Biotech Letter Archives

Hitting Ctrl+Alt+Delete On Drug R&D

Forget your classic biotech launch story. One of 2024's most lavishly funded biotech upstarts is taking a massively ambitious swing at reinventing the entire drug development process.

I'm talking AI, venture billions, and some serious star power all rolled into one wild capital extravaganza.

The company behind this cash-flushed disruption bid is Xaira Therapeutics. And they've snagged a bona fide heavy hitter as CEO — Marc Tessier-Lavigne, the ex-president of Stanford and former chief science officer at Genentech (DNA).

His mandate is simple: turn Xaira's billion-dollar AI vision into cold, hard, realized potential.

Tessier-Lavigne is a true believer when it comes to AI's potential for transforming every clunky, painfully inefficient step of conventional drug R&D. We're not just talking incremental improvements here.

The man thinks smart deployment of generative AI could legitimately deliver "two- or three-fold" increases in both speed AND success rates across the entire confounding slog of getting new medicines approved.

That's one heckuva rallying cry.

But Tessier-Lavigne has legitimate grievances with the antiquated status quo. We all know the drug development game is brutal.

By most credible estimates, only about 1 in 10 drug candidates that make it to human trials ever get approved for use. Attrition rates are staggering, even before reaching those do-or-die clinical trials – that's money, research hours, and hope down the drain.

Xaira plans to flip that script. Their pitch: AI is their ace in the hole.

We're talking about designing entirely new drugs from scratch, pinpointing disease targets faster than ever, and finally cutting those mammoth clinical trials down to size. Think of it as the entire process of getting a machine learning upgrade.

And they're not starting from zero. Xaira tapped into the brains behind groundbreaking protein science: biochemist and computational biologist David Baker's team at the University of Washington. These are the geniuses who revolutionized protein structure prediction, and several of their top scientists are now on Xaira's payroll.

For the key task of AI-driven lead design, Xaira is leaning heavily on the advanced protein modeling systems developed in David Baker's acclaimed lab at the University of Washington.

To actually design the new candidate drug molecules, Xaira is deploying advanced AI systems developed in Baker's lab. We're talking cutting-edge tech like RFdiffusion and RFantibody.

These use similar "diffusion" AI architectures that power viral image generators like DALL-E, except instead of churning out weird digital art, they generate brand-new protein structures from scratch.

On the biology side, Xaira has assembled specialist teams from genomics titan Illumina (ILMN) and proteomics upstart Interline Therapeutics. The goal is to use AI to decipher complex disease mechanisms on a molecular level at an unprecedented scale and quality.

As for the money side, Xaira's co-founders are a duo of biopharma's biggest VC shot-callers: Bob Nelsen from ARCH Venture Partners and Vik Bajaj, who leads the investment crew over at Foresite Capital's in-house incubator.

The rest of Xaira's bulging investor list reads like a who's who of the VC world's heaviest hitters from coast to coast.

But let's get one thing straight: deploying AI for drug discovery itself isn't new. Investors have poured hundreds of millions into previous AI-oriented biotech upstarts with remarkably little tangible progress to show for it so far.

That’s why plenty of scientists remain deeply skeptical about the real-world viability of using in silico methods to design brand-new proteins capable of becoming actual medicines.

But Xaira's leaders are taking an unmistakably bullish stance. As Tessier-Lavigne brazenly stated, "We believe the technology is ready for making therapeutics today. And it's only going to get better and better going forward." Shots fired.

And this startup isn't just flexing impressive scientific ambition and bravado, either.

Xaira's boardroom and executive lineup is stacked with certified rockstars spanning the lofty peaks of biopharma's regulatory, academic, and corporate pillars.

The company's board alone includes former FDA head Scott Gottlieb, Stanford chemist Carolyn Bertozzi (you know, the Nobel laureate), and even ex-Johnson & Johnson (JNJ) CEO Alex Gorsky.

Clearly, this isn't some penny-ante upstart's advisory council.

Speaking of going big, let's talk about Xaira's huge VC funding for a minute. Their over $1 billion haul puts them in a seriously elite company among the top five largest VC-backed biopharma raises of all time.

We're talking the same rarified air as anti-aging disruption play Altos Labs (ALTO) and Roivant Sciences' (ROIV) $1.1 billion mega round from 2017.

That's an outrageously rich launch valuation for an upstart AI biotech without a single disclosed pipeline product. But it reflects the blazing hot enthusiasm and optimism around applying machine learning to overcoming drug development's biggest bottlenecks and inefficiencies.

In that vein, Xaira's most direct competition comes from other prominent AI drug trailblazers like Alphabet's (GOOGL) Isomorphic Labs and Flagship Pioneering's Generate Biomedicines.

All three of these hyper-funded disruptors are in a race to develop superior AI systems for accurately modeling protein structures or generating wholly new proteins from digital representations.

Of course, Xaira's monster ambitions will ultimately live or die based on tangible results and clinical execution over the long haul.

Love it or hate it, though, the great AI-powered biopharma upheaval is officially underway thanks to Xaira's monster VC haul. Whether the company can truly live up to its gargantuan hype and disruption premise, well, that multi-billion dollar enigma should start getting some added clarity in the not-too-distant future.

Let's see if these self-professed drug R&D revolutionaries have the disruptive chops to put their lofty money where their mouths are.

April 25, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 25, 2024
Fiat Lux

Featured Trade:

(RACING TO SWAP A GOLDEN GOOSE FOR A NEW FLOCK)

(MRK), (NVO), (LLY), (JNJ), (ABBV), (PFE)

Racing To Swap A Golden Goose For A New Flock

Biotech Letter

Big pharma usually makes investors smile - fat profits, juicy dividends, and stocks that crush the market.

Lately, though, some of these giants are looking more like grumpy old men. Sure, there are exceptions like Novo Nordisk (NVO) and Eli Lilly (LLY) printing money with their obesity blockbusters.

But what about the rest? Even with Washington breathing down their necks, patent cliffs, and a shaky economy, you'd think these drug titans wouldn't be lagging the market, right? Wrong.

Check out the "Big Eight" top dogs - Johnson & Johnson (JNJ), Merck (MRK), AbbVie (ABBV), Pfizer (PFE), and the rest. Only a few have really delivered the goods in the past five years. AbbVie and Merck have been alright, but the others? They make me want to take a nap.

Now, I'm not saying give up on pharma entirely - there's still money to be made. But you've got to do your homework. Today, let's take a look at Merck.

They raked in $60.1 billion in 2023, making them a heavy hitter. But without their COVID cash machine Lagevrio, growth is...less impressive. Still up, but not setting the world on fire.

The real story is spending - Merck went on a spree, burning through cash on R&D. Why? Their golden goose Keytruda, that $25 billion cancer blockbuster, is facing generic competition soon.

Merck isn't just sitting around waiting for the Keytruda patent cliff either. They're furiously throwing money at new drugs, acquisitions, cancer, heart disease, immune disorders - hoping to find the next Keytruda before the current one fades away. It's like an aging rockstar desperately trying to write another big hit.

But let's be real, finding billion-dollar breakthroughs is a gamble, even for giants like Merck. They've got potential in the pipeline for sure, but it's a long road from the lab to pharmacy shelves. Plenty of drugs flame out along the way.

Looking back, 2023 wasn't a victory parade for Merck. It was more like a mad dash to spend their way out of the looming Keytruda patent cliff. But hey, sometimes you've gotta break a few eggs to make an omelet, right?

Speaking of potential winners, let's talk about those newly approved lung drugs – sotatercept could be a major player.

Merck's vaccine department is looking strong too, with potential blockbusters targeting lung infections and RSV in the pipeline.

Of course, it hasn't all been smooth sailing. That new cough drug, gefapixant, getting rejected by the FDA again? Merck took a hit on that. Still, this biotech’s not giving up. This is a company buying time to build up a whole new arsenal, and the Keytruda cliff might hurt, but they'll come out swinging.

So, let’s forget about that 2023 earnings dip. Merck's forecasting a serious jump in 2024 profits as they dial back the crazy spending. Yes, their balance sheet took a hit, but look at what they're building. They're hunting big deals to bolster that pipeline, and that's a good thing in my book.

Speaking of big moves, Merck's been on a shopping spree. Wall Street might get nervous if they drop another bombshell, but I trust their judgment. These aren't just random buys; this is how they protect their future cash flows. Besides, any short-term drama from a big deal could be a sweet buying opportunity.

And while Merck’s still figuring out which one could be the next big thing, the true star of the show, until that patent cliff arrives, is still Keytruda.

That beast is still growing and could keep going strong for years, especially in early-stage treatments. Plus, that new subcutaneous version of this blockbuster treatment? Talk about extending the gravy train well past the generic competition.

Let's also check out the other horses in this race: sotatercept's early sales numbers, a potential FDA approval for that HER2 drug, the saga of gefapixant's third shot (or not), and the cash potential of V116 and Welireg. Not to mention, juicy updates on that Moderna (MRNA) partnership…Merck’s next months could be packed with surprises.

As for this company’s dividend? Decent track record, but don't expect fireworks after the recent hike. As for buybacks, Merck seems to have...other priorities right now. Those profits are pouring straight into the growth pipeline.

The bottom line: While some of Big Pharma looks pale lately, Merck is still bringing it, share price gains and all. Sure, that gefapixant rejection stings. But Keytruda keeps roaring, and Merck's pipeline is buzzing with potential. I'm not sweating earnings.

Merck's got contingencies lined up for the Keytruda patent apocalypse - new drugs, deals, maybe even extending Keytruda itself. They're playing for the long game here. I suggest you buy the dip.

April 23, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 23, 2024
Fiat Lux

Featured Trade:

(A DRUG KINGPIN HIDING IN PLAIN SIGHT)

(ABBV)

A Drug Kingpin Hiding In Plain Sight

Biotech Letter

Have you ever thought about big pharma stocks as potential goldmines? I mean, we usually don’t gossip about the likes of AbbVie (ABBV) over lunch, but maybe we should.

After all, those unassuming pharma giants could be hiding some serious potential for your portfolio. Let's dive into whether investing in AbbVie might just be your ticket to millionaire status.

Admittedly, AbbVie isn’t your typical headline grabber unless it’s about their next big thing in medicine. They’ve got a real knack for plucking the right strings in R&D, which not only keeps them competitive but also paves the way for massive returns.

Case in point: Humira. This blockbuster drug treats everything from arthritis to psoriasis and even though it’s facing generic competition left and right, it still bagged $14.4 billion in sales in 2023. That's no small potatoes, considering it’s a chunk of AbbVie's hefty $54.3 billion revenue.

So how does AbbVie keep the Humira money train rolling? They play smart with pricing and patents, and they've got a backup band ready with new drugs like Skyrizi and Rinvoq. These two are set to take over the stage with projected sales hitting a sweet tune of $27 billion by 2027.

And let me tell you, the transition from Humira to these newcomers is like swapping an old favorite band’s vinyl for their latest digital remix — just as good, if not better.

But here’s the deal. AbbVie isn’t just remixing their old hits. They’re producing whole new albums. With every new drug approval, they’re not simply aiming to keep up — they’re looking to lead the charts. And with their pipeline promising a few more blockbusters, it looks like AbbVie could keep the record-topping releases coming.

Take their recent shopping spree for example: snapping up Cerevel for a cool $8.7 billion. This isn’t some random acquisition. It’s a strategic move that bolsters AbbVie's impressive neurology treatment portfolio.

Cerevel is close to getting approval for a new schizophrenia drug, a game-changer that could redefine how we treat this debilitating disorder. Traditional medications often have harsh side effects, but Cerevel's new class of drugs shows promise in minimizing those risks. Think of it as a gentler approach that still packs a punch.

And there's serious money in this space. The neurological market is huge – around $3.82 billion – and growing fast.

Once Cerevel gets its FDA nod, I'm projecting revenues of around $200 million by 2025, and that's just scratching the surface. They could grab a hefty 2% market share by 2028.

But their ambition doesn't stop there. AbbVie wasn't content with just rocking the neurology charts. They also went and snagged ImmunoGen earlier this year for a whopping $10.1 billion, marking their entry into the lucrative battle against solid tumors.

ImmunoGen has this cutting-edge technology called antibody-drug conjugates (ADCs) – it's like guided missiles that pinpoint cancer cells while leaving healthy ones unharmed.

Their drug, Elahere, already got the green light last year for ovarian cancer and raked in a cool $246 million in just nine months. And that's just the start.

The ovarian cancer market is a beast, valued at $4.35 billion and growing rapidly. I predict Elahere's sales could skyrocket to $1.6 billion by 2028.

Now, let’s talk dividends because who doesn’t like a good payout?

AbbVie’s rocking a forward-dividend yield of 3.4%, and they've been increasing their dividends for decades. It’s like getting a steady rhythm of cash that just keeps getting louder.

And don’t forget about the share buybacks. AbbVie bought back nearly $2 billion of its own stock in 2023. That’s a lot of faith in their future hits and a sign that they’re betting big on their own success.

So, sure, AbbVie isn’t going to make you a millionaire overnight — it’s not a lottery ticket. But if you’re in the game for the long haul, this stock could be a key player in your wealth-building lineup.

With a solid track record, a pipeline full of potential, and a strategy that’s clearly focused on growth, AbbVie is looking like a pretty smart pick. I suggest you buy the dip.

April 18, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 18, 2024
Fiat Lux

Featured Trade:

(A RARE OPPORTUNITY OR A PROBLEMATIC DEBT-ACLE?)

(AMGN), (LLY), (NVO)

A Rare Opportunity Or A Problematic Debt-Acle?

Biotech Letter

Remember Gordon Binder and his "Science Lessons?" Well, Amgen (AMGN) seems to be re-reading a few chapters from the book by its legendary former CEO.

Their nearly $28 billion buyout of Horizon Therapeutics (HZNP) screams blockbuster ambition, but it also means they loaded up on debt like it's going out of style. This HAD better work.

Why the gamble? Horizon brings heavyweight rare disease drugs like Tepezza to the table. Sales have been flatlining near $2 billion, but Amgen smells potential. With the indication just expanded and a measly few percent of patients treated, there's room to run...if they can find those patients. That's the tricky part with rare diseases.

Other gems like Uplizna round out the deal. Now, it's all about whether Amgen can make this expensive new portfolio pay.

Let’s take a look at Amgen’s 2024 pipeline. The biotech’s goals this year center on a few key drugs – some acquired, some homegrown.

Tepezza and Uplizna are all about finding those elusive rare disease patients and expanding market access. We're not just talking sales growth here... it's about proving their ability to dominate this niche.

In their "General Medicine" department, there's Olpasiran in Phase 3. A stellar Phase 2 could mean over a BILLION in sales if it gets the green light. But Phase 3, as we know, is where the tough questions get asked.

Over in Oncology, I’m keeping an eye on Tarlatamab, Lumakras, Blincyto, and Nplate. They're the revenue drivers of the future, with Tarlatamab aiming for billions by the 2030s.

Lumakras was supposed to be a star, but it's a bit slow out of the gate. Then there's Blincyto – already raking in the big bucks with nearly 50% year-on-year growth. This one's HOT.

Nplate's a blockbuster with almost $2 billion in sales, but US government orders make it a tad volatile. Tezspire is another potential star, flirting with the billion-dollar mark.

Bottom line? Amgen is hustling to build a diverse portfolio for the long haul.

Crunching the numbers, Amgen's 2024 guidance looks strong, boosted by that Horizon acquisition.

They're projecting about $33 billion in revenue and decent EPS. Tax breaks and low capital expenditures are sweet bonuses.

But...remember that debt. It's over $60 billion on the long-term books. Luckily, Amgen locked in good rates on those bonds, but that interest bill? It's a beast they'll have to tame eventually.

Amgen’s shareholder returns are mostly a chunky 3%+ dividend, not much to write home about. The real magic depends on those high-powered sales teams turning the rare disease business into a cash machine and seeing those other drugs deliver. If it happens, cash flow will surge, and everyone will get fatter payouts.

As for the biggest threat to Amgen’s future? The ever-changing, cash-hungry beast that is the biotech industry.

Amgen's constantly fighting patent expirations, forcing them to pump cash into R&D just to stay ahead. You hit some home runs, like the crazy new weight loss drugs driving skyrocketing revenues as seen in the success of Eli Lilly (LLY) and Novo Nordisk (NVO), but more often, you strike out. This is why long-term investors in Amgen should strap in for a bumpy ride.

Overall, Amgen's got a unique mix of assets. And that Horizon Therapeutics move? Bold but calculated. It gives them a boatload of rare-disease drugs and pairs them with top-notch sales teams.

Plus, there's a bunch of promising candidates in their pipeline. The biotech world is an industry where success is never guaranteed, BUT Amgen's got the potential to keep knocking it out of the park. If they do, those shareholder returns should get a whole lot sweeter. I suggest you buy the dip.

April 16, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 16, 2024
Fiat Lux

Featured Trade:

(IS THIS BIOTECH BULL RUN OUT OF STEAM?)

(VRTX), (CRSP)

Is This Biotech Bull Run Out Of Steam?

Biotech Letter

Vertex Pharmaceuticals (VRTX) has been crushing it. They're a powerhouse in the healthcare game, no doubt.

But with that stock price shooting for the moon and a $100 billion valuation, it's got me asking: Is this ride getting a little too rich for our blood? Is it time to cash out and look for greener pastures, or is there still some juice left in Vertex's tank?

Let's take a look at why the Vertex bulls are so pumped.

The company's a giant in cystic fibrosis – no argument there. Their drug Trikafta/Kaftrio is practically printing money, raking in a whopping $8.9 billion last year. Sure, things slowed a bit in 2023, but hey, that's still serious cash.

But here's the thing: If Vertex was just about cystic fibrosis, the price tag could make a careful investor go "Whoa, Nelly!" Growth investors, though, see a bigger picture, a company ready to branch out and rake in even more dough.

Take the recent FDA approval for Casgevy, the gene therapy treatment Vertex developed with CRISPR Therapeutics (CRSP). This thing could be HUGE for treating blood disorders like sickle cell disease. In fact, its potential peak sales are projected at $3.9 billion — and even with Vertex splitting the profits, that's a juicy opportunity.

Another potential blockbuster is Vertex's non-opioid painkiller, VX-548. The results so far are looking good, and it’s pegged to become a $5 billion moneymaker. Think about the opioid mess we're in – a safe, effective alternative could be massive.

We need to be patient with VX-548 though. It's not approved yet, but it's definitely one to watch. Vertex is aiming to file for approval around the middle of this year, specifically for treating those nasty post-surgery pains.

Aside from these, Vertex is setting its sights on other serious unmet needs. Take APOL1-mediated kidney disease. This nasty condition lurks in the shadows until BAM, your kidneys are about to bail on you. Signs like protein in your urine and swelling mean it might be too late.

But, Vertex has a potential solution up its sleeve: inaxaplin. Early trials look promising, with patients seeing major improvement. The results were so good that they're even going to start testing it in younger patients.

Could inaxaplin be another game-changer? Well, Vertex thinks it could help at least 100,000 patients in the US and Europe – that's even more than the number of people with CF they already serve.

And, get this: There's NO approved treatment for the root cause of this kidney disease. If Vertex wins this race, it could turn into a blockbuster franchise to rival its lucrative CF success.

On top of these candidates, Vertex recently scooped up Alpine Immune Sciences (ALPN), and that move shows just how serious they are at adding more firepower to their pipeline. And, if Alpine's drug makes it through those big Phase 3 trials – the ones set to start soon – Vertex could end up being worth a LOT more than the $4.9 billion they shelled out.

For context, let's break down what Alpine does. They're all about those fancy protein-based immunotherapies, fancy words for treatments that target the immune system for autoimmune and inflammatory diseases. While their drugs are still in the testing phase, one called povetacicept looks especially promising for autoimmune kidney diseases like IgA nephropathy.

Translation: Alpine's got some traction towards treating these nasty kidney diseases. They've finished Phase 2 trials and are gearing up for the big leagues: Phase 3. That's where they test the drug on a whole bunch of patients, comparing it to a placebo, to get the data that could make regulators give the thumbs up for market launch.

With all these in mind, let’s talk about the elephant in the room: Is Vertex overpriced?

The stock's been on a tear, rocketing up 90% in just three years. And at those hefty multiples – 29 times earnings, 11 times revenue – it sure doesn't look cheap.

But, if you believe in the promise of Vertex's future, things look a little different. Check out that PEG ratio – a measly 0.5. That's a bargain hunter's dream, especially for a stock with so much growth potential.

So, what should you do: buy, sell, or hold Vertex? Well, this stock's got growth potential and it's not so insanely expensive that you gotta dump it today. If you already own it, hang tight – it doesn't look like disaster's lurking around the corner.

The bigger question is for those of you who missed the boat. Is it worth jumping on now?

As long as you're in it for the long haul, Vertex could still make you a nice pile of cash. Keep an eye on those VX-548 regulatory filings – if Vertex is moving ahead, they're probably feeling good about the drug's chances. And with Casgevy getting the green light for multiple uses, Vertex already has a shiny new revenue stream alongside its cystic fibrosis powerhouse.

So while the stock price might make you wince, don't discount the long-term potential. This biotech bull might take a breather every now and then, but the race has just begun. I suggest you buy the dip.

April 11, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 11, 2024
Fiat Lux

Featured Trade:

(BELLY BUSTERS)

(NVO), (LLY), (JNJ), (AMGN), (RHHBY), (GSK), (VKTX)