Biotech Letter - John Thomas - Mad Hedge Fund Trader

The Big Corona Play with Teladoc Health

The coronavirus disease (COVID-19) outbreak continues to inspire terror across the globe.

To date, there are roughly 398,107 confirmed cases and over 17,454 documented deaths, pushing communities to take proactive measures to stem the tide of this global pandemic.

In its wake, an increasing number of government officials and health professionals like the US Centers for Disease Control (CDC) have advised patients to take advantage of telemedicine and virtual health systems as much as possible. This is particularly helpful for those with respiratory symptoms since using these platforms could minimize contact with others along with the spread of the virus.

One of the no-brainer beneficiaries of this advice is virtual healthcare services provider Teladoc Health (TDOC).

Basically, companies like Teladoc offer personalized care without the need for patients to leave their houses. Although the kinks have yet to be worked out, the telemedicine sector should be expected to skyrocket in the weeks and even months ahead.

In fact, Teladoc shares gained 9% since February 19 -- a good sign for the company especially since the broader market went down by roughly 20% over the same period.

Earlier this month, Teladoc disclosed that the number of patient visits registered in its system showed a 50% increase week over week.

Ever since COVID-19 hit the country, the company has been fielding at least 15,000 visits on a daily basis, reaching over 100,000 weekly. Teladoc shared that it has been experiencing "visit demand consistent with peak flu volumes."

The convenience that companies like Teladoc provide can ease the burden on the broader healthcare system, which has been overworked with COVID-19 cases.

Another factor that could have contributed to Teladoc’s increasing patient load is the decision of some major health insurers to waive the patient costs for telemedicine visits.

So far, Humana (HUM), Aetna (AET), and Cigna (CI) confirmed that this policy will be relaxed throughout the national health emergency.

Needless to say, this announcement was highly appreciated by their clients, with Teladoc reporting that over half its patient visits in the past weeks are from first-time users.

However, this isn’t exactly Teladoc’s first big break.

Even prior to the pandemic and the recommendations from health experts, Teladoc has been quite impressive on its own.

Throughout the years, Teladoc has been consistent in reporting strong growth metrics. Since it went public in 2015, the stock has skyrocketed to 330% compared to the 30% gain for the S&P 500.

Reviewing its fourth-quarter earnings report for 2019, it’s clear that this is a stock for long-term investors. Based on the management’s commentary and how the story is playing out in the past months, there’s a good possibility that investors will be richly rewarded as well.

In 2019 alone, Teladoc added a total of 14 million new members to record an impressive growth rate of 61%. The company closed the year with 36.7 million patients registered in its system.

In terms of revenue, Teladoc delivered $156.5 million, showing off a 27% jump year over year.

This is particularly impressive as it eclipsed the high end of its guidance, which fell somewhere between $149 million and $153 million. It also beat the consensus estimates of analysts at $152.95 million.

This increase in revenue was bolstered by strong growths both in the US and the international markets. Its subscription-access fees reached $127 million, which was a 24% increase year over year.

Fees collected from visits showed quicker growth to contribute $29.5 million, demonstrating a 47% jump compared to the same period in 2018.

Total office visits increased by 44%, climbing to 1.24 million and surpassing the company’s guidance range of 1 million and 1.2 million as more and more patients opt for the subscription-based plans.

Meanwhile, its paid memberships in the US climbed 61% year over year to reach 36.7 million while its fee-only access soared by 104% to jump to 19.3 million members.

While 2019 was definitely a good year for the company, it’s difficult to downplay the reality that its impressive adoption curve recently could make 2020 an even better year for Teladoc.

Looking at how the company has been thriving, two things could happen for Teladoc.

One possibility is for it to develop into one of the most disruptive companies in the industry. The second possibility is that it will get acquired by a bigger player.

No matter what happens, the outcome will be a win-win for its investors.

The Race to Find a Corona Cure

Biotech Letter

Naturally, many people are wondering about which stocks to own in light of the coronavirus. The latest development on the race to find a coronavirus cure is a joint effort involving two giant names from the biotechnology industry: Regeneron Pharmaceuticals (REGN) and Sanofi (SNY).

Taking a page off Gilead Sciences’ (GILD) move to recycle HIV drug Remdisivir and Roche Holding’s (ROG) decision to utilize rheumatoid arthritis Actemra, Sanofi and Regeneron are looking into an existing drug’s ability to offer refuge for patients suffering from COVID-19.

According to a recent announcement, the two companies are looking to test rheumatoid arthritis medication Kevzara on COVID-19 patients.

This drug was initially approved in 2017 and while it failed to reach blockbuster status at the time, Sanofi and Regeneron are preparing to transform it into the next leader in this pandemic race.

It should be noted though that Kevzara is not a coronavirus cure. Rather, the companies are hoping to use this drug to combat the symptoms related to COVID-19.

This is why it’s promising.

When a person gets infected by the novel coronavirus, the immune system is activated and starts attacking the virus to protect the body. As time passes, the immune system goes into overdrive and ends up overreacting, causing additional damage.

Gradually, the immune system starts attacking even the healthy tissue and organs as with the case for some COVID-19 patients.

This means that the coronavirus is causing an accelerated response from the immune system resulting in the patients’ damaged organs starting with the lungs.

This is where Kevzara comes in.

The drug functions as an inhibitor of the protein that triggers the patient’s immune and inflammatory response.

That is, Kevzara can stop the body from attacking itself despite the triggers caused by the coronavirus.

In terms of the specifics of this joint effort, Regeneron will take the lead for the US trials while Sanofi will be in charge of international efforts.

Aside from Kevzara, both Regeneron and Sanofi have been pursuing separate leads on how to deal with the pandemic.

Sanofi has been working in tandem with the US Department of Health and Human Services (HHS), specifically with the Biomedical Advanced Research and Development Authority (BARDA), to come up with a coronavirus vaccine.

However, it’s the coronavirus efforts of Regeneron that gained much attention in the past weeks.

In February, Regeneron and the HHS expanded their partnership to come up with potential COVID-19 treatments. So far, the biotechnology giant has decided to work on monoclonal antibodies via its VelocImmune platform.

This avenue is particularly promising since Regeneron has already come up with an antiviral drug to combat Ebola. Its collaboration with HHS has also already resulted in plans to develop a MERS treatment, which is also a type of coronavirus.

According to Regeneron executives, the company will have a coronavirus treatment ready for human testing by August. If all goes well, then it aims to produce 200K prophylactic doses.

Although its innovative coronavirus proposals are exciting, Regeneron remains focused on its older and more dependable money makers particularly the eye drug Eylea.

This strength is in display in Regeneron’s fourth quarter results, which showed better than expected numbers.

For Eylea alone, the company generated an 11% year-over-year growth in sales.

Despite the emergence of new competitors like Novartis’ (NOVN) Beovu, Regeneron’s eye drug remains the leading product in this sector. In fact, Eylea managed to cross $2 billion in global sales just for the year 2019.

As for inflammation-reducer Dupixent, the treatment’s global sales climbed 136% in 2019.

Meanwhile, revenue from its cancer immunotherapy Libtayo soared to over quintuple from the previous period.

Building from the strength of Eylea, Regeneron also announced its successful late-stage clinical study that aimed to expand the indication of the drug to moderately severe to severe non-proliferative diabetic retinopathy (NPDR).

If this Eylea expansion pushes through, then Regeneron has yet another blockbuster drug in its hands.

In the past five years, Regeneron has demonstrated a strong EPS growth, growing by 23.74% annually. Given its recent performance and based on forward-looking statements, the company can be expected to report an average of 17.4% growth on its EPS in the next two years.

Amid the panic and confusion caused by the coronavirus pandemic, it’s crucial to remain objective, especially with the stock market.

Before making a decision, ask yourself this question: “Will this current situation change the 10-year or even the 20-year outlook for the financial sector?”

Despite the paranoia proliferating in the market in the past months, I believe the answer to this question is still a resounding “no.”

For now, it would be wise to treat owning stocks like how to own businesses. It's important to think about which stocks to own during the coronavirus, but don’t do it just to make a quick buck. Rather, take a look at lasting and stable companies with the capacity to not only grow over the years but also to compound their returns.

March 17, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
March 17, 2020
Fiat Lux

Featured Trade:

(THERMO FISHER SCIENTIFIC BECOMES A MAJOR CORONA PLAYER),
(TMO), (QGEN)

Thermo Fisher Scientific Becomes a Major Corona Player

Biotech Letter

Thermo Fisher Scientific (TMO) recently executed a strategic move that effectively transformed itself into a major coronavirus disease (COVID-19) player overnight.

The lab tools giant opened the month of March with a bang as it announced an $11.5 billion acquisition deal with Dutch company Qiagen (QGEN).

The transaction also includes Thermo Fisher’s assumption of Qiagen’s debts worth $1.4 billion, with the US biotechnology company paying roughly $43 per share. The deal is anticipated to be closed by the first half of 2021.

And just like that, Thermo Fisher has positioned itself at the forefront of the potential pandemic threatening to push the global economy to a recession.

What does this transaction mean to the race to solve the looming coronavirus pandemic?

Thermo Fisher and Qiagen make quite a good pair. The Massachusetts giant is a major manufacturer and developer of the CDC-approved scientific equipment used to detect Covid-19 in the US.

Meanwhile, Qiagen provided the equipment used during the SARS and swine flu outbreaks years ago.

In the past weeks since the Covid-19 outbreak, the company has been quietly working on tests for the Wuhan coronavirus as well. The latest update on this front is that Qiagen already shipped test kits for evaluation for the deadly epidemic to four hospitals in China.

Although it’s highly unlikely that Thermo Fisher splurged on an 11-figure deal for the sole purpose of getting ahead in finding the cure for the latest virus epidemic, Qiagen’s promising progress on that particular endeavor possibly nudged the big biotechnology company’s decision along.

Obviously, coronavirus test kits would eventually be huge sellers in the months and even years ahead. However, Thermo Fisher’s interest in this deal goes deeper than that.

Qiagen is a strategic addition to Thermo Fisher and could be a steady revenue source, and one of the key reasons for this collaboration is the complementary nature of both businesses.

Geographically speaking, Thermo Fisher and Qiagen can also conveniently cross-sell from each other’s existing lineups.

The Dutch company’s life sciences and molecular diagnostics solutions are expected to boost Thermo Fisher’s broader set of diagnostic offerings. Hence, this consolidation could potentially amount to approximately $200 million in savings every year in the next few years.

This isn’t the first time that Thermo Fisher wielded its huge cash flow to expand its growth segments.

In 2014, Thermo Fisher executed a $13.6 billion acquisition of genetic testing company Life Technologies. Working hand in hand, the two companies managed to contribute a 44% boost in revenue from $16.9 billion that year to $24.4 billion by 2018.

Just last year, Thermo Fisher snapped up one of the newest and most promising players in the gene therapy sector. Paying $1.7 billion to acquire Brammer Bio, the biotechnology giant secured the expansion of its cell and gene therapy pipeline.

With a free cash flow of roughly $3.9 billion in the past 12 months, the company still has room for additional acquisitions.

Amid all the major moves Thermo Fisher executed in the past five years though, the company has remained consistent in producing a strong bottom line.

Since the deal with Qiagen was announced, Thermo Fisher disclosed that it plans a 16% increase to its quarterly dividend to reach 22 cents per share compared to its current 19 cents. Moreover, the company expects a 14% growth in the next five years and projects to keep up its strong segmental performance.

Although the company’s growth level may not be as enticing for growth investors, its impressive diversification makes it an attractive investment.

Its broad mix of income from numerous segments combined with steady profits allows Thermo Fisher to provide investors the much-needed predictability and stability.

Special Pandemic Announcement

Biotech Letter, Diary, Newsletter, Tech Letter

To minimize risk to our staff while continuing to provide an excellent service to our customers, the Mad Hedge Fund Trader is going completely virtual. Of course, the fact that we are already a global virtual company makes this really easy.

All work will be done from home. Everyone has to lay in a two-month stockpile of food. If you have to leave the house, you must wear a 3M N-95 Respirator Mask (click here for the link). Make sure your Netflix account is paid up. Stay on good terms with your family. You are about to get to know them really well.

My bet is that most US companies will adopt the same policies in the coming weeks. The major Bay Area technology companies already have. The Internet was built to cope with a nuclear war. We got a biological one instead.

As long as the Internet and our key applications keep working, we should have no problem delivering our investment and trading advice several times a day as usual. Now, you have more time to read it. We have just suffered the most rapid bear market in market history with only modest trading losses. Making money from here should be like shooting fish in a barrel.

Again, thank you for supporting my research. Let’s make 2020 our best year ever!

Good Luck and Good Trading. And stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

March 12, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
March 12, 2020
Fiat Lux

Featured Trade:

(GILEAD SCIENCES’ CORONA BOOM)
(GILD), (FTSV), (SNY)

Gilead Sciences' Corona Boom

Biotech Letter

The possibility of a pandemic is a terrifying thought. Nowadays though, you can’t switch on the news or surf the Internet without seeing reports about the worldwide spread of the coronavirus disease (COVID-19). Unfortunately, the fear that we once hoped to never be realized has become a reality.

The World Health Organization (WHO) has officially declared the coronavirus disease a pandemic.

The numbers are rising at an alarming speed, with over 1,300 confirmed cases in the United States alone and approximately 129,000 worldwide. As for the mortality rate, more than 4,700 people have died from this coronavirus disease.

Unsurprisingly, financial markets have taken a hit in recent weeks in response to the outbreak. The potential of an uncontrollable pandemic has wreaked havoc in the global economy instilling fear among investors.

With economists predicting that a full-scale pandemic could throw not only the US but also many developed countries into recession, the public has brace themselves for what lies ahead.

While a lot of companies are raking in profits enough to keep the wolf from the door, one biotechnology stock has been on a roll since the coronavirus outbreak went public: Gilead Sciences (GILD).

To date, Gilead has been hailed as possibly our best hope in discovering an effective treatment for the coronavirus.

Aside from being the first biotechnology stock to offer a solution to the outbreak, Gilead has another advantage over its rivals. It no longer has to start from scratch. Instead, the company reused Remdesivir, which is a drug it previously developed to cure Ebola but failed.

Basically, Remdesivir is designed as an antiviral drug that helps patients fight off viral infections. That means it targets not only the Ebola virus but also other types of viruses including SARS and MERS.

Since SARS and MERS are caused by the coronavirus as well, health experts believe that Remdesivir could be a treatment for COVID-19.

On January 31, doctors administered a dose of Remdesivir on a COVID-19 patient and discovered that the drug reversed almost all the major symptoms.

If Remdesivir proves to be the key to solving the COVID-19 outbreak, then Gilead will not only experience a massive performance boost but might even end up saving the world from a recession.

Despite this promising development, Gilead isn’t putting all its eggs in just one basket.

The company has recently made its first major purchase in three years in the form of a $4.9 billion acquisition of cancer biotechnology company Forty Seven (FTSV) — approximately twice as much as the latter’s market cap.

Gilead’s main draw for this huge deal is FTSV’s promising lead pipeline candidate Magrolimab, which is a treatment that targets various types of cancer such as myelodysplastic syndrome and acute myeloid leukemia.

What sets apart Magrolimab is that it targets CD47, which is typically called the “don’t eat me signal” molecule that cancer cells utilize to circumvent the immune system.

Although Magrolimab is still in its trial phase, the treatment showed a notable 40% response rate for hard-to-treat blood cancers and 50% for Myelodysplastic syndrome. The drug is also getting tested for lymphoma and ovarian, bladder, and colorectal cancers.

This latest deal is in line with some of Gilead’s biggest acquisitions in recent years like its $11.9 billion deal with cancer immunotherapy developer Kite Pharma in 2017.

Apart from these, Gilead has expanded its $5 billion partnership with Galapagos (GLPG) in the hopes of finally bringing another blockbuster in its lineup.

The two have been working on rheumatoid arthritis (RA) and Crohn's disease treatment Filgotinib, which has the potential to bring at least $1.3 billion in revenue in the next five years.

Once it hits the market, Magrolimab is expected to rake in $800 million to $1 billion in peak sales.

Although Gilead’s deal with Forty Seven has the highest price tag, it wasn’t the only acquisition of smaller immuno-oncology companies that happened recently. Merck (MRK) acquired AqQule for $2.7 billion while Sanofi (SNY) purchased Synthorx for $2.5 billion.

The COVID-19 pandemic has provided an unexpected opportunity for Gilead, and there’s no doubt that Remdesivir’s success will contribute to the company’s profits this year.

However, Gilead’s most promising growth driver is the rheumatoid arthritis lineup it’s developing with Galapagos. On top of these, it’s immuno-oncology pipeline is also shaping up to have some of the most exciting and promising candidates particularly for rare diseases.

The coronavirus pandemic has infused panic among the public, with more and more stocks getting dumped based on alarm and confusion. But as terrifying as this situation is, the best way to handle it is to remain calm and to put things in perspective.

Remember, solid companies will continuously achieve success in the long run no matter the temporary drawbacks in their stock prices. Buy those shares and simply hold on to them. Your future self will be grateful for that decision.

As fear continues to take over a lot of investors’ strategies, let me share with you one of my favorite pieces of advice from Warren Buffett: “Be fearful when others are greedy and be greedy when others are fearful.”

March 10, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
March 10, 2020
Fiat Lux

Featured Trade:

(A NEW TECHNOLOGY TO EDIT GENES HITS THE MARKET)
(MRNA), (GILD)

A New Technology to Edit Genes Hits the Market

Biotech Letter

The biotechnology market is estimated to surge over $775 billion by 2024 as experts in this sector continue to discover cutting-edge treatments for thousands of previously incurable diseases.

While gene-editing therapies have been dominating the rare disease field in the past years, Moderna Inc (MRNA) has been working on a novel but supposedly more effective solution.

Instead of altering the genes via the DNA of a person to treat the sickness, the company strengthens the messenger RNA (mRNA) to help the body fight the disease on its own.

Here’s Moderna’s take on why its treatments are more sustainable and effective in the long run.

Unlike DNA-based therapies, which target the nucleus of the cell, Moderna is developing mRNA treatments. According to the company, their method would be easier to implement compared to the more commonly used technique.

This is because the DNA is stored solely in the cell’s nucleus, which makes it difficult to access. In comparison, mRNA can be found throughout the cell, making it more readily available.

Moderna uses the same logic in developing its vaccine for the coronavirus disease (COVID-19) --- and they might have just hit the nail in the head here.

Since the coronavirus outbreak, Moderna has been at the forefront of the crisis. Using its patented technology, the company recently announced that it has created a new vaccine against this potential pandemic.

In fact, the first batch of COVID-19 vaccine called mRNA-1273 was already shipped to the National Institutes of Health for testing.

The first trial for this vaccine, which will include 20 to 25 volunteers, will be completed by April. Initial clinical data is estimated to be released by July or August.

Given the complexity of the situation and the limited information we have about the coronavirus, Moderna’s response was actually quite impressive.

After learning about the genetic composition of the coronavirus, the company was able to develop a potential vaccine in less than two months.

To put things in a better perspective, keep in mind that there are only two companies that have something to show for since this outbreak became public: Gilead Sciences (GILD) and Moderna.

However, Moderna’s output is different from Gilead’s treatment.

For one, Gilead’s approach is to build upon or reuse an existing antiviral drug Remdesivir to develop a coronavirus cure.

In comparison, Moderna created a new vaccine from scratch and still managed to get ahead of the pack.

Both companies stand to win though since the two treatments won’t be directly competing against each other.

Gilead’s drug aims to cure people who are already suffering from the coronavirus disease while Moderna offers a vaccine to avoid infection.

Aside from working on the coronavirus disease solution, Moderna has recently announced another promising mRNA-based vaccine called mRNA-1647.

This vaccine seeks to offer treatment for cytomegalovirus (CMV), which is a virus related to those that cause infectious mono and chickenpox.

While this disease is most dangerous to newborn babies because it could cause birth defects when transmitted through the pregnant mother, this is a common virus that can affect almost everybody.

In the US alone, approximately 50% to 80% of adults have been infected by the time they reach 40. Once you get infected by CMV, the virus stays in your body for life.

According to Moderna, the results of the Phase 2 trial for the CMV vaccine should be out by the third quarter of 2020. If all goes well, the company will enter the next phase by early 2021.

Although Moderna’s true value will only emerge when the company actually brings a product to market, it’s 32.5% jump in the first two months of this year is still noteworthy.

The fact that it is on track to deliver potentially lifesaving drugs in the form of the coronavirus and CMV vaccines also makes it a first-rate hedge against this current anxious and fearful market.