Biotech Letter - John Thomas - Mad Hedge Fund Trader

The British Are Coming Back

In a market where biotech usually gets lumped into either “future cure” or “eternal underdog,” GSK (GSK) is carving out a third category: cash-flowing, specialty-driven, and still misunderstood.

It’s not the hottest name in oncology. It’s not a dividend aristocrat either. But if you’re looking for where the next rerating in big pharma might come from, it might be time to revisit this London-based laggard.

The first thing to understand is that GSK has officially graduated from its identity crisis.

After years of being the kid at the pharma party who couldn’t decide if it wanted to be a vaccine powerhouse or a consumer health brand, it’s now firmly in the prescription drug camp, with a clear tilt toward specialty medicines.

And the numbers suggest that move wasn’t just branding. It’s starting to show up in the top line.

Specialty medicines grew 21% year over year in Q1 2025, led by HIV treatments and a newly invigorated oncology pipeline.

The HIV franchise, built around Dovato and Cabenuva, is fending off competition better than expected, while the oncology segment finally looks like it’s entering a growth phase.

Zejula is gaining traction, and Jemperli is carving out share in endometrial cancer, a notoriously tough field.

Not home runs, but they are base hits with upside.

Let’s also not ignore the sleeper: GSK’s vaccine segment. While it’s not the main story here, Arexvy, its RSV vaccine, is one of the few true breakout commercial launches we’ve seen in the past year.

Experts have been racing to raise sales forecasts, with some now expecting $3 billion in annualized revenue. Even if you ignore the COVID halo that still inflates comparisons, this is real, defensible growth.

GSK’s new CEO, Emma Walmsley, has also quietly turned into a capital allocator with teeth.

The ViiV Healthcare HIV joint venture continues to be a cash machine, and GSK has guided for an impressive 10% to 12% annual EPS growth through 2026.

That’s not wishful thinking. These numbers are built on volume growth, margin expansion, and steady pipeline progress.

And yet the stock trades at just 9.7 times forward earnings. That’s not a typo. In a world where even troubled pharma names like Pfizer (PFE) get 11–12 times and growthier peers like Gilead (GILD) are creeping up near 13, GSK still looks like it’s being priced as if Brexit negotiations are ongoing and Advair just went off patent.

Some of this is because of geography.

US investors still hesitate when a name trades in pounds and files reports from Brentford. But a lot of it is just old narratives refusing to die.

The market still remembers GSK as a sluggish, dividend-obsessed consumer health hybrid. It hasn’t yet caught up to the fact that this is now a focused, specialty-driven pharma company with legitimate upside drivers.

Compare this to Shionogi (SGIOY), the Japanese firm riding a wave of infectious disease revenues, or even Sanofi (SNY), which has pivoted hard into immunology.

GSK sits in the middle – cheaper than both, but arguably with just as much growth potential in a narrower field.

And with cash flow from its consumer spin-off Haleon (HLN) still providing optionality, GSK doesn’t need to stretch its balance sheet to compete.

There are risks, of course.

GSK is still defending patent positions in HIV. Its oncology program, while promising, lacks the kind of breakout star that grabs headlines.

And regulatory scrutiny in the UK and EU can be an unpredictable drag. But with a pipeline that’s actually working and a valuation stuck in neutral, the setup is hard to ignore.

This is where patient biotech investors can earn their edge.

GSK is not going to triple in 12 months or invent the cure for everything. But it could rerate to a 12–13x multiple, especially if Arexvy delivers on projections and oncology stops being a drag.

That would put the stock north of $50, with dividends pushing the total return closer to 20 percent over the next 18 months. Not fireworks, but not dead money either.

In short, this is the part of the cycle where you look for quality hiding in plain sight.

The market is still obsessed with obesity and GLP-1s. Meanwhile, GSK is building a specialty pharma engine that throws off cash, rewards shareholders, and still flies under the radar.

And in biotech, being early to the rerating is usually better than being last to the moonshot.

You’re not buying hype here. You’re buying execution – quiet, compounding, undervalued execution.

And in this market, that’s starting to look pretty rare.

July 10, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 10, 2025
Fiat Lux

Featured Trade:

(EVERYONE SAW THE PUNCH, NO ONE’S WATCHING THE RECOVERY)

(TMO)

Everyone Saw The Punch, No One’s Watching The Recovery

Biotech Letter

Thermo Fisher Scientific (TMO) just took a hit, but don’t mistake that for a knockout. This is a seasoned player, bloodied perhaps, but still very much in the game.

The fundamentals are bruised, not broken. And for those who can look past the surface damage, the setup is starting to look unusually compelling.

The company has been navigating a minefield.

Trade policy whiplash, China tariffs, NIH budget uncertainty. It’s the kind of macro mess that would shake up even the most stable names in life sciences.

TMO didn’t escape unscathed, but it also didn’t flinch. That alone should catch your attention.

Despite all the turbulence, Q1 revenue landed at $10.36 billion. That’s $130 million ahead of expectations.

Organic growth hit 1%. Not fireworks, but not a fizzle either.

Keep in mind, this came with fewer selling days and the lingering drag from post-pandemic overhang. This is what resilience looks like. It’s not loud. It’s steady.

Bioproduction and pharma services are showing signs of stabilization. Not dramatic, but meaningful.

This isn’t a patient in intensive care. It’s one walking out of the hospital asking where the next meal is. Sometimes, that’s all you need to know about a business’s trajectory.

On the China front, the narrative might be shifting.

Everyone was laser-focused on that $400 million revenue hit from tariffs. But here’s the twist. In May, those tariffs were temporarily cut.

If that reprieve holds, or even just lingers longer than expected, the pressure on forward guidance could ease considerably.

Then there’s the manufacturing migration. American pharma is reshoring production. It’s happening quickly and with intent.

Thermo Fisher is one of the few names that already has the infrastructure to capture that shift. When the industry starts rethinking its supply chains, you want to be the one holding the keys to the new factories – TMO is.

From a valuation standpoint, this is where it gets even more interesting.

Right now, the stock trades at 19.1 times FY25 earnings and 17.4 times FY26. That’s well below the five-year forward average of 24.4 times.

Think about what that means.

You’re looking at a world-class business, positioned to benefit from structural trends, and it’s being priced like it’s on the ropes. That’s not a common setup.

Margins have taken a hit. They slipped to 21.9% in Q1, down 10 basis points.

But Thermo Fisher has tools most companies don’t. Their PPI Business System isn’t window dressing. It’s a proven method for driving operational efficiency.

Combine that with their ability to push through 2% pricing increases and improve supply chains, and there’s a real path to margin recovery in 2026.

None of this is to say the risks have vanished.

If the China tariff relief evaporates, the previous pain returns. And if biotech funding dries up, the demand picture gets murkier.

But these are known risks. The kind that markets have already priced in.

What they haven’t priced in is the possibility of recovery. Apply the historical multiple of 24.4 times to FY26 earnings and the price target sits near $602.

That implies about 40% upside. Not fantasy, just math. This isn’t a broken story. It’s a recovering one.

And in a market still fixated on perfection, there’s something refreshing about a name like Thermo Fisher. It has real earnings, real assets, and a clear role in the next leg of pharma’s evolution.

Quality on sale is rare. This is one of those moments.

Besides, investing has never been about catching falling knives or chasing momentum. It’s about finding companies that are misunderstood in the short term and underappreciated in the long term.

TMO fits that mold. Keep it on your radar.

July 8, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 8, 2025
Fiat Lux

Featured Trade:

(THIS BIOTECH ISN’T DEAD YET. IT’S JUST GETTING ITS SECOND WIND)

(MRK), (JNJ), (PFE)

This Biotech Isn’t Dead Yet. It’s Just Getting Its Second Wind

Biotech Letter

Let me let you in on a little Wall Street secret: Merck & Co. (MRK) is having what my grandmother used to call “a spell,” and it’s not the kind that ends with Mai Tais on a cruise ship.

Down 18% year-to-date, Merck’s been standing quietly in the corner like the designated driver at an afterparty: sober, responsible, and completely ignored while everyone else chases the latest sugar high.

But if you’ve been around the block a few times, you know that markets eventually come home to fundamentals. And Merck? It’s sitting on some pretty solid ones.

First, let’s talk about Keytruda. This is Merck’s golden goose, crown jewel, and cash printer rolled into one.

It’s hauling in nearly $30 billion a year – close to half the company’s revenue. But like all good things in pharma, it’s got a ticking clock.

The patent falls off a cliff in 2028, and that’s got analysts sweating like it’s earnings season during a rate hike.

The market, in its usual overreacting wisdom, assumes Merck’s executive team is just going to wait out the clock, knitting scarves and sipping herbal tea until the end.

But the reality? They’re spending like they actually plan to stick around.

A full 28% of revenue goes straight into R&D. Definitely no penny pinching here.

For comparison, Johnson & Johnson (JNJ) clocks in at 19.4%. And Pfizer (PFE)? A modest 17%. Merck is playing chess while the others are refreshing their résumés.

Then there’s the China wrinkle.

Gardasil, Merck’s blockbuster HPV vaccine, was doing brisk business overseas until Beijing suddenly pulled the plug in February.

Official story? “Weak demand.” Anyone who’s done business in China knows that phrase is about as transparent as a foggy window.

Let’s just say there are likely more levers being pulled behind the curtain.

Add to that the looming pressure of the Inflation Reduction Act, and you’ve got a cocktail of investor anxiety that’s priced Merck like it’s already halfway to hospice.

But here’s the thing: by my math (and I’ve been modeling these things since traders used fax machines) Merck is trading roughly 23% below intrinsic value.

That’s with a conservative beta bump and enough doomsday scenarios baked in to make a prepper proud.

The fundamentals remain impressive.

Operating margins at 31.5%? That’s not just healthy, it’s downright athletic. Return on assets sits at 14.6%, while most of the sector struggles to crack 4%.

The balance sheet is firm, with a debt-to-equity ratio of 0.80 and interest coverage that won’t keep anyone up at night.

These numbers don’t tell the story of a troubled company. Instead, these tell me about a misunderstood heavyweight taking a breather between rounds.

On top of these, the pipeline is no slouch.

MK-0616, a cholesterol pill with blockbuster potential, is deep in Phase 3 and expected to land right as Keytruda starts to fade.

Meanwhile, Winrevair, a newly approved cardiovascular drug, is already on pace to top $1.5 billion this year. That’s not luck. That’s planning.

Their $20 billion capital spending spree through 2028 isn’t about vanity projects either. It’s manufacturing capacity, digital infrastructure. Not really exciting updates, but most definitely smart moves.

So, what’s the play? Merck isn’t a moonshot. It’s not the stock you tell your buddies about over golf because it’s going to triple in a week.

But it is a stable buy for anyone who’s seen enough cycles to know that quality tends to come back in style especially when the market is pricing in Armageddon.

Besides, sometimes the best opportunities are hiding in plain sight: sturdy, unloved, and momentarily out of favor.

Merck may not be the prom queen anymore, but give it a few quarters… and you might just find it leading the dance.

July 3, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 3, 2025
Fiat Lux

Featured Trade:

(STEADY AS SHE COMPOUNDS)

(ABT)

Steady As She Compounds

Biotech Letter

My diabetic neighbor Frank swears by his Abbott FreeStyle Libre glucose monitor, checking his blood sugar with the ease of someone scrolling through their phone on a lazy Sunday morning.

“No more finger pricks,” he told me over the fence last week, tapping the discreet sensor on his arm like it was a badge of honor. “This little gadget changed my life.”

And just like that, Frank reminded me why Abbott Laboratories (ABT) deserves far more love from Wall Street than it gets.

While most are tripping over themselves to chase miracle drugs and moonshot biotech plays, Abbott is doing something radical: delivering consistent, boring excellence.

And in a market that’s feeling more like a seesaw than a rocket ship, boring might just be beautiful.

Abbott’s latest Q1 numbers were classic ABT: quiet competence wrapped in diversified strength.

The stock hovered around $137, barely moving the needle since its $136 print, but context matters. The S&P 500 slipped 0.43% in the same stretch, making Abbott’s small gain feel like a fortress.

This isn’t the kind of stock that makes Reddit (RDDT) traders salivate, but it’s exactly the kind that portfolio managers lean on when the macro turns messy. Defensive resilience isn’t sexy, but it sure helps you sleep at night.

CEO Robert Ford’s earnings call was a case study in calm under pressure. Instead of ducking tough questions or hiding behind macro gobbledygook, he acknowledged the looming $200 million tariff headwind for 2025 with refreshing candor.

Most of the pain hits in Q3, and Ford didn’t sugarcoat it. But he also laid out a real plan: optimizing a 90-facility global manufacturing network to absorb the blow.

Each of Abbott’s four segments tells its own steady success story.

Nutrition posted solid growth, with Similac leading the charge in pediatric nutrition. Medical devices jumped 12.5%, thanks in no small part to the continuous glucose monitors that Frank and millions like him can’t live without. Global CGM sales climbed over 20%.

Electrophysiology clocked in a 10% gain, buoyed by aging demographics and Abbott’s strong cardiac portfolio.

Meanwhile, diagnostics dipped 5% — largely a return to pre-COVID normalcy. It’s hard to be mad at fewer people needing tests.

The real speed bump came from China, where procurement issues dinged lab diagnostics. Not ideal, but hardly a deal-breaker.

If Abbott were a portfolio, it’d be a masterclass in diversification. Blood screening, resorbable stents, molecular diagnostics. They’re quietly taking over every profitable healthcare niche that isn’t grabbing headlines. This is a classic from Warren Buffett’s playbook.

What really earns my respect is Abbott’s refusal to play short-term games. When experts prodded Ford on tariffs, he didn’t promise quick fixes or creative accounting.

He acknowledged the drag and emphasized structural solutions. That’s a company playing the long game, and it’s a trait that’s increasingly rare and disproportionately valuable.

Financially, Abbott delivers the kind of metrics that make even the most conservative investors smile. Healthy profitability, disciplined debt levels, and a dividend that rises like clockwork.

Earnings quality got a few side-eyes from analysts, but there’s no question about the cash flow or the company’s ability to keep paying shareholders.

Valuation-wise, Abbott isn’t a bargain-bin gem, but it’s not overpriced either. It’s actually a fair premium for a defensive compounder in turbulent times.

With steady EPS growth projected through 2026, this looks like the kind of stock you buy when others are distracted by shinier toys.

No, Abbott won’t mint you a Lambo next quarter. But it just might keep your portfolio alive (and thriving) through the next crisis. And in the end, that’s what smart investing is all about.

Frank’s arm isn’t just wearing a glucose sensor. It’s wearing proof that steady innovation beats flashy promises every time.

And that’s exactly why ABT deserves a spot in your portfolio…right next to your aspirin and TUMS.

July 1, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 1, 2025
Fiat Lux

Featured Trade:

(BOTTOM OF THE NINTH FOR THIS BIOPHARMA)

(BMY), (BNTX)

Bottom Of The Ninth For This Biopharma

Biotech Letter

I was at a Yankees game once, bottom of the ninth, crowd roaring, and the pitcher tosses what looks like a meatball right down Broadway.

Everyone around me starts groaning. They’re sure it’s a trick pitch, a slider in disguise. But the batter swings anyway and sends it into the cheap seats.

That, my friends, is Bristol-Myers Squibb (BMY) right now.

And if there’s one thing I’ve learned from decades in the game, it’s that sometimes the pitch you think you should avoid is the one that changes everything.

Let’s get serious. BMY is slogging through a growth transition with more bumps than the FDR Drive.

Their cash cows are aging out. Blockbusters like Eliquis and Opdivo are facing loss of exclusivity through 2028. The generic wolves are circling, and that revenue cliff is no mirage.

But what separates BMY from a slow-motion train wreck is simple: they’re not standing still.

This is precisely where BioNTech (BNTX) enters the picture. BMY just dropped $1.5 billion upfront, with potential payments totaling $11 billion, to co-develop BNT327, a bispecific antibody targeting PD-L1 and VEGF-A.

Translation: a moonshot aimed squarely at the $50 billion immuno-oncology market.

And unlike many pharma deals where one side gets dinner and the other a napkin, this one’s 50/50 on development and commercialization.

This isn’t charity. It’s strategic triage.

Management knows it must replace legacy sales with high-octane new therapies. By 2028, they plan to shift 30% to 40% of current IV business to Opdivo Qvantig.

That’s more than just a pivot for BMY. That’s a full-blown reinvention, paired with $2 billion in cost savings and accelerated ramp-up in the growth portfolio.

Now, don’t misunderstand the backdrop here: it’s brutal.

Legacy headwinds aren’t just nibbling; they’re gnawing. The company’s Q1 results showed ongoing structural drag that’s unlikely to reverse before 2027.

Yet rather than simply reacting defensively, BMY has been aggressively making offensive plays. They’ve signaled intent to grow their business development pipeline aggressively.

The BioNTech partnership isn’t a one-off; it’s part of a wider effort to build out a durable oncology pipeline and diversify future revenue sources.

Despite these strategic moves, the market continues to yawn.

Valuation has slumped to 6.9x earnings, marking a 35% discount to healthcare peers and a level last seen during peak COVID panic.

Meanwhile, free cash flow is still flowing like boxed wine at a barbecue: $15 billion in 2025, $13.1 billion projected in 2026. And as for that juicy 5% dividend? Secure as Fort Knox.

If you’re the kind of investor who enjoys being paid to wait, this is your front-row seat.

Still, experts continue to tag them as “dead money.” Analysts have cautiously lifted near-term estimates, but consensus remains that a meaningful re-rating won’t happen before 2027. There’s understandable skepticism here.

RFK Jr. at HHS has injected fresh uncertainty into regulatory policy, and ongoing debates about Medicare price negotiation and pharma tariffs continue to weigh on sentiment.

However, beneath all this noise, BMY is methodically executing a turnaround strategy.

Management has outlined a clear path forward: pivoting its IV portfolio to more durable therapies like Opdivo Qvantig, aggressively investing in its pipeline through deals like the BioNTech collaboration, and maintaining robust free cash flow to support dividends and R&D.

The BioNTech deal represents far more than just a way to pacify fidgety investors. It’s a tactical entry into bispecific antibodies, a class of therapies gaining serious traction for difficult-to-treat cancers.

If successful, it could provide a critical platform for long-term growth and validate BMY’s evolving innovation model. These coordinated steps suggest BMY is not managing decline, but actually engineering a comeback.

You don’t get these setups often: deep value, solid income, and a credible shot at long-term upside.

The company that once looked like it was managing decline is now throwing heaters. The market may not be ready to believe it yet, but those who buy into the story now might just be the ones bragging about it in a few years.

Remember, the best curveballs are the ones the batter almost doesn’t swing at — and then drives out of the park. Swing for the fences, folks. This one could be going, going…

June 26, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
June 26, 2025
Fiat Lux

Featured Trade:

(HERE COMES THE ANTI-OZEMPIC)

(REGN), (NVO), (LLY)