Biotech Letter - John Thomas - Mad Hedge Fund Trader

A Millionaire Maker In The Making

In the high-stakes game of investment, where the dream is to turn a modest sum into a cool million, savvy players are constantly on the hunt for that one stock with the Midas touch.

Enter the scene: AbbVie (ABBV), a heavyweight in the healthcare arena, boasts a revenue growth of over $20 billion since 2019.

Let's cut through the noise and see if AbbVie is the golden goose for your portfolio, capable of outpacing the market and padding your account with those sought-after seven figures.

Since its spinoff from Abbott Labs (ABT) in 2013, AbbVie has been flexing its muscles in the dividend world.

I’m not talking about just keeping up with the Joneses here; AbbVie's dividend payout has skyrocketed by an impressive 270% through late 2023. This isn't just inheritance; it's multiplication.

Now, let's address the elephant in the room: Humira, AbbVie’s blockbuster drug, which is set to lose its patent shield in 2023.

This anti-inflammatory drug has been a cash cow for AbbVie, spanning a wide range of treatments from rheumatoid arthritis to Crohn's disease. But the party can't last forever. As the patent protection fades, so does a chunk of AbbVie’s revenue stream.

However, don't think AbbVie's been caught off guard. They've been prepping for this moment with Rinvoq and Skyrizi, two new immunology drugs poised to pick up the slack and maybe, just maybe, outshine their predecessor by 2027.

Dig into the latest quarter, and you'll find Rinvoq and Skyrizi raking in the cash with double-digit sales growth, eyeing to breach the $11 billion mark in annual revenue.

AbbVie's strategy? Cover all bases Humira did, and then some.

But that's not all in AbbVie's arsenal. With over 50 programs chugging along in development, the odds are in favor of a few big wins that could give the biopharma top and bottom lines a healthy boost.

Besides the promising Rinvoq and Skyrizi, AbbVie has other aces up its sleeve. Take bipolar disorder treatment Vraylar, with its potential to hit $4 billion in peak annual revenue, or acute migraine drug Ubrelvy, eyeing at least $1 billion.

While transition phases are tricky, especially since AbbVie's shift from Humira to the likes of Skyrizi and Rinvoq is no walk in the park, it's the other elements in play that add to AbbVie's potential.

For instance, here's another factor that makes the company attractive for growth investors: AbbVie's stock is currently undervalued, trading at a mere 12 times its estimated future earnings, a bargain compared to the sector's average. This could be your ticket to get on board for the long haul, eyeing those hefty returns down the road.

Now, what about the financials? After all, a company's muscle is measured by its monetary might. Well, AbbVie's operating profit of $15.8 billion on $55.1 billion in revenue in the past 12 months is nothing to sneeze at.

Now, let's talk free cash flow (FCF) – aka the real indicator of financial fitness. AbbVie's sitting pretty with $24.7 billion in FCF over four quarters. That's not pocket change; it's a war chest, part of which is already earmarked for a generous 4.5% dividend yield.

So, is AbbVie the magic bean that grows into a million-dollar beanstalk? Let’s give it more context.

To morph a $30,000 investment into $1 million, AbbVie's market cap would need to balloon over 30 times its current size, a Herculean feat that translates to a market valuation of over $7.3 trillion.

It's a long shot but not beyond the realms of possibility, especially considering the long-run average return of the S&P 500.

Overall, AbbVie is more than just a contender in the investment arena. With its solid track record, robust pipeline, and undervalued stock, it's a heavyweight with a puncher's chance of turning your investment into a million-dollar dream. I suggest you buy the dip.

November 21, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 21, 2023
Fiat Lux

Featured Trade:

(A PRESCRIPTION FOR CAUTION)

(VTRS), (PFE), (JNJ), (LLY), (BMY), (TEVA), (ABBV), (CVS)

A Prescription For Caution

Biotech Letter

In the rollercoaster world of pharmaceutical stocks, 2023 has been like riding the Cyclone at Coney Island – thrilling for some, nauseating for others.

Take Pfizer (PFE), for instance. It’s seen its stock take a nosedive by 43.4%. That’s the kind of drop that makes you check if your wallet’s still there. Then there’s Johnson & Johnson (JNJ), trailing behind with a 16.4% decline. Not as dramatic, but still enough to make your stomach lurch.

Meanwhile, there’s Eli Lilly (LLY), playing the hero as it rockets up by an extraordinary 66.8%, thanks to its new weight-loss drugs. At this point, investors are practically throwing ticker-tape parades.

However, even with Eli Lilly’s star performance, the S&P 500 Pharmaceuticals index still shows a downturn of 2.3%.

Now, as we've seen earnings reports trickle in, a trend has started to stick out: positive results aren’t shielding drugmakers from a sell-off. Look at Pfizer and Bristol Myers Squibb (BMY), both hovering near their 52-week lows.

Still, investors are giving the biotechnology and healthcare stocks the side-eye for several reasons.

The new Medicare drug-price negotiation program is like a strict parent setting a curfew – it’s potentially restricting pricing power for certain medications. Plus, as interest rates climb, the allure of high dividend yields is diminishing faster than my motivation to hit the gym.

In this skeptical market, however, there are some optimistic investors who are digging through the bargain bin, hoping to strike gold.

Enter Viatris (VTRS), trading at just 3.3 times earnings and boasting a 5.1% dividend yield. It sounds promising, but only a few brave souls are recommending a buy.

Basically, this situation with Viatris is pretty much like finding a designer shirt at a discount store – sure, it’s cheap, but will it fall apart after two washes? Let’s take a closer look.

Viatris’s backstory is a bit of a soap opera. Born from the merger of Mylan and Pfizer's Upjohn unit, it carries the baggage of Mylan's EpiPen pricing scandal.

Since rebranding, Viatris has been trying to find its footing. Despite a shiny new business plan, which involves selling off assets for a potential $9 billion, investor confidence remains shaky at best.

Notably, its decision to exit the biosimilars market, where heavy hitters like Teva Pharmaceutical Industries (TEVA) and AbbVie (ABBV) play ball, has been seen as a bold move. Considering the potential of that market, it felt like leaving a high-stakes poker game just when the chips were starting to stack up. And with CVS Health (CVS) eyeing this lucrative space, Viatris might find itself wishing it had stayed at the table.

These past months, investors have been capturing this drama through a meme – comparing 'adjusted Ebitda' to 'free cash flow' with images of Jennifer Aniston and Iggy Pop. It’s a cheeky way of saying that Viatris’s financial projections might be wearing rose-colored glasses.

Looking ahead, Viatris is aiming for $2.3 billion in free cash flow next year, buoyed by recent sales. But the big question is: can it turn these assets into growth, or will it continue its high-wire act?

Reviewing its recent moves and their effects on the market, the Viatris saga has turned into a cautionary tale for investors in the pharma world – it’s a reminder that sometimes the threat of a nosedive is as real as the thrill of a skyrocket.

So, what’s the takeaway for those of us with skin in the game?

It seems wise to keep our eyes peeled and not jump on any bandwagons too hastily. Viatris, amidst its strategic transformations and market challenges, is worth watching with a careful eye. While its cash flow looks steady through 2027, thanks to planned asset sales, the long-term picture is as clear as mud.

As we navigate the unpredictable waves of the pharmaceutical market this year, let’s remember – it’s not just about holding on for the ride. It’s about knowing when to get on, when to get off, and maybe, just maybe, when to enjoy the view from the sidelines with some popcorn in hand. I say hold off from buying Viatris shares at the moment.

November 16, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 16, 2023
Fiat Lux

Featured Trade:

(A GENE GENIE AGAINST CHOLESTEROL)

(VERV), (CRSP), (BEAM), (NVO), (AMGN), (REGN)

A Gene Genie Against Cholesterol

Biotech Letter

CRISPR technology, long heralded as a game-changer in genomics, stands on the brink of a major leap forward. For years, its potential has simmered, but now, it's poised to ignite, promising scientific breakthroughs and significant investment opportunities.

Several pioneering companies employing CRISPR for editing human genomes are at the forefront of this revolution. Their goal? To treat, and potentially cure, a range of genetic diseases. The approaches are twofold: ex vivo, where genes are edited outside the body, and in vivo, with modifications made directly within the body.

Investing in CRISPR gene-editing stocks, however, is not for the faint-hearted. These stocks are characterized by high risk and volatility, demanding a specific investor profile: one that is aggressive and comfortable with risk. For such investors, a company worth considering is Verve Therapeutics (VERV).

Verve stands out, partly due to its relatively modest size with a market capitalization of $732 million. This contrasts sharply with industry peers like CRISPR Therapeutics (CRSP) and Beam Therapeutics (BEAM), valued at $4.47 billion and over $2 billion, respectively. The reason behind Verve's smaller scale is its developmental stage, which lags behind its counterparts.

Established in 2018, Verve has been hailed as a potential leader in next-generation gene therapy, particularly base editing.

You can think of base editing as using a fine-tipped pen to precisely change just one letter in the DNA sequence, without cutting the DNA strand.

In our DNA, there are four "letters" (bases) – A, T, C, and G. Base editing lets scientists directly convert one letter to another (like changing an 'A' to a 'G') without cutting the DNA. This is like fixing a typo in a sentence by carefully erasing one letter and writing in the correct one.

This method is often more precise than CRISPR and less likely to introduce errors because it doesn't involve cutting the DNA strand.

Verve has capitalized on this technology, in-licensed from base-editing pioneer Beam Therapeutics. The company's flagship candidate, VERVE-101, targets heterozygous familial hypercholesterolemia (HeFH), a rare cholesterol disorder.

Needless to say, the stakes are high. The HeFH market is projected to balloon to nearly $60 billion by 2033, positioning VERVE-101 as a potential one-time functional cure and a standard of care in this lucrative market.

Recently, Verve announced that there was a substantial reduction in patients' high cholesterol levels in the first human test of base editing. Despite this, the stock experienced a sharp 41% drop, possibly a misinterpretation of the positive news in an unfriendly biotech market.

The data presented showed Verve's treatment leading to a 40%-55% decrease in harmful LDL cholesterol levels in patients with genetically high cholesterol levels. Verve's approach targets and inactivates the defective gene responsible for high cholesterol levels.

The treatment, however, faced challenges. Two of the Verve-101 trial participants suffered heart attacks, one of which was fatal.

It's crucial to note that the trial specifically included older patients with advanced heart disease, who were already at a heightened risk for cardiac events. The overall safety measures in the study were satisfactory, though, so the FDA has since authorized an expansion of the Phase 1 trial.

Notably, Eli Lilly (LLY) reviewed the trial's results before deciding to buy an option to partner on the Verve treatment. Lilly's decision on teaming up on the cholesterol treatment is expected next year, following the completion of Phase 1 trials.

Additionally, Verve plans to initiate trials for another base-edited therapy, VERVE-102, in the first half of 2024, potentially offering enhanced patient outcomes.

Verve’s trial results match that seen with established medications such as Novartis' Leqvio (NVS), Amgen's Repatha (AMGN), and Regeneron Pharmaceuticals' Praluent (REGN), which are all approved long-term drug therapies.

However, despite the availability of statins and new treatments, a significant portion of these patients fail to maintain healthy cholesterol levels due to cost, treatment adherence issues, or inconsistent healthcare access.

This is where the biotech company’s solution shines. Verve's ultimate goal is to develop a one-and-done treatment to lower cholesterol in the 50 million adults at risk for cardiovascular disease.

While Verve remains a preclinical-stage biotech, its prospects are promising. Its market cap, though modest compared to the commercial opportunity of a functional cure for HeFH, hints at significant growth potential.

With Lilly's track record in developing drugs for underserved conditions, Verve emerges as a compelling investment for those with a high tolerance for risk and an eye on future biotech breakthroughs. I suggest you put this stock on your watchlist.

November 14, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 14, 2023
Fiat Lux

Featured Trade:

(REWRITING BIOPHARMA’S TRADITIONAL SCRIPT)

(AZN), (JNJ), (BMY), (NVO)

Rewriting Biopharma's Traditional Script

Biotech Letter

In the high-stakes game of pharmaceutical innovation, AstraZeneca (AZN) isn't just playing to win; it's rewriting the rulebook.

A century-old company, born in the quiet labs of 1913 Sweden, AstraZeneca has become a linchpin in today’s cutting-edge medical advances. This isn't merely a story of corporate survival; it's a journey of transformation, emblematic of how old-world tenacity meets new-world innovation.

As we navigate the intricate world of biotechnology and healthcare, where even giants like Johnson & Johnson (JNJ) and Bristol Myers Squibb (BMY) wobble despite outperforming estimates, AstraZeneca emerges as a study in strategic agility.

Picture this: a company whose shares have seen a 5.7% dip this year, yet it stands as a beacon of opportunity for the discerning investor.

Trading at 15.6 times expected earnings over the next 12 months, it beckons with a valuation that whispers promise, floating below its five-year average.

Needless to say, these aren’t only financial figures but signposts pointing towards a rare investment opportunity in a volatile marketplace.

Let’s delve into the heart of AstraZeneca’s financial anatomy.

Twelve medicines in its arsenal are each marching towards the $1 billion revenue mark this 2023. Tagrisso, its flagship drug, contributes a mere 13.1% to its first-half revenue, showcasing a diversified portfolio that's resilient and well-balanced.

However, innovation isn't without its hurdles.

AstraZeneca faced a 16% decline in Soliris revenue due to patient transitions to newer treatments.

Here lies a lesson in the pursuit of progress – commitment to innovation and affordability can sometimes be a double-edged sword, affecting short-term gains but setting the stage for long-term sustainability. Still, AstraZeneca isn’t one to dwell on its losses for long.

Now, let's turn the page to AstraZeneca's audacious new chapter: entering the fiercely competitive arena of weight-loss medication.

Through a licensing agreement with China’s Eccogene, it's poised to develop an oral medication in the same class as Novo Nordisk’s (NVO) Wegovy drug.

But, the key factor that distinguishes AstraZeneca’s efforts is the pricing, which the company aims to be roughly half the current cost today.

To put things in perspective, Wegovy is priced at $1,349.02 per package. This figure unfolds into a weekly cost of $269.80. When extended over the span of a year, the drug becomes a more substantial financial commitment at $16,188.24.

Notably, the success of Wegovy has catalyzed Novo Nordisk's shares to soar by almost 50% this year.

Given the demand and AstraZeneca’s plan to adjust the price point, this is more than a simple business move for AstraZeneca; it's a venture that could redefine the accessibility of treatments for conditions like diabetes and obesity, impacting over 1 billion people globally.

In the crucible of the pandemic, AstraZeneca partnered with Oxford University to forge a path in the global health crisis, delivering over 3.5 billion doses of a COVID-19 vaccine worldwide.

Looking ahead, AstraZeneca’s leaders view obesity as another pandemic, signaling a strategic shift that melds business acumen with a commitment to global health.

Meanwhile, the latest earnings report from AstraZeneca is proof of its resilient business model.

Amid a 5.7% dip in its shares, the company's outlook is bullish, with an expectation of a low-teens percentage increase in total revenue excluding COVID-19 drugs.

This projection, backed by a 6% year-over-year revenue growth to $22.3 billion and an adjusted core EPS increase of 13% to $4.07, isn't only impressive; it's a narrative of sustained growth amidst adversity.

In conclusion, AstraZeneca's journey isn’t confined to financial returns; it's about being part of a narrative that’s shaping the future of healthcare innovation. I recommend you buy the dip.

November 9, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 9, 2023
Fiat Lux

Featured Trade:

(AN UNDERDOG’S LONG-TERM PLAY)

(MRK)

An Underdog's Long-Term Play

Biotech Letter

When sifting through the financial performances this earnings season, a pattern emerges among pharmaceutical giants – a sell-off that persists whether the news is good or bad.

However, amidst this tumultuous landscape, there’s one name that stands out as a beacon of strategic success: Merck Pharmaceuticals (MRK).

The company’s financial metrics are noteworthy. Trading at 14 times forward earnings aligns with industry standards, signaling a stable investment to Wall Street. This valuation reflects not just current profitability but anticipates future earnings, a critical measure for savvy investors.

Merck's robust market cap of $262 billion indicates more than just its size; it signifies its influence and foresight in the biotech field.

Its recent collaboration with Japan's Daiichi Sankyo reflects this, involving a substantial $4 billion upfront investment for a partnership that could be worth up to $22 billion.

These figures aren't just impressive; they underscore Merck's commitment to advancing cancer treatment through a series of antibody-drug conjugates aimed at solid tumors.

However, everyone knows that the healthcare industry is a long game.

Merck exemplifies this, banking on long-term outcomes, particularly with Keytruda, its leading cancer drug. Bringing in $16 billion in Q3 revenue, Keytruda is a testament to Merck's ability to not only develop but also commercialize high-impact therapies.

Even as Keytruda's patent protection approaches its 2028 expiration, Merck is already grooming its pipeline, ensuring a succession of treatments to maintain its market dominance.

In the immediate term, Keytruda is on a trajectory to become the top-selling drug globally, with projections pointing towards a staggering $30 billion in sales by 2028. This continued success is not a cause for complacency; instead, it's a launching pad for Merck as it orchestrates its future portfolio with strategic precision.

That’s why the Daiichi Sankyo collaboration is pivotal even if these programs are still in the clinical trial phase.

The probability of a phase 1 trial leading to a marketable drug is a mere 3.4%, yet Merck's investment suggests confidence in these potential therapies. This foresight is critical for anyone looking beyond immediate gains toward substantial future returns.

Turning back the pages to November 2021, we find another example of Merck’s long-term outlook. At the time, the company made headlines with its acquisition of Acceleron Pharma, a move costing $11.5 billion. This strategic play wasn't a mere chance but a calculated maneuver to secure a promising asset: Sotatercept.

This drug represents a breakthrough for those battling pulmonary arterial hypertension, a severe condition that constricts blood vessels in the lungs and makes breathing a laborious task.

With analysts predicting Sotatercept's sales could soar to $2.6 billion by 2028, this acquisition is a decisive stride toward future profitability.

Shifting focus to Merck's diversified portfolio, there's more to its story than these treatments.

Its HPV vaccines, like Gardasil, represent a significant foray into preventive health. Meanwhile, its animal health division boasts the resilience of a bull market. Moreover, its R&D efforts are primed to usher in a new era of blockbusters as Keytruda nears the end of its patent life.

Dividend growth is another proof of Merck's financial health and investor-focused approach.

Over the past decade, dividends have increased by 66%, outpacing the average yield of the S&P 500. The current cash payout ratio suggests there's potential for growth, offering an attractive proposition for income-focused investors.

In the broader context of investment strategies, Merck's maneuvers construct a compelling narrative for a bullish stance. Overall, the company’s proactive and diverse approach to biotechnology makes it a noteworthy contender for investors seeking long-term growth.

While the stock market is often swayed by the immediate ebb and flow of quarterly earnings, Merck's consistent investment in their pipeline, strategic partnerships, and dividend growth paints the picture of a company poised for sustained success. I suggest you buy the dip.

November 7, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 7, 2023
Fiat Lux

Featured Trade:

(OUTSMARTING OPIOIDS)

(VRTX), (LLY), (NVO), (BIIB)