Mad Hedge Biotech and Healthcare Letter
May 11, 2023
Fiat Lux
Featured Trade:
(UNLEASHING GENOMIC SUPERPOWERS)
(TMO), (PFE)
In a world where the longing for personalized cancer treatments echoes the craving of superheroes for justice, Thermo Fisher Scientific (PFE) and Pfizer (PFE) have forged an alliance to expand the global reach of next-generation sequencing technologies.
Their ambitious mission? To bring a ray of hope to patients by advancing a more accurate technology that can be used against cancer.
Cancer treatment is evolving at lightning speed, shaking up the status quo and dazzling experts worldwide. In the past, most treatment options revolved around traditional approaches like radiation. But now, a new kid on the block is changing the landscape: genomics.
Genomics might sound like a fancy scientific term, but it's a captivating branch of molecular biology that holds the key to unlocking the secrets deep within our genes. By studying our genetic profile, we can diagnose cancer more precisely than ever.
One breakthrough advancement that's causing quite a stir is genomic sequencing.
This technique allows doctors to analyze an individual's genetic sequence and pinpoint their unique genetic makeup. With this information, they can devise treatments finely tuned to each person's needs.
In fact, studies have shown that genomic sequencing can help match cancer patients to the most effective treatments based on their unique genetic makeup, significantly improving survival rates and treatment outcomes.
A recent study even showcased that patients who underwent genomic-guided therapy experienced an astonishing 35% higher overall response rate than those receiving conventional treatments.
Imagine a world where there are no more blanket treatments, only personalized care that targets the source of individual cancers.
In terms of the target market, the projected size of the global genomics market is a staggering $29.1 billion by 2025, and the profound impact on cancer, as the primary target for genomic analysis, is nothing short of colossal.
Here is the next question: Is this technology truly available, accessible, and sustainable in the long run? The resounding answer is yes.
The rise of next-generation sequencing as the gold standard in selecting cancer treatments has put the spotlight on access and affordability. Sequencing technology, once the sluggish tortoise in the race, has transformed into a lightning-fast hare.
Remember the mythical "$1,000 genome?" Well, it's no longer a myth.
Thanks to the groundbreaking unveiling of the $100 genome by Ultima Genomics in 2022, the cost of whole-genome sequencing has plummeted to a fraction of its former self. As costs continue to nosedive and swiftness skyrockets, the stage is unequivocally set for a genomic revolution, with cancer patients emerging as the ultimate beneficiaries of this scientific triumph.
Consequently, the biotechnology and healthcare market stands on the precipice of a seismic shift as Thermo Fisher and Pfizer join forces to democratize genomic sequencing.
With an initial focus on lung and breast cancer patients across more than 30 countries in Latin America, Africa, the Middle East, and Asia, this duo aims to shatter the barriers that have limited access to cutting-edge testing resources.
That is, more lives are about to be touched by the power of precision medicine.
This collaboration also unveils a compelling investment opportunity. As the demand for next-generation sequencing technologies skyrockets, Thermo Fisher Scientific, the vanguard of sequencing equipment and reagents, stands poised to ride this wave of progress.
Envision sales figures soaring as they equip local laboratories, guaranteeing the possession of indispensable technology, robust infrastructure, and expertly trained personnel to orchestrate these genomic symphonies.
Meanwhile, Pfizer, not content with just making blockbuster drugs, seeks to make DNA tests more affordable for patients and enlighten healthcare providers about the tremendous benefits of genomic screening.
As the costs of sequencing continue to decrease, even enabling the elusive $1,000 genome to become a reality, the accessibility and adoption of genomic sequencing are poised to expand, paving the way for personalized cancer therapies and transforming the landscape of oncology. Can you hear the sound of stock prices ascending?
So hold onto your lab coats and stethoscopes; Thermo Fisher and Pfizer's collaboration is about to reshape the landscape of cancer treatment.
As investors, consider the potential windfall of increased demand for sequencing technologies and expansion into emerging markets.
As humanity, marvel at the possibilities that arise when genomic superheroes unite. The era of personalized medicine is dawning, and these two trailblazers may just be your ticket to ride the genomic wave of the future.
Mad Hedge Biotech and Healthcare Letter
May 9, 2023
Fiat Lux
Featured Trade:
(WEIGHT LOSS DRUGS: THE NEXT BIG THING OR JUST HYPE?)
(LLY), (NVO), (PFE), (JNJ), (AMGN), (ALT)
Selling hot products and crushing the competition is where the real money's at. However, the challenge is to avoid falling for the hype. You need to assess a company's growth to know if it's worth investing in for the long haul.
If you have heard of tirzepatide, then you know that this drug has taken the pharma world by storm, making Eli Lilly (LLY) the talk of the town. In fact, this popular treatment helps patients drop more than 20% of their weight. No wonder it's got everyone hyped up.
But it's not just Eli Lilly that's causing a stir. Novo Nordisk (NVO) has a similar drug that's making waves, too.
In the world of pharmaceuticals, few drugs have generated as much buzz as Lilly's tirzepatide and Novo's semaglutide. These medications are projected to be among the top sellers of the decade.
These game-changing treatments have joined the ranks of iconic meds like the birth control pill, Prozac, and Pfizer’s (PFE) Viagra.
As expected, the share prices of both Eli Lilly and Novo Nordish have gone through the roof. They're already valued at around $400 billion each, placing them right behind industry leader Johnson & Johnson (JNJ).
Still, drug development is unpredictable.
A recent reminder of this was the biotech company Altimmune's (ALT) disclosure in March that a significant number of patients in a closely watched trial of its new weight-loss drug dropped out due to gastrointestinal issues.
That’s why it's essential to distinguish between opportunity and hype. More importantly, it’s critical to determine what exactly makes Lilly's tirzepatide and Novo's semaglutide so game-changing.
First, it's crucial to know that these two drugs come in various forms and are marketed for different conditions.
Novo's semaglutide is sold under the names Ozempic and Wegovy for Type 2 diabetes and obesity treatment, respectively, as well as Rybelsus, a pill for Type 2 diabetes. Lilly's tirzepatide, on the other hand, is currently only available as Mounjaro, an injection for Type 2 diabetes, but may soon have a new name added to the roster.
The real revolutionary aspect of these drugs is their effectiveness in lowering blood sugar and promoting weight loss. They mimic natural hormones that stimulate insulin production and slow digestion, making people feel fuller for longer.
Weight loss has long been a tricky area for drug development, with previous attempts being either ineffective or dangerous, resulting in many weight loss drugs being removed from the market.
But these drugs from Novo and Lilly are proving to be safe, albeit with significant side effects, and their efficacy is impressive.
In one trial, patients using Lilly's tirzepatide lost an average of 22.5% of their body weight, while patients on Novo's semaglutide lost 14.9% of their body weight in a separate trial. By comparison, a previous Novo drug called Saxenda only cut patients' body weights by 7.4%.
Another pressing question is about the availability of these drugs.
Mounjaro and Novo's Ozempic, Wegovy, and Rybelsus are already available on the market but have been in high demand and short supply.
To address this issue, both companies have announced plans to increase production. In April, Novo revealed that it had secured a new contract manufacturer, while Lilly has stated that it plans to double its production capacity for Mounjaro and similar drugs by the end of 2023.
Considering the market size and potential for these treatments, it comes as no surprise that competitors are already emerging.
Pfizer is currently developing a similar pill to tirzepatide and semaglutide, while Amgen (AMGN) is testing a weight-loss drug that uses a different mechanism.
Lilly has other weight-loss drugs in its pipeline, including a pill called orforglipron, which could launch in 2027. This is projected to generate $9.9 billion in sales in 2030.
Despite the emergence of competition, the weight-loss market is substantial enough to accommodate several drugs. Sales of obesity drugs are estimated to reach $30 billion by 2030, not including the Type 2 diabetes indication.
It's no secret that obesity and Type 2 diabetes are among the most prevalent health issues affecting millions worldwide. But did you know that the combined market for drugs targeting these conditions is expected to skyrocket to $90 billion globally by 2030?
Given the alarming statistics provided by the Centers for Disease Control and Prevention, such a staggering figure is not hard to fathom.
Almost 42% of American adults are obese, and about one in ten have diabetes. No wonder drug companies are racing to develop effective treatments to cater to this massive patient pool.
But what's interesting is that these drugs, which are not curative, could be a cash cow for pharmaceutical companies, as patients will likely need to take them for a long time.
This is why it’s easy to be bullish on the earnings potential of drugs like Mounjaro, with estimates for peak sales ranging from a heady $100 billion a year to a still impressive $40 billion.
In the pharmaceutical industry, buzz-worthy drugs are a dime a dozen, but game-changing medications that can revolutionize an entire market are few and far between.
Lilly's tirzepatide and Novo's semaglutide are just that.
These drugs have demonstrated significant weight loss in patients and are projected to be top sellers for the next decade. Despite the risks, Lilly and Novo's drugs are impressive, as they mimic natural hormones in the body, stimulate insulin production, and slow digestion to promote weight loss.
With the weight-loss market projected to reach staggering amounts by 2030, the potential is significant, but drug development is unpredictable, and competitors will inevitably emerge. Needless to say, investors must determine if these drugs' sky-high expectations are already factored into current share prices or if there's still room for growth.
While the weight-loss drug race is far from over, it’s clear that Lilly and Novo are off to a good start.
Mad Hedge Biotech and Healthcare Letter
May 4, 2023
Fiat Lux
Featured Trade:
(A BIOPHARMA THAT KEEPS BEATING THE ODDS)
(LLY), (BIIB), (ESALY)
If you're on the hunt for a stock that has a history of outperforming the market, then Eli Lilly (LLY) may have caught your attention.
Unlike many dividend and pharma stocks, Eli Lilly has a knack for beating the market. Just take a look at the company's shares, which have skyrocketed by 153% since the end of April 2020. That's three times more than the market's return of only 50% during the same period.
Now, I know what you're thinking - is this performance sustainable? After all, with a tumultuous economic and market environment causing investors everywhere to hit the brakes, it's possible that Eli Lilly's past success might not be repeated. Some may question whether this stock is still worth buying now or if they've missed the boat altogether.
Investors are always on the lookout for a good deal, so it's natural to question whether Eli Lilly is still a worthwhile investment following a less-than-stellar first-quarter earnings report.
Like many companies in the healthcare industry, Eli Lilly felt the pandemic's impact on its bottom line. Its coronavirus therapeutics segment contracted, leading to an 11% drop in sales to approximately $7 billion and a 38% decrease in EPS to $1.49.
But don't let the numbers scare you off just yet.
The decline in coronavirus sales was expected, and the company's other medicines saw a 10% YoY increase in revenue. Besides, it's essential to remember that a single quarter's results don't necessarily reflect a company's long-term value for dividend investors.
While Eli Lilly may have taken a hit, it's still a company with plenty of potential for the future.
That is, Eli Lilly’s expansion journey isn't about to stop anytime soon. For one, the pharmaceutical giant is waiting for regulators to approve four programs, including donanemab, a treatment for Alzheimer's disease, and tirzepatide, which could help combat diabetes and obesity.
If approved, Eli Lilly's latest offerings will enter contested markets, but there's still a substantial opportunity for them to outperform their competitors and gain market share, particularly with tirzepatide. Although the company may not see rapid revenue growth as a behemoth drug company, with 21 programs in phase 3 clinical trials, moderate-paced growth is still on the horizon.
Going back to its Alzheimer’s treatment candidate, it looks like the company has finally found a working formula to combat this lifelong disease.
Recently, Eli Lilly released positive results from the latest phase 3 study of its donanemab treatment for early Alzheimer's disease. The news pushed the stock to soar over 6% today, tacking over $20 billion to the company's market value.
Dubbed the Trailblazer-ALZ 2 study, the trial aimed to determine whether donanemab could help slow the debilitating effects of Alzheimer's by reducing the decline in a key rating scale of Alzheimer's-induced impairment. And the results? They were nothing short of promising.
Patients taking donanemab experienced a 35% reduction in the rate of decline, and a 40% smaller decline in their ability to perform daily activities, even 18 months into the study.
And that's not all: nearly half of the participants, a whopping 47%, showed no decline on a scale measuring clinical dementia after a year of treatment - compared to just 29% taking a placebo.
This is fantastic news for Eli Lilly and for the millions of people suffering from Alzheimer's worldwide. With such promising results, the company's donanemab treatment could be a game-changer in the fight against this devastating disease.
In comparison, Biogen (BIIB) and Eisai's (ESALY) Leqembi slowed cognitive decline by 27% compared to placebo in a similar patient group.
Notably, the trials for these two drugs had vital differences, so direct comparisons are difficult to make at this stage. Nevertheless, Lilly is determined to move forward with donanemab, despite the risks associated with the drug.
If approved, donanemab could help patients maintain their cognitive function for longer, allowing them to continue their daily activities such as managing finances, driving, and engaging in hobbies.
Thus far, Eli Lilly's donanemab has shown a potential best-in-class clinical profile, leading to the company planning to file for FDA approval later this quarter.
The estimated peak sales for the drug have yet to reach a consensus due to shifting clinical profiles and changing market dynamics over the past year. However, the market's initial estimate suggests it could reach $5 billion-plus per year, as evidenced by Lilly's $20 billion increase in market capitalization following the announcement.
While this estimate may seem reasonable, it's important to note that there is a safety signal in the latest clinical data - brain swelling - that could potentially hinder the drug's commercial uptake. Full trial results will be crucial for investors to consider once they become available.
Nonetheless, the dire need for new Alzheimer's therapeutics and the significant untapped market make the drug's potential highly compelling.
Overall, Eli Lilly is an excellent long-term investment. It has a long history of success, and its strong position in the pharmaceutical industry speaks volumes. While there are no guarantees when it comes to the stock market, this biopharma has a proven track record of delivering impressive returns to its shareholders.
Despite its current high price tag, this leading pharmaceutical company has some exciting growth prospects that could make it the top dog in healthcare before the decade is out. With drugs like donanemab, a potential game-changer for Alzheimer's treatment, and Mounjaro, a type 2 diabetes medication with promising results, Eli Lilly's stock may indeed be worth considering for investors looking for growth potential.
Mad Hedge Biotech and Healthcare Letter
May 2, 2023
Fiat Lux
Featured Trade:
(QUANTUM COMPUTING IN BIOTECH)
(MRNA), (IBM), (PFE), (NVS), (ILMN), (TEVA), (NVO), (RHHBY), (GOOGL)
When you think of the pioneering biotech, Moderna (MRNA), artificial intelligence (AI) and quantum computing might not be the first things that come to mind. Instead, you might associate Moderna more with its work in traditional laboratory research and as a leading coronavirus vaccine manufacturer.
However, Moderna has taken significant strides into the realm of AI. In fact, the biotech utilized AI during the early stages of developing its coronavirus vaccine and has also implemented the technology for other business purposes.
Now, Moderna is taking things a step further by partnering with International Business Machines (IBM) to explore the potential of AI and quantum computing in enhancing its messenger RNA research.
Needless to say, this innovative collaboration could potentially revolutionize the biotech industry.
To understand Moderna's recent developments in AI and quantum computing, it's important to first have a grasp of its mRNA technology.
Unlike traditional vaccine production that involves growing viruses in a lab, Moderna produces mRNA that provides the body with instructions to treat or prevent a particular illness. This innovative process is already faster than traditional vaccine production methods. But AI has played a significant role in making the process even faster.
Moderna has been able to leverage AI and automation to scale up mRNA production significantly. In fact, the company's mRNA production for experiments went from about 30 per month to 1,000 per month thanks to AI. Additionally, AI has contributed to the generation of more effective mRNA sequence designs, saving researchers considerable time.
Let's now take a closer look at the implications of Moderna's partnership with IBM.
One of the primary areas of focus is IBM's generative AI for therapeutics, which has the potential to provide Moderna researchers with a deeper understanding of molecular behavior, facilitating the development of new molecules for therapeutics.
Moreover, IBM's expertise in quantum computing could prove invaluable in speeding up the discovery of new treatments, enabling Moderna to push the boundaries of medical research and improve patient outcomes.
Quantum computing differs from traditional computing in its use of a system that allows for states beyond the binary 1s and 0s. Quantum computers can understand information as 1, 0 or something in-between, offering the potential for individual bits to be in multiple states at the same time. This characteristic may be beneficial in modeling the dynamic interactions among drugs, enzymes, cells, and proteins that are continuously changing.
The use of advanced systems in molecular modeling has been challenging for earlier generations of hardware. However, the incorporation of quantum computing could revolutionize the way biotech companies solve these complex problems.
As a starting point, Moderna will be part of IBM's enterprise accelerator program, which provides a platform for "quantum curious" companies to invest in building their expertise in emerging areas. This program gives access to IBM's network of computing systems and specialized training on the use of quantum computing for life sciences research.
As part of this collaboration, Moderna will gain access to MoLFormer, a powerful AI model that can accurately predict a molecule's properties. This tool will prove particularly valuable in Moderna's efforts to improve the lipid nanoparticles that encapsulate its mRNA treatments.
Additionally, the partnership includes investments in generative AI programs that will assist in the design of innovative mRNA-based treatments and vaccines, helping Moderna to further cement its position as a leader in the biotech industry.
IBM had previously attempted to make a name for itself in AI-powered drug discovery, offering services through its Watson platform.
However, these offerings were ultimately discontinued in 2019. Despite once partnering with major names in cancer research such as Pfizer (PFE), Novartis (NVS), Illumina (ILMN), as well as Teva (TEVA) for drug repurposing, IBM has shifted its focus to other areas of the life sciences industry.
As quantum computing technology continues to evolve, however, its potential applications have begun to attract some of the biggest names in biotech.
Companies like Novo Nordisk (NVO), Roche (RHHBY), and Boehringer Ingelheim have partnered with industry giants like Google (GOOGL) to explore the possibilities of this cutting-edge field, which is quickly moving from the realm of science fiction into a scientific reality.
As for the question of whether these moves can be a game-changer for Moderna, the answer is likely yes.
Moderna has already experienced significant benefits from AI in its processes, both in and out of the lab. With access to IBM's platforms, there is potential for further improvements in the company's research and development of new treatments and vaccines.
Efficiency, speed, and precision are crucial factors in drug and vaccine development, and any improvement in these areas could have a significant impact on Moderna's success. Although the results of the IBM partnership may not be immediately visible, Moderna's investments in AI and quantum computing could pay off in the long run.
With continuous innovation and portfolio expansion, Moderna is well-positioned to capitalize on market opportunities presented by mRNA technology and achieve substantial revenue growth in the years ahead.
Therefore, investors should not be overly concerned about short-term stock price fluctuations or declines in revenue from coronavirus vaccines. After all, Moderna has a robust pipeline and has demonstrated significant potential with promising clinical trial results.
Hence, investors should consider Moderna as a long-term investment opportunity, making it a valuable addition to any investment portfolio.
Mad Hedge Biotech and Healthcare Letter
April 27, 2023
Fiat Lux
Featured Trade:
(THE UNDERAPPRECIATED GIANT)
(TMO)
Here’s a question to test your biotechnology and healthcare knowledge: Can you think of a company that doubled its earnings during the pandemic yet currently trades at a lower valuation than it did at the beginning of 2020?
The answer might surprise you. It’s Thermo Fisher Scientific (TMO).
Despite benefiting from Covid-related demand, Thermo Fisher's stock price has not kept pace with its strong sales growth. Perhaps you weren't aware of Thermo Fisher and its role in supplying researchers with essential tools for developing life-saving drugs and tests. Regardless, it's a company worth paying attention to now.
Based in Waltham, Massachusetts, this healthcare supplier is one of the world's most prominent analytical instrument, reagent, consumables, software, and service providers, catering to industries like biotechnology, clinical diagnostics, pharmaceuticals, environmental monitoring, and food safety.
With a market capitalization of over $210 billion, the company benefited greatly from Covid-19 testing, resulting in earnings per share skyrocketing from $12.35 in 2019 to over $25 in 2021.
Thermo Fisher's earnings have declined as the pandemic subsides, leading to a corresponding dip in stock price. However, this downturn looks to be temporary. Moreover, the company is still poised for growth.
Looking at the turn of events, it’s clear that investors tend to be overly fixated on the company's performance during the pandemic, which represented only a tiny part of its overall business. This should no longer be the case, especially since Thermo Fisher has already provided strong guidance, which is more critical than short-term fluctuations.
Thermo Fisher Scientific's full-year guidance was offered in February following the announcement of impressive fourth-quarter results. The healthcare supplier expects to earn $23.70 per share in 2023, alongside revenue of $45.3 billion, exceeding the average analyst projections of $23.07 per share in earnings and $43.8 billion in revenue. Nevertheless, the predicted per-share profit is lower than the previous year's $25.13.
Due to the two-year decline in earnings since the pandemic boom, the company's shares have fallen by 14% since the end of 2021. As expected, this has led to investors being spooked by the problematic comparisons to the pandemic period. Consequently, the stock is currently trading at 24 times forward earnings, which is about its five-year average and below its pandemic high of 26.6 in December of 2021.
By 2024, however, Thermo Fisher is expected to surpass its all-time high earnings, with estimated earnings per share of $26.70. This figure is expected to continue to increase, with a projection of more than $30 per share in 2025.
Given these metrics, it’s evident that Thermo Fisher is a stock worth holding onto for the long term. More importantly, its current valuation makes it an attractive option for new investors.
Despite being categorized as a growth stock, Thermo Fisher benefits from consistent, recurring revenue from customers engaged in complex research and development. This makes the shares appealing in light of recent market volatility.
Thermo Fisher is a beacon of hope in the healthcare industry, where creating drugs is complex and requires advanced tools and technologies.
For example, newer products, such as biologics and larger molecule drugs, which are produced differently and require specialized equipment, provide Thermo Fisher with excellent opportunities to shine. The company is positioned to benefit from this trend as it provides researchers and developers the necessary tools and equipment.
Notably, Thermo Fisher is agnostic to specific drugs or the success of individual companies in the industry. Hence, regardless of the focus of healthcare companies, the company remains a staple in their laboratories.
In the company's latest earnings report, the confidence that comes with supplying a range of growing healthcare end markets was evident, thanks to an aging population and increasing treatment options. Additionally, the company raised its dividend by almost 17%, and its guidance suggests 7% core organic revenue growth, excluding acquisitions.
Discussing Thermo Fisher's acquisition strategy is almost inevitable when examining the company. Through this strategy, Thermo Fisher has broadened its revenue streams, customers, geographical reach, and business segments.
For context, ten years ago, the company was more instrument-focused. If a recession had occurred during that period, it would have had a much more significant impact on the company. Today, the business is less cyclical and less vulnerable to severe downturns.
Thermo Fisher executed its acquisition strategy without raising its debt ratios too high. At the end of 2022, the company's net debt to Ebitda ratio was 2.2 times, its second lowest level since 2013. Its total debt to Ebitda ratio of 2.9 times is also below the pre-pandemic period dating back to 2013.
Furthermore, Thermo Fisher's free cash flow is expected to increase to $7.2 billion this year, nearly twice the amount in 2018. This allows the company to pursue additional acquisitions and return more cash to shareholders in the form of dividends and share repurchases, as it has been doing in recent years.
Overall, Thermo Fisher holds a winning formula. It has good returns and a management team that makes the right decisions with its cash. On top of these, the company has more than ample room for long-term growth.
