Mad Hedge Biotech and Healthcare Letter
March 10, 2022
Fiat Lux
Featured Trade:
(COULD THIS BE THE NEXT BIOTECH BUYOUT CANDIDATE?)
(BLUE), (AZN), (ABBV), (BMY), (VRTX), (CRSP)
What is the common denominator of giant drugmakers AstraZeneca (AZN), AbbVie (ABBV), and Bristol Myers Squibb (BMY)?
Aside from being three of the biggest healthcare companies across the globe, all three have also completed high-profile acquisitions amid the pandemic.
AstraZeneca acquired Alexion Pharmaceuticals for $39 billion in December 2020.
Meanwhile, AbbVie wrapped up its whopping $63 billion acquisition of Allergan in May 2020.
As for BMY, this biopharma titan followed its jaw-dropping $74 billion acquisition of Celgene with a $13 billion merger with MyoKordia.
Since then, these deals have bolstered the lineups and deepened the pipelines of all three drugmakers, helping them secure their dominance in the healthcare space.
As for the acquirees, they also benefited from the transactions, particularly those struggling to get through tough situations prior to getting bought out.
With that in mind, it looks like the biotechnology and healthcare sector has another potential high-profile acquisition candidate: Bluebird Bio (BLUE).
Bluebird Bio has recently fallen from investors’ grace following multiple setbacks.
The biotechnology company, once considered a trail-blazer in the gene therapy space, now finds itself without a CFO and left behind by competitors.
Its peers, who were initially eons away in terms of pipeline development, have figured out ways to work around Bluebird’s patents and even managed to outpace the company in launching new gene therapies to market.
Given all these factors, it is no surprise that investing in Bluebird bio has become synonymous with a recycler searching for value in random scraps and parts.
Over the last three years, Bluebird Bio’s shares have plummeted by more than 90%. From a $1.39 billion market capitalization, it is now at roughly $330 million.
That is a horrible performance based on any metric.
Bluebird bio has faced several headwinds that caused its stocks to fall apart.
One problem is the delay in the company’s Biologics License Application in the US for its transfusion-dependent beta-thalassemia treatment, LentiGlobin.
Bluebird Bio initially planned to complete this rare blood disorder therapy’s application by the second half of 2020. However, the company failed to submit some information requested by the FDA.
Another LentiGlobin-related issue is the temporary pause on the clinical trial for sickle cell disease treatment. Eventually, the suspension was lifted, but not before investors scurried away from the stock, following back-to-back concerns over the same treatment.
Other aggravating factors include Bluebird’s move to exit the European market following disagreements over the pricing of some of its gene therapies.
These issues saw Bluebird’s market cap sink, positioning it lower than rival gene-editing companies today.
Needless to say, this deeply discounted value could attract a bigger and expanding biopharma seeking to dip its toes in the gene-editing space.
While Bluebird might be struggling these days, it remains a promising company thanks to its candidates.
This becomes even more exciting since the company announced its plans to concentrate on severe genetic diseases. Although this is a small niche, there’s massive potential in this market.
A strong candidate in its roster is Zynteglo, which gained regulatory approval in 2019 and has yet to reach blockbuster status.
Patients with beta-thalassaemia normally have no other choice but to get blood transfusions regularly. Zynteglo drastically challenges this standard by offering a one-time curative treatment. In fact, saying that this is a life-changing breakthrough is an understatement.
Another potential blockbuster is Skysona, a treatment for a pediatric neurodegenerative disorder called cerebral adrenoleukodystrophy. This neurological disease is extremely rare, affecting only 50 patients in the US annually.
As for its pipeline, Bluebird has three major candidates nearing FDA approval in the US. This means 2022 and 2023 will be critical years for the company.
The first product is Lenti-D, which is similar to Skysona. If things go according to plan, then this treatment might receive the green light by August 2022.
Another product is Beti-cel, which was initially launched as Zynteglo. When this successfully penetrates the US market, this first-ever gene therapy option for beta-thalassemia will rake in roughly $1.87 billion by 2024.
Considering the potential of this market, Beti-cel inevitably finds itself facing off strong competitors in the space.
Thus far, the strongest is Vertex Pharmaceuticals (VRTX), which recently announced an additional $900 million investment in its collaboration with CRISPR Therapeutics (CRSP).
The third candidate is Lovo-cel, which is a sickle cell disease treatment.
This could be a major product for Bluebird, given the over 100,000 patients in the US alone that the company can target.
The goal is to finish the validation process by 2022 and submit Lovo-cel for approval by the first quarter of 2023.
Outside its pipeline candidates and approved products, Bluebird's manageable debt is another thing that makes it attractive for a potential buyout.
After all, cash is king, especially when it comes to biotechnology companies.
At the moment, Bluebird still holds roughly $442 million in the bank, and $46 million of this is restricted.
This indicates unrestricted liquid assets of approximately $396 million—an amount higher than its current market cap.
Consequently, this will allow Bluebird to comfortably weather at least the rest of the year until 2023.
It possesses a relatively solid secure position to hold itself together until its pending candidates start raking in revenues on their own.
Admittedly, Bluebird Bio has had several challenging years. There will still be uncertainties ahead, but it’s undeniable just how promising the company is at this point.
Overall, this stock is worth serious consideration, particularly for companies looking to get a head start in the gene-editing sector.
Mad Hedge Biotech and Healthcare Letter
March 8, 2022
Fiat Lux
Featured Trade:
(A BIOTECHNOLOGY AND HEALTHCARE TRIFECTA STOCK)
(ABBV), (NVO), (CPH), (LLY)
A myriad of macroeconomic problems has thrown the stock market and the economy off balance.
Major US indices have been down since 2022, with some like the Nasdaq slipping by over 10% year-to-date due to volatile trading.
Meanwhile, there are businesses on a tear amid the issues.
One of them is AbbVie (ABBV), which gained more than 20% over the past six months.
This growth reinforced AbbVie’s reputation as a rock-solid investment that investors can rely on during uncertain periods.
Looking at its performance, AbbVie can be considered an investor’s trifecta primarily because of the benefits the company offers, namely, high yield, promising growth potential, and solid dividend growth.
AbbVie came off 2021 with 30% growth in its shares despite the global economic slowdown.
During that period, AbbVie reported a 13.4% year-over-year increase in its adjusted EPS at $3.31 and a 7.4% jump for its revenues at $14.9 billion.
This notable performance is mainly due to Humira’s sales, but this won’t be the case in the following years.
In 2018, AbbVie lost patent protection for Humira in Europe and is slated to lose exclusivity in the US by 2023.
For the longest time, AbbVie has depended mainly on Humira as its most vital source of revenue stream.
Nowadays, the company has been taking on a more diversified tactic instead of solely relying on the top-selling drug. The effects can be seen in its fourth-quarter report.
The company’s oncology sector grew by 4.6% to reach $1.9 billion. As for its neuroscience branch, it reported $1.7 billion in revenues or an impressive 19% climb from last year.
While AbbVie has been honing its diversification plans, the company still hasn’t forgotten where its true strength lies: immunology treatments.
Its immunology segment, where Humira is filed under, raked in $6.7 billion in revenues, showing a 13.2% increase compared to the same period.
To keep the momentum and preserve its spot as the leader in this segment, AbbVie introduced two successors to Humira: Skyrizi and Rinvoq.
In the same report, it can be seen that Humira still brought in the bulk of AbbVie’s immunology revenues at $5.33 billion, indicating a 3.5% increase in its previous revenues.
However, Skyrizi and Rinvoq also showed promising results.
Skyrizi sales carried on with its upward trajectory, as seen in the whopping 70.5% jump it recorded to contribute $895 million to the company.
As for Rinvoq, this treatment recorded an even higher jump at 84.4% to reach $517 million.
Throughout 2021, Skyrizi generated $2.94 billion while Rinvoq contributed $1.65 billion in sales. This indicated an 85% growth for Skyrizi and an over 100% year increase for Rinvoq.
Considering their performance, these two immunology successors to Humira are anticipated to move forward at a strong clip as AbbVie bags more FDA approvals for additional uses.
If things go as planned, Skyrizi and Rinvoq can quickly reach a combined revenue of $15 billion by 2025.
Outside its immunology sector, oncology treatment Imbruvica is projected to become another blockbuster.
To date, this drug ranks second to Humira in terms of sales, with roughly $5.41 billion in total in 2021.
Meanwhile, AbbVie has also been busy boosting its neurosciences division.
The company recently acquired Belgium-based Syndesi Therapeutics for approximately $1 billion.
Offering an upfront payment of $130 million, Syndesi granted AbbVie access to its portfolio of novel modulators of the synaptic vesicle protein 2A (SV2A). Among the products in development, the most prized treatment is Syndesi’s lead molecule SDI 118.
This mechanism is currently under Phase 1b trials for its potential use to treat cognitive impairment and other conditions linked to various neuropsychiatric and neurodegenerative diseases. These include Alzheimer’s disease and major depressive disorder.
Basically, SDI-118 targets a patient’s nerve terminals to boost synaptic efficiency.
This would complement the bigger company’s existing neuroscience efforts since AbbVie believes that synaptic dysfunction is an underlying problem when it comes to cognitive impairment associated with several disorders.
Launched in 2017, Syndesi is a biotechnology company backed by Novo Holdings, which owns controlling shares in global companies Novo Nordisk (NVO) and Novozymes (CPH).
Apart from its remarkable performance and growing pipeline, AbbVie’s stock dividend also serves as a strong pull for investors.
AbbVie stands at $1.41 per quarter or $5.64 per year.
Since its inception in 2013, the company has consistently increased its dividend annually.
In fact, AbbVie’s dividend yield of 3.87% remains a key attraction to investors despite the stock’s rising price.
No matter what metrics you use, AbbVie has managed to securely position itself at the top of the healthcare and biotechnology sector.
Over the course of the more than 9 years since AbbVie became a publicly-traded company, only Eli Lilly (LLY) has raked in higher total returns.
While the general market continues to bring uncertainty, AbbVie has been executing all the right moves to provide shareholders a haven to invest their hard-earned cash and earn a steady and rising return.
Mad Hedge Biotech and Healthcare Letter
March 3, 2022
Fiat Lux
Featured Trade:
CHEATING DEATH: ARE WE GETTING CLOSER TO IMMORTALITY?)
(AMZN), (FB), (GSK), (RHHBY), (GOOGL)
“Staving off death is a thing that you have to work at…If living things don’t actively work to prevent it, they would eventually merge with their surroundings and cease to exist as autonomous beings. That is what happens when they die.”
This is a quote from Richard Dawkins, which Jeff Bezos wrote to Amazon (AMZN) shareholders in his farewell letter. Needless to say, death and decay seem to be at the forefront of his mind these days.
That’s why it comes as no surprise that the founder of Blue Origin and, of course, Amazon (as well as Elon Musk’s favorite punching bag) has launched a company comprising renowned scientists and globally respected executives to realize his dream of developing immortality technology.
The company, called Altos Labs, is basically an anti-aging venture. While many people would probably mock the idea, this seemingly impossible wild concept has notable names backing it.
Bezos is not the only investor putting his money on this project.
Russian billionaire Yuri Milner, whose wealth expanded thanks to his strategic funding of Facebook (FB), along with Russian email service Mail.ru (MLRYY) and Russian social networking site VK, is also part of the mission.
In fact, the company was officially conceived in Yuri’s house in Palo Alto in the Los Altos hills, leading to the name Altos Labs. (Given that “Los Altos” means “the heights” in Spanish, they probably used it as a double entendre for Altos Labs’ goals.)
In addition to Yuri and Bezos, there are several other backers of Altos Labs.
While they aren’t specifically named, the mere fact that the startup has generated the most funding of virtually any biotechnology business at $3 billion is quite telling of how much faith investors have on this project.
And they wouldn’t be wrong.
Its remarkable roster of executives includes experts from GlaxoSmithKline (GSK), Roche’s (RHHBY) Genentech, and the National Cancer Institute.
Altos Labs not only has wealthy backers and esteemed executives on its board, it also has Nobel Prize-winning scientists working on its goals.
The highest-profile scientist they have is Shinya Yamanaka, who received the Nobel Prize in 2012 for his stem cell research.
His work, which focuses on cell “reprogramming,” can reverse the development of cells towards that of stem cells. In a nutshell, Yamanaka is working on a “backward aging” technology.
Part of the board is Juan Carlos Izpisúa Belmonte, who specializes in developing techniques to switch cells from one type to another.
He gained notoriety when he experimented on creating hybridized human and monkey embryos using Yamanaka’s technology.
Another member of Altos’ board is Jennifer Doudna, who shared the 2015 Breakthrough Prize with Yamanaka and later won the 2020 Nobel Prize for her co-discovery of CRISPR genome editing.
Although it’s a startup, the company will have offices in the San Francisco Bay Area, San Diego, Cambridge in the UK, and even Japan.
However, Altos Labs insists that it’s not chasing some impossible vision worthy of sci-fi movies.
Admittedly, most of the details about the project are still under wraps. But insiders say that Bezos and his crew seek to become the “Bell Labs” of biology.
The oversimplified explanation of its goal is that Altos Labs plans to reverse diseases, effectively regenerating new cells to help the body perform optimally.
Basically, they seek to come up with a biological reprogramming technology that can rejuvenate the cells and eventually revitalize human beings.
They target cells under pressure, including those with genetic abnormalities, suffering from injuries, or aging.
Using their reprogramming technology, they aim to create medications that can deliver one-time treatments for these conditions. Ultimately, these efforts will lead to a prolonged human life.
Further clarifying their mission, Altos explained that their goal is to extend “health span” and that boosting any longevity initiative would simply be considered an “accidental consequence.”
Inasmuch as Alto Labs is an exciting venture, it isn’t the first in the field. This startup joins the ranks of Calico Labs, which was launched in 2013 and funded by one of Google’s (GOOGL) co-founders, Larry Page.
Other startups working on reprogramming technology are Life Biosciences, Turn Biotechnologies, AgeX Therapeutics, and Shift Bioscience.
The quest to defeat death is a mission as old as time.
In response to this challenge, Alto Labs has put together an impressively pedigreed bunch.
Moreover, a solid and established connection is seen between aging clocks and reprogramming technology—all of which Alto Labs already have access to due to its roster of executives and scientists.
While the technology feels so farfetched, industry experts believe it holds indisputable and repeatable results.
These were already seen in laboratory experiments. However, these have only succeeded so far when applied to individual cells.
The technology can gather a cell from an 80-year-old and, via in vitro, reverse this age by as much as 40 years.
If this succeeds, Altos is poised to lead and dominate the “immortality” industry — a sector projected to be worth $600 billion by 2025 — soon.
Mad Hedge Biotech and Healthcare Letter
March 1, 2022
Fiat Lux
Featured Trade:
(THE FUTURE OF SURGERY)
(ISRG), (MDT), (SYK), (ZBH), (JNJ)
The healthcare sector is one of the biggest and most intricate industries in the stock market.
It’s a multi-trillion dollar area that offers investors with virtually unlimited opportunities to build a life of financial freedom via sound long-term investing.
This industry has several quality stocks—businesses that offer to cure diseases, develop revolutionary medical devices and treatments, or even just to offer personal care items you purchase from drugstores.
One of the most lucrative sectors of the field is surgery.
Surgery dates back centuries and is one of the oldest practices in the field of healthcare and medicine. Thankfully, its technology has evolved since then.
The surgical robotics market is projected to expand exponentially, and ISRG is in a prime spot to reap the rewards from this impending growth.
So far, approximately 15% of surgeries are already conducted via robots, showing a massive room for expansion as the technology gains traction among the medical experts and patients.
Robotic assistants are gradually entering the mainstream market, opening another revenue stream. Overall, the anticipated market for this field is calculated to rise at a range somewhere from 9.5% to 19.3% from 2022 to 2032.
The growth won’t likely stop there considering the myriad of benefits that robotically assisted surgeries offer compared to traditional surgeries, such as shorter recovery periods and alleviated discomfort among patients.
These advantages make these systems attractive to healthcare providers, especially considering the way the technology optimizes the recovery process of their patients and delivers more precise and safe surgical results.
Today, one of the emerging leaders in this sector of the healthcare community is Intuitive Surgical (ISRG).
Basically, ISRG is a company that focuses on medical devices, specifically on minimally invasive robotic systems that perform surgeries. Its flagship platform is called the “Da Vinci” system.
To date, it has installed roughly 6,700, with revenue climbing by 12% annually over the past decade.
Since the launch of the da Vinci platform, ISRG has expanded at quite a rapid pace. Its revenue climbed from $1.8 billion in 2011 to $5.7 billion in 2021.
In terms of expanding its services, ISRG recently announced a new platform called Ion. This is a lung biopsy robot, which is projected to become yet another remarkable revenue stream for the company.
The more da Vinci units ISRG ships out, the stronger its competitive edge becomes.
Aside from raking in profits from their surgical robotic units, which typically cost roughly $500,000 to $2.5 million depending on the complexity of the machine, the da Vinci units require a considerable time investment to master its operation.
This leads to high switching expenses, which all but guarantees retained and returning clients for ISRG’s business.
To put this into context, system revenue for ISRG was recorded at $1.7 billion in 2021. This indicates that about 70% of its $5.7 billion total revenue came from recurring products and services.
Thus far, ISRG has been the dominant leader in this cutting-edge space in healthcare and has shown incredible growth since its IPO. More importantly, the company has an impressive cash flow and cash balance.
Moreover, ISRG is an industry leader. As with every company in this position, ISRG has captured the lion’s share of the market.
At this point, the company currently controls 80% of the market and is expected to increase this dominance as it continues to make headway.
Considering the massive potential of this market, it comes as no surprise that more and more companies are working to topple ISRG.
Other companies have already started introducing their own specialized robots.
Medtronic (MDT) launched a spine and brain robot, Stryker (SYK) created one for knee and hip replacement, and Zimmer Biomet (ZBH) introduced a competitor in the spine and knee procedures space. Even Johnson & Johnson (JNJ) entered the fray with its lung biopsy robot.
Overall, ISRG is a brilliant company.
It possesses technological superiority over its rivals and a virtual monopoly of a rapidly growing market. These factors make ISRG an excellent long-term healthcare stock to buy and forget.
The COVID-19 pandemic has shed light on innumerable flaws in the way several industries function, ranging from the healthcare system to the global supply chain.
At the same time, this phenomenon granted a rare chance for several innovative businesses to offer solutions to these flaws.
Although COVID-19 is a healthcare issue, the secondary effects like economic and financial instability it caused aggravated the situation.
Worldwide poverty worsened in 2020—something that has not happened in 20 years—forcing roughly 100 million individuals below the poverty line.
The absence of much-needed essential healthcare products and services in several areas across the globe resulted in restricted capacity to respond to the pandemic and its effects.
While the situation was definitely heightened in developing nations, even countries like the United States struggled with the situation, with 1 in 4 adults suffering from 2 or more chronic health conditions.
Moreover, the country’s national healthcare expenditure rose 9.7% to reach $4.7 trillion in 2020, accounting for 19.7% of the GDP. That’s roughly $12,530 per person.
That’s why it comes as no surprise that even the most developed areas of the globe are scrambling to find answers to the debilitating cost of healthcare.
A total of $44 billion was raised in 2021 solely for healthcare innovation initiatives. This represents a jaw-dropping increase from the $22 billion raised in 2020.
Notably, 2021 also saw a 50% rise in health tech companies' acquisitions, and these numbers are anticipated to climb in 2022 and beyond.
By 2028, the US national healthcare expenditure is projected to hit $6.2 trillion, primarily due to the steady increase in spending on healthcare technology.
While the rise in expenditure would undoubtedly lead to improved healthcare quality, the increase tends to be misleading because it implies an increase in cost as well.
That can’t be any further from the truth.
Aside from offering life-saving solutions, the introduction of more advanced technology like AI in healthcare actually saves money. In fact, the estimated savings rate annually by 2026 is at $150 billion.
Given that AI technology alone is anticipated to save roughly 22,000 people each year starting 2033, the most logical move is for the healthcare industry to keep investing in this kind of technology and other life-saving solutions.
One critical player in this transition period is Iqvia Holdings (IQV).
This company, which was featured in Fortune’s “World’s Most Admired Companies” in 2022 and the No. 1 in “Healthcare: Pharmacy and Other Services, focuses on leveraging data science to provide life-saving solutions.
It was formed in 2016 following the merger of Quintiles and IMS and has since then transformed into the leader in health information technology in the world.
The company aims to elevate research and innovation through offering business intelligence to the healthcare industry and offering its assistance in clinical studies.
While Iqvia did not become a household name like Moderna (MRNA), Pfizer (PFE), and BioNTech (BNTX), this health tech company gained popularity during the COVID-19 pandemic.
Iqvia was able to provide the necessary insights that organizations needed to manage the effects of the pandemic. The company's analysis proved to be vital in coordinating efforts, predicting future situations, and determining unforeseen problems.
The capacity to share their valuable data anywhere in the world drastically reduced the time wasted on coordinating and boosted efficiency.
Basically, Iqvia has three primary segments: Technology and Analytics Solutions, R&D segment, and Contract Sales and Medical Solutions.
Despite the challenges of the pandemic and its effects, Iqvia’s three segments still managed to grow.
The revenue of Technology and Analytics Solutions climbed by 10%, reaching a total of $1.34 billion.
Meanwhile, its R&D division raked in $1.85 billion, showing off a 32.4% rise from the same period in 2020. While this is an impressive growth, the company aims to continue expanding, with an additional $6.9 billion worth of backlog in its R&D in 2022.
Finally, the revenue of its Contract Sales and Medical Solutions sector reached $201 million, with more and more services expected to enter the market.
However, one of the most promising stats from Iqvia is its recent buyback in September 2021. The company repurchased shares worth $202 million using its accumulated cash, of which $125 million was generated in the third quarter alone.
Following this move, the company still has $697 million left in share repurchase authorization. This recent buyback follows an Iqvia tradition, which dates back to 2018—a tradition that definitely inspires confidence in the long-term outlook of the company.
Other than these three core businesses, Iqvia has revealed the addition of a Research Nursing and Phlebotomy services unit.
The emergence of these mobile units would ensure that the company becomes more accessible and can offer more affordable services.
Another new segment is its Grants and Funding Management platform, which offers solutions to other companies in the life sciences.
Iqvia is a pioneering name in the healthcare industry, and this company is among the handful of names that look extremely promising.
Looking at its trajectory, Iqvia has proven its rightful place in this emerging market by delivering highly critical improvements and essential insights.
Considering all these, Iqvia is no doubt a rock-solid bet.
Mad Hedge Biotech and Healthcare Letter
February 22, 2022
Fiat Lux
Featured Trade:
(AN ATTRACTIVELY VALUED BIOTECH ON THE VERGE OF BREAKTHROUGHS)
(VRTX), (IBB), (ABBV), (CRSP)