Mad Hedge Biotech & Healthcare Letter
May 14, 2020
Fiat Lux
Featured Trade:
(JOHNSON & JOHNSON’S BIG CORONA PLAY)
(JNJ), (MRNA)
One of the world’s biggest biotechnology and healthcare companies did not reach this status by betting on unproven strategies, but Johnson & Johnson (JNJ) recently made a huge gamble on an experimental vaccine for the deadly coronavirus disease (COVID-19).
Going all-in on this bet, JNJ committed to co-fund with Biomedical Advanced Research and Development Authority (BARDA) the development of a coronavirus vaccine. The two companies pledged over $1 billion for the manufacture of this experimental treatment.
Why is this a big deal?
Drugmakers typically wait to receive positive results before they even consider breaking ground on facilities designed to mass-produce any potential drug.
JNJ and BARDA’s move means there will be warehouses full of this coronavirus vaccine candidate even before we find out whether or not it can successfully prevent COVID-19.
Simply put, Johnson & Johnson decided to mass-produce a vaccine without any proof that it could even be effective.
The company is so confident about this that it believes it could hit the market by 2021 -- a stunning claim considering that it generally takes three to seven years, and at times even longer, to push a vaccine from the initial stage to market launch.
Although claiming such an incredibly short timeline is generally laughable, the FDA has been quite flexible when it comes to efforts to fight the pandemic.
Realistically speaking though, JNJ is unlikely to win this race.
While the giant drugmaker is obviously one of the most promising companies to join this fight, several companies are already further along in their efforts to find a COVID-19 vaccine.
A good example is Moderna (MRNA), which recently started Phase 1 of its clinical trials for a potential COVID-19 vaccine.
The company, which is working with the National Institutes of Health, will determine the safety and ability of its vaccine to trigger an immune response in the patient’s body. To date, there are 45 volunteers involved in this trial. Each of them will receive two doses of Moderna’s experimental vaccine.
Even if JNJ fails to make a fortune from its COVID-19 vaccine candidate, the company still has what it takes to ride out the pandemic and subsequent economic crisis. Actually, it has the ability to come out practically unscathed.
Throughout its 133-year history, (JNJ) has been a steady company that managed to survive six significant recessions so far.
A good example of its resilience was demonstrated during the Great Recession in 2008 up to 2009.
While the S&P 500 Index dropped by as much as 57%, (JNJ)’s shares fell by a maximum of 35%. With firm leaders and adjusted operational earnings growth, the company actually recorded an average earning-per-share growth of 7% from 2007 to 2009.
The company has also consistently paid and even continuously raised its dividend for the past 57 consecutive years -- a track record that can reassure even the most skittish investor.
A huge part of its success is the diversity of its portfolio, with several segments ready to pick up the slack if one sector begins to falter. (JNJ) has its hands on various segments including pharmaceuticals, medical equipment, and of course, consumer goods.
(JNJ) staples like Tylenol, Visine, Band-Aid, Neutrogena, and its line of baby products are the types of purchases that people need in good and bad times. These company brands offer a strong foundation for JNJ even in a recession. If you think about it, consumers rarely go about their days without using at least one JNJ product.
A review of (JNJ)’s performance in the rough years in the past paints a picture of a company strong enough to overcome this looming recession. In fact, it’s easy to believe the company’s fiscal guidance for 2020 which projects a 5.5% growth in sales and expanding margins.
Only a handful of companies can be considered “recession-proof,” and (JNJ) is definitely a part of that select few. Investing in this dependable business is a solid choice.
For more about (JNJ), please visit their website at https://www.jnj.com. For more about Corona vaccine winners, please click here.
Mad Hedge Biotech & Healthcare Letter
May 12, 2020
Fiat Lux
Featured Trade:
(GLAXOSMITHKLINE’S ENTRY INTO THE COVID-19 VACCINE RACE)
(GSK), (VIR), (AZN)
It’s all-hands-on-deck for the biotech sector as the world battles the deadly coronavirus disease COVID-19.
As the US coronavirus-related deaths mount to over 80,000 and reported cases hitting over 1.3 million, the need to find a cure and vaccines increases in urgency every passing minute.
Joining the biotech companies throwing their hats into the ring is GlaxoSmithKline (GSK), which recently announced its decision to work hand in hand with Vir Biotechnology (VIR) in the search for a coronavirus cure.
On top of the collaboration efforts, the partnership will also involve GSK investing $250 million in Vir. According to these terms, each Vir share will be worth $37.73.
The collaboration announcement also pushed Vir shares to rise by as much as 34% and trading more than doubled. Meanwhile, (GSK) went up by roughly 2%.
The partnership will explore several platforms to come up with a treatment for COVID-19.
So far, the most promising candidates involve two antibodies presently dubbed as VIR-7831 and VIR-7832. Both were developed by Vir as treatments for SARS, which is also caused by a coronavirus.
Actually, these antibodies were developed using samples from a patient who recovered from SARS. However, these could also be produced artificially.
(GSK) and Vir estimate that Phase 2 clinical trials will commence in three to five months.
Apart from these antibody treatments, the two companies are also looking into utilizing CRISPR screening technology to figure out which proteins are used by the coronavirus to infect the healthy cells.
Once they identify these, (GSK) and Vir could come up with drugs that block viral infection. That is, they can use the information to create a vaccine to be used not only for COVID-19 but also for other types of coronaviruses.
According to (GSK), the Vir proteins had been identified as “highly potent” when targeted at the coronavirus in the laboratory.
If all goes well, a coronavirus vaccine could be on its way in 12 to 18 months.
Aside from (GSK), Vir also has an ongoing collaboration with another bigwig biotech, Biogen (BIIB).
This isn’t the first venture of (GSK) in looking for a COVID-19 cure though.
The British biotech giant is also working with China’s Xiamen Innovex on another potential coronavirus vaccine.
In addition, (GSK) is looking into forming a joint laboratory with AstraZeneca (AZN) to assist the UK government in stretching and expanding its supplies for COVID-19 diagnostic tests.
Although diagnostics are not part of their primary efforts, the goal is for the two big biotechs to determine the best ways to help in detecting the spread of COVID-19.
While these efforts to help find a solution to the pandemic are at the forefront of the biotech world today, GSK has a lot more to offer.
(GSK) manufactures products that people need to take on a regular basis.
The need is so great that the company actually allocates 80% of its research efforts focused on drug development for various issues like oncology, immuno-inflammation, and HIV. These treatments are vital to the daily existence of so many patients across the globe.
Meanwhile, (GSK) also aims to streamline its business and focus on the research and development of products and services. Hence, it decided to split its businesses into two.
One will be geared towards pharmaceutical efforts. The second will be focused on consumer health.
This is an excellent move in ensuring that (GSK) maximizes its potential to dominate its chosen markets.
Throughout the years, (GSK) has demonstrated its capacity to grow while delivering a strong bottom line. From 2015 until 2019, the biotech giant’s sales increased by over 40% with its operating margin rising as well.
While it’s undeniable that this global biotech stock has gotten itself caught up in the COVID-19 whirlwind that managed to hurt virtually every sector, its downside alternative makes absolutely no sense.
No one has the ability to predict and control when they get sick or what type of illness they get afflicted with, which makes the biotech sector and specifically drug developers particularly safe bet whatever the financial climate is.
So, investors looking for a stable stock can now afford to buy (GSK) shares at approximately 10 times worth of next year’s per-share profit potential. As if that’s not enough, the company also offers a mouthwatering 7.5% dividend yield.
Keep in mind that a wise way to insulate your portfolio amid the fears of a market crash is through investing in stable businesses that offer products and services needed on a daily basis.
If the companies provide essential items in both good and bad times, it’s a good sign the stocks will be able to survive any market crash.
(GSK), which is currently at an 11-year low due to the pandemic and economic crisis, is worth considering.
Mad Hedge Biotech & Healthcare Letter
April 28, 2020
Fiat Lux
Featured Trade:
(THE FIVE FRONTRUNNERS IN THE RACE FOR A COVID-19 VACCINE)
(GSK), (SNY), (REGN), (TBIO), (VIR)
We’re finally pulling out the big guns.
Almost five months into this debilitating global pandemic, GlaxoSmithKline (GSK) and Sanofi (SNY) announced a collaboration to come up with a coronavirus disease (COVID-19) vaccine.
These vaccine heavy-hitters not only assured that the product would be ready by the second half of 2021 but also that they would be able to manufacture hundreds of millions of doses every year.
This is actually pretty impressive considering that the typical timeline for a vaccine takes at least a decade.
What we know so far is that Sanofi will conduct tests on its experimental vaccine using GSK’s adjuvants.
Adjuvants are added to improve the efficacy of some vaccines. These can also lower the amount of vaccine protein needed for every dose, boosting the likelihood of creating a shot that can be manufactured in large quantities.
According to GSK and Sanofi, human trials will begin in the second half of 2020.
GSK’s coronavirus adjuvant already demonstrated its value during the H1N1 influenza pandemic back in 2009 when this technology played a major role in the success of the Shingrix shingles vaccine.
As for Sanofi, the giant biotech company will be using a previously approved influenza vaccine for this joint effort.
GSK shares rose by 2% following the announcement while Sanofi got a 4.1% increase.
While both companies shared that they don’t really expect much profit from this COVID-19 vaccine, they plan to reinvest any short-term earnings in preparatory measures to better handle future pandemics.
Aside from this joint effort, GSK and Sanofi are also taking multiple shots in the hopes of solving this COVID-19 health crisis.
Sanofi is testing its malaria drug which contains hydroxychloroquine.
If you recall, this is the same drug that Donald Trump hailed as a “miracle” coronavirus cure earlier this year. Days following the president’s announcement, Sanofi offered to donate 100 million doses of hydroxychloroquine to 50 countries.
On top of that, Sanofi is also working with Regeneron (REGN) to assess whether its existing arthritis treatment Kevzara can work as a coronavirus medication.
It also has an ongoing collaboration with Translate Bio (TBIO) to come up with another COVID-19 vaccine using messenger RNA.
Outside its coronavirus efforts, Sanofi has been looking into streamlining the company’s focus to improve margins and shift into more lucrative growth areas. So far, so good.
One of the more drastic measures is eliminating diabetes and cardiovascular research sector of the company.
Funding for these was reallocated, with the acquisition of cancer and auto-immune biotechnology company Synthorx serving as a strong indication of the direction the company plans to take.
Apart from growing its immuno-oncology department, Sanofi is also betting on eczema treatment Dupixent -- a move that saw them rewarded almost immediately.
The company’s recent earnings report showed that Dupixent sales jumped 135% in the fourth quarter of 2019, with annual sales soaring to an impressive $2.3 billion. This indicates a 152% increase from the year prior.
Riding this momentum, Sanofi received FDA approval to expand the use of multiple myeloma drug Sarclisa in April.
This marks another significant win for the company.
Multiple myeloma ranks second in the list of most common blood cancer types, with the disease affecting roughly 32,000 Americans annually. It cannot be cured as well, which means that treatments are needed throughout the patients’ lives.
Needless to say, Sanofi has several platforms to contribute to finding the cure and even a vaccine for COVID-19. More importantly, the company has managed to transform itself into a more streamlined and innovative business.
Sanofi would be a wise choice for investors interested in a stock to hold for the long term. This company doesn’t only hold a starring role in the search for a coronavirus vaccine but also offers more opportunities beyond the current pandemic.
Meanwhile, GSK is also not limiting its adjuvant technology to Sanofi but to other companies developing COVID-19 vaccines as well. The list includes Vir Biotechnology (VIR) and even Chinese biotech company Clover Biopharmaceuticals.
Despite its active participation in the coronavirus vaccine race, GSK tumbled down to over its 10-year low in March.
Although the pandemic’s negative impact looks discouraging, I think the overreaction is good news for value and dividend traders as the stock now trades at bargain-bin valuations.
Hence, investors could enjoy GSK’s lucrative 5.8% dividend at relatively cheap costs.
It also doesn’t hurt that GSK offers a diversified portfolio that all but guarantees minimal losses for its investors.
Its biggest revenue driver is the pharmaceutical arm of the business, which raked in total revenue of roughly $21.68 billion in 2019.
GSK’s vaccine segment contributed 8.87 billion while the consumer healthcare sector brought in over 11 billion.
Although smaller than its pharmaceutical arm, both segments are quickly catching up to GSK’s biggest moneymaker. In fact, its vaccine segment recorded revenue growth of 21% while its consumer healthcare arm jumped by 17%.
Overall, GSK is a compelling addition to any investor’s portfolio. Its impressive dividend combined with its diversified business makes this biotechnology company a wise choice as well.
The collaboration of GSK and Sanofi is considered as the most significant and promising COVID-19 vaccine effort to date.
This partnership not only maximizes the expertise of the two leading vaccine makers in the world but take advantage of their manufacturing capacity as well, which is a critical concern given that a COVID-19 vaccine would have to be distributed to millions, if not billions, of individuals across the globe.
Mad Hedge Biotech & Healthcare Letter
May 7, 2020
Fiat Lux
Featured Trade:
(HOW CVS IS BASKING IN THE CORONA SUNLIGHT)
(CVS), (UPS)
Including a brand-name business to your stock investing portfolio is a wise way to handle even the steepest downturn in the history of trading.
Despite these recent catastrophic losses, history also reminds us that bear markets present buying opportunities -- with two pretty self-explanatory caveats.
One is that investors must only shell out cash to buy into high-quality businesses. The second warning is that investors should be patient in waiting for their investments to make money in the long run.
Those checking out the healthcare sector now have the opportunity to add a large-cap stock and the biggest pharmacy chain operator in the country: CVS Health (CVS).
Most of us are familiar with CVS Health since it's a widely popular retail pharmacy. Actually, CVS fulfills 1 of every 4 retail pharmacy prescriptions in the US. That’s roughly 26.6% of the entire population.
Now, my primary reason for suggesting CVS is that it’s the go-to place for customers during and even in the absence of the COVID-19 pandemic.
In a regular buying climate, the company is set to rake in long-term gains, thanks to the daily essentials in its catalog ranging from toothpaste to lifesaving prescriptions.
During this ongoing health crisis, CVS proved to be even more valuable to consumers. In fact, the company is expected to explore a new market once the country returns to its normal state.
With the spectrum of services offered by the company, CVS manages to cater to practically all the needs expected from the healthcare system.
Apart from its retail pharmacies and clinics, it also has a dedicated senior pharmacy sector that takes care of over 1 million patients every year.
CVS serves more than 37 million in terms of traditional healthcare insurance offerings while its pharmacy benefit manager operation looks after roughly 105 million individuals -- that’s nearly a third of the country’s population.
It was in late 2018 when CVS made a meaningful transaction courtesy of the acquisition of health insurer Aetna. The deal, which amounted to approximately $70 billion, was hailed as a game-changer for the retail giant.
Although it can be unusual to regard an insurance company as a fast-growing business, the addition of Aetna played a key role in CVS’ organic growth rate. This acquisition is estimated to provide a boost in the company’s sales, with the full impact of the deal expected to be realized sometime between 2020 and 2021.
In terms of revenue growth, CVS saw a 32% growth from its 2018 earnings to reach a total of $256.7 billion in 2019. Realistically though, this may not be the typical growth pace for the company. The jump may be primarily due to the Aetna deal.
CVS Health’s largest segment is still its pharmacy services division, which generated $141.5 billion in sales, recording a net income of $5.1 billion. Its retail sector raked in $86.6 billion while its healthcare benefits sector brought in $69.6 billion.
For 2020, CVS is anticipated to have a cash flow somewhere between $10.5 billion and $11 billion.
Although its business has been doing quite well despite the pandemic, with the company adding 50,000 positions just last March, CVS remains on the lookout for interesting business ventures.
One of its recent experiments is working with UPS (UPS) in the latter’s drone service called UPS Flight Forward. Basically, the two companies joined forces to fly prescription drugs to the customers in a Florida retirement community.
The “test” community is the biggest retirement community in the US called The Villages. This is located near Orlando, which is home to more than 135,000 residents.
This joint effort is anticipated to bolster the demand in nearby areas as well, with CVS and UPS eyeing the expansion of their operations in a month or so.
With almost 9,900 retail branches, 1,100 walk-in clinics across the country, and the addition of this new partnership with UPS, CVS has definitely earned its title as the “trust front door to healthcare.”
Pharmacies are not considered exciting businesses. Basically, these are convenience stores that just happen to offer prescription drugs as well.
Although that might be true, CVS Health is not your run-of-the-mill pharmacy. Truth be told, the chain’s terrifying efficiency is gradually replacing your doctor.
At the moment, CVS pays its shareholders $0.50 in dividends every quarter. While the payouts have not increased since 2017, the dividend still yields a decent 3.2% annually. It’s a respectable payout and one that’s not in any imminent danger despite the ongoing crisis.
Taking into consideration its valuation, CVS Health can be purchased for roughly over 7 times its Wall Street profit estimate for 2021.
No company of this caliber has been this cheap in the past decade.
Mad Hedge Biotech & Healthcare Letter
May 5, 2020
Fiat Lux
Featured Trade:
(THE MAD HEDGE BIOTECH & HEALTHCARE MODEL PORTFOLIO)
Many investors have asked me to put together a list of my favorite Biotech & Healthcare companies. So, I have created the model portfolio below made up of firms with the best earnings growth for the next decade. It includes a primary list of 19 high quality names, all of which are highly investable. I follow up with a secondary watch list of 18 names.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Mad Hedge Biotech & Healthcare Letter
Mad Hedge Biotech & Healthcare Letter
April 30, 2020
Fiat Lux
Featured Trade:
(GILEAD SCIENCES GOES BALLISTIC ON REMDESIVIR TRIAL)
(GILD), (PFE), (JNJ)
