Biotech Letter - John Thomas - Mad Hedge Fund Trader

Setting The Table For Steady Gains

Here's a nugget of wisdom from someone who's sailed the investment waters more times than I've had hot dinners: diversification is your best friend. Think of it as the Swiss Army knife in your investment toolkit.

Now, if there's one treasure you'd want aboard your investment ship, it's a dividend stock. Not just any old stock, though. I'm talking about AbbVie (ABBV).

Since it waved goodbye to its parent company, Abbott Laboratories (ABT), in 2013, it has boosted its dividend payouts by an eye-popping 290%. With a yield hanging around 4% and delivering a 130% total return over the past 5 years, long-term investors undoubtedly struck gold.

Unfortunately, 2023 has turned into the kind of year we'd rather forget. The end of Humira's patent was looming like a dark cloud, threatening to rain on AbbVie's parade by letting generics flood the market. The horror, right?

But, plot twist: the anticipated disaster was more of a light drizzle. Despite the competition, Humira still brought in a cool $11.1 billion. Sure, it's a dip, but not the plunge we feared.

Meanwhile, AbbVie's been on a shopping spree, snapping up Immunogen and Cerevel for a combined total that's a smidgen under $19 billion. It's like they're collecting Infinity Stones, diversifying beyond Humira into areas ripe with potential.

And let's not forget their foray into the realm of Antibody Drug Conjugates (ADCs) — the hot ticket in oncology.

While AbbVie’s not throwing around cash like confetti, like some of their peers including Pfizer (PFE), Gilead Sciences (GILD), Genentech (DNA), they're making notable moves. It's a bit like betting on the dark horse; if their ADCs and CNS ventures hit their stride, we're all in for a treat.

Amidst all this innovation and expansion, AbbVie hasn't lost sight of what gets investors' hearts racing — a solid dividend. It's the kind of steady reliability that's as comforting as your favorite cozy blanket.

As if those aren’t enough, the company just threw us a curveball that's got Wall Street buzzing more than my neighbor's annoying leaf blower on a peaceful Sunday morning.

In its recent earnings report, AbbVie not only beat the revenue expectations for its fiscal fourth quarter but decided to sweeten the deal by raising its long-term sales outlook.

Despite the concerns about Humira, AbbVie still posted fourth-quarter earnings that had their investors nodding in approval, even if they were a tad lower than previous years’ glory days. With revenue hitting $14.3 billion, surpassing the street's guess of $14 billion, it's clear the company isn't just hanging in there; it's throwing punches back.

The immunology portfolio, while taking a 12% hit, isn't down for the count, thanks to Skyrizi and Rinvoq. These two rising stars, which are quickly becoming the Batman and Robin of the biopharmaceutical world, are not just filling Humira's big shoes; they're sprinting.

With the duo’s sales surging by 52% and 63%, respectively, it's no wonder AbbVie is adjusting its binoculars and raising its long-term guidance for these drugs to a whopping more than $27 billion by 2027.

That's a $6 billion jump from their previous forecast. If that doesn't scream confidence, I don't know what does.

And just for a bit of perspective, while AbbVie was basking in the glow of success, its peers had a mixed day at the market. Pfizer took a slight tumble, Moderna (MRNA) and Amgen (AMGN) dipped their toes into the red, while Eli Lilly (LLY) floated up, riding a wave of optimism.

So, as we move forward this 2024, you might be wondering, "What's next for AbbVie?"

Well, if I were a betting man (and let's be honest, investing is betting with extra steps), I'd say we're not likely to see AbbVie pulling a rabbit out of a hat.

But, and it's a big but, we're talking about a company that's as expertly managed as a Michelin-starred kitchen. They've got a knack for serving up share price growth and dividends that leave investors coming back for seconds.

So while AbbVie might not be dangling the next blockbuster breakthrough in front of us, their steady march forward is as promising as finding a shortcut on your morning commute. We might not see the stock skyrocket overnight, but a climb to around $180 per share? That's not just possible; it's on the menu. And right now, with its recent earnings report, it's as good a time as any to pull up a chair to the AbbVie table. Bon appétit.

February 1, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 1, 2024
Fiat Lux

Featured Trade:

(STEADY AS SHE GOES)

(JNJ), (WBA), (KVUE)

Steady As She Goes

Biotech Letter

Today, let’s talk about something that might make dividend enthusiasts a tad uncomfortable — when beloved companies take an axe to dividends. Yeah, it’s a bummer.

Imagine you’re on a steady course, relying on those dividends to keep flowing in, and suddenly, a storm hits. That's what happened when Walgreens Boots Alliance (WBA) rocked the boat by slashing its dividend by a whopping 48%. Ouch, right?

But, let's not dwell on the past. Instead, how about we scout for a stock that’s less likely to leave us in such a pickle?

Spoiler alert: no stock comes with a no-risk guarantee, but sticking with big names sporting robust businesses and hefty moats might just do the trick. And where better to look than the evergreen healthcare sector?

That’s where Johnson & Johnson (JNJ) comes in.

This old-timer isn’t just another name in the pharma game; it’s practically royalty, with a lineage stretching back nearly 140 years.

The year 2023 was a period of change for JNJ, as it waved goodbye to slow movers like Band-Aid and Tylenol by spinning off its consumer health division into Kenvue, netting a cool $13 billion from Kenvue’s (KVUE) market debut.

And yes, JNJ still keeps a watchful eye on Kenvue with a 9.5% stake.

Digging into the numbers, JNJ boasted a hefty $21 billion in sales in the third quarter of 2023 alone, marking a 7% jump from the previous year, with profits tallying up to a cool $4.3 billion.

The pharmaceutical division, with stars like Darzalex and Stelara, brought home the bacon, contributing $14 billion to the total revenue.

Not to be outdone, the medical device division strutted its stuff with a 10% sales hike, raking in $7.5 billion.

Here’s the deal with JNJ: it’s like that reliable old friend you can count on for the long haul. It’s not just resting on its laurels, though.

JNJ has been on the prowl, having acquired Abiomed, known for the world's smallest heart pump, and eyeing Ambrx Biopharma (AMAM) for future innovations.

Plus, with a 60-year streak of not just paying but boosting its dividend, JNJ is like that steady drummer in a rock band, keeping the beat alive and kicking, having increased its dividend by 80% over the last decade.

Still, nothing is perfect. So, let’s not sugarcoat it — JNJ has its share of headaches. The Inflation Reduction Act is looking to play hardball on drug prices, which could mean thinner pie slices for JNJ’s top sellers.

And then there’s the talc saga, a storm JNJ is still navigating with a $700 million settlement not putting a full stop to the legal drama, considering there are still thousands of personal injury lawsuits pending.

Yet, for all the turbulence, JNJ’s resilience is nothing short of legendary. With an AAA credit rating, it stands more solid than many sovereign states. It’s the kind of ship that keeps its course steady, no matter the weather.

So, what’s the takeaway for those hunting for dividends in the healthcare seas?

With its solid track record, including a Dividend King crown for 61 years of dividend increases, JNJ is a ship built for long voyages.

Founded in 1886, it has shown a remarkable ability to adapt and grow, charting a course for future success. It’s not promising a gold rush overnight, but as a steadfast companion on your investment journey, JNJ is as good as it comes.

Investing in JNJ is like joining a voyage with a seasoned captain at the helm. Sure, there might be choppy waters ahead, but with a history of navigating through just about any storm, JNJ is a ship you’d be wise to board.

And who knows? With its commitment to growth and a knack for bouncing back, JNJ could well be the treasure chest you’ve been searching for in the vast investment seas.

January 30, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
January 30, 2024
Fiat Lux

Featured Trade:

(BRAIN GAINS)

(BIIB), (ESALY) (LLY), (REGN), (ALNY), (MRK), (AMGN), (PFE), (BMY)

Brain Gains

Biotech Letter

Let's talk about a golden opportunity knocking at our doors – the booming market of Alzheimer's disease treatments in biopharma. We're not just talking about a small uptick here. With a slew of new meds on the horizon, this market is gearing up for some serious growth, and you might want to grab a piece of this pie.

The dominant name on our radar is Biogen (BIIB), ticking at $260 per share with a market cap that's flirting with $39 billion.

Now, with a solid $10 billion in sales and trading at a nifty 16 times its 2024 estimated earnings, Biogen's got some serious mojo. I've been eyeing it since last year, but boy, have things changed since then.

A critical game-changer was Chris Viehbacher, the new CEO since November 2022. He's already played a couple of aces – slicing $800 million in costs (which, by the way, could pump up earnings by $5 a share by 2025) and wrapping up the acquisition of Reata Pharmaceuticals in September 2023.

This new addition to Biogen’s portfolio has a hot ticket item, Skyclarys, for treating Friedreich’s ataxia. It's a rare find, but it could add a cool $5 per share in earnings in a few years.

But the most exciting name in Biogen’s arsenal is Leqembi, the company’s Alzheimer’s treatment. They're splitting the pot with Eisai (ESALY), and this drug is a little like turning back the clock on cognitive decline – think a two-year rewind button.

The big bucks talk here: we're eyeballing $2 billion in revenue by 2028 and maybe a whopping $4 billion by 2033. And hey, there might even be more where that came from.

Let's chew on a few things here. Biogen has the potential to snag a 60% market share against Eli Lilly’s (LLY) donanemab – the only worthy opponent in the market so far. And given Leqembi's safety creds, this might be playing it safe.

Aside from Eli Lilly, there’s Roche (RHHBY), with candidates in Phase 2 and Phase 1 trials, but they're not quite hitting the jackpot yet. As for other competitors in the space like Regeneron (REGN) and Alnylam (ALNY)? Well, they're cooking up something different in Phase 1, but it's a bit early to call.

Meanwhile, Biogen's got another trick – a home-use version of Leqembi coming this fall. And get this: doctors are buzzing about nipping Alzheimer’s in the bud, way before it crashes the party. Imagine getting a jab of Leqembi as part of your routine check-up when you're only 50. If this works, then we could be kissing Alzheimer’s goodbye by 2040.

For the longest time, Biogen was like that one-hit wonder with its multiple sclerosis treatments. But now, they're swinging for the fences with the largest unmet health need out there. If Leqembi hits it big, and I mean really big, we could be talking about sales far beyond that $4 billion mark by 2033.

But let's not get ahead of ourselves. The big pharma world is about to hit a few speed bumps with a wave of patent cliffs from 2025 to 2029. That’s a headache for the likes of Merck (MRK), Amgen (AMGN), Pfizer (PFE), and Bristol Myers Squibb (BMY).

Biogen, though, is sitting pretty with two growth products and a pipeline that’s got pizzazz. Plus, they're a hot catch for any big pharma looking for a dance partner without stepping on regulatory toes.

As we roll into the next decade, keep your eyes peeled for investment opportunities popping up like daisies. And don't feel like you've got to jump on the first bandwagon that rolls by. This market's just stretching its legs, and today's champs might just be tomorrow's old news.

So, what's the smart play here? Spread your bets across a few horses in the Alzheimer's race, and make sure they're not one-trick ponies.

Eli Lilly, for instance, is more than just an Alzheimer's bet – they're making waves in diabetes and soon, obesity treatments. Biogen, despite its Alzheimer's experience, is a bit of a gamble, especially after its first drug's rocky start.

Remember, investing in Alzheimer's treatments now is like catching the early wave – it's riskier, sure, but the potential for a big payoff is there. This is an emerging market, and it's revving up for an exciting ride. I suggest you add these names to your watchlist.

January 25, 2024

Biotech Letter

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

Featured Trade:

(FROM BIG TO BIGGER)

(UNH), (CI), (ELV), (CVS)

From Big To Bigger

Biotech Letter

Today, let's talk about where the smart money's at in our whirlwind economy – healthcare and insurance.

And who's the king of the hill in this game? None other than UnitedHealth Group (UNH).

It's not just any old company; it's a health insurance juggernaut that's been on a growth tear, doubling its value in just five years. That's definitely something to write home about.

With a market cap closing in at $500 billion and revenues of $372 billion in 2023, it's a force to be reckoned with. If it doubles again, we're looking at a $1 trillion giant. That's uncharted territory for healthcare stocks.

Before anything else, let's hop in our time machine for a sec.

Around 10 years back, UnitedHealth was a mere $75 billion baby. Fast forward to today, and it's ballooned to around half a trillion. We're talking about top-dog status in the healthcare world.

Now, let's get down to brass tacks. UnitedHealth's bottom line might not be the stuff of legends – a 6% profit margin over the past year.

But hold your horses – with over $300 billion in annual revenue, that 6% turns into a cool $18 billion-plus in profit.

And guess what? They've been raking in even more lately – $21.7 billion over four quarters.

"But will it double in value in a year or two?" you ask. Maybe not that fast, but hey, it's done it in five years before.

So, could UnitedHealth hit that mind-boggling $1 trillion mark by 2030? I wouldn't bet against it.

After all, UnitedHealth isn't just playing in the health insurance sandbox. It's the biggest kid in the playground – the largest health insurer in the United States and the biggest healthcare company globally.

For context, its closest peers are Cigna (CI) with $90.44 billion in market cap, Elevance (ELV) with $111.87 billion, and CVS (CVS) with $95.08 billion. You get the picture.

But here's the juicy part – UnitedHealth loves to shop. It's like the Pac-Man of healthcare, gobbling up companies left and right.

Just last year, it bagged Amedisys for a cool $3.3 billion, hot on the heels of its $5.4 billion acquisition of LHC Group. Talk about making moves.

Now, for my fellow investors, here's the sweetener: UnitedHealth also pays dividends, with a 1.4% yield. It might not sound like much, but this company's got a knack for growing dividends. It's like owning a golden goose that keeps laying more golden eggs.

So, what's the secret sauce for UnitedHealth potentially hitting that $1 trillion valuation? Simple – growth, growth, and more growth. It's not just selling insurance; it's into analytics and isn't shy about snapping up companies to beef up its portfolio.

Let's talk numbers. Management is eyeing an annual earnings growth somewhere between 13% and 16%. If UnitedHealth keeps hitting these home runs, its stock value climbing higher isn't just a possibility – it's a likelihood.

"But is it a good buy?" I hear you ask. Well, trading at around 23 times its earnings, it's a bargain compared to the average healthcare stock at 28 times earnings.

Simply put, this baby's got room to grow, and investors might just be willing to pay a premium for this gem.

So, when will it hit $1 trillion? If UnitedHealth sticks to the S&P 500 index's average 10% annual growth, we're looking at 2030 for that milestone.

But knowing UnitedHealth, which often outperforms the market, it could be sooner if it keeps up its projected annual growth rate.

In a nutshell, UnitedHealth Group isn't just a safe bet – it's a potential goldmine. With its continued growth, strategic acquisitions, and reasonable price tag, it's a shining star in any investment portfolio.

Mark my words – this is one stock that could make its investors very, very happy by 2030.

January 23, 2024

Biotech Letter

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

Featured Trade:

(PHARMA'S AI PLAY: A MASTERSTROKE OR MISFIRE?)

(AZN), (ILMN), (NVDA), (SDGR), (EXAI), (SNY), (BAIVF), (SNY), (GOOGL), (PFE), (IBM), (NVS), (BAYR), (RHHBY), (VRTX), (JNJ)

Pharma's AI Play: A Masterstroke or Misfire?

Biotech Letter

Faced with an aging blockbuster pipeline and a competitive landscape where some of its rivals are sprinting ahead, AstraZeneca (AZN) is making a bold move - doubling down on Artificial Intelligence (AI).

This isn't just about keeping up with the Joneses (or in this case, their industry rivals); it's a calculated gamble with the potential to redefine drug discovery. The million-dollar question is: will this tech-savvy move send its shares soaring or just keep it in the running?

Let's address the elephants in the room of drug development. It's a long and winding road, with more dead ends than a maze in a horror movie. The usual grind? Spend ages finding a glimmer of hope in therapy targets and molecules, only for a paltry 21% to get the regulatory thumbs up after clinical trials.

So, you can bet your bottom dollar that if there’s a technology promising to up those odds and speed things up, companies will be jumping on the bandwagon faster than you can say "biotech boom."

And AstraZeneca? They are fully committing to AI, making significant waves in the field.

Case in point: their recent team-up with Absci, an AI drug discovery outfit. They're talking about developing a cancer-fighting antibody, with a potential payout of up to $247 million in milestone payments. If this pans out, it could be the first of many high-fives between the two.

But AstraZeneca's history with AI extends beyond this collaboration. Last September, they put up to $840 million on the line with Verge Genomics, aiming to tackle neurodegenerative diseases.

Add to that their work with Illumina (ILMN) and Nvidia (NVDA) in 2021 for some supercomputing firepower, and you've got a company that's serious about its AI game. They’ve even got a couple of AI-bred candidates in their pipeline, though it’s hush-hush on how those are faring.

And before you think it’s all about the new kids on the block, AstraZeneca has been rubbing elbows with Schrodinger (SDGR) since before 2020, working on making their biological medicine modeling sharper than a tack.

However, AstraZeneca is far from being the lone ranger in this new frontier.

Exscientia (EXAI) and Sanofi (SNY) are pairing up to take on COPD with an AI-driven approach. Meanwhile, BenevolentAI (BAIVF) played matchmaker between baricitinib and its new role as a COVID-19 treatment contender.

Over at Google’s (GOOGL) DeepMind, they’ve cooked up AlphaFold, an AI program adept at unraveling protein structures – a feat that’s akin to finding a map to hidden treasure in drug design.

And let's not forget the big guns. Pfizer (PFE) has teamed up with IBM’s (IBM) AI and supercomputing prowess, a partnership that’s been pivotal in accelerating the development of COVID-19 treatments like Paxlovid.

Novartis (NVS) is another key player, wielding AI to shave years off its drug development timeline, a strategy that could redefine the pace of pharmaceutical innovation.

Not to be outdone, Roche (RHHBY) is utilizing AI for a spectrum of tasks, from target identification to the virtual screening of molecules, illustrating the technology’s versatility in the drug discovery process.

Bayer (BAYRY) is also making a significant bet on AI to uncover new therapies, focusing on areas like immuno-oncology and cardiovascular diseases, areas with immense potential for groundbreaking treatments.

Vertex Pharmaceuticals (VRTX) and Johnson & Johnson (JNJ) are part of this evolving landscape as well, leveraging AI to enhance various stages of drug development. Their involvement underscores the widespread adoption of AI across different phases of the pharmaceutical process, from initial research to clinical trials.

Now, let’s go back to AstraZeneca. Best-case scenario? They cut their R&D budget, which was a cool $9.8 billion in 2022 while keeping the pedal to the metal on their clinical trials.

Worst case? Their AI bets don't pay off big time. But let's be real, with AI tech moving faster than a New York minute, that's looking less and less likely.

So, should you invest in AstraZeneca stocks right now? Not so fast. Jumping on the AI bandwagon isn't a golden ticket on its own.

Remember, everyone and their mother in big pharma is chasing the same AI dream. For now, it’s a case of watch, wait, and see how this fusion of AI and pharmaceuticals reshapes the landscape of drug discovery and development. Keep your ears to the ground – this is one race you don't want to miss.

January 18, 2024

Biotech Letter

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

Featured Trade:

(A WEIGHTY IMPACT)

(LLY), (NVO), (MRNA), (AAPL), (AMZN), (GOOGL), (MSFT), (META), (NVDA)