Biotech Letter Archives

One Plus One Equals Three with the Pfizer-Mylan Deal

"Greater than the sum of its parts." This is how the executives of Pfizer (PFE) described its merger with generic drug company Mylan NV (MYL) in the third quarter of 2019.

The deal, which is specifically between Mylan and Pfizer's off-patent department Upjohn, would result in the creation of the largest generics company by revenue in the world, reaching an enterprise worth $50 billion. In fact, this new company is anticipated to own roughly a third of all generics available today and approximately 15% of the generics market in the United States alone.

With the ever-changing pharmaceutical market, both Pfizer and Mylan have been grasping at straws in terms of reshaping their strategies and keeping up with the competition. Needless to say, this new powerhouse partnership comes as a relief for the investors of both Pfizer and Mylan.

This blockbuster deal allows Pfizer to focus its efforts on coming up with groundbreaking and more profitable products, hopefully beating its $54 billion sales in 2018. This move is a response to the insistent demand on the giant biopharma company to separate its Upjohn division, which works solely on legacy drugs, from the primary prescription-drug operations.

That way, Pfizer can focus on more lucrative, branded treatments like cancer medication Ibrance and pneumonia vaccine Prevnar.

This deal aligns with the recent moves by Pfizer acquiring potentially blockbuster treatments such as its $10.6 billion buyout bid of cancer treatment firm Array BioPharma earlier this year. This move is also reminiscent of Pfizer’s and GlaxoSmithKline’s (GSK) decision to merge their consumer healthcare departments.

Meanwhile, this all-stock deal provides Mylan with a financial lifeline following years of struggle. Its investors showed support over the deal as shares rose to as high as 19%, reaching $21.88 following the announcement.

While the generic drugs company, which is widely known for its emergency allergy medication EpiPen, is still far off from its all-time high of $67, this merger with Upjohn would allow both to amplify their efforts in dominating the market. More importantly, Mylan will retain a 43% stake in this new company.

For example, Mylan could boost Upjohn’s efforts in repackaging cholesterol drug Lipitor, nonsteroidal anti-inflammatory medication Celebrex, and erectile dysfunction medication Viagra as more attractive generic alternatives and boost their sales.

Since these drugs have expired or have expiring patents, their sales have been plummeting in the United States. With this merger though, Pfizer hopes to capitalize on the promising market called “branded generics” which has become quite popular in China.

“Branded generics” has gained a following in the Middle Kingdom due to the proliferation of fraudulent generic drugs – a trend that Pfizer has been eager to take advantage of seeing as the company actually moved Upjohn’s headquarters in Shanghai earlier this year.

Aside from Lipitor, Celebrex, and Viagra, the new company will also be handling the sales of over 7,500 Mylan products that include biosimilars and over-the-counter drugs.

With 165 markets targeted by this new company, its projected revenue is somewhere between $19 billion and $20 billion in 2020 and $22 billion in 2021. Meanwhile, its executives plan to solve the $25 billion worth of combined debt by targeting annual expense savings worth $1 billion to be reached by 2023.

In comparison, Mylan’s second-quarter adjusted earnings per share was at $1.03, with the company reaffirming its adjusted earnings for 2019 at $3.80 to $4.80 per share. Its profit for this year is estimated to reach $11.5 billion to $12.5 billion.

Meanwhile, Pfizer’s second-quarter report recorded $13.2 billion in sales, which indicates a 2% decrease from last year’s report during the same period. Meanwhile, Upjohn’s revenue fell by 11% year-over-year and hit $2.8 billion compared to the $3.1 billion last year.

With all these advantages, it can be safely said that Mylan was an excellent choice for Pfizer especially considering that the smaller company came in so cheap.

In 2018, Mylan was valued at $25 billion. Prior to the announcement in July though, Mylan only had a market cap of $10 billion. With the money saved on the deal, the newly formed company can push back on pricing and pour funds over marketing their generic products.

Even with the cheap buyout price, the new company will still be less levered compared to a stand-alone Mylan. It’s also projected to generate over $4 billion in free cash flow annually.

This deal eliminates a strategic bottleneck from Pfizer and solves the financial woes of Mylan. While there remains a lot to be seen in terms of achieving their goals, investors of both companies will definitely enjoy a brighter future.

After all, this new company boasts of an incredibly powerful mix of a portfolio that covers generics, branded products, over-the-counter meds, and biologics.

Buy Pfizer on dips. It is about to achieve a major breakout to the upside on the back of this fantastic deal.

October 29, 2019

Biotech Letter

Mad Hedge Biotech & Health Care Letter
October 29, 2019
Fiat Lux

Featured Trade:

(THE BIG MEDICARE PLAN WITH HUMANA),
(ANTM), (CI), (HUM), (UNH)

The Big Medicare Play with Humana

Biotech Letter

Sometimes, markets are right, and sometimes, they are wrong. With regard to the healthcare industry these days, they have definitely got it wrong. For they are overweighting the political risk to this group presented by the 2020 presidential election.

Even if the most extreme leftist candidate, Elizabeth Warren, wins, she will still have to get the plans through congress. And after the experience of the last three years, you can bet the next congress will be a pretty moderate bunch.

Just as President Trump found it impassable to kill Obamacare, even with an all-Republican Congress, Warren will find it equally difficult to get the most expensive form of Medicare for all passed into law.

Take this view, and all of a sudden, the healthcare industry becomes wildly cheap. In fact, it is one of the lowest valued, highest earning sectors in the entire stock market.

Shares of managed care companies have certainly struggled this year. For instance, Anthem (ANTM) went down 5.1%, Cigna (CI) sunk 13.2%, UnitedHealth Group (UNH) declined by 2.2%, and Humana (HUM) fell 0.3%.

Due to the country’s turbulent political climate courtesy of the impending 2020 elections, investors are anxious over Medicare for All, which has the capacity to shut down the entire industry altogether.

As expected, these fears have weighed heavily on health insurance stocks and these companies are anticipated to experience a rollercoaster of emotions in the next year and a half. However, there could be convincing reasons for Humana to stand out from the rest.

Zeroing in on “population health management” along with “social determinant of health,” the company has been working on boosting its dominance on nonclinical services to deliver better health results. This is because approximately 80% of health outcomes are linked to nonclinical issues. Hence, this initiative could lead to improved products for customers and cost savings.

This is why Medicare Advantage, which allows private insurers to collaborate with Medicare for care coverage, turned into the “crown jewel” of Humana’s growth strategies. Basically, this plan appears and functions like a private health plan but is actually a government-sponsored program.

To date, Humana is the second biggest Medicare Advantage provider growing its membership by 15% during the second quarter of both 2018 and 2019.

As of 2018, the company holds a 17% share of the 20.4 million people enrolled in the Medicare Advantage program, with plans comprising roughly a quarter of the managed care’s medical membership. This accounts for almost three times the industry average, which indicates a positive growth for Humana as Medicare is projected as the fastest-growing sector of the insurance industry in terms of spending.

Actually, basic math could easily illustrate Humana’s upward trajectory as well. The number of Americans eligible for a Medicare plan is increasing by roughly 3% annually. Based on data from the Congressional Budget Office, the number of Medicare recipients opting for Medicare Advantage is estimated to climb from 34% of those eligible for Medicare in 2018 to 42% by 2028. Clearly, this increase offers a lot of room for growth, and Humana is smack dab in the center of it.

Although UnitedHealth actually has more members in the said program at the moment, no other managed care company is as intensive and focused as Humana. In fact, 73% of Humana’s consolidated revenue comes from its Medicare Advantage membership earnings alone. This makes the company a Medicare Advantage pure play.

Holding its position as one of the leaders in this private option available within the Medicare community, Humana has established a stronghold in this ever-evolving and constantly turbulent industry. So far, the stock’s price target is projected to hit $315. Long-term investors could also finally expect to shake off healthcare fear jitters and big rewards from 2021 onwards if the elections result in Democratic leadership.

Looking at Humana’s earnings history, it can be seen that it has grown from $7.75 per share in 2015 to $14.55 by 2018. For this year, the company’s projected earnings is expected to reach $17.50 a share. However, the possibility of a federal tax on health insurers could pose a threat to the company’s growth.

Humana is well-poised for advancement on the back of its strategic plans involving its Medicare business and promising initiatives. In the past years, Humana has been deploying excess capital and hiking its dividend. Just in February 2019, the company increased its dividend by 10% to reach 55 cents a share.

As part of its repurchase strategy, Humana allocated $3 billion for its buyback plans. These moves further indicate the financial capacity of the company and could hopefully reinvigorate investor confidence.

October 24, 2019

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 24, 2019
Fiat Lux

Featured Trade:

(SPECIAL CANCER ISSUE - PART II)
(LLY), (PFE), (GTHX)

Special Cancer Issue - Part II

Biotech Letter

The most groundbreaking biotechnology discoveries in this century have now reached the flashpoint between theoretical discussions and their realization. Billions of dollars have been poured into the research and development phases, with some companies already generating income. More impressively, potential cures for a number of fatal diseases are now in the pipeline. For early investors, this translates to massive earnings in the succeeding years.

Among the widely sought-after cures is for triple-negative breast cancer (TNBC), which is the most aggressive form of the disease. It also has a poorer prognosis compared to other types of breast cancer, so it’s crucial to offer treatments that can not only improve chances of survival but also improve the quality of life of the patients suffering from it.

Here are the three most promising developments in the search for the cure of TNBC.

Eli Lilly (LLY)

It’s always challenging to be a third-to-market treatment especially when you’re trailing a pioneering drug like Pfizer’s (PFE) groundbreaking drug Ibrance and Novartis’ blockbuster drug Kisqali. However, Eli Lilly (LLY) is hoping that its recent data on Verzenio would bolster its hold in the market.

While it remains to be seen if Verzenio can catch up with Ibrance’s success, the Eli Lilly drug has managed to surpass estimates by $19 million during the first quarter of 2019 following an underwhelming fourth quarter in 2018. As for the latest data on Verzenio, the company disclosed that a combination of the drug and hormone therapy improved the median to 46.7 months compared to the 37.3 months for those who solely underwent therapy.

The 9.4 survival advantage indicates a 25% decrease in mortality risk. Apart from that, patients also enjoyed a better quality of life as this combo allowed them to manage for 50 months -- or over four years -- without the need for follow-up chemotherapy. This is a huge advantage since hormone therapy alone only allowed 22 months before the next treatment.

The effects don’t end there though. Eli Lilly has another trick up its sleeve to make sure that it stands out from the drugs targeting similar diseases. According to the company, Verzenio is the only drug that can help patients with tough-to-treat diseases.

That is, the Eli Lilly drug took effect even on patients who were initially resistant to therapy as well as those who quickly relapsed after treatment. This resulted in a decrease in death risk by roughly 31%. While this aspect still requires additional tests, the results showed a promise that not even Pfizer’s Ibrance can deliver.

Merck & Co. (MRK)

Merck & Co. (MRK) has rallied virtually the entire force of its research and development team behind ensuring that Keytruda remains on top -- way ahead of competitors like Bristol Myers Squibb’s (BMY) Opdivo. At the moment, Merck’s moneymaker has approximately 1,050 clinical trials queued to assess the possibilities of this drug further dominating clinical practice.

So as Bristol Myers Squibb attempts to woo investors with the promising results of Opdivo, Merck has been busy adding another notch in its belt with another landmark first for Keytruda. Aside from its current applications, this Merck cash cow is also pegged as a promising treatment for TNBC when combined with therapy.

Based on the data on its breakthrough therapy designation, this indication is likely on the fast track towards an FDA approval soon. To date, Keytruda has more than 20 oncology indications in the United States alone with the giant biopharma receiving the green light to market the drug in China as well.

If things move forward as planned, Keytruda may very well be on its way to topple AbbVie Inc.’s (ABBV) Humira from the top of the list of best-selling drugs worldwide in the next five years. After all, revenues from the drug are expected to hit anywhere between $17 billion and $24 billion in 2024.

G1 Therapeutics (GTHX)

Joining the biopharma giants is newcomer G1 Therapeutics (GTHX). This up-and-coming firm has recently released its clinical data on oral selective estrogen receptor degrader (SERD) for metastatic TNBC. Called G1T48, this new treatment provided promising results when combined with the company’s own breakthrough therapy called trilaciclib.

For comparison, G1 Therapeutics’ combo is said to be more potent than AstraZeneca plc’s (AZN) Faslodex, which is currently the only FDA-approved SERD treatment in the market. Unlike Faslodex though, which requires intramuscular injection, G1 Therapeutics’ drug can be taken orally once a day. Needless to say, this mode of treatment offers an improved patient experience.

With such promising results, G1 Therapeutics plans to roll out new drug application submissions by the fourth quarter of 2019. If things move smoothly, then the treatment plan should be out in the market sometime in the second quarter of 2020.

October 22, 2019

Biotech Letter

Mad Hedge Biotech & Health Care Letter
October 22, 2019
Fiat Lux

Featured Trade:

(SPECIAL CANCER ISSUE - PART 1)
(BMY), (MRK), (CELG), (AMGN), (ROG), (MRTX), (INCY)

Special Cancer Issue - Part 1

Biotech Letter

Multiple times every year, leading oncology researchers gather to share and discuss the latest developments in the field. During these events, biotech companies actively seek ways to snatch top billing, hoping to amp up their value not only within the industry but also to the public.

Needless to say, company stock prices tend to fluctuate dramatically based on the data and whether or not the companies lived up to the hype of their studies. Hence, these events have turned into must-attend conferences among the healthcare industry leaders and even institutional investors.

For everyday investors though, it’s too impractical to even consider the possibility of attending these grand shindigs. This is why we’re sharing with you a list of companies that are currently making strides or are anticipated to dominate the cancer research and treatment market in 2019 and in the years to come.

Bristol-Myers Squibb (BMY)

As always, no other field has been watched more intensely than the lung cancer market -- an area considered as the most lucrative in the immuno-oncology circle. In the recently concluded European Society for Medical Oncology Congress in Barcelona, all eyes were on the up-and-coming Opdivo/Yervoy combo of Bristol-Myers Squibb (BMY).

In the recent data it presented, Bristol disclosed that the combination of its cancer drugs Opdivo and Yervoy provided promising results to melanoma patients. According to their study, over 50% of melanoma patients survived after five years which is a huge leap from the 5% survival rate recorded over the same period prior to the introduction of immunotherapies.

With the company’s recent moves to beef up its cancer portfolio, the Opdivo/Yervoy combo is anticipated to turn into a strong competitor of Roche Holding Ltd. Genussscheine’s (ROG) Tecentriq. This combo also reinvigorates the ongoing rivalry between Bristol and Merck & Co. (MRK), with Opdivo/Yervoy aiming to dethrone the latter’s major moneymaker Keytruda.

However, this isn’t exactly the first time Bristol showed interest in dominating the oncology market. Wielding the power of its $81.05 billion market value, Bristol has signified its aggressive stance in pushing for the expansion of its cancer department.

The most highly publicized news from this front came in January this year courtesy of its announcement involving a $74 billion merger with Celgene Corporation (CELG). Now, it appears that we’re seeing the first of Bristol’s efforts to bolster its cancer drug lineup.

Although Bristol has been underperforming compared to its competitors for the majority of 2019, the stock has actually surpassed its rivals by roughly 5% in September. Following its 52-week low in July, the company has performed steadily higher to currently trading 6.5% below its 2019 high.

Hence, traders should be vigilant as a dip to a short-term trendline in the next weeks could offer a suitable entry point to eventually take advantage of the upside momentum.

Amgen (AMGN)

Another oncology frontrunner is Amgen (AMGN). The biotech giant recently presented its data on experimental treatments AMG 510 and AMG 160, which target some forms of colorectal cancer. So far, AMG 510 has provided higher response rates at 3% for patients across all levels of dosage.

These drugs form part of the rising trend of precision medicines, which zero in on particular gene mutations. This method is anticipated to be able to ward off cancer cells regardless of the organ where the disease originated.

In September, Amgen shared that the drug managed to shrink tumors by almost 50% during the trial period for advanced non-small lung cancer patients. Meanwhile, the drug’s disease control rate was recorded at 92%, with patients capable of tolerating AMG 510 without any dose-limiting toxicities.

These results prompted the FDA to send AMG 510 for “fast track” review. Aside from their own study, Amgen is also looking at a possible combination with Merck’s Keytruda in an effort to bolster its foothold in the lung cancer front.

If Amgen succeeds in the application of AMG 510 to colorectal cancer patients, the drug will be the first-ever approved treatment to target a mutated form of a gene commonly referred to as KRAS. This particular mutation called KRASG12C is prevalent in approximately 13% of non-small cell lung cancers, 3% to 5% of colorectal cancers, and almost 2% of solid tumor cancers.

In terms of revenue, the success of AMG 510 could lead to annual sales of $3 billion in the United States alone and $6.4 billion internationally. Aside from Amgen, Mirati Therapeutics Inc. (MRTX) has been actively pursuing treatments that aim to treat KRAS mutations as well.

Incyte Corporation (INCY)

At first blush, Incyte (INCY) is regarded as simply another young company striving to make a name for itself in the massive biotech market. Despite the success of bone marrow disorder drug Jakafi, a lot of investors still believe that the company only managed to stumble its way to growth. In fact, even those who actually started to invest in this biopharma firm still somehow see it as a company with an extremely limited potential.

Unfortunately for these investors, they’re missing out on a crucial detail. Although Incyte’s trajectory isn’t exactly moving at a blistering pace, the steady revenue growth of the company in 2019 is a strong indicator of meaningful profits in the succeeding years.

This growth would eventually land the company in the watchlist of every biotech investor, with the company stock already gaining 18% this year alone to boost its $16.10 billion market value.

One of the most exciting developments from Incyte is its bile duct cancer research which led to a potential oncology blockbuster drug Pemigatinib. So far, 36% of its test patients saw their tumors shrink with a preliminary median overall survival of 21.1 months.

Despite the promising results though, the company cautions on the modesty of its projected revenue as Pemigatinib specifically targets cholangiocarcinoma, which is a rare type of bile duct cancer. Incyte plans to submit the drug for review to the FDA before the year ends.

For now, Incyte is focused on the commercialization and development of its existing moneymakers. Aside from Jakafi, the company is also making waves in the rheumatoid arthritis market with Olumiant. Its myeloid leukemia treatment Iclusig is another potential golden goose on the rise as well.

So far, Incyte’s share price has been trading at approximately $15 range since April. The past two months showed a pullback though, with the stock finding key support from the lower trendline of the trading range at $72. For investors who intend to open a long position within these levels, you should set your take-profit order somewhere near $88. However, simply cut your losses if Incyte stock fails to hold $72 support.

October 17, 2019

Biotech Letter

Mad Hedge Biotech & Health Care Letter
October 17, 2019
Fiat Lux

Featured Trade:
(DUMPSTER-DIVING IN BIOTECH),
(ABBV)

Dumpster-Diving in Biotech

Biotech Letter

AbbVie Inc (ABBV) has transformed into one of the industry leaders in the biotech world, showing off a notable top-line growth and providing competitive dividends ever since its launch as an Abbott Laboratories (ABT) spinoff in 2013.

Despite its growth, AbbVie’s shares fell by a crushing 20% in the past year. This caused the company’s net value to trade at less than eight times forward earnings making it a blue-chip biopharma stock that could be bought for next to nothing!

What could be causing investors to sidestep this leading biotech?

The primary reason is the dwindling sales of AbbVie’s longstanding blockbuster drug, Humira. Despite its dominance in the market today, this arthritis medication is nearing its twilight years and is anticipated to eventually succumb to competition.

The threat to Humira’s dominance in the market is a huge deal for AbbVie particularly because of its heavy dependence on the drug’s revenue. In 2018 alone, the arthritis medication contributed approximately $20 billion to the $32.7 billion annual sales of the entire company.

Humira’s status in the United States is secure until its patent expires in 2023. Unfortunately, the drug doesn’t enjoy similar protection in international markets as biosimilar competition has already challenged its presence in the European Union. This has actually hit AbbVie’s performance as global sales showed a 28% decline in the past year.

Meanwhile, AbbVie’s blood cancer treatment Imbruvica is fighting off aggressive competitors in the market. At the moment though, investors remain optimistic about Imbruvica. The drug has been reported to achieve strong growth rates, generating roughly $4 billion in yearly revenue.

With this performance, Imbruvica is projected to hit a peak of $7 billion in sales. Although the medication is projected to perform well in the hematology space, the growing number of programs geared towards creating a similar treatment remains an ongoing threat to the company.

On a positive note, AbbVie has been active in beefing up its product portfolio. So far, three promising mega blockbusters are anticipated to boost the declining sales of the company, namely, psoriasis drug Skyrizi, uterine fibroids medication Orilissa, and rheumatoid arthritis treatment Rinvoq. All three have been recently approved and are expected to be the new growth products that could keep AbbVie on top of its game.

So far, Skyrizi has only contributed $48 million in sales. However, the psoriasis treatment is expected to reach $5 billion in profits in the coming years. Pitching in to boost AbbVie’s immunology assets is Upadacitinib, a drug that the company hopes to market as the next Humira and has been submitted for priority review. If all goes well, Upadacitinib is projected to rake in as much as $6 billion in peak sales.

While these treatments are pegged as promising additions to AbbVie drug portfolio, the biotech firm took another major step towards the expansion of its product line through its acquisition of Allergan (AGN) earlier this year. Although this move ensures that more products are queued to its pipeline, the deal with the Botox-maker could pose concerns for AbbVie’s balance sheet as the terms include the absorption of Allergan’s long-term debt worth $19.6 billion.

Nonetheless, AbbVie is still an interesting stock for a lot of investors. Perhaps one of the reasons for the lingering interest in the biotech company is its current dividend yield of 6.51% -- an impressive number especially if you consider the fact that AbbVie is still in its growth phase. Since 2017, its dividend showed an increase from $0.64 quarterly to reach $1.07 quarterly in 2019.

Another reason could be its valuation. As of this writing, the stock is trading at $75.83. Taking into account its adjusted earnings per share in 2018 of $7.91 and a P/E ratio of 8.2, this is already a pretty low price for any company that’s not experiencing a decline in revenue but extremely cheap for a company that has the potential to hit a 15% profit growth and 41% increase in adjusted earnings per share.

Overall, AbbVie is really a tempting stock for investors particularly dividend investors due to its high dividend yield and growth rates. However, the decline of Humira sales remains worrisome especially if you consider how dependent the company is on the drug.

Either way, AbbVie stock is really cheap at the moment and from a valuation perspective, there’s no substantial growth estimate priced in the stock to date. Basically, it all boils down to how much trust you want to put on a company with a proven track record but with high debt levels.

October 15, 2019

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 15, 2019
Fiat Lux

Featured Trade:

(CASHING IN ON ECONOMIES OF SCALE WITH CIGNA)
(CI), (ESRX), (AET)