Biotech Letter - John Thomas - Mad Hedge Fund Trader

Futureproofing Biotech

The financial landscape of 2023 offers a captivating tableau. While stock market giants, such as the S&P 500 and the Nasdaq Composite, have been garnering attention with their respective 18% and 34% gains, the biotechnology and healthcare domain unfolds a more nuanced story.

When I take a look at this sector, I notice certain ETFs, notably the iShares Biotechnology and the SPDR S&P Biotech, in a decellerative phase. However, the industry's canvas is dotted with companies that are scripting their distinct success stories.

Among these trailblazers is Regeneron Pharmaceuticals (REGN).

Contrary to the broader biotech trend, Regeneron has asserted itself with a commendable 7% growth this year. This is complemented by its sturdy revenue and an impressive EPS trajectory showcased in Q2.

For those not completely familiar with the annals of biotech, the name Regeneron is synonymous with pioneering achievements in therapeutic proteins. Their landmark collaboration with Bayer (BAYN) resulted in the creation of Eylea, a beacon in the anti-VEGF drug realm.

Their story doesn't end there.

Together with Sanofi (SNY), they've masterminded treatments that have potentially revolutionized the way we approach cancer, inflammation, and specific respiratory disorders. A testament to this partnership's prowess is Dupixent, which registered a remarkable $8.68 billion in sales during 2022.

Insider chatter hints at the possibility of these figures ascending to an ambitious $20 billion by the end of this decade.

A retrospective look at Regeneron's journey over the past decade reveals a remarkable story of resilience and growth. Their compound annual growth rate (CAGR) stood at an enviable 24.2% from 2012 to 2022.

When contrasted against the S&P 500's relatively modest 16.3% in the same window, it underscores the vast potential that biologic therapies hold. Moreover, it showcases Regeneron's ability to harness this potential effectively.

Yet, as we look ahead, the landscape is not devoid of challenges.

Enter Roche’s (RHHBY) Vabysmo — a new contender that has begun to question Eylea's unchallenged dominion since its 2022 introduction.

Recognizing this, Regeneron has strategically moved towards bolstering Eylea to ensure it maintains its market presence. These evolving dynamics serve as a reminder that the arena of retinal disease treatments is becoming increasingly competitive.

Anticipating the industry's fluid dynamics, Regeneron has exhibited strategic foresight. Their ventures into the realm of immuno-oncology, notably their stalwart, Libtayo, are significant.

They've not stopped there, however.

Their strategic diversification includes incursions into groundbreaking fields like gene therapy, RNA interference, and more. The company's research pipeline, promising an influx of innovative drugs in the near future, showcases its commitment to remaining at the industry's forefront.

A key partnership that's generating interest is Regeneron's association with Intellia Therapeutics (NTLA) in the sphere of gene editing.

This venture is pivotal. Such therapies have the potential to redefine medicine, offering transformative, perhaps even curative, treatments. Their adoption, however, comes with its fair share of challenges.

The industry's somewhat tentative approach towards gene editing, with a preference for licensing and equity stakes rather than outright acquisitions, underscores the nascent and experimental nature of this domain.

In conclusion, Regeneron Pharmaceuticals stands as an epitome of innovation and adaptability in the biotech sector. It amalgamates a rich history of achievements with an ambitious vision for the future.

As the company maneuvers through the intricate maze of opportunities and challenges that the 2020s present, investors ought to approach with both optimism and prudence. In a domain characterized by rapid advancements and uncertainties, Regeneron's journey offers valuable insights.

The upcoming years promise a blend of innovation, challenges, and milestones, and firms like Regeneron are poised to shape this narrative. I suggest you buy the dip.

August 22, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 22, 2023
Fiat Lux

Featured Trade:

(A BARGAIN HUNTER'S GUIDE)
(PFE)

A Bargain Hunter's Guide

Biotech Letter

The winds of change are blowing in the financial markets, teetering on the cusp of a new bull era. The trajectory of the S&P 500 stirs heated debates; some market seers assert the bull has already charged, while others counter that the index must first conquer its zenith.

Regardless of the stance, savvy investors stand poised, curating their ideal catalogs of stocks for purchase, with Pfizer (PFE) at a tumultuous intersection.

Pfizer wrestles with remarkable dips in yearly revenue and earnings. The shadow of imminent patent expirations over key drugs looms large, posing a serious challenge to future profits. However, a closer examination of Pfizer's situation reveals threads of optimism and inventive vision.

Its sturdy dividend yield is an example of resilience, and Pfizer's future sparkles with upcoming product debuts, potential harbingers of a revenue revival. Trading at a pivotal support level, a detailed look at the stock's historical patterns suggests glimmers of a lucrative long-term acquisition opportunity.

For Q2 2023, Pfizer unveiled revenues of $12.73 billion, a staggering 54% reduction, a decline of $15 billion year-over-year. This abrupt decline can be attributed to shrinking global returns from Paxlovid and Comirnaty, intertwined with a significant foreign exchange impact.

Paxlovid's revenue plummeted by 98% or $8 billion, mainly due to a pause in U.S. sales and reduced contractual deliveries in various global markets. Comirnaty also suffered, with revenue plunging 82% or $7.3 billion, primarily because of softened demand and contractual pullbacks.

Amid this storm, however, a beacon of growth gleams.

Excluding Comirnaty and Paxlovid, a 5% operational growth emerged, gathering $537 million. This growth is spurred by fresh entrants like Nurtec ODT/Vydura and Oxbryta, which raked in $247 million and $77 million, respectively, and boosted by the Vyndaqel family's robust 43% rise. Some products, such as Inflectra and Ibrance, faced contractions, revealing a varied performance landscape.

Despite subdued quarterly outcomes, the broader earnings picture radiates a potent positive trend. Pfizer's 4.6% dividend yield remains hearty, reflecting the company's strong financial base, even as challenges arise.

This resilience springs from upcoming product launches, positioned to infuse an additional $20 billion by 2030, potentially offsetting the impending patent cliff.

Innovations like Litfulo for alopecia areata and the respiratory syncytial virus vaccine, Abrysvo, echo Pfizer's dedication to medical breakthroughs. Furthermore, prospective drugs like Elrexfio and etrasimod shine on the regulatory horizon, further boosting the anticipation of revenue fortification.

Pfizer's ambitions include projected business development activities, potentially adding $25 billion in revenue by 2030.

The forthcoming acquisition of Seagen, planned for completion by early 2024, could pump over $10 billion into Pfizer's coffers, complemented by Seagen's impressive cancer drug roster.

Strategic procurements like Arena Pharmaceuticals, Biohaven, and Global Blood Therapeutics emphasize Pfizer's commitment to future revenue growth.

Moreover, Pfizer's stock trajectory paints a bullish long-term panorama.

Historically, between 1999 and 2009, a bull flag pattern emerged, only to be interrupted by global turmoil.

A significant revival post-2009 heralded a new era, culminating in a peak of $57.95, set against global recovery, strategic mergers, cost efficiencies, and Pfizer's pivotal role in the COVID-19 fight.

The recent decline appears normal, and the stock is nearing a sturdy support range of $30-$35. This range, examined alongside historical patterns, seems an ideal foundation for the coming years.

Understandably, sharp revenue declines could shake investor faith and obstruct Pfizer's progress, but a keen analysis suggests underlying resilience.

Investors must tread with awareness of inherent risks, from commercial success uncertainty to global economic volatility. Nevertheless, Pfizer's narrative of undervalued potential and its robust financial standing and strategic positioning offer a compelling investment prospect.

Current levels signal opportunities for buying, with room to increase holdings if the price further softens.

In conclusion, Pfizer's recent trials, from revenue falls to patent cliffs, mask an underlying resilience and forward-thinking prowess that hints at a potential resurgence.

The stock, settling near a robust support zone, conveys signs of price reversals and long-term promise. Though risks remain, the combination of financial acumen, strategic growth plans, and anticipation of new product launches make Pfizer an intriguing investment opportunity.

Investors looking for growth and stability in the pharmaceutical sector would do well to consider Pfizer as a part of their portfolio, bearing in mind the importance of vigilance in the face of potential challenges.

August 17, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 17, 2023
Fiat Lux

Featured Trade:

(TAPPING INTO THE EVERGREEN POWERHOUSE)
(ABT)

Tapping Into the Evergreen Powerhouse

Biotech Letter

Allow me to administer a momentary proverbial pinch on the arm.

Ever had that feeling where you gaze upon a stock that's embedded in an industry as evergreen as the ancient trees? In the world of investing, there's a niche that stands as firm and unshakable as a century-old oak. You guessed it right – it's the healthcare industry.

Now, why does healthcare have such an eternal appeal? Simple – as long as we're breathing, we need healthcare. It's not a fleeting trend but a perennial necessity. This is the very lifeblood that ensures a higher quality of life.

Enter Abbott Laboratories (ABT).

Glance at the earnings numbers released last month, and you may think it's just another healthcare giant. But wait until you see the ripples beneath the surface.

Though COVID testing sales are receding, there's growth flourishing elsewhere, even leading to some optimistic nudges from analysts. A 1% dip in share price this year? That's merely a disguise. So the real question is, could Abbott be your golden ticket?

Take a look at the Q2 2023. The juggernaut showed robust organic sales growth across three main segments: medical devices, established pharmaceuticals, and nutrition. Recovery from the pandemic-induced slump, coupled with strong demand for FreeStyle Libre, Abbott's continuous glucose monitoring franchise, has fueled this impressive ascent.

But don't take this surge for granted. Abbott's double-digit organic sales growth for the year is not just another feat; it's a majestic leap for a company with a more moderate growth history.

A detailed dig into the numbers reveals revenues of just under $10 billion for the period ended June 30, an 11% decline YoY.

The COVID testing inflated diagnostics sales have dwindled, pulling down the overall figure. But let's shift the spotlight to Abbott's medical device business.

A growth rate of nearly 14% to a staggering $4.3 billion. In diabetes care alone, a 19% YoY rise. Sounds promising? Indeed, it does.

The company didn't stop at this.

With the acquisition of Cardiovascular Systems and strong results in nutrition and pharmaceutical segments, Abbott is growing into a multifaceted marvel in healthcare.

Look at the kaleidoscope of sales posted by Abbott Laboratories across four business segments in 2022.

Diagnostics, medical devices, nutrition, established pharmaceuticals - a dizzying $43.7 billion sales figure.

A 27.5% rise in non-GAAP diluted EPS is expected by 2026. A 1.9% dividend yield surpassing the S&P 500 index's 1.5%. A below-average forward P/E ratio of 22.9. Analysts targeting a 12-month share price of $125. It all screams "BUY!"

However, let's not get carried away.

A 24-times multiple of the company's future earnings might look lofty, considering the industry average is less than 19. It might seem too rich unless you're betting big on a healthcare recovery or Abbott's Libre 3 device.

Growth investors may shrug it off, but dividend enthusiasts, sit up.

With an above-average dividend yield of 1.9% and a royal status as a Dividend King, Abbott could be a charming buy. It's not just an investment but a long-term relationship where the recurring income grows over time, all while cushioned by diverse operating segments.

Abbott might not give you a thrill ride, but it's a rock-solid healthcare foundation to fortify your portfolio, especially if you prefer a steady hand and a dependable dividend.

Needless to say, this business is an excellent addition to your portfolio. After all, Abbott Laboratories is not a flash in the pan. It's a beacon in the healthcare universe that could either be a hidden treasure or a prudent safeguard, depending on your strategy.

In the grand chessboard of investment, it might just be your masterstroke.

August 15, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 15, 2023
Fiat Lux

Featured Trade:

(UNPACKING A PHARMACEUTICAL POWERHOUSE)
(MRK)

Unpacking a Pharmaceutical Powerhouse

Biotech Letter

Engaging in the pursuit of income through investing might not be the most riveting way to build wealth. Still, the story can unfold with remarkable profit when dividends remain consistent and occasionally serve as a side of growth.

Take a look at the captivating tale of Merck (MRK) shareholders. Picture this: a $5,000 investment made just five years ago that has now blossomed into $9,700 with dividends reinvested. An investment that beats the S&P 500 index's transformation of the same amount into $8,600 during that same stretch. Intrigued? You should be.

Now, let's dive deeper into this pharmaceutical marvel, a proud member of the Dow Jones Industrial Average.

Few players in the pharmaceutical landscape embrace innovation quite like Merck, an arena where it generously dispensed $13.5 billion on research and development in 2022.

That's a whopping 23% of its impressive $59.3 billion in total revenue for that year.

From the game-changing oncology drug Keytruda to the vital human papillomavirus vaccine Gardasil, Merck's pharmaceutical arsenal boasts seven products, each teetering on the brink of exceeding $1 billion in sales by 2023.

Emerging from its New Jersey hub, Merck's total sales displayed a modest 3% growth year-over-year, totaling $15 billion in Q2.

But factor in the robust U.S. dollar's foreign exchange influence, and you'll discover a currency-neutral surge of 7% for that quarter. A deep dive into these numbers would reveal an increase in sales in five out of seven of Merck's blockbuster products.

The spectrum of growth ranged from a modest 1% for its ProQuad/M-M-R II/Varivax vaccine franchise to a meteoric 53% for Gardasil.

Even the 30% and 23% YoY sales dips in diabetes medicines Januvia and Janumet couldn’t dim the sparkle, as generic competition in Europe and U.S. pricing challenges were handily offset.

The plot thickens with Merck's Q2 non-GAAP net loss per share of $2.06. Unravel this figure, and you’ll find that, excluding the $4.02 per share acquisition charge for Prometheus Biosciences, adjusted diluted EPS actually rose 4.8% YoY to $1.96.

Notably, the acquisition of Prometheus, a spotlight on immune-mediated disease treatments, fortifies Merck's immunology pipeline, adding the promising PRA-023 drug candidate for ulcerative colitis and Crohn's disease.

Merck's R&D treasure trove is far from empty.

With over 100 projects in phase 2 or phase 3 clinical trials, gems like the pulmonary arterial hypertension drug candidate sotatercept stand out, projected to reach annual peak sales of $3 billion to $4 billion.

Moreover, Merck's adjusted diluted EPS is projected to rise 9.4% annually for the next half-decade, outpacing the industry's 8.5% consensus.

Merck's 2.8% yield isn't just numbers on a page; it's a tantalizing promise, especially when juxtaposed against the S&P 500 index's 1.5% yield. And the intrigue deepens when you learn that Merck's quarterly dividend per share soared 52% higher in a mere five-year span.

Expect the threads of mid- to high-single-digit annual dividend growth to weave into the future, enabled by a strategic dividend payout ratio of just 41% for 2023, excluding the Prometheus acquisition charge. After all, the company has shown excellent strategies in terms of capitalization on growth opportunities and further fortification of the balance sheet.

With shares surging 21% higher in the past 12 months, Merck's momentum isn't just business—it's also in the stock. And yet, there's still more to be uncovered for income investors.

Consider Merck's forward P/E ratio of 12.4, a figure that ducks below the drug manufacturer industry average of 13.3. These numbers sketch a compelling picture where above-average growth potential meets below-average valuation. Analysts pencil in an average 12-month share price target of $125—a striking 19% upside from the current $105 share price.

In the grand tapestry of investment opportunities, Merck's stock elegantly stitches together an engaging and profitable narrative, making it an alluring buy for income investors at this juncture. It's not just a chapter in the book of investment—it's a whole saga waiting to be read.

August 10, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 10, 2023
Fiat Lux

Featured Trade:

(INVESTING IN A KING)
(ABBV), (JNJ), (LLY)

Investing In A King

Biotech Letter

The Dividend Aristocrats Club is a badge of honor for those S&P 500 stocks that have managed to increase their dividends for at least 25 consecutive years. But let's take a closer look because there's an even more exclusive club worth our attention.

Introducing the Dividend Kings, the unsung heroes of the dividend world. No need to be part of the S&P 500; these select few must achieve at least 50 consecutive years of dividend growth. That's a feat as impressive as running an investment marathon and crossing the finish line with energy to spare!

Among them? AbbVie (ABBV), is a name synonymous with financial resilience. Let's explore why this Dividend King is attracting the attention of savvy income investors.

AbbVie, with 51 years of dividend growth, has a strong financial footprint. It is the fifth-largest pharmaceutical company worldwide, with a market capitalization of $260 billion. It ranks just behind industry giants such as Johnson & Johnson (JNJ) and Eli Lilly (LLY). Its pharmaceutical line-up serves over 62 million patients annually, combating conditions like cancer and migraines.

Now, let's not overlook some recent financial trends. AbbVie recorded $13.9 billion in net revenue during the second quarter, a 4.9% drop from last year, but the net revenue only fell by 4.2% when considering currency fluctuations. A stumble? Perhaps. A fall? Not quite. This Dividend King may have more to reveal.

However, it is essential to remain grounded in reality. After all, even giants face their day of reckoning.

AbbVie's Humira, a drug that generated $200 billion over the last 10 years, lost its exclusive patent in January 2023. Biosimilar competition led Humira's total revenue to shrink by 25.2% in the second quarter.

The company’s non-GAAP diluted earnings per share (EPS) dipped by 13.6% year over year to $2.91 for the second quarter. The company's non-GAAP net margin contracted by nearly 390 basis points year over year.

Clearly, the era of Humira's dominance as the top-selling medication in history is slowly coming to an end, paving the way for a future where its sales will be reduced. A tough pill to swallow, no doubt, but it's not all gloom at AbbVie's camp.

In 2022, Humira's global sales peaked at $21.2 billion. The emergence of biosimilar versions like Amjevita from Amgen has seen global Humira sales slide to $16 billion in the second quarter. However, AbbVie is managing the decline with rapidly increasing sales from newly launched drugs.

Promising medicines such as Skyrizi, Rinvoq, Botox Therapeutic, Vraylar, and Venclexta continue to offset the withering Humira sales, with solid growth prospects in other areas and a pipeline full of potential.

These new drugs appear ready to replace the shrinking Humira revenue. With other growth drivers like Epkinly and Vraylar, AbbVie looks well-positioned for the long term.

Additionally, with a strong $23.5 billion free cash flow over the past 12 months and needing just 43% of that amount to meet its dividend commitments, the company's 4% yield remains appealing to income investors.

The decline of Humira's sales is significant but hardly a death knell for AbbVie. The company has shown resilience and adaptability, balancing both growth and income potential.

While the potential risk of a recession could disrupt these trends, AbbVie's 50-plus-year record of increased dividends suggests historical resilience.

With moderate annual dividend growth likely, and a strong foundation for future development, AbbVie represents a compelling buy for investors. The figures and financials paint a picture of opportunity; now it's time to consider whether AbbVie fits into your investment portfolio.

Remember, the crown of a Dividend King is not easily earned, and AbbVie's financial performance showcases a royal opportunity worth exploring.

August 8, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 8, 2023
Fiat Lux

Featured Trade:

(A DISCOUNTED PHOENIX SET TO RISE)
(BMY), (JNJ), (GSK), (MRK)