Mad Hedge Biotech and Healthcare Letter
October 28, 2021
Fiat Lux
Featured Trade:
(AN ANYTIME, ANYWHERE HEALTHCARE STOCK)
(TDOC), (AMZN), (AMWL), (WMT), (HIM)
Following massive gains at the onset of the COVID-19 pandemic, several healthcare growth stocks have fallen a long way from their highs.
In fact, some high-quality names have become potential bargains due to the market's recent negative turn.
In this situation, we can apply Warren Buffett’s advice: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
That is, I think it might just be the time to be a bit greedy.
One of the companies affected by the massive pullback is Teladoc (TDOC).
Over the past 1.5 years, Teladoc has been on a rollercoaster ride when it comes to its price action.
Initially, the stock was regarded as merely a COVID-19 pandemic play with limited growth in the future.
Because of that perception, Teladoc's price started to drop the moment the people got their vaccine shots.
Some investors believe that when things go back to normal, the whole telehealth industry will become pointless.
I don't think that's the case.
I believe that digital medicine and the presence of virtual health services will become mainstays in our lives—and Teladoc is in an enviable position as one of the pioneers in this disruptive industry that's only starting to take on the healthcare system by storm.
When the pandemic started, it was nearly impossible for most people to gain access to healthcare.
Most patients were scared to travel to the doctor for consultations, causing them to cancel and postpone appointments.
What Teladoc offered is to turn the impossible possible for several patients who needed access to their healthcare providers—and its efforts were rewarded in spades.
In 2019, Teladoc reported $553 million in total revenue, increasing by 32% from its 2018 earnings.
By 2020, the business exploded to reach a whopping $1.09 billion, showing a massive 98% growth year-over-year. Moreover, visits and consultations skyrocketed by 206%.
To hold on to its lead, Teladoc has been working hard to bolster its competitive positioning. It seized a blockbuster acquisition and bought Livongo for $18.5 billion in cash and stock.
Adding Livongo to its portfolio means cornering the market on remote monitoring for patients suffering from chronic diseases.
This addition to its business not only expands Teladoc's business, but also opens a massive addressable market worth $50 billion to the company.
Teladoc can leverage this vast network through cross-selling products and services, thereby creating the Amazon (AMZN) of the healthcare world—a platform with an unbeatable ecosystem and an irresistible value proposition.
Since the merger, the two companies have developed a full-person digital healthcare platform called Primary360.
Meanwhile, Teladoc's growth story carries on, with the total revenue for 2021 already approaching the $2 billion mark.
This signifies an impressive 84% increase on top of the company's COVID-19-induced spurt.
As for 2022, Teladoc is projected to grow at a conservative 29%.
Despite the impressive growth of Teladoc, the company has barely scraped the surface.
Overall, the virtual care market is estimated to be worth $250 billion annually. Although Teladoc holds the most significant share thus far, it's evident that it has less than 1% of the market share.
In fact, the telemedicine industry is projected to be valued at half a trillion dollars globally by 2030.
Considering that Teladoc's yearly revenue thus far is sitting at only $2 billion, the company definitely has a lucrative growth runway in the coming 9 years.
In 2020, its stock price roughly tripled from being under $100 to reaching $300. Recently, though, Teladoc's price has gone down to approximately $130.
Given its obvious room for growth, I say this stock is undervalued. So, investors are granted the chance to add this company to their portfolio at a relatively low price.
With the massive market potential of this industry, it comes as no surprise that Teladoc now faces intense competition in the field.
The strongest rivals of the company in the telehealth segment include Amwell (AMWL), Walmart (WMT), Hims and Hers Health (HIM), and even Amazon.
With the market's sheer size, though, the situation doesn't seem to be a winner-takes-all type.
The space is definitely massive enough to support more than one telehealth company.
However, Teladoc does have the advantage as the first mover. It also has its impeccable partnership with Livongo, making it an anytime-anywhere-healthcare service.
So far, I can say that Teladoc is off to an excellent start in a rapid growth segment. I especially appreciate the company's goal to disrupt the medicine and healthcare space—a field that is in dire need of a revolution to eliminate the debilitating costs and crippling inefficiencies.
More than that, I think Teladoc is becoming instrumental in boosting the reach of the most effective medical professionals and offering a remarkable platform to promote artificial intelligence innovation in healthcare.
Ultimately, this will help enhance the quality of healthcare received by patients.
When looking at disruptive technologies, I always say that it's best to invest in companies working to shape the future.
This goal is typically a surefire way to make money in the long run, and Teladoc perfectly suits the description.
Mad Hedge Biotech and Healthcare Letter
October 26, 2021
Fiat Lux
Featured Trade:
(A BEATEN-DOWN STOCK POISED FOR A BREAKTHROUGH)
(ABBV), (ABT), (REGN), (PFE)
The market's volatility has made it difficult to find high-quality stocks at reasonable prices as of late.
Despite challenges, the key to investing is never to stray from quality.
In the words of no less than Warren Buffett, “It is better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
This reminds me of one of the stocks I constantly add on pullbacks: AbbVie (ABBV).
AbbVie, which is a spinoff company from Abbott Laboratories (ABT), started trading in 2013. Since then, its name has been synonymous with its rheumatoid arthritis drug Humira—the No. 1 selling drug globally in the past years.
While AbbVie understandably relied heavily on this product for years, with 65% of its revenue coming from Humira sales in 2018, the company has already aggressively implemented ways to diversify its portfolio to prepare for the impending patent loss.
Among its efforts, one of the most exciting ones is its work with biotechnology company Regenxbio (RGNX).
AbbVie and Regenxbio have been collaborating to develop gene therapies that can treat rare eye disorders.
Basically, gene therapy is a novel approach to deal with diseases by genetically altering a patient's cells instead of the traditional method involving surgery or drugs.
AbbVie’s deal with the smaller company comprises a $370 million upfront payment to Regenxbio, with up to $1.38 billion in developmental and commercial milestones.
So far, the two have come up with RGX-314, a gene therapy candidate in Phase 2 trial for wet age-related macular degeneration (AMD).
This condition includes symptoms like blurred vision and a blind spot.
Patients can also suffer from a complication triggered by diabetes, called diabetic retinopathy, which results in damages to the retina’s blood vessels. Some cases may even lead to blindness.
In terms of the target market, the US alone has recorded over 11 million individuals suffering from some form of AMD, with the number projected to double and reach 22 million by 2050.
There’s also an urgent need for treatments for this condition, as more and more AMD cases lead to blindness annually.
In fact, diabetic retinopathy has been identified as the leading cause of blindness among adults with diabetes and the No. 1 cause of blindness among all adults in the US.
Considering the pervasiveness of diabetes and the continuously rising number of cases of this disease in the US, the number of people affected with diabetic retinopathy is estimated to virtually double from 7.7 million recorded in 2010 to over 14.6 million by 2050.
Assuming that RGX-314 gains FDA approval, AbbVie and its partner can target a market that can generate sales reaching $8.7 billion by 2025 due to the aging global population.
Meanwhile, the diabetic retinopathy segment, which has had an annualized growth rate of 6.3% since 2017, can reach up to $10.1 billion by 2025.
Given the massive addressable market, it is no surprise that the AMD segment has also attracted competitors. One of the contenders is Regeneron (REGN) with Eylea.
What makes RGX-314 more attractive, however, is that it’s a one-time treatment.
This is a massive competitive advantage over Eylea, which requires administration every four to eight weeks.
Using a conservative estimate, we can safely assume that AbbVie could take at least 8% of the market share by 2030. This would work out to roughly $2.1 billion in yearly revenue for RGX-314.
This is just one of the candidates that Regenxbio and AbbVie are working on these days, and its potential is enough to move the needle.
Other than that, AbbVie has the product portfolio from its $63 billion acquisition of Allergen, which includes the best-selling Botox.
The company also has its own homegrown drugs, cancer treatment Imbruvica, rheumatoid arthritis drug Rinvoq, and psoriasis medication Skyrizi, which all deliver strong results every quarter.
To date, they have a dividend yield of 4.7%, and the company has boosted its dividend for an impressive 8 consecutive years now.
Recently, AbbVie stock has been clobbered because Rinvoq was included in the list of drugs that the FDA instructed to carry a warning label that announced severe side effects, such as blood clots and even death.
However, AbbVie isn’t too worried about this as the company explained that the FDA based the decision on another company’s product, Pfizer’s (PFE) Xeljanz, which holds a completely different safety profile as Rinvoq.
So, what do all these mean?
This means that investors are handed a rare opportunity to buy into a solid, cash-generating biopharmaceutical titan at a massive discount.
Mad Hedge Biotech and Healthcare Letter
October 21, 2021
Fiat Lux
Featured Trade:
(A DIVIDEND ARISTOCRAT THAT DELIVERS LIKE CLOCKWORK)
(JNJ), (PFE), (MRNA), (BNTX), (NVS), (RHHBY), (MGTX)
There have been two narratives as far as COVID-19 vaccine developers go. One story centers on companies with fortunes essentially built and exploding thanks to their COVID-19 vaccines, like Moderna (MRNA), Novavax (NVAX), and BioNTech (BNTX).
The second story involves larger biopharmaceutical companies, such as Johnson & Johnson (JNJ) and BioNTech’s partner, Pfizer (PFE), which barely felt their shares move in the past 18 months.
While it’s easy to understand the excitement over the achievements of the likes of Moderna, is it reasonable for Pfizer and JNJ investors to feel bad over the lack of movement in their shares?
Not at all, especially in the case of JNJ.
After all, these huge companies have decided to sell their vaccines on a not-for-profit basis until the major wave of the pandemic ends—a move that can be seen as a sound strategy for JNJ to rebuild some goodwill especially following the recent scandals involving the company.
Nevertheless, JNJ might still get a boost (pun intended) from its COVID-19 vaccine booster shots.
Just last week, a prominent advisory committee to the US FDA unanimously voted to recommend the booster shots, which likely means that the 15 million people who got jabbed with JNJ’s candidate will get a second shot as well.
If the FDA agrees with this recommendation, then the boosters could be available within the month. This comes after the agency also approved booster shots from Pfizer-BioNTech and Moderna.
Last month, the US government decided to provide Pfizer booster shots to the older population and high-risk groups, with Moderna following suit almost immediately.
So far, there have been 8 million people who have already received their Pfizer booster doses, while 1.6 million got the third dose for Moderna.
This is another lucrative market for vaccine makers, considering that to date, there are over 104 million people vaccinated with Pfizer, roughly 69 million with Moderna, and approximately 15 million with JNJ.
Amid the talks about the boosters, JNJ stands firm that its vaccine’s potency increases over time and doesn’t wane, unlike Pfizer’s candidate. This means there’s no urgency for a booster shot when it comes to JNJ’s candidate.
Nevertheless, considering that JNJ isn’t exactly attempting to earn from its COVID-19 vaccine aggressively, there’s no point in investors worrying about this issue too much.
The fundamental aspects that will impact the stock price can be found elsewhere.
One of the more exciting projects of JNJ lately is its move to become more active in the gene-editing field.
Following the buzz from the multi-billion dollar acquisitions of companies like Novartis (NVS) and Roche (RHHBY) several years ago, it looks like JNJ might be the next big name to enter the fray.
Since 2018, JNJ has been working closely with a small-cap gene-therapy company called MeiraGTx Holdings (MGTX).
While highly secretive of the details, MeiraGTX, which has a market capitalization of just below $600 million, has been developing a gene-regulation technology—an innovation that could revolutionize gene therapy.
For context, this kind of innovation was applied to Novartis’ Zolgensma, a one-time treatment for spinal muscular atrophy worth a whopping $2.1 million—the most expensive medication in the world.
In terms of MeiraGTX’s work with JNJ, the two companies are focusing on creating therapies for various eye diseases. Looking at their timeline, the first candidate should be ready by 2023.
While there remain questions about its COVID-19 vaccine candidate, their earnings are expected to reach roughly $2.5 billion or merely 2.65% of JNJ’s total revenue. This would barely make a dent in the overall performance of the company.
What comes clear in the performance reports from the company is that its core business remains the primary moneymakers.
In the second quarter of 2021, JNJ recorded $23.3 billion in sales, reporting a notable 27.1% from the $18.3 billion revenue it generated from the same quarter in 2020.
Its gross profit also climbed from $11.7 billion to $15.7 billion, showing a 33.8% improvement. As for its EPS, it skyrocketed by 72.8% year-over-year from $1.36 to $2.35.
Meanwhile, JNJ’s guidance for 2021 has been updated to reflect its expected 13.% to 14.% year-over-year increase between the range of $93.8 billion and $94.6 billion.
Its pipeline and current portfolio also all but guarantee that JNJ will deliver mid to high single-digit earnings in the years to come.
Another indicator of the stock’s quality is its dividend record, with JNJ priding itself on a 59-year streak—making it an undisputed dividend aristocrat.
Overall, I see JNJ as an impressive $433 billion behemoth in the biopharmaceutical sector. The company has been consistent in delivering remarkable top and bottom lines every quarter.
Mad Hedge Bitcoin Letter
October 19, 2021
Fiat Lux
Featured Trade:
(TRANSCENDING ITS COVID-19 VACCINE POTENTIAL)
(SNY), (PFE), (BNTX), (MRNA), (JNJ), (GSK)
Another day. Another COVID-19 vaccine could be out on the market.
Although hundreds of millions of individuals across the globe have already received their shots from approved vaccines of Pfizer (PFE) - BioNTech (BNTX), Moderna (MRNA), and Johnson & Johnson (JNJ), there are still several COVID-19 vaccine candidates undergoing late-stage testing.
This is important news for the companies.
After all, the COVID-19 vaccine market is projected to become a fundamental driver of share price growth.
From what we know about the virus so far, there is a huge possibility that people will need to be vaccinated annually at the very least.
If that’s the case, then the demand for COVID-19 vaccines yearly would reach roughly 8 to 10 billion doses. This could translate to sales between $80 billion and $100 billion.
The latest to potentially join the list is the joint candidate of Sanofi (SNY) and GlaxoSmithKline (GSK), which is anticipated for approval by the fourth quarter of 2021.
While Sanofi and GSK are practically a year behind their competitors, the high efficacy of their vaccine candidate—roughly 95% to 100%—makes them potential frontrunners in the near future.
Given that we can expect many competitors to enter the fray in the coming months, we can conservatively assume that Sanofi takes at least 3% to 5% of the market.
That would generate approximately $2.4 billion to $5 billion in annual revenue.
Since Sanofi holds a number of competitive advantages, such as solid experience in manufacturing and development and a strong geographical presence across critical markets, the company can ease out the competition.
Riding the momentum of the COVID-19 vaccines, particularly the mRNA candidates, Sanofi has been working with Seqirus to develop flu vaccines as well.
As the world struggles to deal with the effects of COVID-19, the more common flu isn’t receiving that much attention these days.
However, the impact of this disease worldwide is shocking: 3 million to 5 million people suffer from severe cases annually, with up to 650,000 individuals dying from the flu.
More alarmingly, a new flu strain spreads from animals and causes a pandemic every few decades.
The death toll associated with the flu becomes even more staggering when you think about the fact that we’ve been working on vaccines to get rid of its for eight decades now.
Despite the ongoing and long-term efforts, all flu vaccines available in the market are mediocre at best.
In fact, a flu shot is only effective within a single flu season. Moreover, its effectiveness is only within the range of 40% and 60%. There were even years when the number was as low as 10%.
Now, though, we might have a better shot at developing more effective flu vaccines thanks to the emergence of mRNA technology.
In theory, mRNA vaccines can trigger a stronger response from patients' immune system compared to the traditional flu vaccines.
To date, two companies are working on mRNA-based flu vaccines: Moderna and Sanofi.
Sanofi is collaborating with England-based vaccine developer Seqirus, with the two companies aiming for another mRNA flu test by early 2022. This will be in addition to the four flu vaccine candidates they have in the pipeline.
While the results for Sanofi’s flu vaccine efforts remain to be seen, experts are optimistic that it can drastically lower the number of deaths and severe cases annually.
For context, the most popular flu vaccine in 2018-19 flu season only had an efficacy rate of 29%.
Even with such low effectiveness, this vaccine prevents roughly 4.4 million flu cases in the United States alone. It also prevented 58,000 hospitalizations and 3,500 deaths.
Now, imagine how many lives a stronger candidate can save.
Although Sanofi appears to be late to the party in terms of its COVID-19 vaccine, the sheer efficacy of the company’s promising candidate with GSK makes it a powerful future contender as the leader of the pack.
Moreover, Sanofi is on the verge of resolving a pain point in the healthcare sector: the absence of a robust flu vaccine.
With its lineup of mRNA-based flu vaccine candidates, Sanofi is poised to discover potential game-changers in the industry and save millions of lives in the process.
Overall, Sanofi is a promising company sold at a reasonable price. More importantly, it prides itself on remarkable dividend history, paying and increasing dividends for 27 consecutive years.
Therefore, this dividend aristocrat is a good addition for investors on the lookout for quality and dependable stocks.
Mad Hedge Bitcoin Letter
October 14, 2021
Fiat Lux
Featured Trade:
(WHAT’S NEW IN BIOTECH)
(CGTX), (BIIB), (LLY), (ABBV), (NVS), (TAK), (PYXS), (PFE),
(AZN), (GILD), (GSK), (IMGN), (ISO), (TMO), (BIO)
As the biotechnology world is ever-evolving, with several companies going public every few months, let me share some of the most promising names that recently emerged.
The first is Cognition Therapeutics (CGTX), a company working on treatments for Alzheimer’s disease and macular degeneration.
Its most promising candidate is an Alzheimer’s treatment called CT1812, which is currently under Phase 2 trials. Looking at the timeline, CGTX expects to release topline data by 2023.
With the expected growth of the aging population, focusing on treating various forms of Alzheimer’s is a promising direction for Cognition Therapeutics.
In fact, the global market for this neurodegenerative disease is projected to grow from $2.9 billion in 2018 to a whopping $10.5 billion by 2025.
So far, the major competitors of Cognition Therapeutics in this area include Biogen (BIIB), Eli Lilly (LLY), AbbVie (ABBV), Novartis (NVS), and Takeda (TAK).
The second promising biotech company is Pyxis Oncology (PYXS), which is a spinoff from Pfizer (PFE).
Pyxis is focused on developing next-generation treatments targeting difficult-to-treat types of cancer.
Basically, the company’s goal is to create therapies that can directly kill tumor cells. It also wants to get rid of the underlying problems that lead to the uncontrollable spread of tumors and the weakening of the immune system.
To do this, Pyxis has come up with novel antibody drug conjugate (ACT) candidates and other monoclonal antibody (mAb) pipelines.
Its lead candidate is called ADC PYX-201, a potential treatment for non-small cell lung cancer and breast cancer.
The goal of ADC PYX-201 is to target actively multiplying tumors while boosting the immune response of the patient’s body. Pyxis plans to submit it as a non-small cell lung cancer treatment candidate by mid-2022.
If approved, then ADC PYX-201 will be under patent protection until 2037.
This holds great potential for Pyxis’ cashflow, as the market for non-small cell lung cancer worldwide is anticipated to rise from $6.2 billion in 2016 to over $12 billion by 2025.
With this potential of ADC treatments, Pyxis can expect competition from the likes of AstraZeneca (AZN), Gilead Sciences (GILD), GlaxoSmithKline (GSK), and ImmunoGen (IMGN).
The last name on today’s list is IsoPlexis Corporation (ISO).
This company is the first to focus on dynamic proteomics and single-cell biology in an effort to develop “walk-away automation” products that aid in shortening the therapeutic development timelines by acquiring “multiplexed proteomics with very low sample volumes that reflect in vivo biology to clarify lead candidates.”
In layman’s terms, IsoPlexis is working on a technology that aims to identify every protein in the body to speed up the development of new therapies for rare diseases.
This is a lucrative business, with IsoPlexis targeting at least $34 billion in the total addressable market.
Considering that IsoPlexis is a pioneer in this field, it is possible for it to gain the lion’s share of the segment and position itself as an undisputed leader for years.
More importantly, IsoPlexis can use its patented technology, “Proteomic Barcoded,” to expand the use cases to cover other lucrative markets.
For example, IsoPlexis can apply its technology to cancer immunology and targeted oncology by predicting the progression of cancer cells in the body.
Adding cell therapies to the company’s pipeline is also a very realistic possibility since its technology can be utilized to create CAR-T cell therapies as well.
In fact, IsoPlexis’ approach is already being used in developing treatments for leukemia and melanoma.
Another profitable avenue for IsoPlexis’ technology is the vaccines sector.
Since the development of vaccines requires profiling the responses of the respiratory and immune systems, the company’s data would accelerate the entire process.
So far, the major rivals of IsoPlexis in this space include Thermo Fisher Scientific (TMO) and Bio Rad Laboratories (BIO).
While all these biotech companies offer promising products and technologies, they’re all still in the early stages of development.
This makes them high-risk investments and are likely suitable for those who are willing to invest in the long term.
For those who want to see movement faster and sooner, it might be best to watch these stocks from the sidelines.
