Mad Hedge Biotech and Healthcare Letter
January 27, 2022
Fiat Lux
Featured Trade:
(A BLUE-CHIP STOCK POISED FOR MORE GROWTH)
(BMY), (SGEN), (IPSC), (PFE)
What I’m about to share with you isn’t the most pleasant news, but it’s the truth.
You need to prepare for a stock market crash or a steep correction in the near future.
Since the early 1950s, the S&P 500 benchmark has experienced a total of 38 double-digit percentage declines.
While Wall Street doesn’t necessarily follow these trends, it’s vital to understand and accept that crashes and corrections will always be staples of the investing cycle.
On the flip side, these kinds of dips in the market also offer remarkable opportunities to buy high-quality businesses at a discount.
One of the wisest decisions you can make if the stock market does crash soon is to pick up shares of biopharmaceutical company Bristol Myers Squibb (BMY).
The allure of most healthcare and biotechnology stocks is that they make for good defensive investments.
We can never really fully control or even predict when we’ll get sick or what kinds of diseases we’ll develop.
That means that the volatility of the stock market or even the broader economy tends to have minimal effect on the demand for prescription treatments, medical devices, and healthcare plans.
This type of assurance offers a steady cash flow to the likes of BMY.
However, the healthcare industry continues to evolve. That also requires adjustments from companies regardless of their size and history.
Recently, there have been talks of BMY acquiring Seagen (SGEN), with investors hoping this could lead to an added revenue stream. After all, company executives have been hinting at plans to do some “shopping” this year.
While BMY has never shied away from massive acquisitions, it looks like it plans to expand its portfolio more conservatively as opposed to making splashy deals.
The latest move from BMY towards that direction is its licensing agreement with Century Therapeutics (IPSC).
According to the agreement, BMY will pay Century $100 million upfront and invest an additional $50 million to gain access to four of the smaller company’s off-the-shelf cancer therapies.
Potentially, Century could receive up to $3 billion from BMY in milestone payments on top of double-digit royalties.
Although not a splurge by any means, this deal would actually be an excellent addition to BMY’s cell therapy portfolio.
One potential treatment that would benefit from this licensing agreement is lymphoma therapy Breyanzi, which is estimated to get a list price of $410,000 and peak sales of roughly $3 billion.
Another is multiple myeloma treatment Abeam, which is expected to be listed at $419,500 and reach peak sales of approximately $1 billion.
Besides being a top-quality defensive play, BMY is excelling at taking advantage of its plan to combine organic with acquisition-based expansions.
In terms of organic growth, a good example is its blood-thinning treatment Eliquis, which BMY developed with Pfizer (PFE). In 2021, this drug raked in an impressive $10 billion in sales.
Another example is its cancer treatment Opdivo, which contributed $7 billion in 2020 and holds the potential to exceed $10 billion in annual sales given the continuous expansion of its applications.
In terms of acquisitions, BMY’s last huge acquisitions are the $13.1 billion deal with MyoKardia and, of course, the jaw-dropping $74 billion agreement with Celgene.
Looking at how the acquisitions helped BMY, saying that the company landed a whale when it acquired Celgene is an understatement.
Considering that Celgene’s Revlimid is the highest-grossing drug in BMY’s portfolio today, it’s apparent that these deals have proven to be a fast, albeit costly, strategy to guarantee that the company will continue to hold a diverse lineup of proven products with the capacity to provide consistent revenues and boost R&D.
Since that 2019 deal, the company has enjoyed the perks of Celgene’s blockbuster drugs like Revlimid, which has a proven track record of double-digit growth in annual sales and has recorded $15 billion in yearly revenue.
More importantly, Revlimid is protected from generics until 2026, offering BMY a lot of elbow room to take more advantage of the cash flow coming from this drug
Celgene has also provided an extremely valuable lineup of pipeline assets, apart from its blockbusters.
For instance, beta-thalassemia treatment Reblozyl holds the potential to bring in $2 to $4 billion in annual sales, while autoimmune medication Zeposia is projected to add $3 billion in yearly sales.
To date, it’s clear to see that BMY welcomed 2022 with promising momentum, and the healthcare stock should be anticipated to perform well in the first six months of the year.
Given its track record and projected trajectory, it won’t come as a surprise if this blue-chip stock soars above its competition this year.
Mad Hedge Biotech and Healthcare Letter
January 25, 2022
Fiat Lux
Featured Trade:
(WHAT TO WATCH OUT FOR IN 2022)
(PFE), (BNTX), (AZN), (JNJ), (MRNA), (RHHBY), (RXRX), (TAK), (PSTX), (ZY), (DNA)
The past two years have been focused on finding solutions to end the COVID-19 pandemic.
More have been attempting to join Pfizer (PFE), BioNTech (BNTX), AstraZeneca (AZN), Johnson & Johnson (JNJ), and Moderna (MRNA) in sustaining and even boosting the momentum in terms of vaccine development and launch of new drugs in the market.
While the biotechnology and healthcare industry will still predictably have COVID-19 as one of its priorities, I can see a number of promising developments waiting to be unleashed to the public this year.
One is the expansion of mRNA applications to go beyond its potential as a coronavirus vaccine.
In the first three quarters of 2021, Moderna recorded $10.7 billion in sales for its mRNA vaccine while Pfizer-BioNTech raked in $39 billion—and these numbers are expected to soar even higher for 2022.
However, what’s more promising is that the pandemic revealed an undeniable and irrefutable fact: mRNA-based treatments could be administered safely and successfully to patients.
That discovery appears to have bolstered investor confidence in the technology, as an increasing number of RNA-based drug developers managed to lure hundreds of millions in terms of financing.
China’s Abogen Biosciences received over $700 million in its Series C round last August, while another RNA-focused biotech, Massachusetts-based Laronde, raked in $440 million in a Series B round during the same period.
Another technology on the rise is artificial intelligence (AI).
For years, AI has grown from science fiction tales to real-life applications. Lately, this segment has shown signs of finally coming up with a breakthrough.
In fact, something groundbreaking might arise in the healthcare world courtesy of Roche (RHHBY) and its Genentech subsidiary.
After all, these two became the talk of the industry in December 2021 when they committed roughly $12 billion in exchange for access to the revolutionary operating system of Recursion Pharmaceuticals (RXRX).
Ultimately, the collaboration aims to come up with advanced treatments—40 programs in total—for various conditions, focusing on neuroscience and oncology.
Aside from mRNA and AI, another sector that’s expected to rally this year is the cell and gene therapy segment.
So far, more capital has poured into this area and a growing number of programs are entering Phase 3 trials.
In the first six months of 2021 alone, gene therapy companies raised approximately $6.4 billion in funding and queued 376 trials.
This notably surpassed 2020’s performance, which recorded $2.2 billion and 359 trials.
By the second half of 2021, big money started to come in with billion-dollar partnerships cropping up everywhere.
These included Takeda Pharmaceutical’s (TAK) collaboration with Poseida Therapeutics (PSTX), worth roughly $3.6 billion, as well as Roche’s partnership with Washington’s Shape Therapeutics at $3 billion.
On top of these exciting breakthroughs is another exciting development: synthetic biology.
In the first six months of 2021, the synthetic biology segment attracted about $8.9 billion in venture funding.
To top it off, the sector managed to launch two successful IPOs last year: Zymergen (ZY) and Ginkgo Bioworks (DNA).
Considering the growing momentum in this field, synthetic biology is anticipated to remain on track and achieve full-scale marketing and manufacturing across many applications. These can span from essential medicines to even various foods such as dairy and meat.
Although the biotechnology and healthcare sector struggled in the past months, it’s undeniable that the market still has faith in the industry’s future and potential.
In fact, investors showered the biotechnology segment with a record-breaking $24 billion in terms of venture capital in the first three quarters of 2021, exceeding the $20 billion total generated in 2020.
Throughout the years, biotechnology has transformed from a restrictive academic enterprise into a booming industry with real-world applications.
Looking at the history and trajectory of this sector, I can say that the trend will continue into 2022 and beyond.
Mad Hedge Biotech and Healthcare Letter
January 20, 2022
Fiat Lux
Featured Trade:
(A NO-BRAINER DIVIDEND CONTENDER UP FOR GRABS)
(AMGN), (ABBV), (GILD), (REGN), (JNJ)
To say that biotechnology stocks haven’t been performing well as of late is an understatement.
Over the past 12 months, the SPDR S&P Biotech Exchange Traded Fund (XBI) has recorded an over 30% loss and is anticipated to reach its 52-week low soon.
Investors have been pulling back from biotechnology stocks for several reasons like threats of drug pricing reforms in the US, the ever-increasing interest rates, and of course, the lure of rapid-growth assets such as cryptocurrencies.
Nevertheless, all is still not lost for the biotechnology sector.
The industry, in its entirety, continues to move forward with unprecedented innovations.
These groundbreaking discoveries, in turn, offer a myriad of untapped, top-value markets that will bode well for long-term investors.
This means that savvy investors would do well to make the most of this broad selloff in a highly promising segment.
One way to determine quality names in this volatile sector is to choose dividend-paying stocks.
After all, dividends are excellent sources of passive income. Apart from that, these can easily boost your portfolio if you plan to reinvest your money.
Basically, regardless of your investment strategy, choosing dividend-paying businesses can be really helpful in reaching your goals.
Among the names in the biotech industry, one that looks promising these days is Amgen (AMGN).
While Amgen’s dividend yield isn’t as high as the likes of AbbVie (ABBV) and Gilead Sciences (GILD), this pioneering biotechnology company is still a promising investment.
Recently, Amgen reported another dividend increase of 10.2%, indicating a rise from $1.76 to reach $1.94 per quarter, with the subsequent dividend expected to be payable by March 2022.
This results in an annual dividend of $7.76 and a respectable dividend yield of 3.41%.
More impressively, Amgen has been paying out dividends since 2011 and boosted its dividend not only annually but with an 11.97% in CAGR over the past 5 years.
Given the company’s history and growth trajectory, Amgen’s earnings growth rate annually in the next 5 years is estimated to be 6%, while its yearly dividend hike rate is projected at 7%.
At first glance, it’s easy to dismiss Amgen’s current standing.
In the third quarter of 2021, the company’s total revenue only reached $6.7 billion, indicating a measly 4% rise year-over-year.
A potential reason for this underwhelming growth is the pending patent cliff for some of its key products and the threat of biosimilars taking over Amgen’s target markets.
For example, cancer medication Neulasta reported a 25% decline in its sales year-over-year to contribute only $415 million in the third quarter.
Needless to say, this kind of disheartening top-line growth is partly responsible for the stock’s sluggish performance in the market lately.
However, other products in the company’s portfolio have reported much better performances than Neulasta.
There’s osteoporosis treatment Prolia, which rose by 15% year-over-year to contribute $803 million in the same period.
Even cholesterol drug Repatha showed off a 33% growth to record $272 million, while arthritis medication Otezla’s sales climbed by 13% to rake in $609 million.
On top of these, Amgen has also succeeded in developing new products that can easily provide additional revenue streams.
One of the most promising recently approved products is advanced non-small-cell lung cancer (NSCLC) treatment Lumakras, which received the US FDA green light last year.
Although there are many approved drugs for this condition, Lumakaras is the first and only treatment that targets specific mutations among non-squamous NSCLC patients.
This translates to 13% of patients suffering from that particular condition.
This is a massive market for Amgen.
Back in 2019, lung cancer was identified as the leading cause of cancer deaths in the United States.
At that time, the total was 139,603 individuals, which made up 23% of all the deaths attributed to the condition. Among the lung cancer deaths, 84% were identified to be of the NSCLC category.
So, if you put everything in perspective, the 13% patient population that Amgen exclusively holds equates to a big opportunity.
In addition, the European Union already approved Lumakras as well. This opens up yet another massive market for the treatment.
In the third quarter of 2021, Lumakras only delivered $36 million in sales. With the recent approvals and broadening of markets, this drug’s revenue is projected to rise quickly.
Aside from these products, Amgen has been working on expanding its pipeline. To date, the company has over 20 ongoing Phase 3 clinical trials.
Moreover, Amgen has decided to take a page out of the books of biosimilar developers.
As the company witnessed its own products get pummeled by biosimilars in the market, Amgen has opted to cannibalize sales of a wide range of treatments that lost their patent exclusivities.
This strategy has already delivered rewards, with the company reporting at least $2 billion in annual sales from its biosimilars in 2021.
For 2022, Amgen has three more biosimilars under development and is looking into poaching the likes of Regeneron’s (REGN) Eylea and Johnson & Johnson’s (JNJ) Stelara as well.
Despite the pandemic, Amgen has managed to extend its dividend growth streak to reach 11 consecutive years. This makes this biotechnology company an impressive Dividend Contender.
Overall, I consider this company a solid buy and an excellent long-term investment. It’s not simply an undervalued pick for value investors but also an outstanding choice for dividend investors.
Mad Hedge Biotech and Healthcare Letter
January 18, 2022
Fiat Lux
Featured Trade:
(THE PERFECT COUNTERBALANCE FOR A VOLATILE TECH)
(CI), (ANTM), (CVS)
Investing in quality stocks is a surefire way to slowly build a healthy portfolio over the years.
As long as you buy and hold stocks that have the potential to expand and offer stable financials continuously, then you’ll be securing your long-term success.
Obviously, this strategy is less risky compared to jumping on every new bandwagon and believing hyped ideas.
Then, there are breakthrough ideas that look too good to pass up. A good example is the cryptocurrencies such as Bitcoin and Ethereum.
Both operate on blockchain technology, which holds the potential to revolutionize practically all industries by decentralizing them and utilizing data in more efficient ways.
While investing in this kind of technology can definitely be exciting and thrilling, it’s undeniably scary for some who are still unfamiliar with it.
But, what if there’s a safer and more traditional way to get your foot in this groundbreaking technology?
Here’s where Cigna (CI) comes in.
Cigna is one of the handful of companies that are looking into integrating blockchain into their business, such as accepting cryptocurrencies as an additional form of payment.
Needless to say, investing in Cigna would offer you exposure to this new and emerging blockchain technology sans the risk that comes with every new technology.
This is a unique move considering that health insurance stocks are not exactly widely known as proponents of cutting-edge technology.
Aside from Cigna, other providers have been looking into leveraging blockchain to improve their operations. Some names associated with this project include Anthem (ANTM), CVS (CVS), and Cleveland Clinic.
Although blockchain remains in the early innings in terms of its existence in the healthcare industry, investors seeking some exposure would benefit from this reasonably safe option.
After all, Cigna is nothing but a safe stock.
Everyone has practically heard of the company.
Cigna provides Medicare and Medicaid products and insurance coverages not only within the United States but also in some international markets.
Known as a “global health service company,” it has approximately $64.5 billion in marketing capitalization and is considered the fifth-biggest healthcare organization in terms of revenue.
In 2021, it reported over $160 billion in revenue and has managed to rake in profits consistently.
With a net margin of roughly less than 6% of its sales, Cigna has been an investor darling by being consecutively in the black in the last 5 years.
For its 2022 plans, Cigna aims to grow its addressable market to add 3 new states and 93 new countries to reach 1.5 million new customers eventually.
The company also recently secured a new 7-year deal with the US Department of Defense, which would hand over the handling of the healthcare services of roughly 9.6 million active-duty service members to Cigna.
Moreover, Cigna has been working on targeting high-margin sectors like specialty pharmacies.
One of these businesses is Accredo, which manages individuals suffering from complex and hard-to-treat chronic ailments. These conditions include HIV, hepatitis C, and even cancer.
These types of illnesses demand a lifetime’s worth of medications with astronomical price tags. Clearly, being able to get a foothold in this segment would open up a lucrative revenue stream for Cigna.
Basically, Cigna is not your typical flashy stock that gains much attention from the market or the news. Nonetheless, it’s a solid pick that never fails to get the job done.
If anything, investing in Cigna would mean buying and forgetting about it while you collect a stable dividend yield of roughly 2% from this healthcare provider—a solid yield that’s better compared to the 1.3% average of the S&P 500.
So, for cryptocurrency fans, buying Cigna shares would simply be a way to diversify into a sector where you won’t really anticipate that much bullishness on blockchain.
Mad Hedge Biotech and Healthcare Letter
January 13, 2022
Fiat Lux
Featured Trade:
(NO REST FOR THIS PANDEMIC SUPERSTAR)
(PFE), (MRK), (RHHBY), (DNAY), (JNJ), (LLY), (BNTX), (EDIT)
Amid the pandemic fatigue hounding everyone these days, one name continues to attack the situation with consistent vigor: Pfizer (PFE).
It’s not a stretch to say that its COVID franchise is the most popular line in Pfizer’s portfolio today.
Needless to say, this is highly lucrative from a shareholder’s point of view. The company’s vaccination business has recorded over 3 billion doses to generate roughly $36 billion in sales from Comirnaty alone in 2021.
Riding the momentum of its successful 2021, the company anticipates an even more successful 2022.
So far, Pfizer is targeting an increase in its Comirnaty production to hit at least 4 billion doses this year.
Aside from being one of the first companies to develop a vaccine, the company has also created a highly effective antiviral COVID treatment that can be taken orally: Paxlovid.
While Merck (MRK) has earlier announced its move to come up with a similar oral treatment, Pfizer’s pill proved to be more effective.
Actually, customers are starting to take note of the difference and are switching brands. France already canceled their agreement with Merck and decided to order Pfizer’s Paxlovid instead.
This once again underscored the dominance of Pfizer’s brilliant R&D segment and the company’s capacity to rapidly come up with highly effective solutions for issues involving COVID.
The way Pfizer has been handling the COVID situation can be compared to Roche’s (RHHBY) approach and eventual blockbuster success with Tamiflu over 20 years ago.
Although the flu is obviously not as deadly as the coronavirus, it still caused widespread economic breakdown and health problems.
When Tamiflu eventually entered the market, the world was finally granted a simple medical answer for what was initially thought to be an unsolvable health problem.
Pfizer’s Paxlovid could very well be the Tamiflu for COVID.
Looking at Paxlovid’s effect in terms of revenue, it’s safe to say that this oral treatment can drive medium-term growth for Pfizer.
To date, Pfizer disclosed that Paxlovid would be sold for roughly $700 for each treatment course.
Let’s use the US numbers as an example to help put things in perspective. So far, the country has recorded approximately 170,000 cases per day.
If we assume that this will be the average for 2022, then there will be about 62 million COVID patients this year.
Let’s say that only 40% of these patients qualify for Pfizer’s treatment; then this would reach 24 million people at $700 each to rake in roughly $17 billion in total revenue in the US alone.
The number would definitely be significantly higher considering that Paxlovid will be offered as a global COVID treatment.
It’s evident that Pfizer’s efforts are paying off, as the sheer earnings power of the company’s COVID-19 pandemic franchise could provide a medium-term boon for its investors.
In 2021, Pfizer recorded a 130% growth in its revenue, with the numbers still climbing.
While its pandemic response has become its primary growth driver, Pfizer’s other key segments also posted promising revenues.
To sustain its climb, the company has continued to invest in R&D heavily.
A notable investment it made recently is an $8 million upfront payment to Codex DNA (DNAY) for the smaller biotechnology company to “produce certain materials of interest to Pfizer.”
According to the deal involving the exclusive product, Codex expects $10 million in technical milestone payments, up to $60 million in clinical development milestones, and $180 million in sales milestones.
Codex DNA is a small biotechnology company with a market capitalization of $267 million. It’s a spinoff from a California company called Synthetic Genomics.
While Pfizer and Codex have yet to share their plans publicly, we can hypothesize that it has something to do with the large biopharma using the small biotech’s technology to accelerate its mRNA vaccine development process.
After all, Codex’s distinct value proposition lies in its rare ability to automate various elements of the entire process. Its push-button, end-to-end solutions promise to build functional grade synthetic mRNA and DNA.
In effect, this will save cost and time for its clients.
Aside from Pfizer, this small biotech has been collaborating with other organizations like Duke University and MIT.
It has also been working with large biopharmas, including Johnson & Johnson (JNJ), Eli Lilly (LLY), BioNTech (BNTX), Merck, and even gene therapy expert Editas (EDIT).
For 2022, Pfizer is anticipated to generate at least $96 billion in sales, showing off a jaw-dropping 17.2% jump from its 2021 revenue and a 229% increase from 2020.
As we slowly accept that COVID will become a staple in our lives in the coming years, I think investors would be wise to add proven “experts” in their portfolio to take advantage of the ever-present and increasing demand.
