Mad Hedge Biotech and Healthcare Letter
June 28, 2022
Fiat Lux
Featured Trade:
(A RESILIENT BUY-AND-HOLD STOCK)
(AZN), (MRK)
We officially entered a bear market when the S&P 500 continued to decline in value.
Falling by 23% since January, the index has battled constant pressure in 2022 as multiple issues like interest rate hikes and the war in Ukraine continue to make investors anxious over the future of the economy.
While the near-term prospects look gloomy for most businesses, there are several stocks that could be great buy-and-hold investments for the long term.
One of them is AstraZeneca (AZN), which has been in good shape to weather the turbulent conditions and still managed to generate solid results for its shareholders.
A critical factor in making AstraZeneca a top-performing growth stock is the broad range of drugs contributing to its top line.
The company has several blockbusters that generate over $1 billion in yearly revenue to fund its operations.
Needless to say, diversification is critical to appease investors to assure them that they’re not heavily relying on a single product.
Among the products under development for AstraZeneca, one of the most exciting prospects for this year is Enhertu.
Enhertu was just recommended in the European Union as a form of treatment for high-risk breast cancer patients.
This drug, developed with Japan’s Daiichi Sankyo, is anticipated to become another significant growth driver for AstraZeneca.
Breast cancer is the most widely reported type of cancer in the US. It takes over 40,000 lives annually.
Given the latest development and approval for Enhertu, this drug could potentially cover three times as many patients as the existing standard of care.
With the latest endorsement from the EU, Enhertu is estimated to reach $6.6 billion in peak sales. This is $2.5 billion more than the initial projection for this breast cancer treatment.
Aside from Enhertu, the European Union also endorsed Lynparza. This is another AstraZeneca treatment for breast cancer, which it developed jointly with Merck (MRK).
The expansion of its oncology business bodes well for AstraZeneca since it demonstrates a more diverse pipeline.
In 2021, the company acquired a highly sought-after rare disease biotechnology company, Alexion Pharmaceuticals, in an effort to expand its portfolio.
So far, this bet has paid off, with rare disease revenue from Alexion’s programs reaching a total of $1.7 billion in the first quarter of 2022.
To date, this particular segment comprises more than 15% of the total product revenue of AstraZeneca.
Another key strength of AstraZeneca is its strong pipeline and impressive innovation engine, with the company listing over 180 programs queued for development.
The latest developments in its promising programs involve potential breast and liver cancer treatments. In addition to its oncology lineup, the company is also developing new therapies for asthma.
Recently, the company disclosed the creation of a new R&D center in Massachusetts.
The plan is to establish a site for both AstraZeneca and Alexion’s workforces to integrate and work together. That could mean an expanded program for its rare disease portfolio.
In the first quarter of 2022, AstraZeneca’s renal, metabolism, and cardiovascular segments contributed $2.2 billion in sales, showing off a 14% increase from last year’s performance.
Meanwhile, oncology is still the top business of the company, making up 30% of its revenue of roughly $3.4 billion in the first quarter of the year.
Considering that Enhertu is still in its early phase, this number is expected to climb higher in the coming months.
Clearly, AstraZeneca has multiple growth opportunities within reach this year, making it an exciting stock to own.
Moreover, cancer care represents a continuous demand and will not be suspended for reasons like a recession or inflation.
As a leading oncology company, AstraZeneca is a relatively resilient investment despite the uncertainties.
Mad Hedge Biotech and Healthcare Letter
June 23, 2022
Fiat Lux
Featured Trade:
(AN A-RATED STOCK FOR THE ANXIOUS INVESTOR)
(PFE), (AZN), (MRK), (NVO), (BNTX), (VLA), (GSK)
Choosing businesses with size and scale in their favor is more often than not a wise move for investors.
After all, these companies tend to be well established in their respective fields and hold a higher chance than their peers in terms of sticking around for a long time.
Pfizer (PFE) is an excellent example of a mature biopharmaceutical stock that could efficiently deliver great rewards to investors for many years.
However, the elephant in the room for this stock is whether the bumper profits from its COVID-19 vaccines will be sustained in the long term. These concerns have kept a lid regarding the company’s valuation.
If we strip out Comirnaty from the conversation, Pfizer will still have a decent valuation in relation to its share price today.
It has a current P/E of 11x and market capitalization to operating cash flows of 8.9x. In contrast, fellow vaccine maker AstraZeneca (AZN) has been trading at a negative P/E and a stressful market cap to operating cash flow of 27 times.
For added context, Big Pharma names Merck (MRK)’s P/E is 17x while Novo Nordisk (NVO) has been trading 37 times.
Going back to Pfizer, the company’s first-quarter earnings results for 2022 indicated a strong performance and reinforced its guidance this year.
For the full year of 2022, the company projects sales within the range of $98 billion to $102 billion.
To offer you a better picture of the scale of this growth, this would amount to 150% times the yearly sales between 2018 and 2020
It would actually be a quarter higher than the 2019 and 2020 sales combined.
If this roughly $100 billion forecast is achieved, Pfizer will become the first-ever pharmaceutical stock to reach that goal.
To put this in perspective, if we consider Pfizer as a country or a territory, then its GDP would be ranked 64th globally.
This would put it above Ethiopia and immediately behind Puerto Rico.
During this period, Pfizer recorded $25.7 billion in revenue, showing off an impressive 82% operational growth rate year-over-year and a 76% EPS growth.
Comirnaty, co-created with BioNTech (BNTX), raked in $13.2 billion, reporting a 282.1% spike for Pfizer
Meanwhile, the newly launched COVID-19 treatment, Paxlovid, generated $1.5 billion in revenue.
Pfizer’s consistent exponential growth, as shown in the first-quarter earnings, isn’t solely dependent on its COVID vaccines.
While Comirnaty and Paxlovid comprised over 50% of the $25 billion revenue in that period, sales from other segments continued to rise.
For example, stroke and blood clot treatment Eliquis generated $1.8 billion, up by 12% from its 2021 first-quarter sales of $1.2 billion. Meanwhile, heart failure treatment Vyndamax jumped by an impressive 41% to hit $612 million.
On top of its solid drug development pipeline, Pfizer has been leveraging its bumper cash flow to pursue bolt-on acquisitions of promising biopharmas.
Just last month, Pfizer acquired Biohaven Pharmaceuticals for $11.6 billion in cash. The smaller company’s primary treatment is Rimegepant, a migraine medication approved in both the US and Europe.
Aside from that, Pfizer threw its weight behind a fellow COVID vaccine maker, a French biotechnology company called Valneva (VLA).
Valneva’s most promising program is its late-stage development of a vaccine for Lyme disease.
When Pfizer announced its decision to add $95.6 million to the project plus up to $100 million in milestone payments, it triggered a massive 81% surge in Valneva stock price.
Pfizer and Valneva’s partnership for developing a Lyme disease vaccine started in 2020 when the bigger biopharma paid $130 million upfront.
This latest revision of their deal will not only up Pfizer’s stake in Valneva to 8.1% but also allow the French biotech to continue with its Phase 3 trial without the fear of straining its cash position.
Pfizer currently holds a distinct position in its history, with gushers of cash coming practically from all places.
These sums can only be expected to go higher with the anticipated listing of its consumer healthcare business, which it co-owns with GlaxoSmithKline (GSK). While there’s no official word yet on the deal, Pfizer’s plan to sell its stake could generate roughly $19 billion.
Moreover, the company maintains a respectable dividend yield of 3% and a net debt of roughly $10 billion, which can be completely paid off using its operating cashflows for three to four months.
This enables Pfizer to sustain a comfortable credit rating of “A” Stable from Fitch, thereby making it financially stable and safe from the ever-increasing interest rates.
Needless to say, Pfizer is the kind of stock that offers rare stability in this turbulent period.
Mad Hedge Biotech and Healthcare Letter
June 21, 2022
Fiat Lux
Featured Trade:
(A POTENTIAL ONE-STOP-SHOP IN THE CANCER MARKET)
(SEGN), (MRK), (PFE), (ABBV), (JNJ)
So far, there’s no clear leader in the cancer market. However, it looks like things might change soon if Merck (MRK) gets its way.
The biotechnology and healthcare sector has heard some interesting updates lately involving Merck and its frequent collaborator, Seagen (SEGN).
While Merck already has a stake in Seagen, it appears that the New Jersey biopharma wants the whole thing. There’s no need to panic buy just yet, though, since Merck still has to go through hoops to prove that its plan won’t cause any antitrust issues.
Moreover, Merck won’t be the only suitor. Several names in Big Pharma have been eyeing Seagen for quite some time, including Pfizer (PFE) and AbbVie (ABBV).
Even Japan’s Astellas Pharma, with a jaw-dropping $3.76 trillion market capitalization, is said to be interested.
If this does push through, it would be another massive deal since Seagen’s current market capitalization is at $31 billion.
Why is Seagen an attractive acquisition candidate?
This biotech currently has four cancer treatments available on the market.
It’s also reviewing a couple of candidates to determine how they react as part of a combo therapy with Merck’s blockbuster drug Keytruda.
Evidently, the potential to exclusively own the rights to compounds that could bolster the effects and expand the indications of its bestselling therapy is a significant motivation for Merck.
If the acquisition happens, Merck will undoubtedly be an incredibly formidable powerhouse in the oncology sector.
At the moment, the company already has 46 commercially approved indications in its cancer portfolio.
By 2028, Merck plans to see this number grow to over 80 oncology drugs, with Keytruda leading the charge.
Aside from its potential combination with Merck’s top-selling treatment, what’s more promising for Seagen is its actual portfolio of four molecules or its Big Four franchises.
These are Adcetris, Tukysa, Padcev, and Tivdak.
Adcetris has been hailed as the foundation of care for practically all types of lymphoma, while Padcev has been proven to be the standard of care for advanced bladder cancer.
Tukysa has been hailed as best-in-class for metastatic breast cancer, while Tivdak is the first-in-class for cervical cancer.
Holding such premier titles and indications ensures that these treatments generate highly aggressive revenue boosts, thereby guaranteeing their trajectory towards becoming blockbusters.
After all, you rarely hear of any blockbuster treatment being a second-line therapy.
In terms of sales, the Big Four managed to generate a total of $383 million in the first quarter of 2022. This indicates approximately 27% year-over-year sales growth, which bodes well for the future of Seagen’s portfolio.
Adcetris rakes in $181 million during the said period, Padcev contributed $100 million, Tukysa generated $90 million, and Tivdak recorded $11 million.
Tukysa’s growth was attributed to its penetration of the European market in February 2021, while Adcetris soared because of its expansion to include advanced Hodgkin lymphoma.
As for Tivdak, this particular product’s performance could be attributed to the fact that it was only approved last September 2021.
Among the four, however, Padcev showed the most aggressive rise in sales at a 44% increase year over year.
Its substantial growth is not only due to its superior efficacy over traditional treatments but also to its ever-increasing market penetration.
Aside from the US, it has successfully entered the UK, Japan, Canada, Israel, Switzerland, and the European Union.
Given its history and how it’s performing, Padcev is projected to become a blockbuster treatment before 2030.
Although the Big Four have delivered groundbreaking changes to the oncology sector, Seagen has been consistent in aggressively pursuing new candidates.
It currently has 17 programs in its pipeline, which target blood cancers and solid tumors.
Ultimately, Seagen’s goal is to become an all-around cancer biotech—aka the oncology sector's Johnson & Johnson (JNJ).
Mad Hedge Biotech and Healthcare Letter
June 16, 2022
Fiat Lux
Featured Trade:
(AN UNDERRATED LONG-TERM BIOPHARMA STOCK)
(OGN), (MRK), (PFE), (VTRS), (ABBV), (JNJ), (AMGN), (RHHBY), (BMY)
Six months into 2022, the markets are still in turmoil while highly valued stocks rapidly fall.
A way to cope with these is to search for safety and security among value-focused investments that are less at risk of sudden declines.
One business that remains profitable and is trading at a relatively affordable price, especially considering its future earnings multiples, is Organon (OGN).
Organon is a spinoff from Merck (MRK). It focuses on women’s health products, existing treatments, and biosimilars. It was launched roughly the same time Pfizer (PFE) launched its spinoff, Viatris (VTRS), in 2021.
While Organon has yet to become a superstar growth stock at the moment, it’s an excellent business to consider for a stable long-term investment.
So far, the company has managed to generate promising gross margins north of 60% and consistently proved to be profitable.
To date, Organon has over 60 treatments in its pipeline.
Thanks to strategic partnerships, Organon has become the biggest pharmaceutical company centered on women’s health.
Not only that, it has an extensive portfolio of biosimilars or biosimulators focusing on cardiovascular, dermatological, and respiratory conditions.
Meanwhile, Organon has one of the highest dividend yields among biopharma companies at 3.47%, with consistent dividend payments of $0.28 per share every quarter.
Organon’s biosimilar growth received a jumpstart from its agreement with Samsung Boepsis in 2013. The deal enables both companies to develop and market a number of biosimilar treatments focused on cancer and immunology.
Under this partnership, Organon has been granted exclusive license to manufacture, test clinically, and market inflammatory treatments like AbbVie’s (ABBV) top-selling Humira, Johnson & Johnson’s (JNJ) blockbuster Remicade, and Amgen’s (AMGN) moneymaking treatment Enbrel, as well as oncology therapies such as Roche’s (RHHBY) promising growth drivers Avastin and Herceptin.
These catapulted Organon as the leader in the fast-expanding healthcare field, where several lucrative drugs will lose their patent exclusivity before 2030.
Riding this momentum, Organon plans to expand its portfolio of biosimilars to cover more therapeutic fields like neuroscience, diabetes, and even ophthalmology.
To boost its portfolio, Organon has been collaborating with Shanghai’s Henlius Biotech to work on more biosimilars.
The Merck spinoff has agreed to pay $73 million upfront in addition to $30 million in milestone payments for the development of Pertuzumab, a biosimilar for Roche’s breast cancer treatment Perjeta, and Denosumab, a biosimilar of Amgen’s osteoporosis drug Prolia. Another Amgen drug, bone cancer treatment Xgeva, is included in the collaboration agreement.
For context, Amgen reported $873 million in sales for Prolia and $545 million for Xgeva in 2021, while Roche raked in $4 billion from Perjeta.
If this partnership works out, Organon and Henlius plan to move forward with a biosimilar to Bristol Myers Squibb’s (BMY) cancer drug Yervoy and its best-selling Opdivo.
While these are all exciting, it may still take some time for the biosimilars to be released to the market. Among them, the Prolia biosimilar has the most apparent timeline, potentially launching the product by 2024.
Although Organon has yet to make a splash in the biopharmaceutical market, the company holds impressive potential. So far this year, the stock has been up 15%—a performance that’s better than the S&P 500 that recorded 4% in losses over the same period.
More than that, its price is heavily discounted these days, offering investors an extra incentive to seize the opportunity to buy shares of this relatively new company in the healthcare sector.
It also has consistent revenue growth and a promising pipeline of diverse candidates with the potential to expand the company’s portfolio.
Taking all these into consideration makes Organon an underrated buy at the moment and a great candidate for long-term investors.
Mad Hedge Biotech and Healthcare Letter
June 14, 2022
Fiat Lux
Featured Trade:
(MULTI-PRONGED STOCKS POSITIONED FOR LONG-TERM SUCCESS)
(LLY), (NVO)
The majority of the global population lives in nations where obesity and being overweight kill more individuals than being underweight.
Over 40% of the US population is categorized as obese, with drugs barely scratching the surface, as only about 3% of the obese patients take them.
More alarmingly, 39 million children under 5 years old were obese or overweight in 2020.
This is why it is no surprise that more and more companies in the biotechnology and healthcare sector are working on obesity treatments. After all, obesity is the starting point of a lot of serious diseases.
Obesity is a primary risk issue for diabetes, heart disease, stroke, some types of cancer, and several severe conditions—most of which are among the leading reasons behind premature deaths.
However, a key factor to consider here is that obesity is preventable. Hence, dealing with this condition could help patients manage better potential severe conditions.
Needless to say, the market for this condition can also be lucrative. In the US alone, the annual expense for obesity medication reached approximately $173 billion in 2019.
This is because the medical bills of an adult with obesity are at least $1,861 higher than someone with a healthy weight.
So far, two names have emerged as major players in the obesity market: Eli Lilly (LLY) and Novo Nordisk (NVO).
Noticeable weight loss was observed in clinical trials of treatments that Novo Nordisk and Eli Lilly initially developed for diabetes.
Consequently, these announcements pushed the stocks higher despite the backdrop of a relatively flat Nasdaq Composite recently.
For Eli Lilly, the company disclosed that results of its Phase 3 trials for its diabetes drug Tirazeptide showed that the highest dose would lead to a 21% to 25% weight loss or an average of 52 pounds within 18 months.
The possibility that Tirzepatide, which is already sold under Mounjaro as a Type 2 diabetes treatment, can also be marketed as a weight-loss drug has been prodding Eli Lilly stock.
At the moment, Eli Lilly was only able to test Tirzepatide against Novo Nordisk's Wegovi. The former notably outperformed the Danish candidate on most factors.
If Tirzepatide gains FDA approval as an obesity drug, then Eli Lilly can launch it commercially by mid-2023.
Given the size of the market and the drug’s promising results, Tirzepatide is estimated to reach over $10 billion in obesity sales alone, in addition to the more than $12 billion projected in diabetes sales.
Aside from obesity, Eli Lilly is also looking into testing Tirzepatide for other linked conditions like heart failure, stroke, and other cardiovascular diseases.
If these work out, then the additional markets would contribute over $14 billion in sales by 2030.
Meanwhile, Novo Nordisk also released promising results for its investigational treatment named Kagrisema.
While Eli Lilly is considered a dominant force in the diabetes market, Novo Nordisk is a strong challenger. Some would say that this Danish company is the global leader in the segment.
That could very well be the case because a company can be considered a global controller if it holds around 30% of the market.
While the diabetes sector tends to be complex since it’s segmented, Novo Nordisk indisputably holds 30% of the primary market. Moreover, it holds 40% to 50% of a diabetes sub-market focused on insulin products.
With that said, it was hardly unexpected that Novo Nordisk was the first to market an FDA-approved drug for obesity: Wegovi.
Wegovi, the same drug tested by Eli Lilly against Tirzepatide, was launched in June 2021. This treatment enabled obese patients to lose roughly 15% of their body weight.
Since Eli Lilly has been working on a more effective drug, Wegovi sales are expected to reach approximately $5.5 billion by 2025 and eventually lose stake to competitors and Novo Nordisk’s own next-generation treatment Kagrisema.
The diabetes and obesity markets present substantial growth opportunities in the years to come.
It is projected that roughly 415 million people are suffering from diabetes globally, and the number is anticipated to increase to 642 million by 2040, representing a 3% annual rise.
In the US alone, it is expected that the prevalence of diabetes will rise by 54% to over 54.9 million people between 2015 and 2030.
This means the anti-obesity treatments market is estimated to expand more aggressively at a CAGR of roughly 15% in the next 5 years.
Both Eli Lilly and Novo Nordisk are well-established biopharma businesses that offer high-quality products across various areas.
They are both leaders in diabetes and obesity markets with impeccable growth opportunities. Their pipelines are well diversified, and neither relies solely on one product, making their businesses attractive and less risky.
I suggest that those looking for long-term investments put these stocks under their radar and start building up positions on pullbacks, as these are excellent companies to own in a well-balanced portfolio.
