Biotech Letter Archives

Rolling The Dice On Biotech

Remember when you'd jump into a hot tub and the water was just right? That's what the biotech sector feels like right now - it's warming up and ready for a splash.

After years of treading water, biotech stocks are showing signs of life. High interest rates and cash crunches have kept this sector on the sidelines, but the game is changing.

September 2024 is shaping up to be a blockbuster month for the sector, with FDA decisions that could send stocks soaring - or sinking.

First up, Roche Holding AG (RHHBY) is waiting on pins and needles for the FDA's verdict on Ocrevus SC. This isn't just another drug - it's a new way to deliver their multiple sclerosis cash cow.

If the FDA gives the green light on September 13, Roche could be looking at a bigger slice of the MS pie. Why? Because this new version doesn't need fancy IV setups, opening doors to treatment centers that were previously off-limits.

But Roche isn't the only one with butterflies in its stomach.

Vanda Pharmaceuticals (VNDA) is hoping to make history on September 18 with Tradipitant. This drug aims to tackle gastroparesis, a condition that's been stuck in treatment limbo for four decades. If Tradipitant gets the nod, Vanda could find itself as the big fish in a very lucrative pond.

And let's not forget about the underdogs.

Zevra Therapeutics (ZVRA) is crossing its fingers for Arimoclomol. This potential game-changer targets Niemann-Pick disease type C, a rare brain disorder that's been waiting for its medical knight in shining armor. September 21 could be that day.

These approvals aren't just good news for the companies involved. They're like a shot of adrenaline for the whole biotech sector. Investors love nothing more than seeing potential turn into profit.

But it's not all about solo acts in biotech. These days, it's all about partnerships.

Take Halozyme Therapeutics (HALO), for instance. They've buddied up with Roche to develop Ocrevus SC, bringing their ENHANZE technology to the party.

These kinds of collaborations are golddust for smaller biotech firms. They get access to resources and markets they could only dream of on their own, making them much more attractive to investors with deep pockets.

Speaking of deep pockets, big pharma companies are on the prowl, and several biotech firms are looking mighty tasty.

Bristol-Myers Squibb (BMY) just showed us how it's done by snatching up Karuna Therapeutics. Why? Two words: KarXT.

This antipsychotic drug is currently under FDA review for schizophrenia, and if approved, it could be another lucrative revenue stream. This kind of deal is a win-win. The big fish gets new toys for its pipeline, and the smaller fish gets a cushy new home.

Now, let's talk about the elephant in the room - interest rates.

Biotech companies and high interest rates go together like oil and water. These firms need cash like plants need water, and high rates make that cash harder to come by.

But here's the thing: the Federal Reserve is hinting at rate cuts.

For biotech, that's like Christmas coming early. Lower rates mean easier borrowing and easier borrowing means more research, more trials, and potentially more breakthroughs.

So if rates drop, don't be surprised to see biotech stocks shoot up faster than a rocket.

But it's not just about drugs in the pipeline. The biotech sector is also home to some serious innovation.

Take gene editing and CRISPR. This isn't your grandpa's genetics - it's like we've found the “track changes” function for DNA.

The market for this molecular magic is set to explode from $4 billion in 2024 to a whopping $17.8 billion by 2034. That's a 16.1% annual growth rate, for those of you keeping score at home.

With this technology, I’m not just talking about curing rare diseases here. I’m talking about the possibility of having your own home testing kits that could make your 23andMe results look like a fortune cookie.

And then there’s personalized medicine, which is turning healthcare into a bespoke tailor shop. Your DNA is becoming the blueprint for your treatments, and the market is following suit.

We're looking at a jump from $300 billion in 2021 to $869.5 billion by 2031. Why the boom? Well, sequencing your DNA used to cost more than a mansion.

Now it's cheaper than a decent night out in New York - from over $1 million in 2007 to about $600 today.

Stem cells and regenerative medicine are also getting investors hot under the collar. We're talking about potentially regrowing organs or giving Parkinson's the boot.

This market is set to grow at a spicy 9.74% annually from 2023 to 2030. Basically, it’s like we're entering the age of biological LEGO.

And let's not forget AI - the new brainiac in the lab. It's turning drug discovery into a high-speed chess game, with the AI market in healthcare expected to hit $95.65 billion by 2028.

With the innovations from this tech, scientists could have supercomputers as their lab partners – ones that never need coffee breaks and can crunch data faster than you can say "blockbuster drug."

Given all these possibilities, I think it’s a good time to talk about strategy. After all, investing in biotech isn't one-size-fits-all. It's more like a buffet - you pick what suits your taste and risk appetite.

For the adrenaline junkies who like to walk the tightrope without a net, there's the high-risk, growth investor approach. These brave souls get their kicks from cutting-edge stuff like gene editing and personalized medicine, often diving into early-stage biotech firms working on the next big breakthrough.

It's not for the faint of heart - these stocks can swing wilder than a monkey on espresso. But when they hit, oh boy, do they hit.

Just look at the personalized medicine market - it's set to explode from $300 billion in 2021 to a mind-boggling $869.5 billion by 2031. That's the kind of growth that could make your portfolio do backflips, assuming you can stomach the ride.

On the other side of the petri dish, we've got the value and low-risk investors. These are the steady hands who prefer their biotech stocks aged like fine wine and served with a side of sleep-easy. They're eyeing established companies with robust pipelines, diverse portfolios of approved drugs, and ongoing trials.

Think Roche with its Ocrevus SC, or old guards like Gilead Sciences (GILD) that have weathered more storms than a lighthouse.

These investors are the tortoises in the biotech race - slow and steady, but with a knack for crossing the finish line, often with a healthy dividend check in hand. They might not make headlines, but they're more likely to let you sleep soundly while your portfolio does the heavy lifting.

No matter which style you choose, one thing is undeniable: the biotech sector is like a sleeping giant, and it's starting to stir. The question is, will you heed the wake-up call or sleep through the alarm?

August 29, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 29, 2024
Fiat Lux

Featured Trade:

(ONE TEST TO RULE THEM ALL)

(ILMN), (BAYRY), (LLY), (MRK), (BMY), (AZN), (RHHBY), (NVS), (GH), (TEM), (TMO)

One Test To Rule Them All

Biotech Letter

“One test to rule them all, one test to find them, one test to bring them all, and in the lab bind them,” the scientists at Illumina (ILMN) whispered – probably.

Their latest creation just got the FDA nod, and it's set to turn the world of cancer diagnostics on its head. It's as if Gandalf himself handed oncologists a palantír that reveals tumors' deepest secrets.

For those less versed in Middle-earth lore, this is like inventing a universal remote for tumor profiling, and oncologists can't wait to start channel surfing.

Now, you might be thinking, "What's the big deal?" Well, let me break it down for you.

This test, called TruSight Oncology Comprehensive (TSO for short), is the first FDA-approved genomic in vitro diagnostic kit that can make pan-cancer companion diagnostic claims.

In plain English, that means it's a single test that can be used across multiple cancer types. We're talking about a game-changer in precision oncology here.

Let's get into the nitty-gritty. This TSO test is a beast. It screens for a whopping 517 genes and provides comprehensive information on tumor mutational burden (TMB) and microsatellite instability (MSI).

These are crucial biomarkers that help determine how a patient might respond to immunotherapies. The breadth of data this single FDA-approved test can collect is unprecedented.

Now, you might be wondering, "Haven't we had companion diagnostics before?" Sure, but they've typically been limited to specific drugs or cancer types.

This pan-cancer test from Illumina is different. It can be applied to a wider range of solid tumors, and let me tell you, oncologists are loving it.

In fact, about 39% of U.S. oncologists have already said they strongly prefer using multi-gene panels over single-gene tests for guiding treatment decisions. That's a clear signal that there's demand for comprehensive diagnostic solutions like TSO.

Illumina's been busy across the pond, too. A version of this test has been available in Europe since 2022. But the U.S. version's got some new tricks up its sleeve.

It can help identify patients who might benefit from specific immunotherapies, including Bayer's (BAYRY) Vitrakvi and Eli Lilly's (LLY) Retevmo. The latter is a new addition compared to the EU version of the test.

Let's talk about these therapies for a second. Vitrakvi is used for adult and pediatric patients with certain NTRK mutations, regardless of their type of cancer. That's pretty cool, right?

But here's the kicker - these NTRK gene fusions are only found in about 0.1% to 0.3% of solid tumors, and they're tough to detect.

TSO's ability to scan both RNA and DNA means it can find multiple forms of this biomarker. That's a big deal for companies like Bayer, who've sometimes struggled to find eligible patients for this targeted therapy.

But Illumina's not resting on its laurels. They've got a growing pipeline of companion diagnostic claims in development, working hand in hand with drugmakers. They're planning to seek these in future regulatory submissions.

You see, Illumina's been playing the long game, forging partnerships with big pharma to co-develop companion diagnostics that align with targeted therapies.

Take their 2019 partnership with Merck (MRK), for instance. They teamed up to develop and commercialize a companion diagnostic using Illumina's TruSight Oncology 500 assay.

The goal? To identify genetic mutations in cancer patients that would respond to Merck's cancer drugs like Keytruda. This partnership boosted the adoption of Illumina's NGS platform in clinical oncology settings, contributing to both companies' growth.

The market liked what it saw at the time. Illumina's stock got a nice bump following the partnership announcement. And why wouldn't it?

The deal strengthened Illumina's position in the oncology diagnostics market, which is projected to grow at a CAGR of 12.4% from 2023 to 2030.

But Merck's not the only dance partner Illumina's got. They've also teamed up with Bristol-Myers Squibb (BMY) to use their TSO 500 assay as a companion diagnostic for immuno-oncology therapies.

This collaboration expanded Illumina's reach into new oncology applications, allowing BMY to use the TSO platform to identify patients most likely to benefit from its immune checkpoint inhibitors.

And there's more - Illumina's also forged partnerships with AstraZeneca (AZN), Roche (RHHBY), and Novartis (NVS) to develop companion diagnostic tests.

Next, let's talk numbers. Each new FDA-approved indication could potentially add $100 million to $200 million annually to Illumina's revenue. That's no chump change.

Unsurprisingly, Illumina's not the only player in this game.

Companies like Foundation Medicine (a Roche subsidiary), Guardant Health (GH), Tempus (TEM), Caris Life Sciences, Thermo Fisher Scientific (TMO), and GRAIL (another Illumina subsidiary) are all working towards pan-cancer or multi-cancer diagnostics.

Still, Illumina's TSO test is the first to secure FDA approval for pan-cancer companion diagnostic claims. This lead could translate into a significant market advantage.

Actually, Illumina already holds more than 70% market share in the global NGS market as of 2022. This means it’s well-positioned to benefit from this growth, and this latest FDA approval could further consolidate its market dominance.

Speaking of the FDA, they’ve been busy too. They've ramped up their support for precision medicine in recent years, approving a growing number of companion diagnostics and genomic tests.

From 2017 to 2021, they approved over 25 new companion diagnostics, a significant increase from the 5-10 approvals per year in the early 2010s. And a substantial portion of these approvals has been for oncology-related tests.

In 2021 alone, 68% of the FDA's new drug approvals were for cancer treatments.

Now, let's zoom out and look at the bigger picture. According to the World Health Organization, there were an estimated 19.3 million new cancer cases and 10 million cancer deaths worldwide in 2020.

The global cancer burden is expected to rise to 28.4 million cases by 2040, a 47% increase from 2020.

In the U.S., about 1.9 million new cancer cases are expected to be diagnosed in 2023.

The economic impact is also staggering. The economic burden of cancer in the U.S. was estimated at $157 billion in 2020, and it's projected to increase to over $246 billion by 2030.

These numbers stress the growing need for early detection and personalized treatment solutions.

But, unlike other companies, here's where advanced diagnostics like Illumina's TSO can make a difference. By ensuring patients receive the most effective treatments based on their genetic profiles, these tests can reduce unnecessary treatments and improve outcomes.

Studies have shown that using precision diagnostics can lower overall healthcare costs by 15% to 20% by avoiding ineffective therapies and hospitalizations.

Essentially, what we're seeing here is more than just a new test. It's a glimpse into the future of cancer treatment - more precise, more personalized, and potentially more effective.

For patients, it could mean better outcomes. For healthcare systems, it could mean more efficient use of resources. And for us? Well, it could mean significant opportunities in a rapidly growing market.

As Gandalf might say, "All we have to decide is what to do with the time that is given us." Illumina's chosen to use their time crafting this powerful new tool.

The quest to conquer cancer continues, and Illumina’s TSO might just be the ring-bearer we've been waiting for.

Keep your eyes peeled, fellow adventurers. The journey into precision oncology is only just beginning, and it promises to be an epic saga indeed.

August 27, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 27, 2024
Fiat Lux

Featured Trade:

(NOT ALL THAT GLITTERS IS LILLY)

(JNJ), (LLY), (CRSP), (ISRG)

Not All That Glitters Is Lily

Biotech Letter

I've been so busy chasing after Eli Lilly (LLY) and its trillion-dollar dreams that I nearly overlooked a gem in the making.

While everyone's obsessing over LLY's march towards that coveted $1 trillion market cap, there's another pharma giant that's been quietly chugging along, building value like it has for over a century.

I'm talking about Johnson & Johnson (JNJ). You know, that little company that's only been around for 138 years.

I understand that JNJ isn’t as exciting as the likes of Crispr Therapeutics (CRSP) with their fancy gene editing therapies, or Intuitive Surgical (ISRG) with their robotic surgeons, but, let me tell you, sometimes boring is beautiful – especially when it comes with a 3% dividend yield and a rock-solid business model.

Let's break it down, shall we?

First off, JNJ isn't sitting on its laurels. Just last week, they dropped $1.7 billion to snatch up a private heart-device company. That's not chump change, even for a behemoth like JNJ.

And speaking of big moves, the FDA just gave them the green light for a chemotherapy-free lung cancer treatment.

We're talking about Rybrevant plus Lazcluze, which showed a 30% reduction in the risk of disease progression or death compared to AstraZeneca's (AZN) offering.

That's not just incremental progress – that's potentially life-changing stuff for patients.

But they’re not stopping there. They're also shelling out $600 million upfront (with potential milestone payments up to $1.1 billion) for V-Wave, a company making shunts for heart failure patients.

This deal's expected to close before the year's out, beefing up JNJ's already impressive MedTech division.

Now, let's talk numbers. JNJ's current market cap is sitting pretty at just under $400 billion. Sure, it's not in Lilly's $850 billion stratosphere, but remember – slow and steady wins the race.

And speaking of winning races, JNJ was the global leader in pharmaceutical sales last year, raking in $85 billion. That's a cool 30% higher than their closest competitor, Roche (RHHBY).

But here's where it gets interesting for value hunters. JNJ's currently trading at an enterprise value of 12.8 times forward EBITDA. In English? It's reasonably priced compared to its peers.

Even better, it's trading near the bottom of its five-year range for forward P/E ratio, EV-to-EBITDA, and price-to-free cash flow. Translation: This stock's on sale, folks.

Now, I know what some of you are thinking. "But what about those talcum powder lawsuits?" Fair question.

JNJ's looking at potentially settling around $6.5 billion worth of claims. That's not a small amount, even for these guys.

But here's the kicker – they've got over $25 billion in cash on hand and generated about $19 billion in free cash flow over the last 12 months. They can take the hit and keep on ticking.

Let's talk products. Stelara, Tremfya, Darzalex, Erleada – these aren't just random drug names. They're cash cows for JNJ. And with a diverse portfolio where no single drug accounts for more than 13% of total sales, they're not putting all their eggs in one basket.

Still, I'm not saying JNJ is going to double overnight. This isn't some flashy tech stock riding the AI hype wave.

But for those of us with a long-term horizon and a love for steady income, JNJ looks mighty attractive.

Think about it – they've raised their dividend for over six decades straight. That's longer than some of you reading this have been alive.

And with a 77% payout ratio, they've got room to keep that streak going.

Sure, over the past decade, JNJ's total return of 106% might not set your hair on fire. It lags behind the S&P 500's 234% and even the Health Care Select Sector SPDR Fund ETF's (XLV) 189%.

But remember, past performance doesn't always guarantee future results.

Here's my take: JNJ isn't for the get-rich-quick crowd. It's for investors who appreciate a good night's sleep knowing their money's in a company that's weathered world wars, depressions, and yes, even lawsuits.

Will JNJ hit that trillion-dollar mark? I'd bet my last bottle of Tylenol on it. It might take a decade, but hey, good things come to those who wait.

August 22, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 22, 2024
Fiat Lux

Featured Trade:

(BITING OFF MORE THAN THEY CAN CHEW)

(LLY), (NVO), (CTLT), (ZLDPF), (RHHBY), (AMGN), (PFE), (LZAGY), (TMO)

Biting Off More Than They Can Chew

Biotech Letter

"If you build it, they will come." But what happens when they come before you've finished building?

That's the billion-dollar question facing the makers of GLP-1 weight loss drugs.

GLP-1 drugs, the newest darlings of the pharmaceutical world, are selling like hotcakes. Eli Lilly (LLY) and Novo Nordisk (NVO), the current heavyweights in this arena, raked in a whopping $10.4 billion and $6.85 billion respectively last year.

Basically, the demand is there, but the supply? Well, that's another story.

So far, Lilly and Novo have been throwing money at the problem like it's going out of style. We're talking billions here. Novo's earmarked $6.5 billion for production this year alone, while Lilly's already shelled out $5.3 billion to beef up its manufacturing muscle. They're expanding facilities faster than you can say "miracle weight loss drug."

But even that's not enough. Lilly admits the industry needs at least 10 to 15 dedicated sites to even come close to meeting demand.

It's like trying to serve a five-course meal to a packed restaurant with just one chef and a microwave.

And let's not forget about the price tag on these manufacturing sites. Novo just dropped $11 billion to buy three fill-finish sites from Catalent (CTLT). Talk about paying a premium for prime real estate.

While Lilly and Novo scramble to ramp up production, their manufacturing woes have created a window of opportunity for competitors eyeing a slice of the GLP-1 pie.

Boehringer Ingelheim and Zealand Pharma (ZLDPF) are closest to market with their Phase 3 drug survodutide.

Meanwhile, Roche (RHHBY) and Amgen (AMGN) aren't far behind in Phase 2. Even Pfizer's (PFE) dipping its toes in the water with an early-stage drug.

But here's where it gets interesting for us who want a piece of the action. These newcomers are facing a manufacturing dilemma of their own.

Do they build their own facilities and risk being late to the party? Or do they outsource and potentially lose control over production?

Some, like Boehringer and Roche, are already talking about using third-party manufacturers. It's like hiring a catering company instead of building your own restaurant – less upfront cost, but you're at the mercy of someone else's kitchen.

Enter the contract manufacturing organizations (CMOs), the unsung heroes of the pharmaceutical world who might just hold the key to unlocking the full potential of the GLP-1 market.

Let’s take a look at the big players in this space.

Lonza Group (LZAGY), with its $6.6 billion in annual revenue and 10% market share in biologics contract manufacturing, is a force to be reckoned with. They're not just sitting on their laurels either – they're pumping $850 million into a new biologics facility in Switzerland.

Then there's Thermo Fisher Scientific (TMO), the 800-pound gorilla of the industry. With a cool $44.9 billion in revenue last year and an 8% to 10% market share in contract manufacturing, they're a go-to partner for big pharma.

They've been on a shopping spree too, scooping up Pharmaceutical Product Development (PPD) for $17.4 billion to boost their manufacturing capabilities.

And, of course, let's not forget about Catalent. They might have sold some facilities to Novo, but they're still a major player with $4.8 billion in revenue last year. They're betting big on biologics, with plans to increase capacity by 40% by 2025.

As for those looking for growth potential, keep an eye on Samsung Biologics. They're the new kid on the block, with a 30% compound annual growth rate over the past five years and the world's largest single-site biologics manufacturing facility.

So, there you have it. The obesity epidemic is a tragedy, but it's also a trillion-dollar opportunity.

With half the population projected to be obese by 2030, this isn't just a health crisis—it's a financial frontier.

The GLP-1 market is poised to balloon to $130 billion, creating a feeding frenzy for those ready to capitalize on the supply squeeze.

But here's the real meat of the matter: in this gold rush, it's not just the drug developers who are striking it rich. The real winners are the manufacturers—those with the capacity to meet the insatiable demand. They're the ones handing out the "shovels" in this weight loss bonanza.

So while everyone else is focused on the flashy GLP-1 drugs, I suggest you also keep a watchful eye on these behind-the-scenes players.

Now, if you'll excuse me, I'm off to patent my groundbreaking idea: GLP-1-infused kale chips. Who says you can't have your cake and eat it too?

August 20, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 20, 2024
Fiat Lux

Featured Trade:

(POX POPULI)

(BVNRY), (EBS), (GOVX), (SIGA), (CMRX), (TNXP), (TMO), (ABT), (MRNA), (PFE)

Pox Populi

Biotech Letter

Hold onto your hazmat suits because the world of infectious diseases just got a lot more interesting. And if you're someone with a stomach for volatility, you might want to pay attention.

Mpox is back, and it's brought a nasty new cousin to the party. The World Health Organization (WHO) just hit the big red button, declaring the mpox outbreak a public health emergency of international concern (PHEIC). That's fancy talk for "this is serious, people."

Let's break it down. We're not dealing with your garden-variety mpox here. This is a new strain, dubbed Clade Ib, and it's tearing through central Africa like a bull in a china shop.

The Democratic Republic of Congo (DRC) has seen over 15,600 cases so far this year, more than all of last year. And it's not staying put.

Kenya, Burundi, Rwanda, and Uganda are all reporting their first-ever mpox cases. It's like watching a virus go on a world tour, minus the t-shirts and overpriced concessions.

Now, before you start panic-buying toilet paper again, the Centers for Disease Control and Prevention (CDC) says the risk to the U.S. is very low.

But they're still telling healthcare providers to keep their eyes peeled for any funky rashes on patients who've been globe-trotting lately.

So, what do we do with this information? Well, let's talk vaccines.

Bavarian Nordic (BVNRY), the company behind the most widely used mpox vaccine, has seen its stock jump more than 30% since the WHO's announcement. It's like they won the pharmaceutical lottery.

And Uncle Sam's not shy about showing them some love – the U.S. Department of Health and Human Services just placed a $156.8 million order for a bulk vaccine product.

But they're not the only player in town.

Emergent Biosolutions (EBS), another vaccine manufacturer, also saw its stock surge when the news broke.

Even GeoVax Labs (GOVX) saw its stock shoot up 40% yesterday morning. Not bad for a company most people had never heard of last week. They're working on an MVA vaccine – that's Modified Vaccinia Ankara for you science nerds out there. It's the go-to choice for folks with weakened immune systems.

But it's not all sunshine and rainbows in vaccine land.

Siga Technologies (SIGA) released some disappointing trial data for their antiviral drug TPOXX. Turns out, it's not much better than a sugar pill for treating mpox.

Other companies are also jockeying for position.

Chimerix (CMRX) is developing brincidofovir, an antiviral that could potentially treat mpox. Tonix Pharmaceuticals (TNXP) is working on TNX-801, a live-virus vaccine candidate.

And let's not forget the diagnostic giants like Thermo Fisher Scientific (TMO) and Abbott Laboratories (ABT). After all, in the world of infectious diseases, being able to spot the bad guy quickly is half the battle.

Even the big guns of the COVID-19 vaccine world, Moderna (MRNA) and Pfizer (PFE), might decide to flex their mRNA muscles in the mpox arena. And with their track record, who's going to bet against them?

But here's the million-dollar question: Is this a golden opportunity for investors, or a potential minefield? The answer, as always in the stock market, is "it depends."

On one hand, companies directly involved in mpox vaccines, treatments, and diagnostics could see their stocks soar if the outbreak worsens.

On the other hand, the biotech sector is about as stable as a jenga tower in an earthquake. Today's miracle drug could be tomorrow's cautionary tale.

The smart money isn't putting all its eggs in the mpox basket. Diversification is still the name of the game. Remember, this outbreak could fizzle out as quickly as it started, leaving one-trick ponies high and dry.

Plus, let's always keep in mind the wild card in all this: government contracts.

In the world of infectious diseases, Uncle Sam often holds the purse strings. Keep your ear to the ground for any whispers of government funding or contracts. That kind of news can send stocks into the stratosphere faster than you can say "public health emergency."

So, what's the bottom line? The mpox outbreak is creating some intriguing opportunities in the biotech sector. But as with any investment, don't let the fear of missing out cloud your judgment.

And remember, in the stock market, as in epidemiology, it's all about managing risk.

In the meantime, maybe skip that bushmeat sandwich on your next African safari. Just a thought.