Mad Hedge Biotech & Health Care Letter
October 10, 2019
Fiat Lux
Featured Trade:
(THE GREAT PLAY IN ANIMAL HEALTH CARE)
(ZTS)
When I first heard about this industry, I thought it was a joke. I was wrong. The harsh truth is that many animals in the US get better health care than at least half of the humans. Animal health care is in fact a gigantic and hugely profitable business.
Recession or not, the animal healthcare industry seems to thrive as people continue to go to great lengths to provide the best options for their furry friends.
Unfortunately, the undeniable effects of economic downturns have forced not only ranchers and farmers to downsize their operations but domestic pet owners to cut their budgets for their beloved animal companions. Despite the threat of the next market crash, a number of investors believe that Zoetis (ZTS) is a good stock to hold.
The $48 billion global animal health company develops, sells, and distributes pet medications for ticks, allergies, and fleas. Zoetis also manufactures vaccines along with animal feed additives, veterinary diagnostics, and even anti-infectives. Aside from treatments for your plain vanilla cats and dogs, the animal health leader also offers products for poultry, horses, cattle, pigs, and fish.
The latest news to bolster the confidence of Zoetis investors is the highly anticipated regulatory approval of oral canine drug Simparica Trio. This chewable tablet for dogs is currently under review not only in the United States but also in Japan, Brazil, Canada, and Australia. Once approved, this drug will be marketed as an all-in-one treatment for heartworm disease, ticks, and internal parasites.
If approved, Simparica Trio is expected to become the next blockbuster product of the company by 2020. Sales of the drug is estimated to reach $1.36 billion in 2022, with $1.14 of incremental earnings per share.
With Zoetis’ move to focus on high-margin animal items, it’s no question that the Pfizer spinoff will remain on top of the game even with the recession. In fact, the company derived 41% of its 2018 total revenue from items for cats and dogs alone compared to the 31% competitor Eli Lilly spinoff Elanco (ELAN) raked that year for similar products.
In terms of total revenue, Zoetis reported $5.8 billion for last year’s work while Elanco raked in $3.1 billion. That allowed Zoetis to convert 24% of profits into income during the said period. Zoetis’ blockbuster items, such as Simparica, Clavamox, and ProHeat, also didn’t disappoint this year.
However, there’s no such thing as a risk-free investment.
One reason for Zoetis’ consistent reports of high margins is the fact that veterinarians remain the main distribution channel for animal products. While its 24% net margins obviously provide an adequate elbow room, the company could be pressured if owners decide to purchase from third-party channels like retail stores or online shops.
Taking into account the 2019 revenue guidance from the company that indicates at least 5% of year-over-year growth, Zoetis’ dominance in the market appears to remain firmly on solid ground.
Throughout the years, the leader in animal healthcare has consistently grown its revenue and maintained a solid gross margin. It has stayed ahead of the pack by snapping up value-creating acquisitions and developing new products.
A good example of Zoetis’ ability to spot promising mergers is its $2 billion acquisition of veterinary diagnostics firm Abaxis (ABAX) in July 2018. This deal is estimated to deliver at least $200 million in revenues this year, indicating its massive contribution to the $270 million year-over-year growth in the company’s profits in the first half of 2019.
Another exciting acquisition is nutrition solutions developer Platinum Performance, a deal which is expected to be wrapped up by the third quarter of 2019. While this deal is not anticipated to provide a major financial impact to Zoetis’ performance this year, it’s expected to give the company’s equine and pet care portfolio a substantial boost in the years to come.
Zoetis has been hailed as one of the most promising companies in the animal healthcare industry today. Since its IPO in 2013, the shares of this Pfizer (PFE) spinoff has reached a total return of 242% -- lightyears ahead of the 137% total return of the S&P 500 within the same period.
Buy Zoetis on the dip.
Mad Hedge Biotech & Healthcare Letter
October 8, 2019
Fiat Lux
Featured Trade:
(GET ON THE CELGENE BANDWAGON),
(CELG), (BMY), (GSK), (AMGN), (RHHBY), (ROG), (GMAB), (MOR)
If you’re looking for a biotech stock that just relentlessly grinds up every day, Celgene Corporation (CELG) has to be at the top of your list, one of the most dominant players in the industry today.
Thanks to its $74 billion merger with Bristol-Myers Squibb (BMY), the combined companies are expected to push out Amgen in the top spot by 2020. Perhaps a positive indicator that things are looking up is the 50.9% rise in Celgene stock this year.
While the deal with Bristol has been predictably riddled with setbacks and delays, the sale of blockbuster arthritis drug Otezla to Amgen last month over antitrust concerns has finally pushed the merger forward.
While waiting for the merger with (BMY) to be finalized by the end of 2019, Celgene has been busy coming up with ways to attract more investors.
One of the exciting efforts of the biotech giant is its recent collaboration with Immatics Biotechnologies. Celgene joins GlaxoSmithKline (GSK) in the T-cell treatment market. With these two behemoths providing resources for this field, researchers are hopeful that a breakthrough drug will be discovered soon.
This partnership with Immatics saw Celgene shell out $75 million to gain access to three of the smaller firm’s anti-cancer adoptive cell therapies. With Immatics’ focus on T-cell treatments, the collaboration with Immatics will provide Celgene a wider pool of candidates for their solid tumor programs.
Aside from the $75 million upfront payment, Immatics will also receive $505 million in milestone payments for every licensed drug if Celgene decides to exercise the option. That means Celgene will have the opportunity to pay for the full or partial rights on selected assets developed from the T-cell therapies.
Ideally, Immatics would earn over $1.5 billion from the collaboration plus tiered royalties on net profits. As for Celgene, the biotech company will share the rewards with Bristol-Myers.
This collaboration marks the biggest upfront payment received by Immatics since its creation in 2000. The company, which is a spinoff of Germany’s University of Tübingen, adds Celgene to its growing number of partners including Amgen (AMGN), Roche Holding Ltd.(RHHBY), Genussscheine (ROG), Genmab (GMAB), and Morphosys (MOR).
The Munich company’s work on adoptive cell treatments and bispecific antibodies also generated interest from the cancer center of the University of Texas.
Since its creation, Immatics has managed to raise $220 million in venture capital plus roughly $130 million in non-dilutive funding. The Celgene deal puts the company’s total capital at $420 million.
So far, Celgene has reported three quarters of consistently accelerating earnings per share increase and a quarter of notable sales growth. However, the Bristol-Myers deal has yet to be completed. More importantly, some blockbuster products face uncertain futures due to rival copycats.
One major factor contributing to the doubts surrounding the company’s future is the recent sale of Otezla. Since this drug has been Celgene’s major moneymaker for years, it remains to be seen how the company will cope with its loss.
Aside from Otezla, another Celgene blockbuster facing pressure is blood cancer treatment Revlimid. While the multiple myeloma drug reported an 11.4% jump in its second quarter sales this year, the company has yet to fully safeguard it from the patent challenges aiming to end its reign in the market.
While the effects of the Immatics collaboration and the recent developments on the Bristol-Myers merger have yet to concretely manifest themselves, Celgene is expected to display strength when the next earnings release of 2019 draws nearer.
In the third quarter report, the company is projected to post an earnings per share of $2.73. This would indicate a 19.21% year-over-year increase. Meanwhile, its earnings per share for the full year of 2019 is expected to rise by over 23% to reach $10.91. As for its revenue, Celgene is estimated to earn $17.44 billion this year, marking a 14.11% rise from 2018.
In terms of its merger with Bristol-Myers, the two pharmaceutical giants are anticipated to have a combined total of 10 drugs already in the late-stage testing phase and six drugs ready to be released soon.
Additionally, the companies disclosed that they have roughly 50 drugs slated for early and mid-stage testing. Among those, 21 are reported to be focused on oncology treatments.
Buy Celgene on the next 5% dip in the shares. It seems to be on a tear.
Mad Hedge Biotech & Health Care Letter
October 3, 2019
Fiat Lux
Featured Trade:
(GETTING ON BOARD THE GENE-EDITING REVOLUTION),
(CRSP), (VRTX)
I love buying straw hats during snowstorms, Christmas ornaments in January, and the latest outdoor equipment in October when the best quality gear is for sale at incredible discounts.
Such a bargain is to be had right now with CRISPR Therapeutics (CRSP), which has been at the forefront of the gene-editing revolution from day one. And I actually know how this works.
After decades of false starts and controversial experiments, genetic treatments are now starting to paint a credible and promising picture of their benefits. With the first-ever gene therapy treatment receiving approval in 2017 and the first RNA interference (RNAi)-based drug getting the greenlight in 2018, the biotech world appears to be ready for the next big thing: CRISPR gene editing.
Crispr technology has the potential to offer a cure for diseases such as multiple sclerosis and even cancer. Apart from its healthcare benefits, this technology can also be utilized in the agriculture industry. A possible application of it is to synthesize chemicals including fuels and plastics. Crispr can be used to store data as well.
Well, that’s what the investors in this revolutionary technology are hoping to accomplish anyway -- so much so that the market cap of pioneering company CRISPR Therapeutics (CRSP) has soared to an incredible $2.7 billion.
Although CRISPR Therapeutics has been experiencing an upward trajectory in 2019, shareholders of this stock since its inception in 2013 have been through quite a rollercoaster ride as the company’s first drug candidate only managed to enter clinical trials this year.
While cash burn is obviously a legitimate fear, CRISPR Therapeutics actually has a massive mound of cash pile. Hence, the future (or the next five years, at least) of this red-hot growth stock won’t be a problem for the company as long-term prospects look promising.
One of the most aggressive supporters of CRISPR Therapeutics is Vertex Pharmaceuticals (VRTX), which recently splurged $175 million in an upfront cash payment to fund the development of the biotech company’s study on a gene-editing therapy called CTX001.
This method is designed to help patients suffering from rare genetic blood disorders beta-thalassemia and sickle cell disease. Aside from these blood diseases, Vertex expanded the collaboration to also cover muscle disorders commonly known as Duchenne muscular dystrophy and myotonic dystrophy type 1. Earlier in 2019, the FDA granted a Fast Track designation for CTX001.
Despite minimal information on CRISPR’s pipeline, a lot can be deduced from the behavior of its investors alone. Looking at the roster of the company’s largest shareholders, it’s quite noticeable that a whopping 42% belongs to institutional investors.
Since institutions tend to prefer more established companies compared to smaller ones, the presence of these investors in CRISPR signifies a positive outlook for the stock. A quick caveat though -- the downside of this is for the stock to turn into a “crowded trade” due to the number of institutions that own it. That makes its share price sensitive to the biotech market and to the on-again, off-again IPO market.
Meanwhile, insider ownership for CRISPR Therapeutics amounts to $51 million -- a fact that could signify the earning potential of this stock and the promising future it holds. Some shareholders would consider this as a real positive sign as the heavy presence of the board members in the share registry ensures that their interests align with that of the shareholders.
So, what’s the bottom line here? While CRISPR’s shares at one point jumped by an astounding 72% this year, there’s no indication that the stock is slowing down anytime soon. That is if no clinical setback hinders the company’s forward march. Given the potential of the technology and its healthy cash pile ready to fund its future endeavors, this development biotech is anticipated to be worth tens of billions in terms of future revenues.
The global clamor to embrace revolutionary medical treatments is something we can’t ignore, particularly due to the northward rise of the biotech sector. With CRISPR Therapeutics promising that the initial clinical trials are only there to whet investors’ appetites, it’s exciting to be part of a technology that could actually change the landscape of the medical profession.
Buy CRISPR Therapeutics on the dip. Now is a great place to start scaling in with a one-third position.
Mad Hedge Biotech & Healthcare Letter
October 1, 2019
Fiat Lux
Featured Trade:
(THE PLAYERS GUIDE TO BIOTECH INVESTING)
(AMGN), (PFE), (NOVN), (ABBV), (ABT),
(AGN), (ROG), (GSK), (CELG), (JNJ), (BMY)
You can’t watch a game without a program, and the lineup for biotech and healthcare is truly astonishing. No surprise then that the fields account for more or less than 17% of US GPD.
Here is a listing of the biggest $100 billion plus products you have never heard of. The good news is that you have just stumbled across a sector that will generate no less than a staggering $1.4 trillion in sales over the next five years.
That means it’s certainly worth your time getting to know this field. With this amount at stake, it’s no wonder companies manufacturing these blockbuster drugs are sparing no expense to fight off patent vultures.
A good example is Amgen (AMGN), which recently won its case to extend the patent life of rheumatoid arthritis biological Enbrel against Novartis AG’s (NOVN) biosimilar arm Sandoz. Since each extra hour added to patent life means millions of dollars (and sometimes billions) in sales, the additional 10 years of exclusivity for Enbrel is a massive victory for Amgen.
In a recent study released by Evaluate Pharma, Enbrel was ranked third in the top 10 biggest sellers up to 2024. The forward-looking consensus projection anticipates Amgen’s golden goose to hit roughly $140 billion in total revenues in five years – a truly impressive performance particularly for a drug that has been around for more than 20 years. However, Enbrel’s longevity pales in comparison to the other behemoths in the biopharma realm.
Up until 2018, Pfizer’s (PFE) Lipitor held the title of earning the highest lifetime sales in the industry. Since its launch in 1997, the cholesterol drug has raked in $164.4 billion in revenues so far with the number estimated to reach $180 billion by 2024. Lipitor’s success is highlighted more by the fact that it's under a small molecule status and holds approval for a very narrow indication.
Overtaking Lipitor to take the top spot is AbbVie’s (ABBV) rheumatoid arthritis treatment Humira, which closed with $20 billion in sales in 2018 alone. While some AbbVie investors frown upon the over-reliance of the company on Humira, it appears that the efforts to protect the drug has paid off big time.
With patent protection (132 approved patents!) safeguarding its exclusivity in the market, Humira is projected to reach a total of $240 billion in revenues by 2024. Clearly, the rewards they’ve been reaping show no signs of abating anytime soon.
More importantly, Humira’s robust sales, which makes up almost 70% of the company’s profits, has provided AbbVie with the financial capacity to finally get out of the shadow of parent company Abbott Laboratories (ABT) and come up with its own pipeline. As it happens, AbbVie’s efforts towards this direction have already started with the massive purchase of Allergan (AGN) for $63 billion this year.
Apart from Lipitor, Humira, and Enbrel, there are three more blockbuster products with sales that hit the $100 billion mark as of 2018 -- a figure that would make Ecuador proud to claim as their annual GDP. These are Roche Holding Ltd. Genussscheine’s (ROG) chemotherapy drug Rituxan, Amgen’s anemia treatment Epogen, and GlaxoSmithKline’s (GSK) asthma medication Advair.
One biopharma bestseller that leapfrogged a lot of other drugs in the market is multiple myeloma medication Revlimid -- aka the drug that built Celgene (CELG). With an entry date of 2008, this drug is the newest one on the list. While Revlimid’s sales are impressive, what’s actually quite exciting is the fact that its projected revenues easily outstrip its already notable sales of $53.69 billion.
By 2024, this Celgene blockbuster is estimated to reach $123.64 billion in sales. There’s a caveat to this though as Revlimid’s success in the years to come is dependent on how Celgene plans to deal with generic competition chomping at the bit and ready to attack once the drug reaches its 2022 patent expiration date.
Another big-ticket drug that might see a bit of a decline in sales soon is from Johnson & Johnson (JNJ). While the company has always been aggressive when it comes to dominating the market for its Crohn's Disease drug Remicade, an investigation by the Federal Trade Commission (FTC) might put a damper on things soon. According to recent reports, JNJ has been suspected of contracting payers to ensure market control and stave off competitors.
Meanwhile, the three horsemen of Roche, namely, Rituxan, cancer and eye disease medication Avastin, and breast cancer treatment Herceptin, reached a collective amount of $365 billion in total sales. These three are anticipated to stay put on top of the industry in the next five years as well, thanks to their competitive pricing and aggressive strategies to protect their patents.
Rounding out the list is Amgen’s Epogen, which is expected to add $107.90 billion to the already astounding $115.87 billion it generated for the company. Meanwhile, GSK’s Advair, which brought in $113.61 billion, is expected to pour in an additional $104.20 billion by 2024.
Interestingly, the majority of the top 10 franchise drugs are biologics except for Sanofi’s (SAN) ulcer treatment Zantac, Bristol-Myers Squibb Co’s (BMY) heart medication Plavix, Advair, and of course, Lipitor. In fact, this is considered as the primary reason for their capability to fight off potential copycats for years.
In some cases, their monopoly of the market has allowed them to expand to include various other indications in their coverage. The massive sales of biologics are also rooted in their ability to demand big-ticket reimbursements. Unlike their generic competitors, brand recognition alone makes it more convenient for patients to ask for compensation.
Needless to say, the success stories of these drugs make it quite obvious why these biopharma companies employ a battalion of legal experts to fend off the rise of generics. While the onslaught of biosimilars cannot be helped, these lawyers ensure that patients opting for these versions of the medication would find it incredibly difficult to ask for biosimilar reimbursements.
The Winner So Far
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more