Biotech Letter Archives

Post-Pandemic Stocks To Diversify Your Portfolio

The biotechnology sector had been starved for love on Wall Street for the past few years despite the life-changing research and the introduction of fresh and innovative treatments for previously incurable conditions.
A year ago, the sector had the lowest price earnings multiple with the fastest earnings growth.

That couldn’t last.

With the outbreak of the catastrophic coronavirus disease (COVID-19) pandemic the public has fallen in love with the sector. While the biotechnology sector tanked in March with everything else, several industry benchmarks have been outperforming the broader market so far.

The harsh truth is that cures and vaccines remain far off.

The biotech sector is likely to become the next decade’s largest growth story.

The key is to find companies with strong balance sheets along and leadership that can manage any financial storm.

Nonetheless, there are biotech companies worth considering now, particularly those selling at bargain bin prices but with mature pipelines and promising soon-to-launch commercial products.

One compelling stock for long-term holding is Blueprint Medicines (BPMC).

This company develops targeted medicines for rare genetic types of cancer. So far, Blueprint has three treatments lined up for release in the market in the next 18 months. Just last month, the company announced the FDA approval of its first-ever cancer drug Ayavakit.

Ayavakit, which will be marketed as a treatment for a rare, genetically linked kind of gastrointestinal cancer, comes with a jaw-dropping price tag of $32,000 for a 30-day supply.

This cost is twice the amount of what was originally forecasted. However, analysts claim that this price is “justifiable” considering Ayavakit’s effectiveness and the absence of competition.

Riding the momentum of Ayavakit’s FDA approval, Blueprint has already filed for a second application in a bid to expand the indication for the drug to include patients suffering from gastrointestinal stromal tumors who already underwent three other treatments but failed.

According to the World Health Organization, 5,000 to 6,000 Americans are diagnosed with these tumors every year. Blueprint believes there's a strong chance this gets approved since 86% of their participants in the clinical trial responded to the drug.

Another potential blockbuster for Blueprint is a lung cancer drug currently dubbed as Pralsetinib. If the company gets approved, it can tap into a lucrative market as lung cancer comprises almost 25% of all cancer diagnoses.

Despite the COVID-induced economic crisis, Blueprint remains an attractive investment since it raised money prior to the pandemic. That means the company is well-capitalized.

Admittedly, the stock has gone down by 42% since its July 2019 high and only trades for $57 these days.

Although the company may experience disruptions in the near term, it’s undeniable that patients will still need their medications. Hence, business will definitely come back.

Another scenario is that Blueprint attracts more attention from aggressive acquirers.

So, if you’re looking into how to maximize this opportunity, keep it in mind that your reward all depends on the size of the position you plan to take.

Obviously, this stock comes with its own risks so it might not be an attractive option as a cornerstone of your portfolio. However, adding it to your diversified portfolio could offer you with market-beating returns in the long run.

Another stock that has been disrupted but still presents enticing rewards in the post-COVID days is Invitae (NVTA).

It peaked around February at $28 but went down to trade at a measly $9 to $12 as the coronavirus situation worsened. In fact, Invitae shares bottomed sometime in March at around $7. Since then, investors have been snapping it up at this low price.

Invitae offers genetic testing for kids with developmental issues, so you can easily see why the company isn’t going out of business anytime soon.

Fueling investors’ enthusiasm on this biotech stock are the series of acquisitions it made recently, with the company pouring money on virtual medicine.

In a way, you can say that Invitae is actually quite prepared for what’s happening today.

Just last month, Invitae acquired Orbicule BV otherwise known as Diploid. This recently acquired company develops an AI software that analyzes next-generation sequencing data combined with a patient’s information in order to diagnose genetic disorders.

The terms had Invitae buy 2,800,623 shares of Diploid’s common stock plus roughly $32 million in cash.

In April, Invitae acquired two companies.

One is YouScript Incorporated, which offers clinical decision support and functions as an analytics platform. This deal consisted of 2,293,452 shares of common stock plus $25 million in cash.

The second is Genetic Solutions, operating under the name Genelex, which is a precision medicine company.

With these acquisitions, Invitae needed to raise capital at a bargain-basement price. Does that mean that this genetic testing stock bottomed out?

That’s highly unlikely, but it’s virtually impossible to time market peaks and troughs anyway. The only reasonable means to deal with the current situation is to adopt a long-term mindset.

Keep in mind that this coronavirus pandemic will eventually pass. When it does, the biotechnology industry will return to growth.

After all, the revolutionary and groundbreaking drugs developed by this sector are critical.

For any growth investor on the lookout for high-value and sustainable options, the biotech industry can turn out to be the most lucrative one out there.

April 21, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
April 21, 2020
Fiat Lux

Featured Trade:

(GETTING YOU BANG PER BUCK WITH ALEXION PHARMACEUTICALS)
(ALXN), (GILD), (RHHBY), (REGN), (SNY)

Getting You Bang per Buck with Alexion Pharmaceuticals

Biotech Letter

Since nobody can actually control when to get sick or what type of disease to acquire, it makes absolute sense that biotech stocks remain one of the wisest bets if you want to put your hard-earned cash to work.

The question, therefore, is what are the best biotech stocks to buy now?

Looking at the biotechnology stock prices today, I can say that Alexion Pharmaceuticals (ALXN) will give you the most bang for your buck.

For over a decade, this ultra-rare-disease biotechnology company had been regularly valued at roughly 22 to 67 times its cash flow and frequently well above 30 times forward EPS.

Now, you can buy this top biotech stock for less than eight times its Wall Street profit consensus in 2021 and 10 times its cash flow for next year as well. It definitely doesn’t hurt that its PEG ratio is less than 1, categorizing it as an “undervalued” stock today.

However, its attractive pricing isn’t the only thing that’s putting Alexion in the news these days as this biotech company has been active in the race to find a coronavirus cure since early February.

When news about the pandemic broke, Alexion decided to repurpose its rare chronic blood disease bestseller Soliris as a potential COVID-19 treatment since the drug showed promising results on patients with severe pneumonia or acute respiratory distress syndrome.

Alexion’s efforts have been quite promising so far, with the biotech company targeting to commence a Phase 2 study of Soliris within the month. What we know so far is that this experiment will involve 10 patients as part of the proof-of-concept trial.

Apart from Alexion, other top biotech companies repurposing old drugs in search of a COVID-19 cure are Gilead Sciences (GILD) with Remdesivir, Roche (RHHBY) with Actemra, and Regeneron (REGN) and Sanofi (SNY) with Kevzara.

Outside its coronavirus treatment efforts, Alexion actually prides itself on a promising pipeline. To date, three treatments are projected to turn into blockbusters soon.

The first is Strensiq, which is formulated to treat a rare disease commonly known as hypophosphatasia. Patients with this disorder have an enzyme deficiency, making them unable to properly process calcium and phosphorus. As a result, they end up with malformed bones and teeth.

The second treatment is Kanuma, which is for patients suffering from lysosomal acid lipase (LAP) deficiency. People with this condition lack a key enzyme, preventing them from effectively breaking down fats.

Both conditions are extremely rare. Hypophosphatasia affects only 1 in 100,000 people while LAP is suffered by 1 in 40,000 individuals.

The third treatment is Ultomiris, which is widely regarded as Soliris’ successor.

For years, Soliris has been Alexion’s major moneymaker. However, uncertainties on the company’s hold on its patent exclusivity have started to shake investors’ faith in this stock. With one of Soliris’ key patents set to expire in 2021, the biotech company has to brace itself for the onslaught of generic competition.

This is where Ultomiris comes in.

Alexion has been busy migrating its customers to opt for Ultomiris before Soliris’ key patent expires.

To make this offer enticing, the biotech company has priced the newer drug to be slightly cheaper than the old blockbuster. Ultomiris costs $458,000 while Soliris is priced at $500,000.

To sweeten the deal further, the newer treatment is only required once every eight weeks. In comparison, Soliris’ treatment schedule is bi-monthly.

Basically, it’s as if Alexion has effectively restarted the clock in its patent exclusivity on this ultra-rare disease indication. The company aims to convert at least 70% of its users by mid-2020.

From a financial point of view, Alexion is performing quite well. Its fourth-quarter report showed that the company earned $1.4 billion in revenues, demonstrating a 23% increase from the same quarter in 2018.

Meanwhile, it raked in $5 billion in full-year sales for 2019. This indicated a 21% jump from its relatively paltry sales of $4.1 billion.

Looking at the metrics, Alexion is one of the surprisingly cheap stocks considering its growth. It also has the added bonus of dominating its chosen ultra-rare disease space.

This is typically a good strategy to avoid competition while also being able to seek high price points for its innovative treatments. The fact that insurers generally cover these treatments all but guarantees that Alexion is secure in terms of cash flow predictability.

Despite the panic induced by the coronavirus market, investing opportunities are everywhere --- if you know where to look.

Alexion is a solid company with strong growth prospects and is selling at a reasonable price. Any opportunistic investor worth his salt would know that this is the ideal time to strike.

April 16, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
April 16, 2020
Fiat Lux

Featured Trade:

(CRISPR THERAPEUTICS’ CANCER BREAKTHROUGH),
(CRSP), (VRTX)

Crispr Therapeutics Cancer Breakthrough

Biotech Letter

The findings for the first-ever human trial that uses CRISPR gene-editing technology to alter the immune cells of cancer patients have been announced.

The trial, which is hailed as the first of its kind to ever publish its results, centered on three patients suffering from advanced cancer who are all in their 60s. The goal is to determine whether or not their bodies could tolerate the genetically edited immune cells.

The patients received doses of CRISPR-modified variants gathered from their own T cells, which were specifically edited to transform into more efficient cancer-killing cells.

The results showed that there were no issues reintroducing the edited cells back into the bodies of the patients. More impressively, the modified cells managed to survive longer than the anticipated period.

In fact, these cells were detected in the patients’ bodies nine months following the novel treatment.

Doctors also noted that the patients’ symptoms stabilized throughout the treatment period. One of them even saw a reduction in tumor size.

While the treatment was only a one-time injection and was not carried on for a longer time, the fact that no major complication happened during the trial has health experts hailing it a success. Hence, more trials of this nature can be expected in the near future.

As expected, this trial boosted gene-editing stocks -- and CRISPR Therapeutics (CRSP) is one of the beneficiaries of this positive news.

This development is anticipated to further fuel investor interest in CRISPR Therapeutics especially after it released an impressive fourth-quarter financial report that beat revenue expectations.

The company’s profits grew to $77 million, indicating a substantial jump from the measly $100,000 it reported in the fourth quarter of 2018. As for its cash and cash equivalents, the amount increased by 106.7% from $456.6 million last year to $943.8 million.

Meanwhile, its total annual income increased from $3.1 million to a whopping $289.6 million.

A quick look at the changes done by the company revealed that the surge can be mostly attributed to CRISPR Therapeutics’ collaboration with Vertex Pharmaceuticals (VRTX) and not product sales.

Nonetheless, the improvement in the gene-editing company’s performance is still impressive considering that analysts only estimated their earnings to reach $45.2 million in the said quarter.

While these numbers are already turning heads, CRISPR Therapeutics is expected to dominate more headlines in 2020.

So far, the company has four major treatments in development.

One is called CTX001, which is for genetic blood disorders specifically sickle cell disease and transfusion-dependent beta thalassemia. Results involving this treatment should be out sometime this year.

The other three, CTX110, CTX120, and CTX130, are cancer treatments commonly known as CAR-T therapies.

CRISPR Therapeutics is an obvious leader in the race to commercialize CRISPR/Cas9 gene-editing services and products.

The lowdown is that its treatments under development, which involve groundbreaking innovations focused on rare diseases, have the potential to turn in hundreds of billions in sales. More impressively, CRISPR Therapeutics is poised to achieve this in record time --- way ahead of its competitors.

So, what’s the catch?

Well, CRISPR Therapeutics’ whole platform could end up amounting to nothing more than a fascinating science experiment. If that happens, then this stock would be worthless.

However, Vertex Pharmaceuticals has a stellar track record of picking winners. Its decision to splurge on CRISPR Therapeutics and back the latter’s research speaks volumes of the mid-cap biotechnology company’s potential to turn into a frontrunner in this novel world of gene editing.

Needless to say, CRISPR Therapeutics’ current valuation arguably indicates a once-in-a-lifetime buying opportunity. However, this high-risk investment would only appeal to aggressive investors.

April 14, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
April 14, 2020
Fiat Lux

Featured Trade:

(ELI LILLY’S CORONA LEAP FORWARD)
(LLY), (GSK)

Eli Lilly's Corona Leap Forward

Biotech Letter

Eli Lilly (LLY) is one of the major biotechnology companies that have been working double-time to develop a coronavirus disease (COVID-19) cure, and the company shared its progress in this field.

According to this top biotech company, its partnership with the National Institute of Allergy and Infectious Diseases will explore the potential of Olumiant as a COVID-19 treatment.

This drug was first approved in June 2018 as a rheumatoid arthritis medication. Health experts believe that its anti-inflammatory effects on the immune system could be effective as a COVID-19 cure.

The clinical trial for Olumiant will involve COVID-19 patients in the US, with results available within two months.

Other than this Olumiant trial, Eli Lilly has another potential COVID-19 clinical trial already in Phase 2 for an experimental antibody treatment currently dubbed LY3127804.

This trial will involve pneumonia patients diagnosed with COVID-19. These patients are at a higher risk of acquiring acute respiratory distress syndrome (ARDS). The antibody treatment trial is slated to begin by late April at several US centers.

Apart from these experimental treatments, Eli Lilly is also taking an active part in providing testing centers to frontliners in its home state Indiana.

In March, Eli Lilly launched drive-through testing centers for active healthcare workers. This initiative was in partnership with the Indiana State Department of Health and backed by the U.S. Food and Drug Administration.

Eli Lilly’s centers test for the SARS-CoV-2 virus, which is the type that caused COVID-19. This service is offered free of charge to frontliners.

Outside its COVID-19 efforts, Eli Lilly has been active in developing its pipeline.

The latest deal towards this end is with privately held company Sitryx, which focuses on creating drugs for cancer and inflammatory diseases.

The partnership involves a five-year collaboration culminating in the development of four drugs. Eli Lilly has already selected two lead projects from Sitryx’s pipeline to be the first drugs they’ll submit for licensing.

Founded in 2018, all projects in Sitryx’s pipeline are still in the preclinical phase. The company is also comprised of widely known immunology experts, with another biotech heavyweight GlaxoSmithKline (GSK) contributing to its technology.

According to the terms of the collaboration, Sitryx will handle drug discovery while Eli Lilly will fund the clinical development as well as the marketing efforts.

Sitryx will get $50 million from Eli Lilly upfront, with the Indianapolis biotech company making an additional $10 million equity investment.

Meanwhile, the smaller biotech is eligible to almost $820 million if the development milestones are reached. Sytrix is also entitled for royalties.

Amid the pandemic, Eli Lilly is riding the momentum of its previous quarters and is still aiming to deliver a promising growth this year.

Coming off a strong 2019 fourth quarter, the company saw an 8% year over year growth in its top line. The entire year’s sales also went up by a modest 4% from how much they earned in 2018.

As for earnings per share (EPS), the said quarter showed off an impressive 49% year over year jump to reach $1.64. Meanwhile, the entirety of 2019 recorded an EPS of $8.89 which is more than twice 2018’s $3.13 total.

For Eli Lilly’s 2020 performance, the company is anticipating more growth, especially after the completion of its $1.1 billion all-cash acquisition of Dermira.

This acquisition opens a plethora of opportunities for Eli Lilly, particularly in the dermatology medicines sector.

A prime example to illustrate potential growth is Dermira’s top-selling product Qbrexza, which is used to treat excessive underarm sweating. This bestselling item boosted Eli Lilly’s quarterly sales by 27%, increasing the revenue from $8.1 million to $10.2 million.

Even without the collaborations, Eli Lilly can stand on its own as a solid buy.

The company has shown a strong operating margin, staying over 20% in all the previous 10 quarters. Moreover, its free cash flow of $3.5 billion and consistent revenue generation platforms through the years, Eli Lilly is in a good position to take on more acquisitions down the road.

Basically, Eli Lilly is ideal for investors on the lookout for a biotech stock that you can buy and just forget.

Only a handful of sectors managed to escape the coronavirus pandemic unscathed as practically every stock suffered a 20% drop over the course of the past months. I believe there’s one group that merits our attention even in the midst of this pandemonium: the biotech sector.

I think biotech stocks will roar back soon enough, and buying shares of solid and well-managed biotech companies that pride themselves with promising product lineups and solid pipelines should be rewarded in the long run.

Among these biotech stocks, Eli Lilly is one of the best-positioned growth stories. Investors searching for a port in this coronavirus storm might want to take a good look at this biotech stock.

April 9, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
April 9, 2020
Fiat Lux

Featured Trade:

(A SLIVER OF HOPE FOR CORONAVIRUS)
(MYL), (NVS), (BAYRY), (PFE)

A Sliver of Hope for Coronavirus

Biotech Letter

To this day, there’s still no solid proof that any drug can treat or prevent infection with the deadly coronavirus. Faced with an exploding pandemic that brings an alarming death toll, the public is eager -- desperate -- for a sliver of hope and some news regarding discoveries of COVID-19 treatment.

Lately, the drug that has been gaining so much attention is hydroxychloroquine. This is primarily thanks to Trump’s endorsement, with the president going as far as labeling it a “miracle” drug.

By now, we’ve become all too familiar with the story behind this “miracle” drug.

Trump was watching TV the night before and saw a feature about a Michigan woman who was suffering from COVID-19 for 12 to 14 days. Her suffering was so intense that she felt she would die anytime soon. One night, she asked her husband to find hydroxychloroquine.

Four hours after taking it, she felt better and eventually recovered.

While health experts are still waiting for conclusive evidence on the drug’s efficacy, this story inspired Trump to urge the public to try it as well.

Aside from describing it as a potential cure, Trump is also recommending hydroxychloroquine as a preventive measure for health workers. His point is that there’s really nothing to lose here. After all, the drug has been used for decades so “it’s not going to kill anybody” compared to completely novel treatments.

In fact, he has been so intent in using hydroxychloroquine to cure COVID-19 patients that he ordered 29 million doses added to the government’s cache of medical supplies.

Just what is hydroxychloroquine?

This is a prescription drug approved to treat malaria decades ago. It can also be prescribed to treat autoimmune diseases such as lupus and rheumatoid arthritis. It’s called by its brand name Plaquenil as well.

Is it really effective to treat COVID-19?

The answer remains unclear. However, there are a couple of studies that point to promising results.

One is a laboratory study using cultured cells. In this research, it was found that chloroquine has the ability to prevent the coronavirus from invading the cells. Obviously, blocking the virus means protecting the body from the illness.

However, scientists issued a word of caution about this.

They reminded us that the drugs that work well in killing off viruses in petri dishes or test tubes do not necessarily translate to the same results in the human body.

As for hydroxychloroquine, studies showed that it can’t prevent or cure influenza and other viral diseases.

This doesn’t mean that hydroxychloroquine is useless as a COVID-19 treatment.

It just shows that more trials are needed to determine its actual effect. Several studies have been launched to figure out the answer to this.

In Detroit alone, there will be 3,000 patients set to participate in the trial to come up with a formal and conclusive study on hydroxychloroquine.

In a nutshell, what the health experts are saying is that the celebration might be a tad premature.

So this leads to a lot of investors to wonder which companies stand to benefit if hydroxychloroquine gets approved as a COVID-19 treatment.

Probably no one.

Keep in mind that this is an old drug, which came to the market sometime in the 1940s. Hence, it’s highly unlikely for it to become a blockbuster drug for any company.

Right now, several companies are already making it, including Novartis (NVS) and Bayer (BAYRY).

However, investors interested in buying cheap biotech stocks might be interested in generic drug maker and Mylan (MYL) are also in the running.

When Trump started touting the effects of hydroxychloroquine on COVID-19 patients, Mylan immediately restarted its production of the tablets.

The company aims to have the drug available in the market by mid-April, targeting up to 50 million tablets for over 1.5 million people.

Like I said, hydroxychloroquine isn’t going to be a high-selling drug for any company.

Nonetheless, this could provide the much-needed momentum for Mylan as its investors start to lose confidence in the company.

With the company back in the spotlight, it can easily redirect everyone’s attention to its upcoming merger with Pfizer’s (PFE) Upjohn unit to form a new company called Viatris.

This combined company will hit the ground running as it buys two assets from Pfizer.

One will be Meridian, which is the maker of EpiPen along with other auto-injectible treatments. The second is Mylan-Japan, which has been the generics collaboration unit of Pfizer and Mylan since 2012.

Both units recorded $598 million in annual revenue in 2019.

Viatris’ portfolio will also include a number of top-selling products like erectile dysfunction and pulmonary arterial hypertension Viagra and arthritis Celebrex.

The lineup will even feature the blockbuster cholesterol drug Lipitor, which generated more than 2 billion in sales last year alone.

According to the terms of the deal, Pfizer shareholders will own 57% of Viatris while Mylan shareholders get 43%.

Due to the upcoming merger, Pfizer went ahead and upped the 2020 guidance for Upjohn’s revenue from the $7.5 billion and $8 billion range to $8 billion and $8.5 billion.

The Viatris spin-off is expected to be completed by mid-2020.

For years, Mylan has been plagued with numerous issues like pricing concerns and even lawsuits.

Hence, this merger with Upjohn is considered a crucial turning point for Mylan. It represents a fresh beginning from this previously embattled stock.