Biotech Letter Archives

A Stock to Add to Your Retirement Portfolio

Building a retirement portfolio is different from when you’re aggressively playing the market. With this, you’d want something with less risk and more stability. A healthy helping of income definitely wouldn’t hurt either.

Taking these into consideration, a particular stock that offers a well-balanced mix of income and capital appreciation comes to mind: Merck (MRK).

The biggest news for Merck recently is its $1.2 billion deal with the US government involving its experimental COVID-19 antiviral.

The treatment, called Molnupiravir, is expected to cost about $700 per course, putting the total of the order from the US to 1.7 million courses.

This is just the beginning though. According to Merck and its partner, Ridgeback Biotherapeutics, they can produce at least 10 million courses of Molnupiravir by the end of 2021.

If we use the same pricing as the US, then we can expect approximately $7.1 billion in sales for Molnupiravir alone this year.

Still, the $1.2 billion deal with the US is already a massive win for Merck as experts initially estimated that Molnupiravir sales would only reach $25 million this year.

What makes Molnupiravir unique and more advantageous than its competitors is that the drug is taken orally.

The convenience alone easily edges out the other monoclonal antibody therapies from the likes of Regeneron (REGN), GlaxoSmithKline (GSK), and Eli Lilly (LLY)—all of which need to be administered intravenously.

If Molnupiravir does gain emergency use authorization from the FDA, its sole competitor in the market today is Veklury from Gilead Sciences (GILD).

To offer an idea on the size of the market for this treatment, Gilead recorded $2.8 billion in sales of Veklury in 2020. This figure is even projected to go up to $2.9 billion for this year.

Apart from its COVID-19 program, Merck has always been a favorite among value investors.

It’s a great dividend stock and has gained a reputable name in the industry as being one of the biggest and oldest companies in this field.

It’s also the force behind blockbuster treatments like the top-selling cancer drug Keytruda, HPV vaccine Gardasil, and of course, the diabetes medication Januvia.

In fact, Keytruda is estimated to become the No. 1 selling drug in the world by 2023—an achievement that Merck has lots of time to capitalize on considering that the treatment’s patent exclusivity lasts until 2028.

Keytruda is a key revenue generator for Merck, with the cancer drug showing off a 19% jump to reach $3.9 billion in sales in the first quarter of 2021.

This puts it on track to rake in roughly $16 billion in sales for this year, showcasing an 11% increase from 2020.

By 2026, Keytruda is estimated to generate $24.32 billion in sales annually.

Apart from Keytruda, Merck has been boosting its pipeline as well. For example, Bridion, one of its newer drugs, raked in $1.2 billion in sales in the first quarter, which is up 6% year-over-year.

Looking at its history, Merck has repeatedly shown that it can compete aggressively in the biopharmaceutical industry.

In 2020, the company still managed to generate $48 billion in sales despite the pandemic, with an earnings per share of $5.94—a value that’s 65% stronger than it was just five years ago.

Its strong profit growth and promising pipeline programs have allowed the company to boost its dividend payout at an impressive 7.1% pace over the past years.

This is a performance that most blue-chip companies, regardless of their size and market cap, struggle to keep up with.

Merck isn’t as exciting as the other stocks in the biotechnology and healthcare market, but that’s a comforting thought for investors who are on the lookout for a stable business.

Although Merck stock is not dirt cheap, I think it’s attractive for those who have extra cash or are hesitant to roll the dice on more volatile companies today.

June 15, 2021/by Mad Hedge Fund Trader

June 10, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
June 10, 2021
Fiat Lux

FEATURED TRADE:

(IN THE RIGHT PLACE AT THE RIGHT TIME)
(MRNA), (PFE), (BNTX), (NVAX), (CVAC), (SNY), (TMO), (CTLT), (BAX), (INO)

June 10, 2021/by Mad Hedge Fund Trader

In the Right Place at the Right Time

Biotech Letter

Before the COVID-19 pandemic, only a handful of people had actually heard of messenger RNA (mRNA).

Now, this technology has become a household term thanks to the success of the COVID-19 vaccine programs of Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA).

Aside from these three names, other players in the mRNA arena include Novavax (NVAX) and an under-the-radar stock called CureVac (CVAC), which has been collaborating with Bayer (BAYRY).

Even Sanofi joined the list recently with its acquisition of mRNA-focused biotechnology company Tidal Therapeutics.

Amid the growing number of mRNA-focused companies, however, the world has come to associate the technology most with Moderna.

This is apparent in the increasing demand for Moderna’s COVID-19 vaccine, which has been pushing the biotech company to quickly expand its manufacturing capacity.

One of the steps it took to meet the supply expectations is to partner with Thermo Fisher (TMO), specifically for fill-finish, labeling, and packaging.

For orders outside the United States, Moderna established a partnership with South Korea’s renowned Samsung Biologics (KRX: 207940) to keep up with the demand.

While TMO and Samsung Biologics are the two major forces helping Moderna in its manufacturing concerns, other companies are also pitching in, including Catalent (CTLT), Sanofi, and Baxter BioPharma Solutions (BAX).

With the assistance of these companies, along with the major expansion of its own manufacturing site, Moderna anticipates that it can supply at least 3 billion doses of its COVID-19 vaccine annually by 2022.

This is promising news, particularly in light of another massive market that Moderna can conquer next: India.

While the United States has managed to turn the corner in the COVID-19 battle, India has been struggling to fight back against the virus. To this day, the country continues to grapple with the increasing number of COVID-19 cases.

Low and sluggish vaccination rates are considered the major contributing factor to this problem, with a measly 3.3% of India’s citizens getting fully vaccinated so far.

With a population of approximately 1.39 billion, this offers a massive opportunity for vaccine developers.

Thus far, only 228 million doses of the COVID-19 vaccines have been shipped to India. That leaves about 1.16 billion people in this huge country to receive a vaccine.

Since India is a developing nation, vaccine makers are expected to charge the low end of their range.

For Moderna, that would be roughly $25 per dose, while Pfizer would probably charge $19.50 per dose.

However, these prices could still go lower depending on the contract negotiated by the Indian government.

Even at the low end of the price point though, the Indian market represents approximately $28 billion in revenue for COVID-19 vaccine developers.

Taking advantage of this momentum, Moderna has been working on booster candidates for its COVID-19 vaccine. In fact, one candidate may be ready by fall.

Of course, competitors are looking into the new variants as well. Aside from Pfizer, smaller companies like Inovio Pharmaceuticals (INO) have started with clinical trials this year.

Moderna is also investing heavily in artificial intelligence (AI) in an effort to become a step ahead of future diseases.

Through AI and machine learning, Moderna aims to predict strains that evade protection provided by their roster of vaccines.

Based on the data, the company will be able to develop next-generation vaccines and boosters before the situation becomes as critical as what happened in 2020.

These efforts are essential for Moderna to sustain its position as the leader in mRNA technology.

Despite its earlier issues with production, Moderna is still set to generate roughly $19.2 billion in revenue for its COVID-19 vaccine thanks to advance purchase agreements.

The potential availability of a booster this year would definitely get the ball rolling in terms of handling newer variants.

The biotechnology industry is favored among investors on the lookout for companies with incredibly strong growth potential.

While it’s a risky environment filled with businesses flaming out practically year after year, winners in this field can come out with extremely impressive results.

In recent months, Moderna has become one of the most successful examples that demonstrated the potential of a biotech when it finds itself with cutting-edge technology at an ideal time.

moderna

June 10, 2021/by Mad Hedge Fund Trader

June 8, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
June 8, 2021
Fiat Lux

FEATURED TRADE:

(THE BIGGEST NEWS IN BIOTECH TODAY)
(BIIB), (ESALY), (LLY), (RHHBY), (DNLI), (SRPT), (IONS), (ICPT), (SAVA), (ANVS), (CI), (CVS)

June 8, 2021/by Mad Hedge Fund Trader

The Biggest News in Biotech Today

Biotech Letter

It’s not typical for stock market news to alter the lives of millions of people across the globe, but this is what Biogen (BIIB) managed to accomplish this week.

The company received accelerated approval from the US Food and Drug Administration (FDA) for its controversial Alzheimer’s disease treatment, Aducanumab.

The drug, which is now marketed as Aduhelm, marks a potential breakthrough medication for over 6 million Americans suffering from the debilitating illness and to possibly billions all worldwide.

Basically, Aduhelm targets what Biogen calls “a defining pathology of the disease” by decreasing the amyloid beta plaque levels in the brains of patients suffering from Alzheimer’s disease.

Biogen shares spiked by roughly 60% following the Aduhelm news, with the pop in the biotechnology stock even more impressive than what was initially predicted.

This latest FDA approval also brings a ray of hope for the biotechnology industry.

Biotech shares have been in a slump this year, with the SPDR S&P Biotech ETF (XBI) falling by 9.2% thus far.

Potential second-order effects of the Biogen win can easily be seen in other developers of Alzheimer’s disease treatments.

Although the moves may not be as dramatic as Biogen’s, several biotech companies benefited from the good news.

Directly benefiting from it is Japanese drugmaker Eisai (ESALY), which has been working with Biogen on Alzheimer’s disease treatment. This company’s American depository receipts climbed by 48.2% after the news broke.

Eli Lilly (LLY), which is also working on its own Alzheimer’s therapy, saw its shares go up 9.3%.

Even Roche (RHHBY), which is still in the early stages of its development of a similar treatment, enjoyed a 1.6% increase, while an under-the-radar biotech company, Denali Therapeutics (DNLI), experienced a 7.8% increase.

Other smaller companies that benefited from Biogen’s news include Sarepta Therapeutics (SRPT), Ionis Pharmaceuticals (IONS), Intercept Pharmaceuticals (ICPT), Cassava Sciences (SAVA), and Annovis Bio (ANVS).

In terms of pricing, Aduhelm is estimated to cost $56,000 per year.

Although there is still no definite number in terms of how much Aduhelm could generate in sales for the company, there have been early estimates prior to this news.

Before this accelerated approval, Aduhelm was projected to add at least $16 billion in market capitalization to Biogen.

If successful, the drug can contribute a minimum of $10 billion in sales annually—a performance that would make Aduhelm one of the best-selling drugs of all time.

At this price point as well, the drug could peak at $5.7 billion by 2027.

Understanding that the cost is too high for some, Biogen has been working on establishing partnerships with healthcare and insurance companies to help patients cover the expenses.

So far, Biogen has been negotiating with Cigna (CI) to come up with terms to make Aduhelm available to Alzheimer’s patients via a value-based contract.

That is, the pricing will be assessed based on how responsive the patient will be to the treatment.

Biogen has also been working on collaborating with CVS Health (CVS) to develop more efficient ways to implement cognitive screenings in urban markets.

The two companies have been looking into boosting testing within underserved communities to improve early diagnosis, with the project commencing by September.

Some cities included in this initiative are Washington, D.C., Los Angeles, Dallas, Chicago, South Carolina, Atlanta, New York, Detroit, and Philadelphia.

Biogen has finally regained its momentum thanks to this accelerated and unprecedented approval.

That means we can expect Biogen to leverage this massive revenue stream to round out the rest of its programs and boost its R&D, as well as possibly compensating its shareholders with share buybacks and even dividends in the second half of this decade.

aduhelm

June 8, 2021/by Mad Hedge Fund Trader

June 3, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
June 1, 2021
Fiat Lux

FEATURED TRADE:

ANOTHER BUY-THE-DIP OPPORTUNITY DROPPED IN OUR LAPS
(AMGN), (QGEN), (GH), (AZN), (MRTX), (LLY), (JNJ), (SNY), (JNJ)

June 3, 2021/by Mad Hedge Fund Trader

Another Buy-the-Dip Opportunity Dropped in our Lap

Biotech Letter

The ideal stocks are those you can just buy and hold for a long time. A healthcare and biotechnology company that perfectly fits the bill is Amgen (AMGN).

Amgen wasn’t an active participant in the COVID-19 race.

Instead, the biotechnology giant chose to stick with its circle of competence and focused on delivering remarkable results to its shareholders through boosting its revenue and increasing dividends.

Recently, this hyper-focus has paid off.

Amgen received FDA approval to market a drug that targets cancer cells in an area that researchers have been attempting to hit for decades.

The new treatment, Lumakras, will be the first of its kind to target a tumor growth process commonly known as KRAS for non-small cell lung cancer (NSCLC).

To understand the extent of Amgen’s breakthrough, scientists and researchers have been working on developing a KRAS blocker for over 40 years.

Prior to this, KRAS had been known as an “undruggable” target.

Basically, Amgen came up with a drug that can target the notorious and illusive cancer-causing protein—something that was previously considered the “Achilles heel” of lung cancer tumors.

More impressively, Lumakras was approved three months ahead of its schedule.

Based on the results of its Phase 2 trials, Lumakras can stall the progress of lung cancer in roughly 81% of the patients for a median time of 10 months.

In the Phase 3 trials, Amgen is looking into testing the drug in combination with other medications to hit the tumors that developed resistance to the pill.

A key factor in Lumakras’ launch is determining the types of patients who’d benefit most from the drug.

So far, Amgen has been collaborating with diagnostic partners, particularly Qiagen (QGEN) and Guardant Health (GH), for biomarker testing.

In terms of pricing, Amgen estimates monthly spending on Lumakras to be $17,900.

In the United States, roughly 30,000 patients of KRAS-mutated lung cancers are reported annually.

That puts Lumakras sales to at least $100 million for 2021 alone.

By 2025, the drug is expected to rake in roughly $1 billion annually, with sales growing to $1.51 billion in 2026.

These are actually conservative estimates that assume only a 50% success rate from Lumakras in the next few years.

Given the provisional and accelerated approval the drug has already received from the FDA though, it is safe to say that it can achieve at least 75% success rate, which means it can generate higher revenue.

The KRAS target is not limited to lung cancer. It also appears in other solid tumors, which Amgen continues to test Lumakras in a dozen other types, including colorectal cancer.

Depending on expansion plans, Lumakras sales can reach $3.2 billion by 2030.

Again, this expansion is a conservative estimate.

If the expansion for Amgen’s drug would be anything like AstraZeneca’s (AZN) blockbuster Tagrisso, which eventually became a recommended first-line therapy option for NSCLC, then Lumakras sales can peak at $4 to $5 billion.

Considering the potential of this market, it no longer comes as a surprise that competitors are hot on Amgen’s heels just days after Lumakras’ approval was announced.

The closest rival so far is Mirati Therapeutics (MRTX), which also has KRAS-inhibitor candidates in Phase 1 and Phase 2 trials.

Prior to that, Eli Lilly (LLY) and Johnson & Johnson (JNJ) tried their hands at KRAS mutation but failed.

Aside from Lumakras, Amgen has another blockbuster candidate in store for its shareholders: asthma drug Tezepelumab.

Developed in collaboration with AstraZeneca, this drug is already in the second late-stage pipeline and has been showing promising results so far.

Globally, there are about 2.5 million patients with severe asthma, with 1 million suffering from eosinophilic asthma in the United States. Amgen is hoping to target the latter population.

If Tezepelumab gets approved, it would be in direct competition against Sanofi (SNY) and Regeneron’s (REGN) asthma drug Dupixent. Peak sales for this asthma drug is estimated at roughly $3.5 billion.

Over the past 12 months, Amgen’s stock performance has been rangebound.

Although this is obviously frustrating for growth-oriented shareholders, I think the short-term volatility of the stock may present good opportunities for value-conscious investors.

That is, I view the drop in Amgen’s share price as another favorable buying opportunity.

Amgen

June 3, 2021/by Mad Hedge Fund Trader

June 1, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
June 1, 2021
Fiat Lux

FEATURED TRADE:

(AN UNDERRATED HEALTHCARE STOCK)
(UNH), (ANTM), (HUM)

June 1, 2021/by Mad Hedge Fund Trader

An Underrated Healthcare Stock

Biotech Letter

Value investors on the lookout for stable stocks in the healthcare and insurance sectors should not miss out on a particular company that has consistently delivered strong performance over the years: UnitedHealth Group (UNH).

Despite its notable performance in the past 10 years and tangible plans that lead to more room for growth, UNH is still remarkably undervalued.

With the expanding reach of the COVID-19 vaccines and the promising prospects offered by Medicaid and Medicare expansion efforts, the future of this health insurance provider definitely looks bright.

In fact, this stock managed to weather the devastating effects of the COVID-19 pandemic and did pretty well in 2020.

Shares of this health insurance titan actually climbed 19%, beating the S&P 500 index.

What’s even more promising is that UNH appears to be doing better in 2021.

In its first-quarter earnings report, UNH recorded a 9% jump in its revenue for the first quarter of 2021 at $70.9 billion compared to the $64.4 billion reported in the same period in 2020.

In terms of its net income for the quarter, UNH raked in $4.9 billion compared to the $3.4 billion it reported last year.

This puts its earnings per share at $5.31, a notable bump from the $3.72 recorded in the same period a year ago and blowing past analyst estimates of $4.38 per share.

With a $388.73 billion market capitalization, UNH is easily one of the biggest companies in its field. In comparison, competitors like Anthem (ANTM) hold a market cap of $97.5 billion, while Humana (HUM) has $56.47 billion.

Leveraging its size and power, this healthcare giant has ventured into diversifying its portfolio to ensure consistent results amid the never-ending changes in the healthcare industry.

Looking at the numbers closely, UNH’s health insurance segment brought in the bulk of the revenue in the first quarter with $55.1 billion, up by 7.9% compared to last year.

Membership count also increased by over 1 million during this period, which could be primarily attributed to the strong growth of its Medicare Advantage program.

The addition of specialty services, like dental and vision insurance, also contributed to the sustained development of this segment.

Meanwhile, UNH’s Optum division saw a 10% increase in its revenue year-over-year to reach $36.4 billion.

Even its OptumHealth segment delivered a particularly strong performance, with its revenue jumping by 31% compared to the same period last year.

UNH’s technology services sector, OptumInsight, also experienced revenue growth to reach $20.8 billion this quarter.

Even UNH’s weakest link, its OptumRx sector or the pharmacy benefits management division, experienced a slight increase in its revenue to hit $21.6 billion year over year.

These numbers show how UNH is split into two major groups. One sector offers traditional insurance plans, while the other, Optum, offers pharmacy and doctor services.

In 2020, its insurance segment comprised 60% of UNH’s overall revenue, while Optum generated the remaining 40%.

This translated to $257 billion in revenue from the insurance plans and $103 billion generated by its Optum services division.

Considering that UNH appears to be performing better than originally projected, its earnings guidance for 2021 was adjusted to reflect the changes.

To date, the company estimates its adjusted earnings to be somewhere between $18.10 and $18.60 for each share.

UNH utilizes a balanced business approach, which covers both traditional services in the health insurance sector and a variety of innovative solutions courtesy of its Optum units.

So far, this strategy has paid off well in the long run. As we see the world go back to normal, it is expected that UNH would enjoy even more tailwinds in its favor.

UNH is a solid stock that deserves a spot in any value investor’s portfolio.

If the efforts to fight the COVID-19 pandemic prove to be successful this year, then UNH expects an even better performance in 2022.

unh