Mad Hedge Bitcoin Letter
October 7, 2021
Fiat Lux
Featured Trade:
(A RARE BLUE-CHIP STOCK IN DEEP VALUE TERRITORY)
(MRK), (NVAX), (MRNA), (BMY), (XLRN)
Posts
Merck (MRK) is facing a huge problem. In roughly seven years, its top-selling megablockbuster cancer treatment Keytruda is set to lose its patent exclusivity.
This is a major concern for the company, considering that Keytruda comprised over a third of the their revenue in 2020.
This impending “doom” appears to have scared off investors, as Merck stock has been trading at at least 12 times the earnings expected within the next 12 months.
However, it looks like Merck is slowly gearing up to reveal the solutions it came up with to address this major problem.
The first sign of a turnaround is Merck’s recent news about releasing an oral antiviral pill for COVID-19.
Immediately after the release of the positive data, the biopharmaceutical giant’s $206 billion market capitalization climbed by $16 billion, showing off an 8.4% in its share price.
In comparison, other COVID-19 vaccine stocks experienced significant selloffs. Novavax (NVAX) fell by 12%, while Moderna (MRNA) slipped by 11%.
Merck’s COVID-19 pill, called Molnupiravir, is expected to be a cheaper, safer, and more effective alternative to the current antiviral treatment available today, which is Remdesivir from Gilead Sciences (GILD).
Molnupiravir has been so promising that the US government already sealed a $1.2 billion contract with Merck to get 1.7 million doses of the drug months before the announcement.
While there’s still no final word on the pricing, the US government’s deal places the drug at $700 per dose.
Given its manufacturing capacity, Merck disclosed that it could easily produce six times that order, with the company targeting roughly 10 million courses by the end of 2021.
Using these numbers, it’s easy to see how Merck can generate $7 billion in sales of Molnupiravir alone this fourth quarter.
Although Molnupiravir’s sales won’t be a game-changer for Merck in the same way Moderna’s COVID-19 vaccine candidate changed its landscape, the $7 billion revenue would still offer a significant boost.
Another 10 million doses of Molnupiravir are slated for release by 2022, indicating higher sales for Merck in the coming months.
Aside from working as an antiviral pill, Molnupiravir is also believed to be effective against other known viruses like influenza.
Considering the surging demand for travel these days, there’s a huge possibility that Merck’s oral drug will be handed out like candy canes as a potential preventive measure.
After all, the efficacy of the COVID-19 vaccines, especially for those who got jabbed earlier than most, would start to wane at this point.
Taking into account the demand for this pill worldwide, it’s realistic to assume that Molnupiravir can generate $35 billion to $70 billion in revenue for Merck.
Even before the news about Molnupiravir broke, Merck already raised its revenue guidance for 2021 to somewhere between $46.4 billion to $47.4 billion, signaling 12% to 14% growth.
Aside from its COVID-19 drug, Merck has been busy expanding its portfolio that already covers oncology, hepatitis, and HPV.
One of its latest moves to achieve this goal is its $10.8 billion acquisition of Acceleron Pharma (XLRN)—a deal Merck snagged right under the nose of the strongest contender in the race, Bristol-Myers Squibb (BMY).
Merck’s acquisition of Acceleron will boost the cardiovascular pipeline of the company, including treatments for life-threatening blood vessel conditions.
These are on top of its growing vaccine business, which still has four queued for Phase 2 clinical trials and another for regulatory review.
These candidates effectively make Merck a critical player in the rapidly expanding vaccine market—a segment that’s projected to rise from $42 billion in 2020 to $74 billion by 2028.
Overall, Merck is one of the unparalleled blue-chip stocks trading in deep-value territory these days.
It’s hitting all cylinders, showing off a stable expansion of its key franchises and an impressive balance sheet to fund its R&D plans.
Merck has become the poster child of a remarkable stock valued at a reasonable price.
Mad Hedge Biotech & Healthcare Letter
August 19, 2021
Fiat Lux
FEATURED TRADE:
A LOW-PROFILE BIOTECH WINNER
(VRTX), (ACAD), (SRPT), (FGEN), (MRK), (MRNA), (NVS), (XLRN), (PTGX), (IONS), (BLUE), (EDIT), (ABBV)
Choosing winners among biotechnology and healthcare stocks these days isn’t easy.
Since the year started, the sector has been marred with several unexpected disappointments like the 50% decline of crowd favorites Acadia Pharmaceuticals (ACAD) and Sarepta Therapeutics as well as the 33% fall of the ever-dependable FibroGen (FGEN).
So, how can investors pick a winner?
One tactic is taking a peek at what Wall Street analysts are doing, noting which among the companies they’re following are trading the farthest below the estimated price points.
Among the names on the list, a particular stock stands out as a strong contender these days: Vertex Pharmaceuticals (VRTX).
Although it’s one of the most widely known biotechnology companies today, Vertex actually started in a garage of a Harvard-trained chemist, Joshua Bogner, who left his cushy job at one of the most illustrious big pharma companies at that time, Merck (MRK), to pursue his vision.
The company’s raison d’être was a major selling point for a lot of talented and idealistic scientists in that era.
That is, Vertex wanted to find cures for the most challenging diseases and do this in an unbureaucratic setting.
Since then, Vertex’s goal has been straightforward: tackle the most complex and toughest diseases and deliver breakthrough treatments that offer tangible benefits to patients.
Over the years, the company has managed to keep this goal at the forefront of its efforts, starting with its work on the devastating genetic disorder called cystic fibrosis (CF).
Vertex’s work on CF took over a decade, but it eventually led to an impressive franchise that helped with the treatment of patients.
In the first quarter of 2021 alone, sales in this segment reached $1.7 billion.
Expanding on its work, Vertex has explored genetic therapies and set up a collaboration with Moderna (MRNA) in 2016.
Using the latter’s well-established expertise in messenger RNA technology, the companies are expected to come up with more aggressive and advanced CF treatments in the coming years.
Given these developments, Vertex reiterated its 2021 sales guidance to be somewhere in the range of $6.7 and $6.9 billion. Meanwhile, sales of its CF franchise are estimated to peak at $9 to $10 billion—if not higher—by 2024.
Aside from its work on CF, Vertex has also been pouring resources on developing treatments for severe sickle cell anemia and beta thalassemia, a rare blood disorder.
In fact, the company has been looking into these developments as the next major revenue stream, as seen in its bolstered collaboration deal with CRISPR Therapeutics (CRSP).
In this deal, Vertex paid the smaller biotechnology company $900 million upfront plus a potential addition of $200 million following the first regulatory approval of their therapy, CTX001.
While this may sound like a hefty deal to some, Vertex actually values CTX001 at roughly $11 billion.
CTX001, which is a one-time therapy, is priced at roughly $1 million per patient. At this point, the market for beta thalassemia is valued at $32 billion.
Needless to say, this would make CTX001 a massive income generator in the next few years.
Considering the lucrative market for beta thalassemia, though, it’s no surprise that several competitors have emerged to grab their share as well.
Some companies, such as Novartis (NVS) and Acceleron (XLRN), offer maintenance drugs for the disease.
Meanwhile, others like Protagonist Therapeutics (PTGX) and Ionis Pharmaceuticals (IONS) are attempting to develop treatments that would become direct competitors of CTX001.
However, the closest rivals of the Vertex-CRISPR candidate are from Bluebird Bio (BLUE) and Editas Medicine (EDIT).
While this has become a crowded space, Vertex and CRISPR remain the leaders in this segment, as most of the other candidates are still in the investigation phase.
Since it was founded in the 1980s, Vertex has remained true to its vision of tackling some of the toughest diseases out there.
While big pharmaceutical companies, such as AbbVie (ABBV), decided to expand their portfolio through acquisitions, Vertex leveraged its talent pool and maximized its funds by establishing strategic collaborations instead.
This tactic provided the company with enough elbow room that eventually led to its dominance in the CF space, where it now enjoys a virtual monopoly until at least the next decade.
Meanwhile, it has forged strong relationships with promising biotechnology companies and can very well be on its way to becoming the most dominant force in the rare blood disorder segment.
Overall, Vertex Pharmaceuticals is an attractive stock with an impressive portfolio and an even more impressive pipeline.
