Biotech Letter - John Thomas - Mad Hedge Fund Trader

An Attractively Valued Biotech on the Verge of Breakthroughs

Some stocks bring quick and easy gains, and those are thrilling. However, a key strategy behind a successful portfolio is always including solid players that deliver excellent returns in the long run.

One of the things I appreciate about investing in the healthcare sector is that this industry is primed to perform well no matter what happens to the market.

After all, people will continue to depend on their products and services regardless of the situation in the financial and economic world.

In the biotechnology and healthcare sector, an excellent way to ensure this is to evaluate a company’s pipeline.

This serves as a good indicator of whether the business has the capacity and potential to generate revenue in the years to come. It’s also advisable to check out a company’s general financial picture and, of course, its strategy. Those elements play critical roles in tomorrow’s performance.

With these criteria in mind, one of the biotechnology names that stand out in the field is Vertex Pharmaceuticals (VRTX).

With a market capitalization of $58.45 billion, Vertex is considered one of the biggest biotechnology companies in the world.

To date, it is included in the Top 5 list of iShares Nasdaq Biotechnology ETF (IBB). Over the years, the company has primarily concentrated on the cystic fibrosis (CF) field.

With its leading CF treatment, Trikafta, gaining approval for a triple combination back in 2019, Vertex has cornered practically 90% of the market.

Unfortunately, Vertex’s share price has remained relatively unchanged for the past two years.

This stagnant performance could be attributed to the disappointing Phase 2 results of its rare liver disease treatment VX-814 in October 2020 and respiratory medication VX-864 in June 2021.

Due to the setbacks from these studies, investors have started to question Vertex’s ability to come up with a marketable treatment outside its CF portfolio.

Vertex posted revenue increases in its recent reports despite these disappointing results.

In the fourth quarter of 2021, the company reported $2.073 billion in revenues, indicating a 27% increase year-over-year, along with an impressive 31% profit growth.

As expected, the revenue boost was courtesy of Trikafta, which recorded a 55% increase in its annual sales.

For the entire 2021 fiscal year, Vertex raked in $7.57 billion in revenues and $3.38 billion in profits, showing off a notable 45% net margin.

Prior to this report, Vertex’s initial guidance for its 2021 revenues was at $6.8 billion.

At that time, experts already believed that the company might be overestimating its capacity, especially considering the setbacks of the trials.

However, it managed to exceed expectations.

Surprisingly, Vertex disclosed an even higher fiscal outlook for 2022 at $8.5 billion. Considering that the company tends to be conservative in its estimates, the following months would definitely bring exciting breakthroughs for Vertex.

In fact, if we look at its track record, there’s a very good chance that the $8.5 billion annual revenue estimate would reach $8.8 billion or even hit $9 billion by the end of 2022.

In terms of its pipeline, Vertex has been working on strengthening its hold in the CF market. This becomes even more necessary with AbbVie (ABBV) hot on its heels with its own version of a triple combination CF therapy expected to rival Trikafta.

Outside its CF program, there are roughly 10 assets queued in various stages of clinical trials.

So far, the most advanced is its mRNA-based cell therapy collaboration with CRISPR Therapeutics (CRSP). The treatment, called CTX001, is being developed to target sickle cell disease and beta-thalassemia.

To date, CTX001 is already in Phase 3. It’s slated for regulatory submission to the FDA sometime in the third or fourth quarter of 2022. In terms of profits, CTX001’s peak sales is projected at $1.3 billion.

Another promising candidate is kidney disease treatment VX-147, which is in Phase 2.

Two more candidates are in Phase 2, diabetes cell therapy VX-880 and potential opioid substitute VX-548. While additional trials are still needed, both are anticipated to become blockbuster treatments and game-changers when they enter the market.

Looking at Vertex’s pipeline and the progress of its candidates, it’s safe to say that the company has the capacity to come up with blockbusters outside its CF program.

Moreover, Vertex has an outstanding investment ability due to its high cash balance worth more than $7.5 billion and an impressive balance sheet.

This means that Vertex has the capability to participate in a significant acquisition in the following years in an effort to bolster its pipeline. In this vein, an obvious and alluring candidate would be CRISPR Therapeutics, which is currently valued at $4.49 billion.

Overall, Vertex is a remarkable biotechnology company that has specialized in a lucrative niche for several years, equipping it with the ability to successfully monopolize the sector.

Although market volatility has recently affected it, Vertex still managed to report revenue growth and promising data from its trials. With its relative financial strength and excellent pipeline, I believe this makes the stock a good investment in the long term.

February 17, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 17, 2022
Fiat Lux

Featured Trade:

(IS THIS THE SOLUTION TO ANTI-VAXXERS?)
(NVAX), (MRNA), (PFE), (BNTX), (SNY)

Is This The Solution To The Anti-Vaxxers?

Biotech Letter

One of my old friends, a 45-year-old teacher, has long held the belief that getting vaccinated against COVID-19 is a terrible idea.

Despite the growing number of people getting jabbed, he still felt uneasy over the new mRNA technology applied in the two most widely used shots, Moderna (MRNA) and Pfizer (PFE) / BioNTech (BNTX).

His anxiety worsened when his neighbor was sent to the hospital following his second shot, especially after the doctors said that the official cause of the heart muscle inflammation was the vaccine.

No amount of convincing could change his mind regardless of how many times I explained that the condition was a rare and relatively mild side effect.

However, things seemed to have changed when he heard about the Novavax (NVAX) vaccine, Nuxavoxid.

Since Nuxavoxid uses a decades-long pre-existing protein-based platform instead of a novel approach, more and more people like my friend are starting to take interest and considering signing up for the vaccine.

Actually, this reaction can be observed not only in the US but also across the globe. Data suggest that previously wary individuals now feel more confident over a more established technology.

Novavax’s vaccine uses a recombinant protein technology, which has been around since the mid-1980s.

In fact, this has become the go-to or standard platform used in developing vaccines against Hepatitis B, cervical cancer, and even meningitis.

What does this mean for Novavax?

Considering that over half of the global population has already been inoculated, it’s safe to say that Novavax is late to the party.

However, recent reports showed that a fourth vaccine does not show any significant antibody increase. This isn’t particularly promising especially in light of the Omicron variant.

Moreover, the EMA warned that "repeat boosters every four months might actually weaken people's immune systems. Boosters can be done once, or maybe twice, but it's not something that we can think should be repeated constantly.”

This can be good news for the newcomer Novavax.

Since Novavax uses a recombinant nanoparticle technology, this approach might be considered more effective as a booster shot instead of using the same mRNA technology for a fourth jab.

So far, this is presumed as one of the major reasons for Israel’s—one of the leading countries in vaccine administration—decision to place an order for an alternative COVID-19 vaccine last January.

Instead of reordering from Pfizer or Moderna, Israel opted to get 5 million doses, with an option to add 5 million more, of Novavax vaccine to serve as the fourth booster for its population.

Given that Israel is ordering for its 9.4 million citizens, this deal would serve as an excellent source of real-life data for Novavax’s candidate and whether it can become the go-to choice for booster shots across the globe.

Before this development, Novavax’s projected 2022 revenue was at $4.94 billion. However, the recent regulatory approvals from various nations and advanced orders have the company adjusting this projection.

Needless to say, the possibility of Nuxavoxid practically monopolizing the booster shot market has dramatically bolstered expectations.

On top of these, Novavax has been simultaneously working on a flu vaccine, Nanoflu, that can rival Sanofi’s (SNY) FluZone.

Given that the market size for influenza is expected to grow from $6.5 billion in 2022 to $10.73 billion by 2028, and the fact that Nanoflu easily outperformed the leading product by 40% in clinical trials, it’s safe to say that this is yet another promising revenue stream for Novavax.

Overall, I think Novavax is a good long-term play. It’s important to remember, though, that Novavax’s profile is very close to Moderna and BioNTech.

That means investors interested in this stock must have boundless patience and a strong stomach for the volatility in the following months.

Looking at its excellent potential, it’s clear that the stock is undervalued. Hence, it would be wise for interested investors to buy the dip.

February 15, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 15, 2022
Fiat Lux

Featured Trade:

(AN EMERGING LEADER IN THE HEALTHCARE REVOLUTION)
(CRSP), (VRTX), (EDIT), (NTLA), (PFE), (NVS), (GILD), (RHHBY), (BMRN), (QURE), (SGMO), (CLLS), (ALLO), (BEAM)

An Emerging Leader in the Healthcare Revolution

Biotech Letter

Mankind has always imagined a future filled to the brim with technological advancements serving as the panacea to all our ills.

One of the prevailing ideas focuses on the developments found in the healthcare sector.

Movies, television shows, graphic novels, and books have all pictured a world with such revolutionary technologies capable of not only diagnosing but also curing any and all types of diseases.

Since the introduction of these ideas, many have believed that these would remain in the fictional universe. However, these “ideas” have slowly transformed into reality.

One of the biggest indicators that we’re heading in that direction is the 2020 Nobel Prize in Chemistry by Jennifer Doudna and Emmanuelle Charpentier. The two were recognized for their pioneering work in CRISPR-Cas9.

Basically, Crispr-Cas9 functions like molecular scissors.

What makes this technology incredible is that Crispr-Cas9 can classify a single address out of 3 billion letters within the genome by using only a particular sequence. With this, we can repair thousands of genetic conditions and even offer more potent ways to battle cancer.

This Nobel Prize led to commercializing the 2012 discovery, Crispr-Cas9, at breakneck speed, with gene-editing companies like CRISPR Therapeutics (CRSP), Editas Medicine (EDIT), and Intellia Therapeutics (NTLA) gaining a considerable boost in their values.

Surprisingly, the trajectory of these gene-editing stocks took a tragic turn in 2021.

In fact, the once-upon-a-time-market-darling CRISPR Therapeutics saw its market capitalization brutally shaved off from $8.7 billion to $4.55 billion in the past months.

No matter how we look at it, there’s genuinely no way to sugarcoat the reality: the market has been second-guessing CRISPR Therapeutics’ ability to truly deliver on its promise.

That is, investors have started to wonder whether the company’s early stage success would amount to anything commercially.

CRISPR Therapeutics is currently working on a treatment that would implant tumor-targeting immune cells on cancer patients. The company is also prioritizing therapies that could edit cells to treat diabetes.

So far, it has made significant progress in developing treatments for a genetic disorder called sickle cell.

In the US alone, at least 100,000 people suffer from sickle cell disease, with 4,000 more born every year. Conservatively, we can estimate at least 3,000 patients availing of this one-time treatment at over $1.6 million a pop.

To date, CRISPR Therapeutics has five candidates under clinical trials for diseases like B-thalassemia, sickle cell disease, and other regenerative conditions.

It has four more queued, which target diabetes, cystic fibrosis, and Duchenne muscular dystrophy.

Compared to its rivals in the space, it’s clear that CRISPR Therapeutics is ahead when it comes to product development and trials.

Two of its candidates, transfusion-dependent beta thalassemia treatment CTX001 and sickle cell disease therapy CTX110, have already been submitted for clinical tests for safety and efficacy.

Recently, Vertex (VRTX) boosted its 2015 agreement with CRISPR Therapeutics by 10%, with the deal reaching $900 million upfront to push for quicker results in developing CTX001.

This is a crucial move for Vertex, but more so for CRISPR Therapeutics as CTX001 holds a highly lucrative addressable market.

The additional funding significantly widened the gap between the Vertex-CRISPR team and bluebird bio (BLUE) in the race to launch a new gene-editing therapy targeting sickle cell disease and beta thalassemia.

To sustain its growth, CRISPR Therapeutics’ strategy is to develop drugs that only require mid-level complexity but can rake in generous financial rewards.

This is a similar tactic used by bigger and more established biotechnology companies like Pfizer (PFE), Novartis (NVS), and Gilead Sciences (GILD).

Evidently, this strategy is a great way to ensure cash flow.

Aside from its earnings from the commercialization of these products, CRISPR Therapeutics can also attract larger companies to buy the intellectual property of their breakthrough treatments.

After all, startups generally get 100% premiums in contracts with Big Pharma.

Good examples of this are Novartis that bought AveXis and Roche’s (RHHBY) purchase of Spark Therapeutics.

The Roche-Spark agreement led to the first ever FDA-approved treatment since gene therapy trials started in the 1990s. It was for the genetic blindness therapy Luxturna, which received the green light in 2017.

The second approved treatment was a muscle-wasting disease therapy Zolgensma, which was the fruit of the Novartis-Avexis acquisition.

Both conditions are rare, but the financial rewards are impressive.

At $2 million for each treatment, Zolgensma sales reached $1.2 billion annually. At the rate the therapy is selling, Novartis estimates that Zolgensma will surpass the $2 billion mark in 2021.

Novartis and Roche aren’t the only ones partnering with smaller gene editing companies.

Pfizer has been working with biotechnology companies BioMarin Pharmaceutics (BMRN) and UniQure (QURE) to develop a treatment for blood-clotting disorder hemophilia.

The COVID-19 frontrunner is also collaborating with Sarepta Therapeutics (SRPT) to come up with a treatment for Duchenne muscular dystrophy.

Gene editing has also served as the foundation for several biotechnology companies out there today like Sangamo Therapeutics (SGMO), Cellectis (CLLS), and Allogene Therapeutics (ALLO).

The market size for gene editing treatments is estimated to be worth $11.2 billion by 2025, with the number rising between $15.79 billion to $18.1 billion by 2027.

This puts the compounded annual growth rate of this sector to be at least roughly 17%.

While this is already groundbreaking with only a handful of companies knowing how to utilize the technology, the gene-editing world has come up with a more advanced technique than Crispr-Cas9.

The technology is founded on the “base editing” or “prime editing” technique, which is the simplest type of gene editing that alters only one DNA letter.

So far, one company holds exclusive rights to this technology: Beam Therapeutics (BEAM).

When the technology became public, Beam stock has increased sixfold since its IPO in February 2020.

This latest development can resolve thousands of genetic diseases. However, it still requires further trials since “base editing” can also trigger damaging responses from the body.

Overall, I think CRISPR Therapeutics is the most promising among these high-risk stocks.

The data from two of its candidates, CTX001 and CTX110, are promising. The added funding from Vertex boosts the confidence of investors that a regulatory approval is well on its way.

The company is also sitting on a massive cash pile and investing aggressively across different rare disease programs.

While the company has yet to be considered a major force in the biotechnology world, the potential multiple successes of its products could generate a company worth hundreds of billions.

This potential alone offers an investing opportunity with a substantial asymmetric advantage for its current share price.

However, bear in mind that the stock is not for conservative investors considering risks.

More importantly, its pipeline requires patience. Hence, CRISPR Therapeutics should be played as a long-term investment.

February 10, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 10, 2022
Fiat Lux

Featured Trade:

(A HEALTHCARE ENIGMA TO ADD TO YOUR WATCHLIST)
(GILD), (JNJ), (PFE), (ABBV), (LLY), (MRK), (BMY),
(AMGN), (MRNA), (AZN), (REGN), (BNTX), (NVAX)

A Healthcare Enigma to Add to Your Watchlist

Biotech Letter

The top names in the biopharmaceutical world based on their market capitalization include Johnson & Johnson (JNJ), Pfizer (PFE), AbbVie (ABBV), Eli Lilly (LLY), Merck (MRK), Bristol Myers Squibb (BMY), Amgen (AMGN), and Gilead Sciences (GILD).

Among these names, Gilead is often viewed as an enigma, given its history and the challenge in predicting its share price trajectory.

Over the past months, Gilead has been testing the patience of investors. In fact, the company is projected to experience a fall in revenues this year from $27 billion in 2021 to $24.05 billion in 2022.

The latest news that added to their anxiety was the pause on clinical trials for its cancer therapy, Magrolimab.

This came after its short-lived dominance in the Hepatitis C segment.

At that time, the sales of its leading drug Sovaldi skyrocketed from $140 million in 2013 to a jaw-dropping $10.2 billion by 2014.

Meanwhile, another Hepatitis C treatment, Harvoni, single handedly raked in $13.8 billion in sales in 2015, pushing the entire company’s revenues to an impressive $32.6 billion.

Unfortunately for Gilead, it became the victim of its own staggering success.

Its Hepatitis C treatments, Sovaldi and Harvoni, were incredibly effective and managed to cure the patients within months. The demand for these drugs fell because the patient pool gradually ran dry.

By 2019, the Hepatitis C franchise of the company had declined and managed to scrape $2.9 billion in combined sales.

Since then, though, the company has been struggling to regain investors' faith.

Nevertheless, these recent developments are not enough reasons to panic. If anything, Gilead has simply become even more attractively priced due to the fallout.

In 2020, Gilead managed to report its first year-on-year increase in revenues since its glory days in 2015.

As the COVID-19 pandemic started to take hold of the world, it was Gilead’s Veklury (Remdesivir) that secured the first-ever Emergency Use Authorization from the FDA.

While Veklury was eventually overshadowed by COVID-19 vaccines from Pfizer, Moderna (MRNA), JNJ, and AstraZeneca (AZN), as well as other treatments and antibody cocktails from Eli Lilly, Regeneron (REGN), and Merck, Gilead’s candidate managed a comeback by the fourth quarter of 2021 after experts declared it to be effective against the Omicron strain.

In effect, Veklury had a major impact on the company’s 2021 performance, recording $5.6 billion in annual sales.

Although this is not as illustrious or groundbreaking as its Hepatitis C treatments, the reemergence of Gilead as a frontrunner in the pandemic is proof that the company has not lost its knack for discovering and developing a winning formula for blockbuster treatments.

Another avenue that Gilead has been exploring is actively acquiring assets to expand its portfolio.

One notable move in that direction is its $11.9 billion acquisition of Kite Pharma, a leader in the cell therapy space, in 2017. Thus far, this agreement has yielded two drugs: Yescarta and Tecartus.

Since oncology is one of Gilead’s major areas of concentration, the commercialization of these two treatments conveys a promising future.

While both are yet to become blockbusters, the field of cell therapy has been rapidly expanding and turning into a critical therapeutic option for certain patient categories.

Yescarta is projected to rake in $1.5 billion in revenues if it receives the FDA green light for large B-cell lymphoma

Considering that its last trial data showed off a 60% improvement with Yescarta compared to standard of care in terms of halting the disease’s progression or even death, there’s a huge possibility that Gilead will be delivering good news soon.

As for Tecartus, this treatment received approval for acute lymphoblastic leukemia last year and is aiming to expand to cover mantle cell lymphoma by July 2022.

With its list price of $373,000, this CAR-T therapy is projected to reach blockbuster status in the following months as well.

Another oncology drug anticipated to reach blockbuster status soon is metastatic triple-negative breast cancer treatment Trodelvy, which Gilead gained access to following a $21 billion deal with Immunomedics in 2020.

Given its current approved indications and the queued trials to expand its coverage, Trodelvy is projected to reach $4.7 billion in peak sales.

Going back to the 2022 revenue forecast for Gilead, I think the change is from the company’s anticipated decline in Veklury sales.

Since Pfizer, BioNTech (BNTX), Novavax (NVAX), and Moderna have been actively working on Omicron-focused vaccines and treatments, Gilead expects its Veklury revenues to shrink as well.

Overall, Gilead still presents an excellent opportunity for long-term investors.

Despite its setbacks, the company has proven that it still holds the knack of rolling out remarkable and effective best-in-class treatments.

Moreover, its pipeline is filled with promising candidates poised to deliver in the years to come. So, don’t be too quick to write off Gilead just yet.

gilead

February 8, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 8, 2022
Fiat Lux

Featured Trade:

(A NEW WAVE OF GENE-EDITING EXPERTS)
(NTLA), (REGN), (VRTX), (CRSP), (TMO), (SGMO), (EDIT), (MRK), (BIIB)

A New Wave of Gene-Editing Experts

Biotech Letter

The gene-editing sector quietly achieved historical results in 2021. Last year, human trials of two in vivo CRISPR-centered treatments released promising data.

One study, conducted by Intellia Therapeutics (NTLA) and Regeneron Pharmaceuticals (REGN), worked on targeting the faulty gene responsible for transthyretin amyloidosis.

Using their new CRISPR-based therapy, they were able to record an impressive 96% decline in the transthyretin gene.

This is an impressive accomplishment not only for its high efficacy but also for the mere fact that no other work has managed to record any significant effect on the gene for almost a decade now.

The other study is by Vertex Pharmaceuticals (VRTX) and CRISPR Therapeutics (CRSP). Over the years, the two have been collaborating on coming up with treatments for various rare diseases.

In 2021, they recorded promising results in their clinical trials for sickle cell disease and beta-thalassemia. Aside from the potency of these treatments, there is a possibility that the effects would offer long-lasting improvements in the patients' lives.

While 2021 was clearly a remarkable year for the gene-editing sector, all signs indicate an even better 2022.

If the sector doesn’t deliver, there will be 2023 and the year after. After all, the gene-editing world is the kind of space that gets better with age.

More than that, this sector will keep evolving and attracting new players every year.

Hence, key players like Thermo Fisher Scientific (TMO), Sangamo Therapeutics (SGMO), Editas Medicine (EDIT), Merck (MRK), and Oxford Genetics cannot expect to be the top names in the industry forever.

Recently, some names have been making waves in the gene-editing industry.

One is Excision BioTherapeutics. Founded in 2015, this Philadelphia biotechnology company leverages its CRISPR-based platform to target viral infections.

Basically, they aim to snip the viral DNA out of the host genome.

To date, the company’s most advanced project is its HIV treatment: EBT-101. So far, Excision has managed to functionally cure its test animals of the infection by removing their HIV genomes.

Ultimately, Excision’s goal is to come up with a “one-and-done” therapy for viral diseases.

Apart from working on HIV treatments, the company is also looking into potential cures for herpes simplex, hepatitis B, and a rare brain infection called multifocal leukoencephalopathy.

If these treatments succeed, Excision’s therapies would be available in highly specialized treatment centers.

Another promising biotechnology company is California’s Scribe Therapeutics, which was founded in 2018.

Describing their approach to be guided with an “engineer first” philosophy, Scribe’s plans to use CRISPR-based gene-editing tools to achieve their goals.

Instead of using the conventional CRISPR-Cas9 methods, the company opts for modified versions of the RNA-guided genome editors or CasX enzymes.

Scribe has been developing these CasX enzymes to ensure that they acquire the qualities of the target for enhanced specificity.

That is, the company wants its “editor” to learn as much as possible about the characteristics of the system to deliver intentionally designed solutions.

Simply, Scribe aims to control all elements and eliminate the need to leave anything to chance or even nature.

Since its founding, Scribe has been actively developing solutions for unmet medical needs.

For instance, it has been working with Biogen (BIIB) to develop and eventually market CRISPR-based treatments that target an underlying genetic component of a nervous system disease called amyotrophic lateral sclerosis.

The agreement states that Scribe will get $15 million upfront and receive over $400 million in potential milestone payments.

The company has already started testing its technology in mouse models, focusing on neurological and neurodegenerative conditions.

Given their current trajectory, Scribe expects to release data by the third or fourth quarter of 2022 or early 2023.

All in all, gene-editing tools have evolved so much from the mid-twentieth century. Back in the 1970s and 1980s, the process of gene targeting was only possible in experiments on mice.

Since then, the ever-expanding world of science has pushed the sectors of gene analysis and manipulations to cover all kinds of cells and organisms.

Considering the increasing demand in this sector, it’s no wonder the gene-editing world has been growing at breakneck speed over the past years—a pace that won’t slow down anytime soon.