Biotech Letter - John Thomas - Mad Hedge Fund Trader

Alternative Alzheimer's Disease Stock for Risk-Takers

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.

November 18, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 18, 2021
Fiat Lux

Featured Trade:

(A GROSSLY OVERLOOKED REOPENING PLAYER)
(ISRG), (JNJ), (SYK), (BDT), (MDT)

A Grossly Overlooked Reopening Player

Biotech Letter

Some people say that the entirety of November can be considered the Halloween season for investors, especially with the current stock market climate.

Stock valuations are higher than ever, while inflation has started to rear its ugly head since the month began.

Personally, I don’t believe that investors should be scared.

Throughout history, there has always been a bogeyman or two emerging as a reason to veer far away from the stock market. More often than not, though, these frightening situations tend to be overblown.

One of the companies that investors are afraid to risk their money on is Intuitive Surgical (ISRG).

However, Intuitive Surgical has the markings to realistically expand to 10X or even more over the following decades.

If anything, I think this is a stock that investors should be more frightened to pass up rather than to buy.

Admittedly, Intuitive Surgical’s high-tech robotic surgical platforms do look sort of scary. Nonetheless, the stock tells a completely different story.

Intuitive Surgical is a pioneer in robotic surgery, with the company’s work dating back to the late 1990s.

To date, it has over 6,500 of its systems installed across the globe and more than 9.7 million procedures performed utilizing its robotic platforms.

Basically, Intuitive Surgical offers a robotic-assisted surgery structure called the “da Vinci System.”

Surgeons use this in an effort to lessen the invasiveness of surgeries. The company’s robotic systems have been used in various surgery types like gallbladder, hernia, gynecological, colorectal, and bariatric.

While the da Vinci System has become synonymous with Intuitive Surgical, what most people don’t know is that the company gets the majority of its revenue from recurring orders of accessories, instruments, and service.

In fact, these comprise 69% of the company’s revenue in the first 6 months of 2020, with the number rising to 72% during the same period in 2021.

After all, hospitals invest millions in buying the machines and training the surgeons, so it makes sense that they want to keep them in tiptop shape.

Although these numbers look impressive, the truth is that Intuitive Surgical is barely scratching the surface of this opportunity.

Given its history and growth trajectory, the company projects that it will perform approximately 6 million procedures annually based only on its systems with regulatory clearances. In comparison, Intuitive Surgical recorded 1.2 million procedures in 2020.

Intuitive Surgical still believes that it can surpass this projected five times growth opportunity despite this promising outlook.

In recent years, the company has been investing heavily in its R&D sector to expand its reach.

One of the potential markets in its sights is the soft-tissue surgery segment, which has recorded roughly 20 million procedures every year.

And these are all based on the current population. If we factor in the aging demographics, then we can definitely expect to drive the volume higher in the coming decades.

Considering the massive potential of this market, it comes as no surprise that Intuitive Surgical faces more and more competition.

Although several big and small companies have tried to enter the robotic surgical systems segment, none can compare to the proven track record of Intuitive Surgical.

Given the 20-year headstart of Intuitive Surgical, saying that it would be difficult to catch up to its accomplishments is an understatement.

Moreover, the company controls roughly 80% of the surgical robotics market globally—and that’s a multi-billion dollar market.

Some of the companies trying to penetrate the space are Johnson & Johnson (JNJ) , Stryker Corporation (SYK), Becton, Dickinson, and Company (BDX) and Medtronic (MDT).

Intuitive Surgical has a proven track record of being one of the most notable regardless of industry, even in terms of profitability.

If you compare its bottom line, net profit margin, to its competitors, the company’s margin looks so much better than the combined margin of SYK, BDX, and MDT.

Bear in mind that the medical technology sector is one of the areas that will tremendously benefit from the reopening.

While it’s not top of mind, many elective surgeries and diagnoses were sidelined during the lockdowns.

The influx of COVID-19 cases in hospitals caused many doctors to delay these procedures, and patients didn’t want to risk infection either. This resulted in a colossal backlog of elective surgeries.

With the vaccination rates going up and the pandemic getting handled more efficiently, these very same patients will need to get treatment for the postponed surgeries.

Needless to say, this will trigger a post-pandemic boom in the elective surgeries and diagnostics field—and Intuitive Surgical will be there, ready and waiting to reap the rewards.

Overall, Intuitive Surgical is a safe pick with impressive growth potential.

Other than the immediate benefits from the post-COVID-19 era, the company has a remarkable expansion rate and innovative technology.

It’s good to be reminded though, that best-in-breed stocks don’t go on sale as frequently. The truth is, Intuitive Surgical isn’t for bargain hunters.

However, it’s a successful company that’s worth adding, especially on the dip and holding for long-term investors.

November 16, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 16, 2021
Fiat Lux

Featured Trade:

(FORGOTTEN COVID-19 STOCK STILL ALIVE AND KICKING)
(GILD), (REGN), (MRNA), (AZN), (JNJ), (PFE), (BNTX), (MRK)

Forgotten Covid-19 Stock Still Alive and Kicking

Biotech Letter

At times, it can be rewarding to go against the tide. This can also be applicable to the stock market.

Forgotten names or companies with shares that got hammered can eventually transform into remarkable investment opportunities. After all, it's always wise to invest in a quality stock when it loses some serious altitude.

Now, let's take a look at a biotechnology and healthcare business that has been performing poorly in the past 12 months but still holds a promising chance of bouncing back: Gilead Sciences (GILD).

This biotechnology giant is still reeling after its recent regulatory setback involving Filgotinib, a potential treatment for rheumatoid arthritis.

Initially, Filgotinib was slated as Gilead Sciences' next blockbuster drug. Unfortunately, the US FDA didn't agree with those plans.

The regulatory body rejected the treatment, pointing out the risks of patients developing male fertility problems as one of the significant reasons.

By November 2020, Gilead Sciences completely abandoned the Filgotinib project, at least in the United States.

Prior to this, Gilead Sciences took center stage when its Remdesivir, sold under the brand name Veklury, was identified as an effective COVID-19 treatment.

While this product has taken the back seat since other treatments from the likes of Regeneron (REGN) and especially vaccines from Moderna (MRNA), Johnson & Johnson (JNJ), AstraZeneca (AZN), Pfizer (PFE), and BioNTech (BNTX) have emerged, it still generated impressive numbers.

In the second quarter alone, Veklury brought in $829 million in revenue.

Gilead Sciences anticipate sales to reach somewhere between $2.7 billion and $3.1 billion for this drug in 2021.

Arguably, though, the biggest draw in buying Gilead Sciences stock is its HIV pipeline.

To date, the company holds roughly 75% of the market share in the US and approximately 50% in Europe.

What's even more promising is that the company's top-selling HIV product, Biktarvy, still has vast room to grow.

This is impressive considering that Biktarvy raked in approximately $2 billion in sales in the second quarter of 2021, showing off a 24.3% year-over-year jump.

Looking at its trajectory and considering that the drug generated $7.3 billion in 2020, Biktarvy sales are estimated to hit $11.7 billion in 2026.

More than the company's incredible dominance in cornering the HIV market, Gilead Sciences also has an excellent pipeline with over three dozen clinical programs queued.

Inevitably, one of its major concentrations is expanding its HIV portfolio.

In fact, it has recently teamed up with fellow biotechnology giant Merck (MRK) to collaborate on a potential HIV treatment—a candidate that's anticipated to equal if not surpass Biktarvy's fame.

One more potential blockbuster in the HIV market is Lenacapavir, which is an injection regiment that Gilead Sciences recently submitted for approval to the FDA.

If granted the green light, this will be administered once every 6 months, making it the first-ever long-acting regimen for HIV patients.

Meanwhile, the company is also growing its Hepatitis B franchise to avoid being too dependent on a single market.

So far, Gilead Sciences estimates about $1 billion in sales for this lineup in 2022, making the Hepatitis B portfolio a reliable part of the business.

Another growing section of the business is its cell therapy segment, with Yescarta and Tecartus nearing their peak performances at $1 billion in sales yearly.

Even its newly developed cancer cell therapy Magrolimab looks promising, with the potential to rake in another $1 billion in peak sales as well.

Needless to say, Gilead Sciences' new products and expansions have been displaying realistic potential to drive billions in added yearly revenue.

Overall, Gilead Sciences is a stable and profitable biotechnology and healthcare business.

It's a large-cap biopharmaceutical organization and market leader that has been solidly performing well for over 3 decades, with an influential presence in more than 35 countries.

Despite its recent challenges, Gilead Sciences remains an excellent buy, especially on the dip.

November 11, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 11, 2021
Fiat Lux

Featured Trade:

(A HIGH-QUALITY DIVIDEND STOCK WITH MORE ROOM TO GROW)
(LLY), (INCY), (GILD), (ABBV), (PFE), (NVO), (BIIB)

A High-Quality Dividend Stock With More Room to Grow

Biotech Letter

Investors can enjoy long-term recurring income and stability with dividend stocks. However, paying out dividends is largely discretionary.

Each business frequently determines whether it’s in a good position to hand out part of its profits to shareholders.

One method to assess a dividend’s safety is reviewing a company’s history and whether it makes regular payouts. The longer its track record shows a consistent payment, the more preferable the business.

There’s a stock particularly known for paying dividends every year for over a century in the biotechnology and healthcare sector: Eli Lilly (LLY).

While Eli Lilly’s dividend yield is only 1.5% at its current share price, which is a bit over the S&P 500’s average reported at less than 1.3%, the company has been paying out dividends since 1885.

Apart from its consistent payouts throughout the years, Eli Lilly also holds promising potential for future hikes.

At the moment, the quarterly payout of Eli Lilly is $0.85, which is 75% higher than its 2015 payout of $0.49.

This number can still climb thanks to its robust revenue growth of 19.2% year over year, with its current approved drug portfolio generating $13.55 billion in the first six months of 2021.

In the first two quarters of the year alone, several products recorded year-over-year sales growth of over 20%.

Eli Lilly isn’t content in growing its dividend, though. It’s also working on expanding its drug portfolio.

Among its existing drugs, the company has been maximizing Olumiant to include more indications.

One of the recent advancements involving Olumiant is Eli Lilly’s work with Incyte (INCY), which utilizes the drug as a treatment for COVID-19 patients.

In fact, the FDA has recently approved the use of Olumiant with or without the need to combine it with Gilead Sciences (GILD) Remdesivir.

However, Olumiant’s application as a COVID-19 treatment isn’t the most promising expansion for this drug.

Just recently, Eli Lilly and Incyte disclosed that Olumiant could be used as a treatment for an autoimmune disorder more commonly known as alopecia areata—an indication that could very well transform the drug into the company’s next blockbuster.

In a nutshell, Olumiant can help alopecia patients regrow their hair at a more rapid speed and consistent rate than other competitors.

So far, the drug has recorded an 80% hair growth among those who tested it.

In the previous months, the FDA included Olumiant and AbbVie’s (ABBV) Rinvoq in the list of JAK inhibitors that needed to carry a warning label sharing their severe potential side effects like blood clots and even cancer.

Despite this, Eli Lilly’s product proved to be safe for alopecia patients.

If approved for alopecia, Olumiant could become a groundbreaking treatment sought after by roughly 147 million people across the globe who suffer from the condition.

For context, the global market for alopecia is projected to grow in revenue from $ 7.6 billion in 2020 to reach over $ 14.2 billion by 2028 annually.

Alopecia areata, which is the target market of Eli Lilly, is expected to hold about 35% of the total. This puts the addressable market for Olumiant at $5 billion by 2028.

Considering that another name has been working to dominate the market, Pfizer’s (PFE) Cibingo, we can realistically assume that Eli Lilly will get at least 15% of the market share worldwide.

This would mean roughly $750 million in yearly revenue for Olumiant’s alopecia market alone.

Other than its work on alopecia areata, Eli Lilly has another potential blockbuster. This time, the treatment is targeting the diabetes sector.

The company has an up-and-coming treatment called Tirzepatide, which could not only expand Eli Lilly’s diabetes market share but also provide a strong competitor against Novo Nordisk’s (NVO) top-selling Ozempic.

Tirzepatide is the successor of Eli Lilly’s bestseller Trulicity, which logged $2.99 billion in the first half of 2021 and is set to lose patent protection by 2027.

Looking at Tirzepatide’s trajectory, the drug is projected to reach peak annual sales worth $10 billion—an amount that could easily offset the gradual decline in sales by Trulicity.

Even the company’s breast cancer drug, Verzenio, is set to show off impressive growth soon. In the first half of 2021, the treatment raked in $610 million in sales, demonstrating a 53.8% increase year-over-year.

Considering Eli Lilly’s efforts to distinguish its breast cancer treatment from Pfizer’s Ibrance, Verzenio is anticipated to generate $4.6 billion in annual sales by 2024.

Another exciting development is Eli Lilly’s Alzheimer’s disease treatment Donanemab.

Although Phase 3 data are expected to be released in 2023, this candidate is already reported to be a superior treatment than Biogen’s (BIIB) controversial Aduhelm.

These are some of the results of Eli Lilly’s efforts to continue expanding in the diabetes area, as seen in its ramped-up R&D spending.

So far, the company boosted its research investment by 21% year-over-year to reach $3.36 billion.

While doing this isn’t exactly a guarantee of commercial success, it’s undoubtedly a solid strategy to protect and enhance its pipeline.

Overall, Eli Lilly is a high-quality stock with a verifiable and impressive history of innovation.

Given the promising lineup of approved drugs and pipeline candidates of Eli Lilly, it’s reasonable to expect roughly a 15% yearly earnings growth from the company over the next 5 years.

November 9, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 9, 2021
Fiat Lux

Featured Trade:

(A SAFE BET FOR MRNA TECHNOLOGY ENTHUSIASTS)
(BNTX), (PFE), (MRNA), (REGN), (SNY), (NVAX)

A Safe Bet for MRNA Technology Enthusiasts

Biotech Letter

It was a case of being in the right place at the right time.

BioNTech (BNTX) has always been focused on mRNA technology, so when Big Pharma player Pfizer (PFE) knocked on its doors for a collaboration, this up-and-coming biotech company was more than ready to go.

We all know what happened after that. BioNTech and Pfizer became the first to bring a COVID-19 vaccine to the public.

And just like how the pandemic changed the fortune of Moderna (MRNA), the COVID-19 situation also served as proof of concept of BioNTech’s technology.

Looking at BioNTech’s history and recent performance, I can see several reasons to buy the stock.

Short term, one of the primary reasons to buy BioNTech is obvious: its overwhelming success in creating a COVID-19 vaccine.

BioNTech expects approximately $18.4 billion in revenue from its COVID-19 vaccine in 2021.

In its second-quarter earnings report, BioNTech and Pfizer disclosed that they already crossed the 1 billion mark in terms of the vaccine doses delivered globally.

In fact, BioNTech’s revenues beat the projected $2.35 billion, with the company generating $6.4 billion in sales for the second quarter of 2021 alone.

This is an impressive jump from the $47.54 million it recorded during the same period in 2020.

Considering the consistently high demand for the BioNTech-Pfizer vaccine, it’s reasonable to expect that the momentum will be sustained.

To date, an additional 200 million doses have been ordered by the US government. This is on top of the 500 million doses it initially bought under the current supply agreement.

Meanwhile, the EU’s orders for 2021 reached 660 million doses plus 900 million more for 2022 to 2023.

Depending on the situation, another 900 million doses might be added to these initial agreements.

Just between the US and the EU, BioNTech has already received orders for over 1 billion doses of COVID-19 vaccines for 2022 onward—a number that’s widely expected to go up when other nations place their orders as well.

So far, the two companies have sealed an agreement with a South African biopharmaceutical company, Biovac, to collaborate on the manufacture and distribution of the vaccine across the 55 member states of the African Union.

As for the South American area, the partners have recently signed a deal with a Brazilian biopharma company, Eurofarma Laboratorios, to cover the Latin American regions.

Moving with the long-term reasons to invest in BioNTech, one of the most convincing aspects is the company’s promising pipeline.

BioNTech is realistic enough that the demand for its COVID-19 vaccine will eventually plateau. That has been the expectation since the beginning, which is why the company has been leveraging the incredible cash flow through expanding its pipeline.

Actually, BioNTech is allocating roughly $1.05 billion for R&D expenses in 2021.

Some of the segments that BioNTech has been working on are regenerative treatments and products for infectious diseases, inflammatory conditions, and allergies.

The company is also developing potential cancer therapies. After all, curing cancer is considered the Holy Grail of mRNA-centered companies—an achievement that would undoubtedly catapult BioNTech’s stock to the top of the Big Pharma list.

One of the telltale indicators of BioNTech’s plan to focus on oncology treatments is its July 2021 acquisition of Kite’s R&D platform on TCR Cell solid tumor neoantigen T-cell receptor (TCR) along with its manufacturing plant in Maryland.

The driving force behind that deal is BioNTech’s desire to become a first-mover in the cell therapy space.

Basically, the company added ammunition to its pipeline to come up with individualized cancer therapies.

BioNTech also has a couple of mRNA-based solutions queued for Phase 2 trials this year.

One is FixVac BNT111, which is developed for melanoma and a collaborative effort with Regeneron (REGN). This candidate has shown promising results, with the possibility of being available for use to over 90% of melanoma patients.

Others include FixVac BNT113, which targets head and neck cancer, and FixVac BNT112 for prostate cancer.

Another promising candidate is its cancer vaccine, INeST BNT122, which BioNTech is working on with Genentech.

Apart from these, BioNTech is also looking at developing treatments for infectious diseases as another potential long-term growth pillar—a direction taken by its biggest competitor in mRNA-based solutions, Moderna.

Checking its pipeline, it looks like BioNTech plans to target malaria as its first project. It also has candidates for HIV, tuberculosis, and influenza.

BioNTech’s goal is to launch the first-ever mRNA vaccine against malaria. If all goes according to plan, the company plans to conduct clinical trials by 2022.

Meanwhile, its influenza vaccine program, which faces serious competition against Sanofi (SNY) and Novavax (NVAX), will be another collaborative work with Pfizer. The two companies plan to initiate human trials before the end of 2021.

Pretty much like Moderna, I look at BioNTech as a long-term play. Investing in this company requires patience and belief in the burgeoning mRNA space.

Overall, I think BioNTech is a safe bet for investors looking to dip their toes in the rapidly expanding mRNA world.

November 4, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 4, 2021
Fiat Lux

Featured Trade:

(A LONG-TERM STOCK FOR MONOPOLY AFICIONADOS)
(VRTX), (ABBV), (GLPG), (CRSP), (MRNA)