Mad Hedge Biotech and Healthcare Letter
December 9, 2021
Fiat Lux
Featured Trade:
(A WELL-BALANCED STOCK FOR YOUR RETIREMENT PORTFOLIO)
(ABBV)
Have you ever heard of the barbell investment strategy?
If you have already started planning for retirement, you’ve probably been told to assess your risk tolerance level and develop a portfolio that fits that profile.
While there are many things you need to learn about this topic, one of the recurring concepts is that regardless of your risk level, you will always need to build two portfolios.
One portfolio comprises the risks below your risk level, and the other goes beyond it: the barbell model.
Basically, the more conservative portfolio will form part of your short-term survival goals, while the more aggressive one will be reserved for long-term growth.
This barbell strategy gained prominence thanks to Nassim Nicholas Taleb, a renowned statistician, essayist, and trader.
He famously adhered to this tactic during the 2007-2008 economic meltdown, allowing his finances to flourish while his fellow Wall Streeters watched their investments crash.
Taking this approach into consideration, one of the names in the biotechnology and healthcare industry emerges as an embodiment of the investment that meets the requirements of both ends of the barbell: AbbVie (ABBV).
Recently, AbbVie announced a healthy 8.5% boost in its quarterly cash dividend from $1.30 per share to $1.41, which will be payable in February 2022.
This latest increase has pushed its dividend yield to roughly 4.9% under its current price.
Needless to say, this type of dividend yield makes AbbVie an excellent candidate to deliver short-term growth.
Moreover, this isn’t a one-time achievement for the company. The company has a proven track record of returning cash to its shareholders via a growing dividend.
In fact, the company’s quarterly dividend has climbed by over 250% since its inception way back in 2013.
This achievement has secured AbbVie a membership in the S&P Dividend Aristocrats Index, which keeps track of companies that have consistently increased their dividends annually for at least 25 consecutive years.
AbbVie also has outstanding growth prospects primarily due to the solid secular support backing its business and robust pipeline.
Since the biotechnology and healthcare segment targets an essential human need that is showing no signs of disappearing or even changing soon, ordinary investors and super investors have been lured to this sector.
A case in point is Warren Buffett, who currently holds over $1.5 billion worth of AbbVie shares.
And the demand is only going to get stronger moving forward, due to various factors like population growth and extended life expectancy, translating to long-term secular support.
Actually, the average national health spending in the US alone is estimated to grow at an annual rate of 5.4%—far surpassing inflation. By 2028, the spending is projected to reach $6.2 trillion.
Riding the momentum of this industry, AbbVie has been busy working on its pipeline.
To date, the company has roughly 100 candidates in its pipeline, with 29 in the later stage of drug development.
Among them, the most talked about are plaque psoriasis treatments Skyrizi and Rinvoq.
These two are expected to become the long-term substitutes or replacements for AbbVie’s top-selling drug, Humira, which would lose its patent exclusivity by 2023.
Skyrizi showed off an 83.3% year-over-year increase and generated $796 million in the third quarter.
Meanwhile, Rinvoq sales doubled to reach $453 million. Together, their sales totaled $1.2 billion.
For context, Humira sales in the same quarter reached $5.4 billion. So while the two have yet to reach the level of Humira in terms of sales, it looks like they’re off to a promising start.
In the next few years, Skyrizi and Rinvoq sales will reach $15 billion.
Other products are also helping fill the void of Humira’s pending loss.
Aside from creating successors of Humira, AbbVie also leveraged its cash flow to acquire Allergan in May 2020 for $63 billion.
This deal handed the company a number of exciting products, and the most promising is the Botox franchise. Considering that it would be difficult, if not impossible, to develop a biosimilar for Botox, this was a great decision.
In the third-quarter report, AbbVie disclosed that Botox Cosmetics rose by 38.5% year-over-year to bring in $545 million. Meanwhile, Botox Therapeutics rose by 23.4% year-over-year to generate $645 million.
Interestingly, while AbbVie’s fundamentals look solid, this particular stock appears to be heavily discounted by the market. The main reason could be the concerns over the pending patent loss of Humira.
However, AbbVie is a picture of an optimal combination of excellent short-term income, solid and proven financial safety, and long-term secular support.
Moreover, given AbbVie’s history, ability to generate cash and consistent payout, it’s reasonable to categorize this company as safe as the coupon payments taken from treasury bonds.
Mad Hedge Biotech and Healthcare Letter
December 7, 2021
Fiat Lux
Featured Trade:
(GET READY FOR THE SECOND WAVE OF COVID-19 VACCINES)
(NVAX), (MRNA), (PFE), (BNTX), (JNJ), (AZN), (SNY)
Moderna (MRNA) and Pfizer (PFE) / BioNTech (BNTX) unquestionably rule the COVID-19 vaccine market these days.
These companies have amassed billions in quarterly revenue from their vaccine candidates, with Moderna expecting $18 billion and Pfizer/BioNTech anticipating $36 billion in annual sales this year.
Other than these two, Johnson & Johnson (JNJ) and AstraZeneca (AZN) offer COVID-19 vaccines, but these appear to be distant rivals to the mRNA contenders.
However, it looks like the COVID-19 vaccine market will soon get another competitor—one that has a solid potential to truly carve out a considerable share: Novavax (NVAX).
At this point, Novavax’s vaccine candidate has yet to gain authorization in major markets.
Its shares have also fallen by over 30% since it started in January this year. Nonetheless, the company is projected to turn things around starting this December.
For one, it has already started filing for regulatory approval in various countries and recently gained authorization in Indonesia and the Philippines. Meanwhile, it plans to file for approval in the US before 2021 ends.
To date, Novavax has secured $7 billion worth of advance purchase agreements for its vaccine by 2022.
But a more promising catalyst for Novavax lies in its proven technology.
This makes it notably distinct from Moderna and Pfizer’s vaccines. Simply put, Novavax isn’t offering new technology like the mRNA vaccine.
Rather, Novavax uses a tried and tested approach in the form of protein subunit vaccines. These constitute the very same technology used in vaccines that have been long available in markets, such as the Hepatitis B vaccine.
Considering the pushback in using new technology like mRNA, which comes from healthcare professionals and patients, the entry of a long-established vaccine technology would encourage more people to get the coronavirus jab.
Moreover, Novavax’s candidate can be stored at refrigerator temperatures. This is more convenient compared to the vaccines of Moderna and Pfizer, which require freezer temperatures.
The latest coronavirus variant, Omicron, brings about another catalyst.
Since the WHO announced Omicron’s presence last month, the entire world, including the stock market, has been rattled.
However, this announcement also served to light a fire under COVID-19 vaccine stocks.
After all, every problem can offer an opportunity. Omicron’s emergence has boosted the demand for COVID-19 vaccines.
While it’s never advisable to get the cart ahead of the horse, especially since the worries over the Omicron might be premature, it’s still reasonable to assume that the anxiety triggered by the news will most likely increase the popularity of vaccine stocks.
In the case of Novavax, the company is taking advantage of this exposure to announce that it is currently working on a candidate that’s potent against the new variant.
Beyond Novavax’s COVID-19 vaccine, the company has 8 more programs queued in its pipeline. Of these, 3 are in Phase 2/3 clinical trials.
These include ResVax and RSV F, which are vaccines against the respiratory syncytial virus (RSV). While adults can recover from RSV within weeks, this virus can be fatal to infants and children.
The most promising candidate is NanoFlu, which received a Fast Track Designation from the US FDA in early 2020. It also recorded top-line data against Fluzone from Sanofi (SNY), the leading flu vaccine today.
To give an idea of NanoFlu’s potential, Fluzone raked in $2.9 billion in sales in 2020—and it hasn’t even covered most of the market yet.
Considering NanoFlu’s Phase 3 clinical trials results, the product is estimated to generate more than $9.5 billion in global revenue by 2027.
Admittedly, Novavax investors have experienced a bumpy ride throughout 2021. However, it appears that the biotechnology company is on its way up, thanks to a couple of catalysts that lie ahead.
While I still think that Moderna and Pfizer are great stocks for long-term investments, these companies have already reaped the benefits of share performance. It may very well be Novavax’s turn to impress the market in the next few weeks.
Mad Hedge Biotech and Healthcare Letter
December 2, 2021
Fiat Lux
Featured Trade:
(A REMARKABLE COVID-19 JUGGERNAUT)
(PFE), (BNTX), (MRNA), (JNJ), (AZN), (MYOV), (AKCA)
Unless you have been living under the rock in the past two years, you probably heard that Pfizer (PFE) is one of the frontrunners in the COVID-19 market.
Between its incredibly successful vaccine and its soon-to-be-approved antiviral treatments, this company has undoubtedly risen to meet—and even surpass—the expectations.
And while a juggernaut in the pharmaceutical and healthcare industry may not seem like your run-of-the-mill growth stock, Pfizer has been showing no signs of slowing down.
If anything, this vaccine leader is anticipated to deepen its lead and reward its investors with market-crushing returns.
Moreover, the foundation of a good growth stock is a great product.
Pfizer clearly has that with its COVID-19 vaccine, Comirnaty, which raked in $13 billion in sales in the third quarter of 2021 alone—and there are surely billions more to come in the next months.
The company actually projects roughly $36 billion from Comirnaty sales this year, which is $2.5 billion more than the initial guidance of $33.5 billion announced earlier, with opportunities appearing to be multiplying more rapidly than even the management anticipated.
For 2022, Pfizer projects $29 billion in sales from Comirnaty—a number that could still rise given the recent approval for vaccines for children over 5 years old and the authorization for booster shots for adults.
On top of the vaccine sales, Pfizer has yet to take into account the potential of its COVID-19 pill, which has at least 90 countries interested.
Actually, the Biden administration has already allocated $5.3 billion to buy 10 million doses in advance of the anticipated approval.
This antiviral pill, called Paxlovid, can serve as an excellent alternative for those who are still hesitant over the vaccine. Plus, it has an 89% effectiveness in reducing the risk of severe COVID-19.
Considering that COVID-19 doesn’t seem to be disappearing anytime soon, there’s no question that Pfizer has a wide runway for growth.
Here’s one example of how Pfizer has been leveraging its expertise and technology lately.
In November, the world was alarmed by the news of yet another COVID-19 variant called Omicron, which was discovered in South Africa.
Although not much is known about it yet, scientists think it’s an escape variant because of its ability to double mutations compared to the Delta variant.
More alarmingly, Omicron is considerably distinct from the original virus that was the basis for the existing COVID-19 vaccines.
That led to growing concerns over the effectiveness of the current vaccines in the face of a highly virulent variant.
Countries like the US, the UK, Canada, Singapore, and Australia have decided to impose travel restrictions on passengers arriving from Africa to curb another pandemic.
The news of this new variant alarmed the world so much that even the stock market experienced a downtrend, particularly in the travel and hospital sectors. This is devastating considering that international travels have only been recently reopened.
Amidst the panic over the Omicron variant, Pfizer and its vaccine partner BioNTech (BNTX) shared that they have been long prepared over the possibility of an “escape variant” emerging.
In fact, the two have taken action months before the news broke and worked to modify their mRNA vaccine to target the new variant, with their candidate ready to be shipped out within 100 days.
This is an impressive foresight on the side of Pfizer and BioNTech, especially in light of the fact that its competitors, Moderna (MRNA), Johnson & Johnson (JNJ), and AstraZeneca (AZN), are only about to investigate the efficacy of their vaccines against Omicron.
Meanwhile, Pfizer has 94 programs in its pipeline. Of these, 38 are enrolled in Phase 2 and 3 clinical trials.
It also has 6 mRNA projects with its German partner BioNTech for additional COVID-19 vaccines and an mRNA flu vaccine.
In terms of expanding its other segments, Pfizer has collaborations with several companies in numerous specializations.
These include the acquisition of Trillium Therapeutics (TRIL) and work with Myovant Sciences (MYOV) to expand its oncology segment, while its collaboration with Akcea Therapeutics (AKCA) targets its cardiovascular sector.
Overall, Pfizer has proven itself to be the safest COVID-19 stock in the market today. Moreover, the continuous expansion of its core business and its heavy focus on R&D all guarantee that it remains in a tremendous position even in a post-COVID world.
Mad Hedge Biotech and Healthcare Letter
November 30, 2021
Fiat Lux
Featured Trade:
(BEYOND THE COVID-19 VACCINE)
(AZN), (PFE), (BNTX), (REGN), (GILD), (INCY), (MRNA)
Even altruism has its limits.
Adding to the list of things we didn’t expect to happen in 2021, AstraZeneca (AZN) has followed the footsteps of Pfizer (PFE) and BioNTech (BNTX) and decided to begin making money off its COVID-19 vaccine.
The news is an about-face from the Cambridge-based company’s previous pledge to not profit from this while the pandemic is still ongoing.
Given AstraZeneca’s decision, there’s a possibility that it no longer believes that COVID-19 remains a threat of global proportions—or it at least thinks the issue has become more manageable.
It remains to be seen how the company will react to the emergence of the Omicron variant, and if it plans to push through with this decision.
While AstraZeneca’s agreements with different countries won’t allow it to come right out of the gate and just start slapping massive profits all over the place, the company plans to begin “progressively transitioning” to profitability following its third-quarter call.
Moreover, the company assured that its COVID-19 vaccine would remain reasonably priced for low- to middle-income countries. This means that it plans to jack up the price in wealthier nations instead.
However, AstraZeneca isn’t doing this for purely financial reasons.
According to the company, profits from the vaccine will be allocated to another COVID-19-related effort, its antibody therapy called AZD7442—a treatment that’s expected to compete with therapies from Regeneron (REGN) and Gilead Sciences (GILD).
Regardless of how they spin this recent turn of events, the key takeaway is that they’ll start making money off the vaccine.
Although changing their tune about the COVID-19 vaccine might get them some flak, it’s crucial to bear in mind that AstraZeneca is a for-profit company. This is the natural course for them to take vis-a-vis their products.
Besides its work on COVID-19, AstraZeneca has been pouring money on R&D over the past 12 months to fund different clinical trials for its oncology, cardiovascular, and immunology segments. To date, the company’s spending on research and development has climbed by 27.5% year-over-year to reach $3.54 billion in the first 6 months of 2021.
This move to invest heavily in developing new drugs for severe medical conditions is anticipated to secure a solid future revenue and continuous growth in earnings per share for the company.
Given its pipeline and history, AstraZeneca is actually projected to grow by over 20% annually over the course of the next five years.
One result of this effort is the expansion of the company’s top-selling cancer drug, Imfinzi.
At the moment, Imfinzi is approved as a lung cancer treatment. However, it can soon boost its sales to include biliary tract cancer in its indications.
There are roughly 50,000 individuals diagnosed with biliary tract cancer annually in the United States, Japan, and Europe, with the number hitting 210,000 across the globe.
In terms of profitability, we can look at Incyte’s (INCY) Pemazyre, which was approved in 2020. Sales of the drug grew four-fold in the first 9 months to reach $48 million.
Admittedly, Imfinzi’s market share will rely on its efficacy and safety results.
However, the treatment has a track record of delivering a superior standard of care and guaranteeing that it has the same safety profile as chemotherapy.
Hence, it’s reasonable to say that we can conservatively expect Imfinzi to capture at least 15% of the whole biliary tract cancer market. This would be roughly 30,000 patients worldwide.
Currently, Imfinzi’s price tag is at $180,000 in the US, but the drug might be cheaper in other countries.
Based on the market potential of its biliary tract cancer indication, this additional indication could rake in an additional $600 million annually for AstraZeneca once it gains regulatory approval.
Although this is merely less than 2% of the projected $36.1 billion total revenue for AstraZeneca in 2021, adding $600 million would still be a notable tailwind to the $2.5 billion estimated earnings from Imfinzi.
While its COVID-19 vaccine did not deliver the same outstanding efficacy results as the mRNA vaccines of Moderna (MRNA) and Pfizer / BioNTech, it’s still one of the handfuls of major pharmaceutical companies that managed to develop and distribute an effective product.
Overall, vaccine decisions aside, AstraZeneca appears to be in a great place with a robust oncology portfolio. Therefore, this stock looks like a solid buy with several upcoming price catalysts in 2021 and 2022.
Mad Hedge Biotech and Healthcare Letter
November 23, 2021
Fiat Lux
Featured Trade:
(ALTERNATIVE ALZHEIMER’S DISEASE STOCKS FOR RISK TAKERS)
(BIIB), (SAVA), (AVXL), (BCRX)
Alzheimer’s disease is one of the most debilitating conditions not only for the patients, but also for their families.
This disease also comes with high costs at $290 billion in annual spending.
More alarmingly, over 6 million people are suffering from Alzheimer’s disease in the United States alone — and this number is expected to keep rising in the coming years.
The growing number of Alzheimer’s patients has resulted in an unmet need in the medical sector.
This demand was estimated to be worth $159 billion to $215 billion in 2010 and is expected to reach $379 billion to $500 billion by 2040.
Considering the burgeoning demand and the lucrative market, it comes as no surprise that several biotechnology and healthcare companies are focusing on coming up with treatments for Alzheimer’s disease.
So far, the most notable names on the list are Biogen (BIIB), Cassava Sciences (SAVA), and Anavex Life Sciences (AVXL).
In terms of market capitalization, Biogen is leaps and bounds away from the two with $37.78 billion. In comparison, Cassava Sciences has $2.13 billion while Anavex has $1.53 billion.
Hence, it’s incredibly tempting to simply declare Biogen as the runaway frontrunner in this contest.
The fact that the company’s Alzheimer’s disease treatment, Aduhelm, received an FDA approval obviously pushes it further ahead as well.
Meanwhile, its closest competitor Cassava Sciences’ Simufilam has yet to commence with its Phase 3 clinical trial.
However, it’s too soon to discount the competition.
Aside from Cassava Sciences’ work on an Alzheimer’s disease treatment, this smaller biotechnology company is also working on another potential blockbuster product that goes hand in hand with Simufilam: SavaDx.
Basically, SavaDx is developed as a blood-based diagnostic test targeting Alzheimer’s disease.
The goal of this product is pretty straightforward: to detect the disease long before its symptoms manifest.
This is a remarkable idea since it could offer potential patients the opportunity to aggressively seek treatment early on when the odds of achieving a successful intervention against Alzheimer’s disease are at their peak.
Long term, SavaDx could be instrumental in segmenting the patient population, which means medical professionals can develop more target-specific treatments to address the needs of every subpopulation more effectively.
Apart from Cassava Sciences, the emergence of Anavex Life Sciences in the neurological disorder space has been embraced by investors as well.
Anavex’s candidate, ANAVEX 2-73, doesn’t concentrate solely on Alzheimer’s disease.
It’s also developed as a potential treatment for Rett syndrome and Parkinson’s Disease Dementia (PDD).
While ANAVEX 2-73 has yet to gain regulatory approval, the positive results from the trials have boosted the company’s share price by 4-fold since 2020.
Considering the slowly crowding space of Alzheimer’s disease, Anavex’s move to pursue Rett Syndrome is an excellent strategy.
Rett Syndrome is a severe neurological condition that typically affects girls. Most cases are triggered by a gene mutation necessary for the development of brain nerves.
Thus far, the FDA has granted ANAVEX 2-73 with the fast track and orphan drug designation, particularly for its Rett Syndrome indication.
In terms of the market opportunity for Rett Syndrome, ANAVEX 2-73 could rake in $1 billion annually for this indication alone.
At the moment, there are roughly 11,000 Rett Syndrome patients in the US.
Given its status, ANAVEX 2-73’s pricing is expected to follow the same trend as the other rare disease drugs, like BioCryst Pharmaceuticals’ (BCRX) angioedema treatment Orladeyo which is priced at roughly $495,000 annually.
This puts ANAVEX 2-73 in the $500,000 range each year.
Overall, both Cassava Sciences and Anavex offer compelling cases that make them attractive alternatives for speculative investors looking elsewhere for an Alzheimer’s disease stock.
Meanwhile, buy-and-hold investors might still find Biogen more appealing long term because it has a more diverse pipeline and an approved (albeit controversial) product in Aduhelm.
