Mad Hedge Biotech and Healthcare Letter
September 6, 2022
Fiat Lux
Featured Trade:
(ONLY FOOLS RUSH IN)
(APDN), (RVPH), (NERV), (JNJ), (BMY), (AZN), (LLY), (PFE)
Following a promising first half of 2022, it looks like the markets are taking an about turn as more and more investors start dumping their stocks.
The seemingly recovering Nasdaq Composite showed a 4.3% decline last month despite reporting its best record since 2020 just last July.
Nevertheless, several biotech names appear to have avoided the crash thanks to some exciting company-specific updates.
The top gainers so far include Apple DNA Sciences (APDN), which skyrocketed 340% by the end of August. Among the projects in its pipeline, the most promising to date is its monkeypox virus test.
Another name on the list is Reviva Pharmaceuticals Holdings (RVPH). This clinical-stage biopharmaceutical firm reported a whopping 244% gain during its second-quarter earnings report.
However, the top gainer that has been on the news lately is Minerva Neurosciences (NERV). This budding biopharmaceutical company gained 321%, according to its report last month.
Minerva Neurosciences isn’t a name I have kept track of nor even heard of until these past months when its wild upswing started to make me curious.
The company started attracting attention when billionaire Steve Cohen of Point72 Asset Management fame invested in it. This move saw Minerva Neurosciences’ shares soar to more than 70% at that time.
Just before August wrapped up, the company filed for its long-delayed schizophrenia treatment, Roluperidone.
Entering the neuroscience industry is a clever move, especially with the potential of this segment. In 2021, this market was estimated to be worth $32.22 billion. By 2027, the neuroscience segment is projected to reach $41.24 billion.
As for schizophrenia, roughly 1% of the entire population is affected by this disease. Based on recent WHO reports, more than 24 million individuals are suffering from schizophrenia annually.
In 2021, the global schizophrenia drug market was reported to cost $8.02 billion. Taking into consideration the changes in the environment and living conditions, the number is expected to go higher as the years pass. With these in mind, the estimated worth of this market is expected to reach $10.15 billion by 2027.
Minerva Neurosciences wouldn’t be the first to take interest in the schizophrenia segment. Prior to this biopharma’s entry, there have already been a handful of key players attempting to be hailed as the leader of this sector.
The names include Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY), AstraZeneca (AZN), Eli Lilly (LLY), and Pfizer (PFE).
However, only Minerva Neurosciences specifically targets the negative symptoms of schizophrenia. That makes the company stand out in this steadily growing segment.
Given that Minerva Neurosciences is cheaper than these stocks, would it then be wise to buy shares from the smaller company to gain entry into the neuroscience market?
At this point, Minerva Neurosciences has yet to prove that it’s more than just a one-trick pony. In fact, the company has not even sufficiently shown that it has mastered its single trick.
When looking at the potential of any biotechnology and healthcare company, I generally begin by checking out its pipeline.
For Minerva Neurosciences, the list does not look sustainable.
The company’s MIN-301 for Parkinson’s Disease remains inconsequential since it’s still in the preclinical trial stage.
Prior to this, Minerva Neurosciences worked with JNJ to develop treatments for insomnia and major depressive disorder. However, those have yet to yield tangible results that can move the needle for the company’s share price.
That means Minerva Neurosciences is all about Roluperidone. While the company is moving as fast as it could to launch the product to market, more questions remain than answers.
Actually, the company seems to have eliminated earnings conference calls. These could have been useful in offering a more accurate picture of its future, but it looks like investors will need to make do with whatever information is published.
Admittedly, exciting times could very well be waiting for Minerva Neurosciences’ shareholders. The recent progress with Roluperidone most likely offered them some relief.
No doubt that the optimistic investors are hoping that the 321% gain would signify another incredible run in the following weeks. However, this might not be likely. In fact, a pullback seems to be more in the horizon.
Considering its sparse pipeline and the lingering uncertainty over Roluperidone’s performance, this might not be the best time to buy Minerva Neurosciences’ shares.
Mad Hedge Biotech and Healthcare Letter
September 1, 2022
Fiat Lux
Featured Trade:
(A QUALITY HEALTHCARE STOCK IN A JAM)
(BMY), (JNJ), (RHHBY)
Sometimes the market overreacts, and it presents a buying opportunity for savvy investors. This is what happened with Bristol Myers Squibb (BMY).
Investors pulled back on BMY shares following mixed results from the Phase 2 trials of Milvexian, a stroke therapy the biopharmaceutical giant is developing with Johnson & Johnson (JNJ).
This treatment works as an anticoagulant formulated to prevent secondary strokes that usually occur after an ischemic stroke.
Ischemic strokes are the most common kind of strokes, triggered when a blood clot blocks an artery heading to the brain.
In its trial, Milvexian showed that it was able to lower the recurrence of ischemic strokes by 30% among patients who exhibited symptoms.
Unfortunately, it wasn’t able to show any effect on the smaller lesions typically detected only via MRIs. This is where the problem lies since the latter was part of the predefined endpoints when the trials started.
So, in terms of reducing symptomatic stroke, Milvexian’s results were “very positive.” But if you consider all the factors, then you get mixed data.
The underwhelming results of Milvexian’s Phase 2 trials led to a 5.5% fall in BMY’s shares, clearly demonstrating the erosion of investor confidence going into Phase 3.
What does this mean?
Milvexian was designed to become the successor of BMY’s mega-blockbuster Eliquis. BMY’s shares are declining because of the fear over the effectiveness of the company’s strategy to power through upcoming patent losses.
Despite the setback, BMY and JNJ aren’t giving up on the treatment. Apart from the 30% risk reduction it offers patients, Milvexian has an impressive safety profile. Based on these results alone, the companies still consider the candidate a good product.
Moreover, the results do not appear to be affecting the overall performance and strategy of the company. Minor adjustments simply need to be made.
The pharma giant’s recent quarter report disclosed revenue of $11.9 billion, which climbed 2% year over year. Within its US market, BMY’s revenue grew by 12%.
The company is also continuously innovating. In early 2022, the FDA approved a new cancer treatment it developed, estimated to rake in $4 billion in peak sales.
It’s also consistent in terms of delivering results. BMY has been generating over $11 billion in revenue quarterly, with profits reaching 14% of sales during those periods.
These sound financials place BMY in a great position to expand and pay out its dividend, which is at 2.9% to date.
Year to date, BMY has been consistently and soundly beating the general markets. It has been up 19% compared to the 10% fall of the S&P 500 as of late.
Aside from developing potential successors, BMY has also been active in acquiring assets. Recently, it shelled out $13 billion to buy MyoKardia.
The deal enabled BMY to gain access to Camzyos, a prescription medicine used to treat adults with a heart condition called symptomatic obstructive hypertrophic cardiomyopathy.
Camzyos recently gained approval and is estimated to reach $4 billion in peak sales annually.
BMY also recently acquired Turning Point Therapeutics for $4.1 billion to gain access to Repotrectinib, which is pegged as the next-generation oral treatment for lung cancer.
Given the drug’s data, it has the potential to competitively go head-to-head against Roche’s (RHHBY) Rozlytrek and rake in $1.5 billion in peak sales.
So, should investors start buying BMY shares following the clinical setback with Milvexian?
While Milvexian isn’t shaping up as the heir apparent for Eliquis, BMY still has a broad pipeline and portfolio of high-value treatments in the market and is under development.
In other words, BMY could easily shake off this setback. That means savvy investors may want to look into the stock and take advantage of this momentary weakness in the Big Pharma’s stock price.
After all, BMY is an excellent drugmaker that investors can rely on for long-term growth and dividend income.
Mad Hedge Biotech and Healthcare Letter
August 30, 2022
Fiat Lux
Featured Trade:
(THE TIMES ARE A-CHANGING)
(NVS), (LLY), (ALC), (GSK), (PFE), (JNJ), (BMY)
With the US GDP sliding for another quarter, the economic projections are becoming increasingly hostile.
However, investors who have consistently been buying quality stocks could easily consider the gloomy economic conditions as a bump in the road.
One of the most resilient companies in the biotechnology and healthcare industry is Novartis (NVS).
The Swiss drugmaker, which has a massive market capitalization of $207 billion, is ranked as the sixth biggest pharma stock worldwide.
Over the past 12 months, Novartis has delivered better results than the overall pharmaceutical industry and the S&P 500. Its performance, albeit marginally better than the rest, proved its resilience amid such chaotic and complex situations.
Recently, Novartis announced that it would cut loose its Sandoz division, turning it into a standalone spinoff by the second half of 2022.
Basically, Novartis has two main segments: Innovative Medicine and Sandoz.
The company’s Innovative Medicine section comprises roughly 80% of its sales and centers on everything involving patented to prescription products.
Its Sandoz section, approximately 20% of the total sales, is further categorized into franchises: Biopharmaceuticals, Retail Generics, and Anti-Infectives.
The stay-behind business would be composed solely of the products in the Innovative Medicines segment, a combination of Novartis’ oncology and pharmaceuticals business divisions.
This makes Novartis the latest name to be added in the long line of Big Pharma players letting go of their generics division to strip away all but their core products in development.
The plan to spin off Sandoz, Novartis’ division concentrating on generics and biosimilars, has been in the works for quite some time now.
Prior to this announcement, there were even talks of a potential acquisition instead of creating a standalone company. However, no attractive enough offer was given, pushing Novartis to go ahead with its original plan.
Sloughing off the generics and biosimilars divisions could help solve some of the company’s issues.
The generic drug sector has been causing issues for drugmakers as of late, and sales of the Sandoz division have been notably stagnant compared to the steady growth of Novartis’ new drugs sector.
To put things in perspective, Sandoz’s net sales in 2021 was only $9.6 billion, while the company’s Innovative Medicine division raked in a whopping $42 billion.
Getting rid of Sandoz means Novartis could focus on more promising products in its portfolio and develop more blockbuster drugs in its pipeline.
For instance, the company can focus on expanding the treatments involving Cosentyx.
The top-selling drug in Novartis’ portfolio, making up 10% of total revenues, Cosentyx continues to rise rapidly, reporting double-digit growth.
This drug targets psoriatic arthritis and was valued at $7.15 billion in 2019. By 2027, this drug is expected to be worth $13.64 billion.
Most importantly, its patent will last longer as it will expire by 2028 in the US, 2029 in Japan, and 2030 in Europe.
Another blockbuster drug in Novartis portfolio is chronic heart failure treatment Entresto, which accounts for roughly 9% of the company’s total revenues. The growth of this product has been impressive thanks to the high demand in Europe, which means an increase in its sales is almost guaranteed.
Like Cosentyx, its patent will also last longer and is estimated to reach until 2036. This makes Entresto one of the most interesting—if not the most exciting—drug in Novartis’ pipeline.
Novartis is also becoming a significant player in the metastatic breast cancer market, estimated to grow from $15.52 billion in 2020 to $41.74 billion in 2030.
The company’s product in this segment, Kisqali, has been gradually taking up market share and is expected to gain more traction as it expands its indications.
In terms of growth, though, multiple sclerosis drug Kesimpta is the top performer in Novartis’ portfolio. In the second quarter of 2021, sales were at $22 million. In the same period in 2022, the number skyrocketed to $239 million.
Kesimpta is anticipated to become another blockbuster, especially with the projections in the multiple sclerosis market.
This segment is estimated to be worth $25.43 billion in 2022 and will grow to $33.17 billion by 2029. While the growth isn’t as massive as other segments, the exciting news is that Kesimpta has been outpacing the growth rate of the reference market thus far.
The move to eliminate Sandoz is in line with the ongoing aggressive slimming down of the company’s operations.
In 2014, Novartis sold its animal health segment to Eli Lilly (LLY). A few years after, it spun off its eye-care sector to become Alcon (ALC), then sold its consumer health segment to GlaxoSmithKline (GSK) for $13 billion.
Meanwhile, the decision to become a pure-play pharma has become a widespread trend among prominent names in the industry, with the likes of Pfizer (PFE), Johnson & Johnson (JNJ), and Bristol Myers Squibb (BMY) transforming into sleeker and slimmer businesses.
Ultimately, the goal is for these pharma giants to shed unwanted weight to compete in the faster-paced biotechnology world. The plan is to focus all their resources on advancing the science and developing the technology needed to come up with the next groundbreaking innovation.
With Novartis joining the bandwagon, we can expect its growth to accelerate over the long term as it focuses more on strengthening its already solid and impressive pipeline. I highly suggest that you buy the dip.
Mad Hedge Biotech and Healthcare Letter
August 25, 2022
Fiat Lux
Featured Trade:
(A RISK WORTH TAKING)
(AXSM), (SAGE), (RLMD), (PFE), (LLY), (BMY), (BIIB)
When a drugmaker does not deliver a new product within the promised timeframe, its shares generally drop.
When this happens, investors should take a closer look at regulatory headwinds as potential buying opportunities, especially in the biotechnology world.
However, it’s important to determine whether the business in question can satisfactorily address the issues raised by the regulators and eventually get the green light for the held-up product.
Several companies find themselves in this scenario, but a particular one looks promising: Axsome Therapeutics (AXSM).
While Axsome isn’t one of the most renowned biotechs and its shares may look somewhat risky, it’s worth considering initiating positions in this growing company.
One reason is Axsome’s recent victory over a hurdle, finally gaining the long-awaited FDA approval for its depression drug that can take effect within just 1 week because it uses a unique mechanism instead of the traditional elements.
The drug, previously known as AXS-05, will be marketed as Auvelity and slated for sale in the fourth quarter of 2022.
For months, investors have been closely monitoring the progress and approval of this drug with some concern.
Doubts over Axsome’s capacity to deliver started to hound the company, especially after FDA’s self-imposed approval deadline for AXS-05 passed in 2021.
However, the company attributed the delay to the pandemic and shrugged off concerns over the actual drug.
Auvelity is the first of a class of drugs, which are classified as NMDA receptor antagonists, to be marketed in pill form created as a treatment for depression.
It is the only approved pill working as a fast-acting drug targeting major depressive disorder. This will also be Axsome’s first-ever marketed product.
Other than Axsome, there are several biotechs working on antidepressant treatments.
Among them, the closest potential competitors are Sage Therapeutics (SAGE) and Relmada Therapeutics (RLMD).
Sage recently started rolling out its own candidate, Zuranalone, for approval as a treatment for major depressive disorder.
Relmada is also working on a similar candidate, REL-1017, but seems to be at an earlier stage.
Psychiatric treatments like Auvelity are widely sought after and highly coveted assets in the biopharma world for a myriad of reasons.
The sheer potential of Auvelity puts Axsome on buyout watch for several Big Pharma and even expanding biotechnology and healthcare companies today.
Moreover, Axsome’s major depressive disorder drug would dovetail conveniently with the lineups of a lot of leading pharmaceutical names in the industry including Pfizer (PFE), Eli Lilly (LLY), Bristol-Myers Squibb (BMY), and even Biogen (BIIB).
With that in mind, Axsome’s brain trust would most likely demand an astronomical premium based on or relative to its current valuation if it ever enters any buyout discussion with interested suitors.
Auvelity sales are projected to hit $209.1 million in 2023, growing impressively to blockbuster status by 2027 at $1.5 billion.
By 2030, sales of this major depressive disorder drug are estimated to reach $2 billion every year.
Auvelity is made up of two drugs that physicians already readily prescribe and are comfortable with for years; one of which is bupropion.
Bupropion, marketed under the brand name Zyban, actually raked in blockbuster sales marketed as a smoking cessation treatment.
Hence, Axsome plans to leverage the success of Auvelity to begin a pivotal study that could utilize this major depressive disorder as a smoking cessation treatment as well.
On top of these, Axsome is anticipating another FDA approval in the next months.
The company submitted its new migraine treatment, AXS-07, for review in 2021. Like Auvelity, it encountered delays due to the pandemic. However, things seem to be moving along as the regulatory committees catch up.
By 2023, Axsome plans to submit another candidate for FDA approval. Clinical trial results for its fibromyalgia treatment, AXS-14, recently released positive data.
So, what now?
When investing in biotech, it’s always good to keep in mind that extreme volatility is an ever-present risk. This makes the sector unfit for those looking for short-term investments.
For Axsome, the biggest challenge today is showing that Auvelity sales can support the development of AXS-07 and AXS-14 and fund operations into 2024 without the need to ask shareholders for more capital.
However, even if Auvelity fails to deliver strong revenues in 2023, the rest of the company’s late-stage pipeline still looks pretty exciting.
Taken together, Axsome looks like a promising stock to invest in as a relatively small portion of a diversified biotech portfolio.
Mad Hedge Biotech and Healthcare Letter
August 24, 2022
Fiat Lux
Featured Trade:
(A NEW KID ON THE BLOCK)
(GSK), (HLN), (UL), (PG), (JNJ), (PRGO), (PBH)
GlaxoSmithKline (GSK) started 2022 by turning down a $60 billion offer from Unilever (UL) for its consumer healthcare division, describing the price as too low.
By June, this same division became a standalone company named Haleon (HLN), with a market value of $29 billion—less than half the amount Unilever wanted to pay.
This means investors looking to buy shares of this spinoff still have a chance to take advantage of the bargain price.
Haleon is so far valued at roughly 13.5 times the consensus average for 2023 earnings, making it a lower multiple compared to competitors selling consumer healthcare items like Unilever, which roughly trades at 17 times its projected 2023 profits, and Procter & Gamble (PG), which trades at about 24 times its estimated earnings.
Compared to Procter and Gamble and Unilever, though, Haleon is a large-cap company that’s considered a pure-play consumer healthcare company.
It started trading as a standalone company by July, with a portfolio that included oral health items such as Aquafresh and Sensodyne, some OTC drugs like Advil and Theraflu, and several supplements including the best-selling multivitamin brand Centrum.
Keep in mind that the majority of Haleon’s core products have been practically unchanged for years. This spinoff only allotted roughly $300 million for R&D in 2021.
That comprises a mere 2.7% of its turnover. Meanwhile, GSK spent over 20% of its turnover on R&D initiatives within the same period excluding Haleon.
So far, the only notable pure-play consumer healthcare competitors are Perrigo (PRGO) and Prestige Consumer Healthcare (PBH). However, these two operate at a far smaller scale, with market capitalizations of less than $6 billion.
The absence of a competitive peer group and the limited track record of Haleon as a solo company makes this GSK spinoff more speculative compared to other consumer healthcare firms.
Haleon’s future would become clearer by the end of 2022, with more earnings reports under its belt, alongside the completed deal with Johnson & Johnson (JNJ).
JNJ also plans to create a standalone company for its consumer healthcare division in 2023. Haleon will be combined with this particular spinoff to form a new category.
Based on its current portfolio, brand recognition, and years of experience under Big Pharma’s, Haleon is projected to grow by 3.3% annually from 2023 through 2026.
At this point, Haleon is already considered a dominant player in the field. In the 2021 earnings report, this division brought $11.5 billion to GSK. That’s lower than JNJ’s own consumer healthcare division, which raked in $14.6 billion, but higher than Procter & Gamble’s $10 billion.
A standalone consumer healthcare company has the capacity to attract additional investor attention and gain higher valuations for those looking for steady—albeit not jaw-dropping—growth while earning consistent income from dividends.
Haleon announced that it intends to start paying out in the first half of 2023 “at the lower end” of the 30% to 50% range of its earnings. Looking at the company’s recent price, its 2023 dividend yield is estimated to be at 2.3%.
The consumer healthcare sector is a lucrative segment. The size of this market is estimated to reach $301.4 billion by 2027, with a 7.2% growth in CAGR throughout that period.
The demand for products in this segment tends to be unaffected by economic issues like recessions. Moreover, established brands, particularly those under Big Pharma names like JNJ and GSK, can easily set a very high barrier for competitors to overcome.
Overall, Haleon presents an opportunity for investors to bag a bargain.
It has a solid lineup of strong brands, which have shown their capacity to drum up consistent sales and demand low R&D expenses. These factors make Haleon a potential cash cow that could steadily deliver rising dividends for years to come.
Haleon is a good bet on an excellent emerging market—not to mention a virtually recession-proof—market.
