Mad Hedge Biotech & Healthcare Letter
September 7, 2021
Fiat Lux
FEATURED TRADE:
(A LONG-TERM STOCK FOR PATIENT INVESTORS)
(REGN), (RHHBY), (BAYN), (SNY), (MRK), (BMY), (NTLA)
Mad Hedge Biotech & Healthcare Letter
September 7, 2021
Fiat Lux
FEATURED TRADE:
(A LONG-TERM STOCK FOR PATIENT INVESTORS)
(REGN), (RHHBY), (BAYN), (SNY), (MRK), (BMY), (NTLA)
While August ushered in the end of the “dog days of summer,” with temperatures generally at their highest throughout the US, some stocks might be just starting to get warmed up this September.
This is particularly true in the biotechnology industry.
Considering that the broad market indices are reaching historic highs, the biotechnology sector, caused by its relatively low valuation, is deemed one of the appealing targets for investors who truly understand the essence of the industry and can manage the potential risks associated with it.
While not all biotechnology companies are attractive opportunities, some are great long-term investments.
One of them is Regeneron (REGN).
In fact, Regeneron is the manufacturer of a treatment projected to become the top-selling drug globally by 2030.
Annual sales of the moneymaking drug, autoimmune diseases’ medication Dupixent, could hit $21 billion by the start of the next decade—an almost fourfold jump from its current sales estimate of $5.6 billion per annum.
The projection came following Regeneron’s announcement that Dupixent can also be used to treat atopic dermatitis among children aged 6 months to 5 years old.
This makes Dupixent the first-ever biologic treatment to release positive results for that population.
Evidently, the breadth of Dupixent’s indications, complemented by the long-established safety profile of the drug, contribute to its long-term success—an achievement that’s expected to multiply and be carried over to the next decade.
While the next decade is clearly exciting for Regeneron, the company is actually performing well these days.
So far, Regeneron shares are up by roughly 40% year to date—a record-breaking rise not only for the company but also in the biotech sector.
Regeneron’s revenue skyrocketed by 163% year-over-year in the second quarter, pushing its earnings per share to leap 260% higher.
Apart from Dupixent, another catalyst for Regeneron’s impressive gains is its COVID-19 cocktail: REGEN-COV.
This treatment, albeit controversial, is anticipated to make Regeneron and its partner, Roche (RHHBY), a lot of money in the following months, especially with the delta variant wreaking havoc in the world.
Moreover, sales for all six of Regeneron’s highest-selling products, such as its eye disease drug Eylea, which it developed with Bayer (BAYN), immunology drug Kevzara, which is a product of its collaboration with Sanofi (SNY), lung cancer treatment Libtayo, and cholesterol drug Praluent, have been consistently growing by double-digit percentages.
Apart from these current treatments displaying solid sales momentum, the company also has a loaded pipeline that can easily boost Regeneron’s revenue streams in the future.
In terms of the new products under development, Regeneron has partnered with Intellia Therapeutics (NTLA), one of the leaders in the CRISPR-Cas9 gene-editing sector, to come up with next-generation treatments.
Aside from developing new products, Regeneron is expanding the indications of its top-selling drugs. Just like its efforts with Dupixent, the company is also working on expanding Libtayo’s indications.
So far, Regeneron has been working to turn Libtayo into a go-to treatment for skin cancer.
This effort could open up new avenues for Regeneron, as at least 9,000 cases of skin cancer are recorded in the US annually.
Of these, approximately 3,200 fall under the category that the company is targeting for Libtayo’s expansion.
This is a strategic move if Regeneron has any hope to dethrone the most dominant players in this competitive immunology market: Merck’s (MRK) Keytruda and Bristol-Myers Squibb’s (BMY) Opdivo.
Looking at the average net price of Libtayo, which is at $130,000 per year, the expected sales for this drug could grow to $400 million by 2026 in the US alone and roughly $700 million worldwide—and these are only for the approved indications of the drug.
In addition to its current applications, Regeneron is also working to gain approval for Libtayo to be used for cervical cancer.
Overall, Regeneron is an excellent investment for patient buy-and-hold investors. Its current portfolio of products is performing well, while its pipeline programs and partnerships offer promising growth potential.
Mad Hedge Biotech & Healthcare Letter
September 2, 2021
Fiat Lux
FEATURED TRADE:
(BIOTECHS ARE OUT FOR BLOOD)
(BIIB), (LLY), (BAYRY), (NVS), (SNY)
Tracing its origins in Greek mythology to the infamous Dracula tales, stories centered on the restorative powers of blood have captivated our imagination for millennia.
In the past two decades, however, the concept of hailing blood as the elixir of youth has come a long way from ancient folklore.
These days, this idea has reached the medical world with highly renowned researchers throwing their names behind the study of the regenerative ability of young blood.
From mere storybook fantasies, this concept has become one of the serious contenders alongside the likes of Biogen (BIIB), Eli Lilly (LLY), and Bayer (BAYRY) in the fight against Alzheimer’s, Parkinson’s, and even stroke.
Here’s a quick explanation for this change.
At its core, one of the major causes of aging is when our systems go on overdrive in the performance of usual bodily functions.
That is, the body shifts away from the “regular” state or homeostasis and instead is forced to constantly be in alert mode.
This causes us to end up with a hyper pro-inflammatory immune system, which then malfunctions and results in damaged tissues and organs over time, exposing the body to diseases and conditions like neurodegeneration and heart attacks.
The solution is quite simple. Let’s just flush out those pro-inflammatory aging compounds—aka the overworked system. That way, we can delay (or probably even prevent) the aging process.
This can be done through a process called “parabiosis,” which has only been experimented on mice.
Basically, this works by connecting the circulatory system of an older mouse to a younger one. Then, the older mouse starts to get younger as well.
In 2005, researchers published a paper that studied two identical mice (one old and one young) to demonstrate the veracity of the concept.
To test the idea, they connected the circulatory systems of both mice. This means that the two lived off the same general blood pool, which comprises young and old blood.
In just 5 weeks, the older mouse’s stem cells started to divide again. Its muscles and liver cells also began to repair themselves.
Essentially, from a cellular viewpoint, the older mouse transformed into a younger version of itself.
Given the medical, moral, and ethical issues that come with the traditional “parabiosis,” biotechnology companies have searched for more efficient and effective ways to achieve these age-defying results other than the vampiric blood swap.
But, how can these results be replicated?
This is where “Total Plasma Exchange” (TPE) comes in.
TPE is done using an apheresis machine. The patient’s blood runs through this device, which then removes and discards filtered plasma via the reinfusion of red blood cells as well as other replacement fluids, including plasma or albumin.
Without going through the technical nitty-gritty, TPE involves the extraction of a large volume of blood from a patient, taking it apart into its individual components, then returning it to the same patient’s body sans the filtered-out components courtesy of the machine.
Recently, clinical trials on humans showed that TPE managed to slow disease progression among patients suffering from age-related disorders, like Alzheimer’s, by more than 66%.
While there’s no uniform cost for this treatment, the average estimate for every TPE session is roughly $101,140. Just how much this would cost in the long run heavily depends on the person’s condition and desired outcome.
At this point, the research is still in its early stages.
However, this hasn’t prevented rogue biohackers from testing out their own theories—and come up with surprisingly workable results.
In 2020, two 50-year-old self-confessed “biohackers” based in Russia hooked themselves up to blood collection machines. They then proceeded to replace practically half of the plasma coursing through their own veins with salty water.
After 3 days, their blood tests showed an improvement in their general well-being, as seen in their hormones, fats, and other indicators.
In particular, their immunity, cholesterol metabolism, and even liver function showed better performance.
So far, this concept has been explored by other researchers who are now replacing plasma with saline and adding other components like albumin.
These experiments are still being conducted on animals, but they have to date proven to be promising in terms of reducing inflammation in the brain and improving cognitive functions.
Primarily, the Russian biohackers and these experts are diluting the anti-aging factors to slow down or even eventually prevent aging.
Among the probable applications of plasma in the anti-aging movement, the dilution process seems to be the easiest and most convenient track to pursue—so much so that a company, called IMYu, was founded by top UC Berkley researchers to develop this strategy further.
Thus far, only a handful of biotechs have focused on this concept.
Some of the frontrunners are Massachusetts-based Elevian, which was founded in 2017, and Alkahest, which was acquired by Spanish pharmaceutical giant Grifols (GRF) for $146 million.
Meanwhile, a company called Nugenics Research has actually patented the name “Elixir” for its plasma-derived product under development.
There are also clinics like the Atlantis Anti-Aging Institute based in Florida and companies such as Ambrosia, which market plasma gathered from donors ages 16 to 25 and sell them for several thousand dollars for every transfusion.
Thus far, big pharma has yet to get its hands on this technology.
Only a handful of major companies, including Novartis (NVS) and Sanofi (SNY), have expressed interest in exploring these possibilities.
However, these innovations are only a glimpse of the incredible momentum driving the anti-aging industry these days.
It’s only a matter of time until we achieve a spectacularly extended lifespan with an impressively high quality of health and wellbeing.
Mad Hedge Biotech & Healthcare Letter
August 31, 2021
Fiat Lux
FEATURED TRADE:
(A CANCER PIONEER FOR THE BOOKS)
(SEGN), (MRK), (BMY), (PFE), (GILD), (RHHBY), (TAK), (GMAB)
When choosing a biotechnology company to invest in, a good sign to look out for is when management continuously looks for ways to expand its technology.
This means you’re looking at a stock that’s likely to appreciate multiple folds.
Seagen (SEGN) does this in spades.
Since it was founded in 1997, Seagen (SEGN) has reached almost $30.67 billion in market capitalization.
Reviewing its growth story, I think its powerful growth strategy is one of the key elements that help the company with its advancements.
That is, Seagen is aggressively developing and expanding its different labels for the approved drugs in its portfolio while also actively discovering innovative and new treatments and molecules.
Simply put, Seagen’s growth and expansion can be likened to a tree that keeps forming new additional branches.
Over the years, the company has experienced a remarkable transformation from a single-product firm to a diversified and ever-expanding player, particularly in the oncology medication market—a strategy that paid off.
After all, the market for cancer drugs isn’t the type to stand still.
This sector is renowned for its fast-paced demands and rapid growth. If you look at how much has been done, remember that several types of cancer that seemed incurable a mere 10 years ago are now no longer considered death sentences thanks to the innovative therapies discovered.
If roughly 15 years ago, the standard cancer treatment only involved chemotherapy and surgery, the recent years have granted us access to newer technologies like targeted therapy and immunotherapy.
Lately, CAR-T therapy has been hailed as the most effective means of treating blood cancer. Meanwhile, the likes of Merck’s (MRK) Keytruda and Bristol-Myers Squibb (BMY) Opdivo have made chemotherapy and surgery more effective as well.
So, it wouldn’t be a surprise anymore if the technology in the oncology sector advances further in the years to come.
Another relatively fresh innovation is the antibody-drug conjugate (ADC) technology.
This takes and combines all the positive effects of chemotherapy and targeted therapy while simultaneously eliminating the adverse effects of chemotherapy on the patient’s body.
Unlike chemotherapy, ADCs specifically target and eliminate tumor cells and works to spare the healthy ones. Once the tumor cells are detected, a toxic drug is released to kill them.
Basically, it works like a “smart bomb” in that it annihilates only the enemies and protects the allies.
The first drug to be approved based on ADCs is Mylotarg from Pfizer (PFE), which was 20 years ago.
However, it was only in recent years that this technology finally gained traction and attracted commercial success.
So far, roughly 56 pharmaceutical companies are working on developing ADCs.
Aside from Pfizer, another pioneer in ADCs is Seagen. Unlike Pfizer, this company has chosen to continue focusing on the development of the treatment.
Other companies working on ADC technology include Immunomedics, which Gilead Sciences (GILD) acquired, and Roche (RHHBY).
However, Seagen’s work looks to be the most promising in this segment.
Its first ADC drug is Adcetris, which was approved in 2011 for Hodgkin’s lymphoma and made in cooperation with Takeda Pharmaceutical (TAK).
Its indication was later expanded to cover another white blood cell disease, Peripheral T-cell lymphoma (PTCL).
Seagen already holds roughly 45% of the market share in the Hodgkin’s lymphoma segment alone, and this is expected to rise to 50% by 2026.
In terms of projected sales in the US, Adceris is estimated to generate about $1.7 billion by 2026.
On top of that, Seagen also rakes in royalties from Adceris sales outside the US thanks to its Takeda partnership.
Riding the momentum of Adceris, Seagen expanded its ADC pipeline and later gained approval for Padcev in 2019.
This drug received the go signal to treat a fairly common disease in the oncology space: metastatic bladder cancer.
In the US, the average number of new cases of metastatic bladder cancer is 83,000. Given its market size and potential to become part of a combination therapy with the ever-popular Keytruda, Padcev is expected to generate at least $2.6 billion in sales by 2026.
Gaining more confidence in its expertise in the oncology sector, Seagen continued its expansion and gained regulatory approval for breast cancer treatment Tukysa.
Tukysa is expected to bring roughly $1 billion in annual sales in the US and European markets. This figure is projected to rise when it eventually also gains approval for colorectal cancer.
Another notable drug in Seagen’s pipeline is Tisotumab Vedotin (TV), which is a collaboration with Genmab (GMAB). TV is a cervical cancer treatment and is expected to gain approval by the end of 2021.
Shifting gears, let’s take a look at the upcoming growth of Seagen. Initially, its 2021 guidance put its annual sales at $1.28 billion for all the products.
However, Seagen has already exceeded expectations, with Adceris reporting $700 million in sales for a single quarter this year. Actually, both Adceris and Padcev are well on their way into becoming blockbusters in a year or two, thanks to their continuously expanding applications.
Overall, Seagen is an excellent long-term investment.
Aside from its work with giant biopharmaceutical companies like Merck and BMY, its current portfolio of treatments and pipeline programs present a myriad of opportunities for Seagen.
Moreover, its ability to develop powerful treatments and leverage the science of ADCs make Seagen one of the most promising oncology stocks in the market today.
Mad Hedge Biotech & Healthcare Letter
August 26, 2021
Fiat Lux
FEATURED TRADE:
(ANOTHER FORETOLD ACQUISITION)
(PFE), (TRIL), (BNTX), (VTRS), (ALXO)
Another one of my predictions came true.
Last December, I wrote about the impressive potential of Trillium Therapeutics (TRIL) in my letter, titled “The Most Famous Cancer Stock You’ve Never Heard of,” and predicted that it’s going to be an attractive acquisition candidate soon.
Earlier this week, it finally happened.
Leveraging its extra cash from Comirnaty, the COVID-19 vaccine it developed with BioNTech (BNTX), Pfizer (PFE) has decided to push through with acquisitions instead of pursuing buybacks.
And the candidate at the receiving end of this cash flow is none other than one of my buyout candidates last year: Trillium Therapeutics.
The $2.3 billion acquisition was an excellent deal for Trillium, with Pfizer buying the cancer-centered biotech at a 118% premium over the stock’s average price in the past 60 days.
Given that Trillium stock closed at roughly $6 per share before the announcement, the deal practically tripled its worth at $18.50 each.
The price signifies Pfizer’s willingness to pay up to take over Trillium pipeline and portfolio after initially investing $25 million in the smaller company in 2020.
Trillium shares also skyrocket by 188% following the announcement of the deal.
The plan is for Trillium Therapeutics to bolster Pfizer’s oncology and hematology portfolios, with a focus on blood-related cancers.
This recent turn of events has been long awaited by Pfizer investors.
After all, the last time the company exceeded expectations was during its Viagra-driven frenzy era back in the late 1990s. Since then, the stock has been underperforming the S&P 500.
Unquestionably, Pfizer’s work on the COVID-19 vaccine helped the stock recover.
In its second quarter earnings report, Pfizer posted $7.8 billion in sales for Comirnaty alone. This brought the company’s total revenue to roughly $18.7 billion, showing off an 86% boost year over year.
However, even without Comirnaty’s contribution, Pfizer’s revenues still managed to rise.
Through the first six months of 2021, Pfizer’s revenue has reached $33.5 billion—up by 68% year over year. This is impressive considering that it followed the Upjohn spinoff with Mylan, which later became Viatris (VTRS).
Even without the COVID-19 vaccine, Pfizer still has promising growth prospects involving its core businesses.
For one, it has a number of blockbuster drugs that can easily become strong revenue streams for years to come.
For example, Prevnar sales grew by 34% year over year to reach $5.85 billion, pushing Pfizer’s oncology segment to climb by 16%.
Another blockbuster in the making is blood clot treatment Eliquis, which grew by 13% from the $5 billion in sales it generated in the second quarter of 2020.
As for its biosimilars, these notched a bit to more than $1.5 billion in sales last year and recorded a whopping 88% growth year over year thanks primarily to the newly released cancer drugs Zirabev, Ruxience, and Trazimera.
Meanwhile, heart failure treatment Vyndagel, which generated roughly $1.3 billion in 2020, reported an impressive 77% climb year over year for its $501 million in sales in the second quarter of 2021 alone.
Another heavy hitter in Pfizer’s portfolio is kidney cancer medication Inlyta, which reported $800 million in sales in 2020. For the second quarter of this year, the sales for this drug is up 29% year over year, with $257 million.
Management also boosted the company’s guidance from $70.5 billion to $72.5 billion.
Then, it raised it again to $78 billion, then once more to $80 billion. As for its COVID-19 vaccine sales, it increased its estimates from $26 billion to $33.5 billion.
While the sales from the COVID-19 vaccine definitely provided a comfortable boost for the company, its own portfolio of drugs demonstrates the capacity of its core business to drive revenues on its own.
Considering the FDA approval and support for the additional third booster shot, though, I anticipate that Pfizer will continue towards this path of acquiring smaller biotechnology companies in the foreseeable future.
In terms of other clinical-stage biotech firms potentially up for grabs next, the work of ALX Oncology (ALXO) has recently been put under the spotlight as it relates closely to Trillium’s cancer-centered technology.
Mad Hedge Biotech & Healthcare Letter
August 24, 2021
Fiat Lux
FEATURED TRADE:
A GENE EDITING PURE PLAY UP FOR GRABS
(MRNA), (EDIT), (CRSP), (NTLA), (VRTX), (REGN), (BMY),
(BLUE), (NVO), (GRTS), (INBX), (BEAM), (VERV), (SGMO)
Moderna (MRNA) is faced with a dilemma. And it’s a pretty good problem to face at this point.
The biotechnology company has a flourishing cash stockpile courtesy of the increasing demand for its COVID-19 vaccine, and it needs to find something to do with its overflowing cash.
As of the end of the second quarter, the company has already reported a cash position of over $12 billion—a figure that offers Moderna the flexibility to go on a bit of a shopping spree.
So far, Moderna has set its sights on expanding its internal R&D programs on top of the $1 billion share repurchase program approved by its board of directors.
However, the most exciting news is the company’s plans to potentially make acquisitions soon.
This is where Editas Medicine (EDIT) enters the picture.
Moderna has not been shy in declaring that it wants to add gene editing therapies to its growing pipeline along with nucleic acid technologies and mRNA.
While Moderna did not specifically mention Editas in its plans, the smaller biotechnology company looks to be the most promising candidate for acquisition, especially if the COVID-19 vaccine leader plans to jump right into the action in the gene editing space.
After all, there are only three companies in this segment with therapies under clinical testing: CRISPR Therapeutics (CRSP), Intellia Therapeutics (NTLA), and Editas.
CRISPR Therapeutics is practically joined at the hip with Vertex Pharmaceuticals (VRTX). Meanwhile, Intellia has a strong ongoing partnership with Regeneron (REGN).
That leaves Editas, which currently has no partner for its lead program, making it a prime buyout candidate for Moderna.
Editas is also the cheapest by far among all three clinical-stage biotech with $4.12 billion in market capitalization.
In comparison, CRISPR Therapeutics has a market cap of $8.93 billion, while Intellia has a market cap of $10.97 billion.
Moderna could find Editas’ lower market capitalization as an add-on, as it would allow the bigger biotech to not spend all its cash on the acquisition.
Moreover, Editas has another advantage.
While both CRISPR Therapeutics and Intellia only focus on CRISPR-Cas9, which is a way to locate and bind targeted genes, Editas has developed another option platform to do that.
Its alternative option, called Cas12, could boost the company’s capacity to develop gene editing treatments.
Simply put, its rivals only have one weapon in their arsenal, while Editas has come up with a dual-option CRISPR platform to double its chances of succeeding in gene therapy development.
If, for instance, Moderna does not acquire Editas, there are still a lot of options available for the bigger company.
One possibility is with Juno Therapeutics, which is part of Bristol-Myers Squibb (BMY), as the company is already collaborating with Editas on the development of genetically modified T-cells to come up with a powerful cancer therapy.
Meanwhile, if Editas’ pipeline and portfolio do not quite cut it with Moderna, another potential buyout candidate for this biotechnology giant is bluebird bio (BLUE).
While it’s not as advanced as CRISPR Therapeutics, Intellia, and Editas, bluebird bio has ongoing work with the likes of Bristol-Myers Squibb, Regeneron, Novo Nordisk (NVO), Gritstone Oncology (GRTS), and Inhibrx (INBX).
Other candidates that Moderna could take into consideration include Beam Therapeutics (BEAM), Verve Therapeutics (VERV), and Sangamo Therapeutics (SGMO).
Regardless of Moderna’s future decisions, its announcements that it plans to expand on the gene editing space could potentially spur other huge biopharmaceutical companies to explore their own business development agreements with up-and-coming biotechnology firms.
In fact, even if Moderna ends up not calling, there’s a big possibility that Editas could easily find others who will be interested in acquiring this pure play gene editing frontrunner.
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