Biotech Letter Archives

Not Now, But Soon

During times of market turbulence, many investors may find themselves hesitant to participate due to the uncertainty and risks involved. However, one potential strategy to weather the storm could be to seek out dividend stocks.

By investing in these types of equities, individuals can find a sense of stability and security, as they often offer a reliable source of income regardless of market fluctuations. In short, dividend stocks can serve as a safe harbor amid a choppy investment climate.

If you're looking for a healthcare stock with some serious street cred, check out Johnson & Johnson (JNJ).

Before delving into the company, knowing that JNJ’s stock price isn't exactly bargain-bin material is crucial. Still, it's not the most expensive pharmaceutical company out there, either. Novo Nordisk (NVO) and Eli Lilly (LLY) are commanding higher valuations, while JNJ’s peers like Amgen (AMGN), Gilead Sciences (GILD), AbbVie (ABBV), and Bristol-Myers Squibb (BMY) are trading at a lower price-to-free-cash-flow ratio.

Let's not forget that JNJ isn't just a one-trick pony in the pharmaceutical game.

With around 30% of its revenue from medical devices, we can't compare it apples-to-apples with other pharma companies. Peers in the medical devices sector typically trade at higher valuation multiples, so it's essential to keep that in mind when evaluating JNJ's price-to-free-cash-flow ratio.

Moreover, this mega-brand dominates both the pharmaceutical and consumer goods scenes. With fingers in many pies - pharma, med tech, and consumer goods - JNJ has made quite the name for itself.

Despite being a seasoned player, Johnson & Johnson (JNJ) still has some spring in its step; come year-end, the company will be shaking things up with a spin-off of its consumer segment into a new entity, Kenvue.

JNJ’s upcoming spin-off is about sharpening its focus on what matters - its pharma business. And for good reason - this is where the big bucks are made.

The healthcare giant’s immunology and cancer drugs are outperforming the rest of the pack, with two key players, Stelara and Tremfya, delivering some serious sales growth last year. Together, they raked in a cool $12.3 billion, proving that sometimes, less really is more.

JNJ’s pharma segment is crushing it. Darzalex, the multiple myeloma med, racked up an impressive $8 billion in sales, a 32% boost from the previous year. Meanwhile, prostate cancer drug Erleada wasn't far behind, with a 45.7% increase in sales to $1.9 billion.

All in all, JNJ's pharma segment hauled in a massive $52.5 billion in revenue in 2022. Not too shabby.

Looking deeper into its performance in fiscal 2022, JNJ reported a slight increase of 1.2% YoY in sales, reaching $94.9 billion, but currency effects had a negative impact. However, adjusted earnings per share increased by 3.6% YoY, with operational growth at 9.2%.

The "Consumer Health" segment reported a 0.5% decline in revenue, but adjusted operating growth was 3.6%.

The "Pharmaceuticals" segment, responsible for more than half of revenue, increased sales by 1.7% YoY to $52.6 billion, with operational growth at 6.7%.

The "MedTech" segment increased revenue by 1.4% YoY to $27.4 billion, with operational growth at 6.2%.

For fiscal 2023, Johnson & Johnson is expecting revenue growth of 4.5% to 5.5% and adjusted earnings per share growth of 3% to 5%.

Despite the positive reports, JNJ investors are still anxious about the future primarily because of the impending patent expirations of existing products. Unfortunately, the company is heading towards a patent cliff, as it faces the challenge of replacing revenue from products with expiring patents.

Stelara generated $9.7 billion in revenue in fiscal 2022 and will lose patent protection in 2023. Simponi, which generated $2.2 billion in revenue in fiscal 2022 and will lose patent protection in 2024, are two of the biggest concerns.

These two products account for 12.5% of the company's total revenue and 22.5% of the pharmaceutical segment revenue. Replacing these sales will not be an easy feat.

Additionally, in 2027, JNJ will lose patent protection for two other vital drugs - Xarelto and Imbruvica, which generated $2.5 billion and $3.8 billion in revenue in fiscal 2022.

To resolve these concerns, JNJ is putting its money where its mouth is regarding innovation. The company invested a whopping $14.6 billion in R&D in 2022 alone, and it looks like it's paying off. With plenty of promising drugs in the pipeline, JNJ is poised to continue its growth trajectory in the coming years.

When it comes to dividends, JNJ is royalty. With a 60-year track record of annual dividend increases, JNJ company has earned the coveted title of Dividend King.

JNJ boasts a healthy payout ratio of 41% and a juicy dividend yield of 2.8%, well above the S&P 500's average yield of 1.7%. The company's steady cash flow quickly covers these payouts, making it a solid choice for investors seeking reliable income.

While JNJ may be a top-notch investment option in the long run, the current market conditions make it a tad pricey. So, for now, just give it a spot on your watchlist and wait for the dip to go for a bargain. Remember, patience is not just a virtue but also a lucrative strategy in investing.

April 6, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 6, 2023
Fiat Lux

Featured Trade:

(A KING AMONG KINGS)
(ABT)

A King Among Kings

Biotech Letter

Let's talk about the esteemed Dividend Kings, the crème de la crème of companies that have consistently raised their dividends for a minimum of 50 consecutive years. This select club is made up of less than 50 members, making them a truly elite bunch.

While investing in stocks with an impressive track record is a great way to build a low-volatility portfolio with decent long-term returns, there's a catch.

Due to their maturity, some Dividend Kings may lack long-term growth potential. However, this isn't necessarily a drawback if they're profitable cash cows. Still, some investors may prefer to incorporate stocks with greater growth potential into their portfolios.

This is where Abbott Laboratories (ABT) comes in.

Abbott Laboratories has been blazing a trail in healthcare and beyond. From its top-tier medical devices to nutrition solutions, the company is leading innovation across multiple industries – including providing low-cost generic pharmaceuticals for less developed countries.

With a market cap of $172 billion, it's no wonder this powerhouse has become revered as an unstoppable force. Founded in the bustle and hustle of Chicago back in 1888, Abbott Alkaloidal Company has since cemented itself as a pioneer across multiple industries - building up fortifications through several key pillars to guarantee its dominance in the industry.

In fact, its success can be attributed to its prowess in a diverse range of fields. It has made its mark in medical devices, accounting for 34% of its 2022 sales, and has also become a major player in the diagnostics sector, which makes up a significant 38% of its sales.

In addition to its accomplishments in the medical devices and diagnostics sector, this company has made significant progress in the nutrition industry, accounting for 17% of its sales. Moreover, they've established a strong portfolio of pharmaceuticals that have proven to be reliable earners, representing 11% of their sales.

Needless to say, the breadth of expertise and consistent success in multiple industries make this company a compelling choice for investors seeking a reliable, diversified portfolio.

Apart from these, Abbott Laboratories has maintained an impressive track record of dividend payouts, with an unprecedented 51 consecutive years of increases.

These accomplishments underscore the company's unwavering commitment to growth, innovation, and value creation, making it an attractive option for investors looking to secure long-term returns.

While Abbott's history is undoubtedly impressive, the company's future is equally important. One of Abbott's greatest strengths is its innovative culture, which has enabled it to stay ahead of the curve in a rapidly evolving healthcare industry.

Given the persistent demand for revolutionary healthcare products, Abbott has consistently delivered, earning a reputation as a trusted leader in the field over the years.

Here's an example of the company's innovativeness.

When COVID-19 first hit, Abbott wasted no time in developing and launching a suite of diagnostic tests for the virus, solidifying its position as a leader in the space. This strategic move proved to be a lifeline for the company, as its medical device revenue took a hit in the early days of the pandemic.

Another example is Abbott’s blockbuster FreeStyle Libre franchise.

The FreeStyle Libre is a game-changing continuous glucose monitoring (CGM) system that provides real-time blood glucose level tracking for people with diabetes. Its impressive technology earned it the coveted title of "Best Medical Technology of the Last Half-Century" from the highly respected Galien Foundation, an organization dedicated to recognizing breakthroughs in the life sciences.

Abbott's FreeStyle Libre system has been a smashing success, raking in $4.3 billion in sales in 2022 - that's a sweet 16% YoY improvement. The company has high hopes for the product line, targeting a revenue of $10 billion by 2028.

And Abbott isn't stopping there - they plan to keep the momentum going with new product launches in areas such as structural heart and heart failure.

However, investors seeking income may overlook Abbott’s 2.0% dividend yield, but there's more to the stock than just yield. This low-volatility option offers a strong potential for long-term outperformance, with the added benefit of consistent dividend growth leading to a high yield on cost in the future.

In other words, Abbott Labs may not be a high-yield stock today, but it has the potential to become one over time.

More importantly, in the fiercely regulated healthcare industry, Abbott has built a strong brand name over the years, leading to a solid moat that is difficult for competitors to breach. Just like how customers tend to stick with familiar brands, physicians, and patients trust Abbott's products, making it easier for the company to maintain a consistent revenue stream.

This could translate into sustained earnings and stock price growth in the long term, as investors continue to place their trust in Abbott's reputation for quality and innovation.

If you're looking for a stock to add to your dividend growth portfolio, Abbott might just be the answer. With a solid brand reputation and a range of products that consistently generate revenue, including both mature cash cows and fast-growing options, it offers the best of both worlds. Plus, with a healthy dividend yield and consistent dividend growth, you can expect steady returns while enjoying an attractive valuation.

Needless to say, Abbott truly is a king deserving of its title–a king amongst kings, so to speak. Hence, I suggest you buy the dip.

April 4, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 4, 2023
Fiat Lux

Featured Trade:

(IN IT TO WIN IT)
(HUM)

In It To Win It

Biotech Letter

If you want to increase your chances of success in the stock market, forego complex formulas and algorithms. The process does not have to be rocket science. Instead of a complicated equation, remember the age-old saying, “Keep it simple.”

That means you should choose companies whose products and services make up the backbone of our economy, such as healthcare, technology, and energy.

Investing in healthcare stocks can offer a safe haven for your portfolio, no matter the economic climate. These essential goods and services are always needed by patients, so it pays to explore quality investments that will stand up over time.

Quality healthcare stocks can provide a reliable means for investors to capitalize on growing markets, and the insurance sector is an especially noteworthy opportunity.

As the world's population ages and healthcare costs continue to soar, health insurance is rapidly becoming a crucial necessity. That's why experts project a steady 7.1% annual increase in global health insurance industry revenue. By 2028, they project that revenue will have surged to nearly $2.6 trillion, up from $1.7 trillion in 2022.

These statistics underline the growing importance of investing in the health insurance sector, as it continues to expand and offer promising growth opportunities.

When it comes to capitalizing on the promising growth prospects in the health insurance sector, Humana (HUM) is a heavyweight contender.

Humana's roots date back to 1961 when it was founded in Louisville, Kentucky. Today, it stands tall as one of the largest insurance companies in America. Its specialty lies in providing government-subsidized plans, catering to Medicare Advantage, Medicaid, and Tricare (for the military).

With over 22 million members enrolled in its various plans, including medical, dental, and vision coverage, the company is well-positioned to reap the benefits of this burgeoning industry.

In fact, with a market capitalization of $64 billion, Humana is currently the fifth-largest health insurer globally.

As the demand for health insurance continues to grow, Humana's strong market position and broad range of offerings make it a compelling option for investors looking to tap into the sector's potential.

Humana's Q4 performance was a sight for sore eyes for investors, with revenue up 6.6% YoY to $22.4 billion. The company's medical membership grew by 0.1%, reaching 17.1 million, boosted by a 3.2% growth in Medicare Advantage membership.

Coupled with premium hikes, this led to an upward trend in Humana's revenue. The cherry on top was the non-GAAP diluted EPS of $1.62, reflecting a staggering 30.6% YoY growth rate.

Humana has a bright future ahead thanks to organic membership growth and strategic acquisitions.

Analysts predict the company's adjusted diluted EPS will compound at a rate of 14.3% annually over the next five years, outpacing the industry average of 12.4%.

While Humana's current 0.6% dividend yield may seem low compared to the S&P 500's 1.6%, the quarterly dividend per share has tripled over the last decade to $0.7875.

Plus, with a payout ratio of just 12% in 2022, there's plenty of room for future dividend increases. This means Humana can continue to invest in the business and strengthen its balance sheet while also rewarding shareholders.

If you're looking to get a real return on your investment, make sure Humana is in the mix.

With the company's growth prospects well above the industry average, this means that the stock is currently undervalued and is a prime candidate for those looking for some solid growth potential. So if you're in it to win it, now is the time to consider adding Humana to your portfolio.

March 30, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 30, 2023
Fiat Lux

Featured Trade:

(ANOTHER MONOPOLY ON THE RISE)
(ZTS), (PFE)

Another Monopoly on the Rise

Biotech Letter

Whether you’re a devoted dog mom or a tough-as-nails cattle rancher, you’ll most likely agree that animals should have healthcare, pretty much like humans. This is where Zoetis (ZTS) comes in, a company that focuses exclusively on developing treatments and other healthcare needs for livestock and, of course, pets.

Zoetis is the only pure-play animal health company in the world. It sells everything related to animal healthcare, from painkillers for your beloved pets to diagnostic equipment needed in veterinary clinics. Spun off from Pfizer (PFE) roughly a decade ago, Zoetis’ profits have consistently climbed thanks to the steady rise in spending on domestic animals.

Admittedly, macroeconomic issues and a pause in earnings growth recently affected the stock negatively, which saw its price fall by almost 13% since 2022. However, short- and long-term catalysts are anticipated to boost the stock this year, with the company expected to report at least a 33% increase in price in the following months.

Pet ownership across the globe has been exhibiting an increase in demand even before the pandemic, with pets gaining more importance and getting treated as part of the family. This indicates lower chances of skimping when it comes to their health, paving the way for more innovative treatments and possibly more expensive trips to the vet.

The increasing demand for animal protein has also called for higher livestock production worldwide, which translates to more sales in the animal healthcare sector. In fact, over half of the antibiotics sold in 2022 were used for the improvement of farm yields.

Incredibly, even concerns over recession have not hampered these trends. If anything, the demands continue to rise.

This is one of the most compelling reasons to consider Zoetis stock. It is already the biggest name in the global markets, particularly for companion animals, cattle, swine, and even fish. Since it is virtually a monopoly in the animal healthcare industry, it is strategically positioned to sustain its momentum and penetrate the market quicker than the up-and-coming competition.

Its total addressable market is estimated to be approximately $45 billion. For context, this market recorded an annual growth of 5.8% over the past 20 years.

Surprisingly, Zoetis only spent $529 million out of its $8 billion revenue for research and development, which means it won’t cost the company too much money to continue churning out new drugs, vaccines, software packages, treatments, and other animal healthcare needs for the foreseeable future.

The company is also expanding faster compared to the broader market, with Zoetis’ earnings forecast to rise at an average of 13% each year over the following five years.

Another underappreciated factor that makes Zoetis attractive is its pipeline of innovation. Unlike competitors that depend on price hikes for their growth, Zoetis leverages its cutting-edge innovations.

An excellent example is its game-changing drug, Simparica Trio, a triple combo product for parasite prevention launched in 2020. By 2022, sales of this drug jumped by an impressive 57% to hit $744 million. Another example is Librela, an osteoarthritis treatment for dogs, which achieved the blockbuster status of $100 million in sales outside the United States and is slated for release in the country sometime this 2023. Meanwhile, a feline counterpart of the drug, Solensia, received FDA approval last year and raked in $30 million in revenue.

These types of innovations provide Zoetis with a competitive edge in the form of a unique organic volume growth trajectory that’s not found in other companies.

Notably, a mere $100 million qualifies an animal health drug as a blockbuster. This is one reason that discourages potential Big Pharma rivals from entering the space and challenging Zoetis. After all, they are used for human drugs worth $1 billion or more.

However, it’s essential to remember that many animal treatments are paid out of pocket. That means there are no insurance companies pressuring the patients to get or switch to cheaper drugs or generics even when Zoetis’ products lose their patent exclusivity. Actually, in 2019, about 75% of the company’s revenue was generated from its products that had already lost patent protection.

Overall, Zoetis is a solid investment thanks to its growth potential and highly competitive moat. It has a strong track record and an impressively diverse revenue stream, making this animal health company well-equipped to sustain its momentum in the years to come at a fast pace. I suggest you buy the dip.

March 28, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 28, 2023
Fiat Lux

Featured Trade:

(NOWHERE TO GO BUT UP)
(REGN), (SNY), (RHHBY)

Nowhere To Go But Up

Biotech Letter

For any biotechnology company, one of the critical elements of success is the capability to create and develop new and innovative treatments.

That is one requirement Regeneron (REGN) has no trouble meeting.

The latest update from this biotech involves its blockbuster asthma medication, Dupixent. The top-selling drug delivered promising results from a study that aims to expand its indication, signifying the potential for additional billions of dollars in revenue.

According to Regeneron and its co-developer, Sanofi (SNY), the Dupixent trial on current or previous smokers displayed a 30% reduction in moderate or severe acute exacerbations of chronic obstructive pulmonary disease (COPD).

COPD is a lung condition that makes it difficult for air to move in and out of the lungs due to the narrowing of the airways. It's is caused by long-term exposure to irritants such as cigarettes, coal, and other pollutants. It can be fatal and life-threatening. There is no cure for COPD, but treatments may help improve symptoms and slow down the progression of the disease.

The market for COPD is estimated to grow significantly over the next five years due to the increasing prevalence of COPD and related comorbidities, such as asthma, cardiovascular diseases, and diabetes.

Additionally, factors such as continuous growth in the elderly population and the introduction of novel therapies are likely to drive the growth of this market during the forecast period. The global COPD market was valued at $27 billion in 2018 and is expected to reach $50 billion by 2025 with a compound annual growth rate of 8.5%.

Considering Dupixent’s positioning in the market and the competitors for this segment, Regeneron is projected to rake in an additional $4 billion in sales from this expanded COPD indication. Taking all its indications together, this blockbuster drug is estimated to contribute a whopping $19.2 billion in the company’s sales.

Aside from Dupixent, Regeneron has also aggressively expanded the indications for another blockbuster drug, Eylea.

In February, the company submitted its application to the Food and Drug Administration to allow them to administer Eylea in 8-milligram doses.

Eylea is a medication used to treat wet age-related macular degeneration (AMD), diabetic retinopathy, and diabetic macular edema. This treatment is typically administered via an injection into the patient’s eye once every two or four weeks, depending on their condition.

In terms of revenue, the wet AMD market is expected to grow significantly over the following years. This growth is driven by the climbing number of cases and the prevalence of associated comorbidities like diabetes and hypertension. In 2018, the global wet AMD market was valued at $17 billion. This number is anticipated to reach $28 billion by 2025.
Going back to Regeneron, the company’s move to increase the formulation of Eylea from 2 mg to 8 mg is critical. This will enable patients to undergo fewer injections of the treatment from 8-week intervals to 12- and even 16-week intervals, which would be a key selling point.

Another excellent reason behind this move is that Eylea’s patent expires in 2023, making it a target for biosimilar competitors. Regeneron’s decision to switch to a higher dosage formulation is a strategic way to sidestep this impending concern.

On top of blockbusters Eylea and Dupixent, Regeneron is also charging headlong on efforts to expand its immune-oncology franchise. Its top treatment in this field, Libtayo, is slated for multiple clinical trials to expand its indication. In addition, Regeneron has seven or so candidates queued in this lucrative but crowded space.

While Roche (RHHBY) has more candidates than the biotech in the immuno-oncology field, Regeneron’s speed in capitalizing on opportunities in this fast-advancing sector is nothing short of breathtaking. Given that immuno-oncology is a relatively new segment, the company’s ability to deliver promising results enables it to stand out in the biotech world.

Regeneron is a beacon of stability in an otherwise unpredictable industry, steadily ascending since its inception. But the stock’s continued success isn't just luck. Their past successes with their treatments and medicines have placed them on solid ground to continue advancing, while further wins through the widening use of approved drugs have only reinforced that position - setting up Regeneron for continued growth into the future.

March 23, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 23, 2023
Fiat Lux

Featured Trade:

(OLD BUT GOLD)
(HUM), (UNH)