Biotech Letter - John Thomas - Mad Hedge Fund Trader

A Low-Key Biotech Set for a Bull Run

Biotechnology stocks have been sliding for months now, but scientific advancements are not slowing down.

The public’s focus on messenger RNA and gene editing may have dwindled, but the fact remains that more and more patients are benefiting from the discoveries.

More importantly, new treatments are well on their way to clinical trials.

That’s why I think Regeneron (REGN) could easily be one of the big winners in the coming years.

Despite the economic slowdown, Regeneron shares are doing okay. They have actually practically doubled since the start of 2020, when the biotech was thrust under the spotlight for its anti-COVID antibody cocktail, REGEN-COV.

Its popularity heightened when then-president Donald Trump used its treatment.

While the demand for REGEN-COV has since declined, the drug still raked in $7.5 billion in sales in 2021.

However, that would most likely not be the trend since it was proven to be not as effective against the newer strains. In addition, the FDA significantly limited the situations in which the antibody cocktail can be used.

For the foreseeable future, Regeneron shareholders’ earnings are primarily dependent on macular degeneration treatment Eylea and asthma and dermatitis drug Dupixent.

For Eylea, which Regeneron shares with Bayer (BAYG) outside the US, sales grew by 19% in 2021 to record $9.4 billion.

A vital issue Eylea faces is its expiring US patent by mid-2023, which will probably lead to more aggressive biosimilar competition as early as 2024.

Aside from that, more and more rivals are emerging, such as Beovu from Novartis (NVS) and Vabysmo from Roche (RHHBY).

Luckily for Regeneron, Beovu hasn’t gained traction due to safety issues, while Vabysmo is still struggling to establish itself as a viable alternative.

Thanks to its entrenched position as an undisputed market leader, Eylea sales will continue to be a top-selling treatment.

While things are still going well for Eylea, Regeneron has been proactive in establishing Dupixent as another key growth driver.

Dupixent, which was co-developed with Sanofi (SNY), showed off an impressive 51% jump in sales last year to rake in $6.2 billion—and this isn’t the peak yet.

Dupixent is estimated to reach over $14 billion in sales in the following years due to expanded markets.

Sales of this newer drug have caught up with Eylea’s in the past years.

In fact, Dupixent is projected to overtake Eylea sales by 2024, with the figure almost doubling by 2025 compared to the 2021 revenue.

In terms of competition in the atopic dermatitis sector, Dupixent is challenged by Rinvoq from AbbVie (ABBV), Cibinqo from Pfizer (PFE), and Opzelura from Incyte (INCY).

Nonetheless, Dupixent still looks well-positioned to expand into current and new indications in the following years and be able to fight off competitors.

It is critical for any biotechnology and healthcare business to maintain a solid pipeline to respond to upcoming patent losses and the rise of generic competition.

In this aspect, Regeneron has been performing excellently.

It has several treatments queued that complement the existing blockbusters, Eylea and Dupixent, and bolster the long-term growth prospects.

A good example is the company’s experimental treatment Aflibercept, which is slated to release Phase 3 results in the third or fourth quarter of 2022.

If this succeeds, it can enhance and strengthen Eylea’s efficacy, allowing Regeneron to retain its dominant position in the retinal market.

The company is also working on getting the green light for seven new indications on Dupixent-related treatments, which would be out by late 2022 and early 2023.

Another area under Regeneron’s radar is oncology.

While it’s cancer portfolio isn’t likely to become a significant growth driver anytime soon, there’s definitely potential here—and the potential comes in the form of in-house combos with Libtayo.

Libtayo, a cancer checkpoint inhibitor, is the most significant drug candidate in Regeneron’s oncology pipeline today.

Although it’s a latecomer to the field, Regeneron has become one of the frontrunners in the skin cancer segment with the approval of its cutaneous squamous cell carcinoma indication and the addition of the basal cell carcinoma label.

However, those are relatively minor markets. In terms of infiltrating a major market, Libtayo’s first venture is into the lung cancer sector.

But, this could be challenging since Merck’s (MRK) Keytruda has a firm hold of this market.

Still, Libtayo has the potential to achieve blockbuster status—a goal that Regeneron looks to be aggressively pursuing.

Aside from skin and lung cancer treatments, Regeneron has been developing Libtayo-based candidates for prostate cancer treatment REGN5678 and ovarian cancer therapy REGN4018. It is also working on another lung cancer treatment, REGN5093, to hopefully bolster its foothold in this lucrative market.

Needless to say, approval of these cancer treatments would be an incredible game-changer not only for cancer patients but also for Regeneron.

Overall, Regeneron is an outstanding biotechnology company and investment option. The success of its blockbuster treatments will offer a strong foundation for the company’s future growth.

If you add the more than 30 pipeline candidates of Regeneron in the mix, then it’s easy to see that a bull run might just be on the horizon for this stock.

While regulatory hurdles and emerging competitors would present challenges, it’s clear that Regeneron has these issues under control.

Moreover, the company’s pipeline has clearly shown that it’s ready to meet the challenges head-on. Hence, it would be advisable to buy the dip.

June 2, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
June 2, 2022
Fiat Lux

Featured Trade:

(A SOLID BIOPHARMA FILLED WITH PROMISING CATALYSTS)
(GSK), (PFE), (INCY)

A Solid Biopharma Filled with Promising Catalysts

Biotech Letter

If the rumblings in the market have you laboring just to get a full night’s rest, know that you are not alone. What’s more comforting is that you are not defenseless in this situation.

It pays to buy stocks that will still be worth something to your investment portfolio in uncertain periods, even if these end up getting torn apart a bit due to political and economic issues.

One of them is GlaxoSmithKline (GSK).

With a massive market capitalization of over $104 billion, GSK is recognized as one of the most prominent biopharmaceutical players in the healthcare sector.

Primarily due to its extensive portfolio of drugs and services, ranging from amoxicillin to antidepressants, this company raked in roughly $46 billion in 2021.

This shows off a quarterly increase in revenue by 40% in the past five years, with a quarterly free cash flow rise of 378%. Among other factors, these figures are indicative of GSK’s long-term health.

Regarding its revenue-making capacity for shareholders, the company’s forward dividend is recorded at $2.92, putting its yield at approximately more than 5%. This is higher than the average recorded by the market, which is 1.2%.

While this sounds great, investors should be aware that GSK’s dividend doesn’t necessarily come with the guarantee of climbing over time.

Actually, the company’s payout has only increased by 13.3% over the past 10 years. So, it’s reasonable to believe that the figure would most likely stay the same.

Nevertheless, GSK has more revenue streams to add in the short term. The company has 5 varying treatments queued for registration.

That is, if they gain regulatory approval, GSK would have 5 new drugs to launch soon.

On top of these, the company has a myriad of late-stage candidates in its pipeline that hold the potential to advance in the following years as well. Evidently, GSK isn’t short on promising growth catalysts.

In another move to bolster its pipeline, GSK recently announced its plan to buy Affinivax for roughly $3.3 billion. If everything goes well, GSK will add this Boston-based company to its portfolio to expand its vaccine programs by the third quarter of 2022.

This move is one of the many decisions GSK made in preparation for the impending spinoff of its consumer healthcare business, Haleon, which is anticipated to happen by July 2022.

The plan is to have 80% of GSK’s holdings in Haleon be spun off to its shareholders while the company retains 20% to strengthen its financial standing. Pfizer (PFE) will get the remaining ownership.

Considering the brands under Haleon, including Sensodyne, Panadol, and Centrum, this future spinoff is projected to become a world leader in the field of consumer healthcare. Clearly, GSK shareholders would benefit greatly from this plan.

Another recent move to broaden its pipeline is GSK’s $1.9 billion agreement with Sierra Oncology.

This deal, which is also expected to reach completion by the third quarter of 2022, will add bone marrow cancer drug candidate Momelotinib to GSK’s pipeline.

Momelotinib targets myelofibrosis patients with anemia. The estimated number of individuals with myelofibrosis in the US alone is 20,000.

While there’s no fixed number on the drug’s target market, we can only look at the history of patients.

Typically, 40% of myelofibrosis patients are already battling anemia upon diagnosis, and virtually all of them eventually develop the condition.

Conservatively, I can say that 70% of the total patient population has anemia. This would amount to roughly 14,000 eligible patients.

At the moment, only a handful of treatments target myelofibrosis. One of the most popular is Jakafi from Incyte (INCY).

However, Jakafi and chemotherapy fail to yield results consistently, Momelotinib could become a viable option for the target population.

As a relatively new candidate, it’s reasonable to assume that Momelotinib could seize only 35% of this market or roughly 4,900 patients.

So far, there’s still no pricing information for Momelotinib, but the $120,000 average expense for cancer treatment annually is a good indicator in terms of an estimate.

Taking into consideration other factors like patient assistance programs and the adjustments in prices from negotiations with health insurers, then Momelotinib could reach pricing of $80,000 for each patient.

This could total approximately $400 million in yearly sales in the US alone. Since the US comprises 40% of drug spending worldwide, there is an excellent chance that Momelotinib will reach $1 billion in annual sales.

Putting this in perspective, $1 billion in additional revenue yearly would amount to a 2.2% boost over GSK’s $45.9 billion expected revenue in 2022.

Needless to say, this Sierra Oncology deal is more than enough to move the needle for the company.

Overall, GSK has an exciting year ahead. With the Haleon spinoff and the continuous growth of its pipeline, it’s easy to see why this company is an excellent long-term investment.

gsk

May 31, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 31, 2022
Fiat Lux

Featured Trade:

(A LOW-RISK STOCK FOR THESE HIGH-RISK TIMES)
(BMY), (RDY), (PFE)

A Low-Risk Stock for These High-Risk Times

Biotech Letter

A number of Big Pharma stocks have performed quite well in 2022, which is impressive considering the slump overtaking Wall Street these days.

Case in point, Bristol Myers Squibb (BMY) shares have gone up by over 20% year-to-date and are showing no indications of notable decline. It has fared remarkably better than the rest of the market and has been in positive territory since the year started.

The fact that BMY has been easily whipping the broader market despite headwinds like inflation, interest rate hikes, geopolitical tensions, and, of course, supply chain problems offers investors some semblance of peace of mind.

The first quarter of 2022 saw BMY’s revenue climb by an unimpressive 5% year-over-year to rake in $11.6 billion, with its adjusted earnings rising by 13% to reach $1.96 per share. While those earnings weren’t exactly disastrous, they were hardly impressive. A potential reason behind this involves BMY’s cancer treatment Revlimid.

Although Revlimid is still one of the top-selling treatments of BMY, more and more generic competitors have cropped up, which caused the decline in sales.

A notable challenger is Dr. Reddy’s Laboratories (RDY), which received the go signal from the court to start selling a limited number of its generic version after March 2022 despite Revlimid’s patent protection lasting until 2026. The same right was granted other generic drug developers like Natco and Alvogen.

This ruling already had a damaging effect on Revlimid’s revenue. This cancer treatment contributed $2.8 billion in revenue in the first quarter, marking a 5% drop year-over-year and missing estimates by roughly $100 million. For context, Revlimid sales reached $12.8 billion in 2021.

Nonetheless, several of BMY’s important drugs have delivered good results during this period. For example, Opdivo sales rose by 12% to rake in $1.9 billion. On top of that, Opdivo has been gaining additional regulatory approvals recently. Meanwhile, Eliquis, a collaboration between Pfizer (PFE) and BMY, generated $3.2 billion in sales, showing off a 12% climb.

Moreover, BMY has taken strategic steps to deal with the impending patent exclusivity losses. It has developed a deep pipeline of promising treatments, several of which are expected to replenish its current lineup and compensate for the slowdown in sales.

For instance, BMY recently gained FDA approval for heart muscle treatment Camzyos. Aside from this, the company’s plaque psoriasis candidate Deucravacitinib is also expected to receive regulatory approval within 2022.

Meanwhile, BMY anticipates additional approvals for its anemia treatment Reblozyl. To put things in perspective, Reblozyl raked in $156 million in the first quarter, registering an impressive double-digit growth of more than 39% year-over-year. This is indicative of the treatment’s potential.

Overall, the company estimates revenue to be between $10 billion and $13 billion by 2025 and reach $25 billion by 2029 for these newer candidates alone.

Needless to say, these new candidates could help BMY easily diversify its revenue streams and ensure that it doesn’t get too heavily damaged by generic competition.

After all, biotechnology and healthcare companies typically thrive thanks to the benefits their patent protections offer them, granting them some control over pricing. The moment their key drugs lose their exclusivities, compensating for the lost revenue becomes crucial for any company’s strategy.

Hence, BMY’s capability to continuously replenish its pipeline speaks volumes. In fact, this could be one of the primary reasons for the company’s success for over 100 years.

Moreover, with the uncertainty looming over the market, investors are desperate for safe stock to place their capital.

While it may not seem like the most exciting industry these days, healthcare remains one of the safest bets you could take. It is a historically defensive segment and offers protection thanks to the sheer inelasticity of the products in this space.

This is especially true in the case of BMY since the company focuses heavily on cancer therapies and drugs.

The mere fact that more than 92% of the US population are insured all but guarantees that BMY will not experience any shortage of clients even during periods of uncertainty.

Actually, it could very well boost its top and bottom lines.

May 26, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 26, 2022
Fiat Lux

Featured Trade:

(WAITING FOR THIS BIOTECH TO STOP MONKEYING AROUND)
(INO), (BVNKF), (EBS), (JNJ), (PFE), (MRNA), (BNTX), (AZN), (NVAX), (REGN), (QGEN)

Waiting for This Biotech to Stop Monkeying Around

Biotech Letter

Almost immediately after US President Joe Biden advised that “everybody” should be concerned over the new worldwide outbreak of the monkeypox virus, the shares of biotechnology and healthcare companies working on monkeypox treatments and vaccines started to rise.

Shares of Danish company Bavarian Nordic (BVNKF), the only monkeypox vaccine developer approved in the US, were up 5.8% in premarket following the announcement.

Bavarian Nordic’s vaccine, called Jynneos, uses a live version of the smallpox virus, which has been altered so that it no longer can replicate in the recipient’s body or cause any infection.

Instead, it has been engineered to activate the immune system and prepare the body’s defenses to fight off smallpox and monkeypox viruses.

Based on data from Africa, two shots of Jynneos, administered 28 days apart, recorded up to 85% in terms of efficacy against monkeypox.

In 2019, Jynneos received regulatory approval from the US FDA for both smallpox and monkeypox.

Aside from Bavarian Nordic, shares of Emergent BioSolutions (EBS) also rose by 11.8% following Biden’s announcement.

While Emergent has no vaccine specifically for monkeypox, it has a smallpox vaccine that can be used to prevent monkeypox.

It can be recalled that Emergent BioSolutions has been an exiled ticker after the US Congress launched an investigation on the manufacturing issues in its Bayview Facility in 2021.

Although the company has managed to clean up that mess and is back to working with Johnson & Johnson (JNJ) to produce COVID-19 vaccines, EBS has yet to return to investors’ good graces.

While the scale of the threat has yet to be determined, the US has secured contracts for Jynneos and Emergent BioSolutions’ vaccine and is already stockpiling in case of an outbreak.

What’s curious, though, is that another company has benefited from this announcement despite not having any monkeypox or even smallpox vaccine candidates.

Inovio Pharmaceuticals (INO) shares rose by 12.2% following the announcement—a surge that couldn’t be adequately explained since the company has no relevant product and does not seem to have any program even remotely linked to this potential outbreak.

As far as I can tell, the last time Inovio even mentioned monkeypox was in 2010 when it discussed a potential experiment on a vaccine that could protect nonhuman primates against the virus. However, nothing came out of that plan either.

If Inovio sounds familiar to you, it’s probably because it was one of the frontrunners in the early days of the COVID-19 vaccine race.

However, it eventually lagged behind the likes of Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), and AstraZeneca (AZN).

One primary reason for this is the FDA’s decision to suspend Inovio’s Phase 3 trial in late 2020, with the study only resuming sometime in 2021.

As if that’s not enough, Inovio also faced some internal battles following the resignation of its CEO.

Now, the company has shifted gears and plans to offer its COVID-19 candidate as a booster shot instead of a primary vaccine.

The change of plans regarding the COVID-19 vaccine might be disappointing for some, but it’s essential to be realistic about expectations.

At the moment, the vaccine landscape has been dominated by Pfizer and Moderna, with AstraZeneca and Johnson & Johnson gaining ground as well.

Just recently, another challenger joined the fray: Novavax (NVAX).

Needless to say, the COVID-19 vaccine market is becoming crowded, and the competition is getting more intense.

Considering that Inovio has yet to catch up with the development of its candidate, it would be unwise to challenge the already established developers dominating the market today.

Hence, offering its COVID-19 candidate as a booster would provide it with higher marketability since health experts encourage people to mix and match their vaccines.

Outside these efforts, Inovio is a leader in developing DNA plasma-based vaccines. Before the pandemic, the company had been working on an extensive pipeline using this technology.

One of the most promising DNA-based vaccines from Inovio is VGX-3100, which targets an HPV-triggered disease called cervical dysplasia. Simply, this is a pre-cancer condition.

Inovio’s candidate is the first-ever DNA-based treatment that reached Phase 3 trials and reaped positive results.

This is an exciting development, especially in light of Inovio’s partnership with Qiagen (QGEN), as the two can leverage their work to determine which patients are at risk.

Basically, Inovio and Qiagen might just be on the verge of coming out with a preventive vaccine for cancer.

If things go according to plan, the data should be released by the second half of 2022. In terms of price, VGX-3100 is expected to cost roughly $10,000.

Aside from these, Inovio is also collaborating with Regeneron (REGN) to develop a cure for glioblastoma, an incredibly aggressive type of brain cancer. So far, Phase 2 trial results look promising, and the partners are on their way to progressing to Phase 3.

Inovio’s pipeline covers many DNA vaccines targeting infectious diseases and cancers. Most are still in the early phases of development.

While the programs in Phase 2 and 3 trials are promising, I think it’s still too early to predict whether Inovio is truly capable of delivering on its promises.

I know that Inovio shares look like such a bargain these days, especially if the company ends up receiving regulatory approvals in the coming months, but I’m not yet fully convinced.

Overall, Inovio is worth considering right now. It’s definitely on my list.

But before I commit, I’d like to see at least whether the company’s COVID-19 and HPV pipelines can move past the latest headwinds and advance to the next levels.

May 24, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 24, 2022
Fiat Lux

Featured Trade:

(FROM A BORING BIOTECH TO A TRAILBLAZING PIONEER)
(VRTX), (ABBV), (MRNA), (CRSP), (EDIT), (BEAM), (NTLA)

From a Boring Biotech to a Trailblazing Pioneer

Biotech Letter

When will the turmoil in the stock market come to an end? Unfortunately, nobody can offer a definitive answer.

At this point, there’s still no end in sight to high inflation, climbing interest rates, and the continuing war in Ukraine.

Needless to say, all these issues are affecting the stock market. However, not all stocks are getting negatively affected by the turmoil.

There are still relatively safe bets to buy, with some crushing the market these days.

One of them is Vertex (VRTX).

Vertex stock soared by over 30% year-to-date by mid-April.

While it has given up some of that gain in the past weeks, this biotechnology and healthcare stock is comfortably outperforming the rest of the market, with its shares still up by around 15%.

One reason for Vertex’s good performance is its undisputed monopoly in the cystic fibrosis (CF) market. In fact, its closest potential competitor is AbbVie (ABBV), which recently announced disappointing results for its Phase 2 trials for a CF combo.

This means Vertex’s dominance in the CF space is set to go on for quite some time.

Here’s a bit of background. Vertex has 4 CF treatments.

Among these, the latest treatment, Trikafta, generates the lion’s share of the profits. It raked in $1.7 billion in the first quarter of 2022 alone, with the total revenue for the entire CF pipeline recording $2 billion.

Considering its approved indications and potential approvals, Trikafta is anticipated to treat 90% of the entire CF patient population.

Looking at its current performance and how strong its hold is in the CF market, it appears that Vertex’s prediction that it can sustain its dominance in this segment until at least the late 2030s will be proven right.

Moreover, it’s evident that Trikafta has yet to reach its peak revenue. However, Vertex isn’t depending on this particular treatment alone.

Rather, the company is working on developing a worthy competitor to this top-selling treatment.

That is, Vertex is working on a CF candidate that may potentially be even more effective than Trikafta.

So far, this new drug candidate not only has the capacity to beat Trikafta in terms of efficacy but also offers a more convenient option.

Trikafta is a twice-a-day oral drug that comes in the form of 3 tablets. Meanwhile, this potential competitor is a once-a-day alternative.

If everything goes according to plan, the Phase 3 trial for this Trikafta challenger could start by the end of 2022 or early 2023.

This means that the closest potential rival for the company’s top-selling treatment is its own candidate.

Apart from this, Vertex is working with Moderna (MRNA) to come up with an mRNA therapy for CF patients.

The goal is to offer an alternative option to patients who are not eligible for the current CF therapies.

Although this continued dominance in the CF sector is already a good enough reason to buy Vertex shares, they may be an even better one.

To date, Vertex has at least 6 programs queued in mid to late-stage clinical studies, all of which are projected to become multi-billion dollar revenue streams.

Outside its CF segment, Vertex could have another big winner in the form of gene-editing treatment CTX001.

This is a treatment for sickle cell disease and transfusion-dependent beta-thalassemia that the company has been working on with CRISPR Therapeutics (CRSP).

While CTX001 is promising, it won’t be entering the gene therapy market without any competition. It has to battle the likes of Editas (EDIT), Beam Therapeutics (BEAM), and Intellia (NTLA).

Nonetheless, CTX001, if approved, is a game-changer because it is developed as a one-time cure for genetic blood disorders.

So far, trial results have been positive, and the collaborating duo is expected to file for regulatory approval by the end of 2022 and possibly launch the product by the first half of 2023.

This gene-editing therapy is a significant milestone for Vertex, with CTX001 expected to become another blockbuster, raking in roughly $1 billion in annual sales for the company even after giving CRISPR its share of the profits.

Recently, Vertex added another $900 million to its collaboration with CRISPR to boost its share from 50% to 60%, indicating that it values CTX001 at roughly $10 billion.

Other critical treatments outside the CF space are VX548, an opioid alternative targeting acute pain, and VX800, a stem cell-derived therapy developed to treat Type 1 diabetes.

Vertex has been accused as a company scared of getting out of its comfort zone for quite some time.

With these new ventures, Vertex has become something of a pioneer—a strategy that is projected to open long-term and lucrative revenue streams for the company.

Overall, all these efforts paint an obvious picture. That is, Vertex is a well-balanced company with a main business that capably and reliably generates billions and is complemented by an exciting pipeline that holds the potential to replicate the success of its already established portfolio.

May 19, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 19, 2022
Fiat Lux

Featured Trade:

(A PASSIVE INCOME STOCK THAT STEADILY DELIVERS)
(ABBV), (ABT), (AMGN), (BIIB)