPR Therapeutics by 10%, with the deal reaching $900 million upfront to push for quicker results in developing CTX001.
This is a crucial move for Vertex, but more so for CRISPR Therapeutics as CTX001 holds a highly lucrative addressable market.
The additional funding significantly widened the gap between the Vertex-CRISPR team and bluebird bio (BLUE) in the race to launch a new gene-editing therapy targeting sickle cell disease and beta thalassemia.
To sustain its growth, CRISPR Therapeutics’ strategy is to develop drugs that only require mid-level complexity but can rake in generous financial rewards.
This is a similar tactic used by bigger and more established biotechnology companies like Pfizer (PFE), Novartis (NVS), and Gilead Sciences (GILD).
Evidently, this strategy is a great way to ensure cash flow.
Aside from its earnings from the commercialization of these products, CRISPR Therapeutics can also attract larger companies to buy the intellectual property of their breakthrough treatments.
After all, startups generally get 100% premiums in contracts with Big Pharma.
Good examples of this are Novartis that bought AveXis and Roche’s (RHHBY) purchase of Spark Therapeutics.
The Roche-Spark agreement led to the first ever FDA-approved treatment since gene therapy trials started in the 1990s. It was for the genetic blindness therapy Luxturna, which received the green light in 2017.
The second approved treatment was a muscle-wasting disease therapy Zolgensma, which was the fruit of the Novartis-Avexis acquisition.
Both conditions are rare, but the financial rewards are impressive.
At $2 million for each treatment, Zolgensma sales reached $1.2 billion annually. At the rate the therapy is selling, Novartis estimates that Zolgensma will surpass the $2 billion mark in 2021.
Novartis and Roche aren’t the only ones partnering with smaller gene editing companies.
Pfizer has been working with biotechnology companies BioMarin Pharmaceutics (BMRN) and UniQure (QURE) to develop a treatment for blood-clotting disorder hemophilia.
The COVID-19 frontrunner is also collaborating with Sarepta Therapeutics (SRPT) to come up with a treatment for Duchenne muscular dystrophy.
Gene editing has also served as the foundation for several biotechnology companies out there today like Sangamo Therapeutics (SGMO), Cellectis (CLLS), and Allogene Therapeutics (ALLO).
The market size for gene editing treatments is estimated to be worth $11.2 billion by 2025, with the number rising between $15.79 billion to $18.1 billion by 2027.
This puts the compounded annual growth rate of this sector to be at least roughly 17%.
While this is already groundbreaking with only a handful of companies knowing how to utilize the technology, the gene-editing world has come up with a more advanced technique than Crispr-Cas9.
The technology is founded on the “base editing” or “prime editing” technique, which is the simplest type of gene editing that alters only one DNA letter.
So far, one company holds exclusive rights to this technology: Beam Therapeutics (BEAM).
When the technology became public, Beam stock has increased sixfold since its IPO in February 2020.
This latest development can resolve thousands of genetic diseases. However, it still requires further trials since “base editing” can also trigger damaging responses from the body.
Overall, I think CRISPR Therapeutics is the most promising among these high-risk stocks.
The data from two of its candidates, CTX001 and CTX110, are promising. The added funding from Vertex boosts the confidence of investors that a regulatory approval is well on its way.
The company is also sitting on a massive cash pile and investing aggressively across different rare disease programs.
While the company has yet to be considered a major force in the biotechnology world, the potential multiple successes of its products could generate a company worth hundreds of billions.
This potential alone offers an investing opportunity with a substantial asymmetric advantage for its current share price.
However, bear in mind that the stock is not for conservative investors considering risks.
More importantly, its pipeline requires patience. Hence, CRISPR Therapeutics should be played as a long-term investment.
Mad Hedge Biotech and Healthcare Letter
February 8, 2022
Fiat Lux
Featured Trade:
(A NEW WAVE OF GENE-EDITING EXPERTS)
(NTLA), (REGN), (VRTX), (CRSP), (TMO), (SGMO), (EDIT), (MRK), (BIIB)
The gene-editing sector quietly achieved historical results in 2021. Last year, human trials of two in vivo CRISPR-centered treatments released promising data.
One study, conducted by Intellia Therapeutics (NTLA) and Regeneron Pharmaceuticals (REGN), worked on targeting the faulty gene responsible for transthyretin amyloidosis.
Using their new CRISPR-based therapy, they were able to record an impressive 96% decline in the transthyretin gene.
This is an impressive accomplishment not only for its high efficacy but also for the mere fact that no other work has managed to record any significant effect on the gene for almost a decade now.
The other study is by Vertex Pharmaceuticals (VRTX) and CRISPR Therapeutics (CRSP). Over the years, the two have been collaborating on coming up with treatments for various rare diseases.
In 2021, they recorded promising results in their clinical trials for sickle cell disease and beta-thalassemia. Aside from the potency of these treatments, there is a possibility that the effects would offer long-lasting improvements in the patients' lives.
While 2021 was clearly a remarkable year for the gene-editing sector, all signs indicate an even better 2022.
If the sector doesn’t deliver, there will be 2023 and the year after. After all, the gene-editing world is the kind of space that gets better with age.
More than that, this sector will keep evolving and attracting new players every year.
Hence, key players like Thermo Fisher Scientific (TMO), Sangamo Therapeutics (SGMO), Editas Medicine (EDIT), Merck (MRK), and Oxford Genetics cannot expect to be the top names in the industry forever.
Recently, some names have been making waves in the gene-editing industry.
One is Excision BioTherapeutics. Founded in 2015, this Philadelphia biotechnology company leverages its CRISPR-based platform to target viral infections.
Basically, they aim to snip the viral DNA out of the host genome.
To date, the company’s most advanced project is its HIV treatment: EBT-101. So far, Excision has managed to functionally cure its test animals of the infection by removing their HIV genomes.
Ultimately, Excision’s goal is to come up with a “one-and-done” therapy for viral diseases.
Apart from working on HIV treatments, the company is also looking into potential cures for herpes simplex, hepatitis B, and a rare brain infection called multifocal leukoencephalopathy.
If these treatments succeed, Excision’s therapies would be available in highly specialized treatment centers.
Another promising biotechnology company is California’s Scribe Therapeutics, which was founded in 2018.
Describing their approach to be guided with an “engineer first” philosophy, Scribe’s plans to use CRISPR-based gene-editing tools to achieve their goals.
Instead of using the conventional CRISPR-Cas9 methods, the company opts for modified versions of the RNA-guided genome editors or CasX enzymes.
Scribe has been developing these CasX enzymes to ensure that they acquire the qualities of the target for enhanced specificity.
That is, the company wants its “editor” to learn as much as possible about the characteristics of the system to deliver intentionally designed solutions.
Simply, Scribe aims to control all elements and eliminate the need to leave anything to chance or even nature.
Since its founding, Scribe has been actively developing solutions for unmet medical needs.
For instance, it has been working with Biogen (BIIB) to develop and eventually market CRISPR-based treatments that target an underlying genetic component of a nervous system disease called amyotrophic lateral sclerosis.
The agreement states that Scribe will get $15 million upfront and receive over $400 million in potential milestone payments.
The company has already started testing its technology in mouse models, focusing on neurological and neurodegenerative conditions.
Given their current trajectory, Scribe expects to release data by the third or fourth quarter of 2022 or early 2023.
All in all, gene-editing tools have evolved so much from the mid-twentieth century. Back in the 1970s and 1980s, the process of gene targeting was only possible in experiments on mice.
Since then, the ever-expanding world of science has pushed the sectors of gene analysis and manipulations to cover all kinds of cells and organisms.
Considering the increasing demand in this sector, it’s no wonder the gene-editing world has been growing at breakneck speed over the past years—a pace that won’t slow down anytime soon.
Mad Hedge Biotech and Healthcare Letter
December 21, 2021
Fiat Lux
Featured Trade:
(A BREAKOUT BIOTECH WITH A STRONG STAYING POWER)
(MRNA), (PFE), (BNTX), (MRK), (AZN), (VRTX), (CRSP), (GILD)
The biotechnology and healthcare sector has been ruthlessly hammered in 2021.
In fact, the largest exchange-traded funds that keep track of the biotechnology industry have been in the negative in the past months.
However, the string of bad news doesn’t automatically mean that none of the biotechs can deliver strong returns in the coming days.
An excellent example of a biotech that’s an exception to the general theme of the sector these days is none other than the famous Moderna (MRNA).
Moderna stock has already delivered a 434% gain in 2020. Meanwhile, it has so far recorded a 160% rise this year—a number that’s expected to go higher before 2021 ends.
These gains came after the biotech became one of the market leaders in the COVID-19 vaccine race, alongside Pfizer (PFE) and BioNTech (BNTX).
Considering how COVID-19 catapulted the stock to dizzying heights, some investors fear that Moderna’s performance will decline in a post-pandemic setting.
That’s not necessarily the case.
Viruses present complex problems. Right now, we’re dealing with yet another coronavirus variant, Omicron.
This latest strain appears to be more contagious than the previously discovered Delta variant, which was then reported to be more virulent than the original.
What’s the takeaway here?
COVID-19 isn’t going to disappear anytime soon. Since the vaccines and boosters seem to wane gradually, these are expected to become staples moving forward.
This means everyone will need ongoing protection, which translates to ongoing sales for vaccines and boosters for companies like Moderna.
Moreover, the continuous demand for new and more potent vaccines makes it a no-brainer that Moderna will once again deliver market-crushing performances in the next few years.
For context, the company estimates that Spikevax, its COVID-19 vaccine, will rake in roughly $15 billion to $18 billion in sales in 2021.
Orders for 2022 have been secured as well, with Moderna already locked in for over $22 billion worth of Spikevax doses through advance purchase deals.
This is still expected to rise, considering the vaccines under development for the new variants getting discovered.
But even when the panic and anxiety over the viruses subside, we can still reasonably expect roughly $15 billion in annual sales from Spikevax
After all, the vaccine and boosters are expected to become the norm eventually.
Believe it or not, though, the best reason to buy Moderna isn’t its coronavirus vaccine.
Outside Spikevax, Moderna has a long list of promising pipeline candidates under development—the majority of which are based on the mRNA technology that’s behind its potent COVID vaccine.
While that does not guarantee that all the candidates will gain approval, the fact that the technology has been proven to work on humans presents a bright future for these candidates.
The company has been actively advancing its programs using its cash on hand, with over half a dozen queued in Phase 2 trials.
A potential blockbuster is its cytomegalovirus (CMV) vaccine candidate.
CMV, a virus that can be deadly to unborn babies and individuals with compromised immune systems, currently has no vaccine.
This represents an untapped market with high demand. Conservatively speaking, Moderna can generate roughly $2 billion to $5 billion in peak sales for this vaccine if it gains regulatory approval.
Other impressive programs in the biotech’s pipeline are its HIV vaccine candidate and a personalized cancer vaccine, which Moderna has been developing with Merck (MRK).
Needless to say, both hold the potential to become game-changers not only for Moderna but also for the entire industry.
Aside from its personalized cancer vaccine, another relatively advanced program in its pipeline is its work with AstraZeneca (AZN) on the AZD8601 program.
The AZD8601 program aims to use mRNA therapies to encode for vascular endothelial growth factor-A in people who are supposed to go through a coronary artery bypass grafting.
In layman’s terms, AstraZeneca and Moderna want to develop a treatment that induces the heart blood vessels of heart bypass surgery patients to repair themselves.
However, the most exciting collaboration is Moderna’s work with Vertex (VRTX) to develop a cystic fibrosis (CF) treatment.
Considering that Vertex is practically a monopoly in the CF space, this can turn out to be a lucrative direction for Moderna as well.
In terms of competition, the biotech might go head-to-head against Vertex’s other partner, CRISPR Therapeutics (CRSP).
Until two years ago, Moderna was an obscure biotechnology company with no product out on the market.
Today, it is hailed as one of the biggest biotechs worldwide thanks to its market capitalization of roughly $120 billion, surpassing long-established names in the sectors like Gilead Sciences (GILD) and even Vertex.
Some investors point out that Moderna’s breakneck rise to the top might also mean a steady descent.
While I agree that its climb was faster than the usual biotech, I still believe that Moderna possesses the right tools to sustain its momentum for the years to come.
Mad Hedge Biotech and Healthcare Letter
November 4, 2021
Fiat Lux
Featured Trade:
(A LONG-TERM STOCK FOR MONOPOLY AFICIONADOS)
(VRTX), (ABBV), (GLPG), (CRSP), (MRNA)
Investors have a myriad of biotechnology stocks to choose from. However, most of these options are still in the developmental stage for their first blockbuster product that can hit at least $1 billion in sales annually.
Then, there are biotechnology companies like Vertex Pharmaceuticals (VRTX).
Vertex has a storied history of launching blockbuster names in the market for rare and hard-to-treat diseases.
Among the products in its portfolio, what stands out is Vertex’s work on cystic fibrosis (CF) treatments.
CF is an incurable genetic condition that can damage the lungs and the pancreas. So far, Vertex has four CF treatments available and holds 97% of the market share worldwide, valued at roughly $6.36 billion in 2020.
The company’s latest CF treatment, Trikafta, is already projected to generate roughly $5 billion in sales after only less than 2 years since its release.
Thus far, Vertex has reported an annualized sales run rate of $7.2 billion in its second-quarter earnings report for 2021. This number is expected to climb higher as the company increases its penetration rate in the CF market in the coming years.
Given its history and trajectory, Vertex is projected to generate $10 billion to $10.5 billion in sales for its CF franchise by 2024.
Considering the lucrative CF market’s potential, it no longer comes as a surprise that more and more competitors are entering the space. However, none can even be considered as a close second to Vertex.
AbbVie (ABBV) partnered with Galapagos (GLPG) to come up with a combination CF treatment a few years back, only to get stalled in Phase 2 trials.
It remains to be seen if AbbVie, which eventually acquired the entire CF line from Galapagos, will be able to develop a drug worthy of challenging Vertex’s dominance in the arena.
The driving force behind Vertex’s success is its operating model, which works overtime to exhaust all resources to protect its CF revenue.
Throughout the years, the company has been consistent in its efforts to keep developing innovative CF treatments and expanding its coverage to include more mutations.
In turn, these new drugs all but guarantee that Vertex enjoys a stable and secure cash flow for years.
For example, the IP protection for Trikafta will reach up to the late 2030s. If innovations on the drug are discovered, then this can very well extend into the 2040s.
Despite the overwhelming success of its CF franchise, Vertex knows not to rest all its eggs in one basket.
The company has been working on expanding its expertise. A telltale sign of this decision is its burgeoning partnership with CRISPR Therapeutics (CRSP).
So far, the two have created a promising gene-editing treatment, CTX001, which targets rare blood diseases and sickle cell disease.
Looking at their timeline, the therapy could be ready for regulatory review by 2023.
Other than CTX001, Vertex and CRISPR have been developing several mRNA-based treatments currently under Phase 2 trials.
Among them, the therapies generating the most excitement are the ones targeting pain and rare kidney diseases.
For acute pain treatments alone, the US market is already worth $4 billion. To this day, the non-opioid medication market remains an extremely attractive space.
Needless to say, a product offering an approved safety profile and high efficacy could easily grab the multi-billion sales potential.
Meanwhile, riding on the momentum of its mRNA programs, Vertex also partnered with Moderna (MRNA) to develop more therapies for rare and hard-to-treat diseases.
While its collaboration with Moderna has yet to reveal its prime candidates, there’s a strong possibility that one of them would be a gene therapy for CF.
CTX001’s addressable market is highly lucrative and still exclusive to hyper-specialized companies.
This top-priced orphan gene-editing treatment could rake in annual sales within the range of $3 billion and $4.5 billion. This estimate covers roughly 3,000 to 4,500 patients every year, with average individual spending of $1 million.
Although this price might sound too steep, keep in mind that CTX001 treats lifelong incurable diseases. Typically, patients spend an average of $200, 000 annually.
If successful, this treatment from Vertex and CRISPR could provide a one-and-done answer to the suffering of these patients, justifying the steep price tag.
Overall, I see Vertex as a stock selling a pretty reasonable price.
Considering its relatively young pipeline, though, this should be seen as a long-term investment—one that has been tested and proven to be successful at targeting multi-billion-dollar markets.
