Mad Hedge Biotech & Healthcare Letter
July 15, 2021
Fiat Lux
FEATURED TRADE:
(A SAFE STOCK TO BUOY UP YOUR PORTFOLIO)
(LLY), (NVO), (BIIB), (RHHBY)
More than halfway into 2021, and so much has transpired in the investing world.
We witnessed a historical short squeeze, the unprecedented rise of cryptocurrencies, and even the battle among billionaires on who would get to explore outer space first.
The stock market has been quite volatile over the past months, and the fears that we’re barreling towards another downturn, as fueled partly by concerns on inflation, continue to haunt us.
Amid the noise and the chaos, it’s critical to bear in mind one of the most important rules of investing: Buying and holding shares of stable companies for a long period usually reaps great returns.
While no one knows what the rest of 2021 holds, there are still remarkable companies that are worth buying and holding through the course of the next few months.
One such company is Eli Lilly (LLY).
The greatest strength of Eli Lilly is the way it handles its diverse pipeline. While it continues to expand its reach to cover more and more markets, the company also ensures that it doesn’t neglect its well-established niches.
For instance, Eli Lilly continues to boost its diabetes and obesity sector. One of the company’s most promising projects is a new drug called Tirzepatide, which targets these health conditions.
This is now undergoing Phase 3 clinical trials, and if successful, could rake in $7.8 billion in sales for Eli Lilly.
It’s also developing a once-a-week insulin, called Basal Insulin Fc, which would be administered to patients with Type 2 diabetes.
If approved, this would be a massive breakthrough considering that the patients typically need to take insulin daily.
Another effort to shore up its diabetes franchise is Eli Lilly’s decision to buy a next-generation biotechnology company called Protomer for a whopping $1 billion.
Although Protomer has only been in operations for six years, the private company has already developed incredible technology in the diabetes sector.
The most remarkable achievement it has so far is a platform that can create glucose-response insulins, which can sense the body’s sugar levels and then get activated automatically throughout the day.
Although this is still in its early stages, this technology could drastically reduce the risk of hypo- and hyperglycemia among diabetes patients.
Eli Lilly’s deal with Protomer follows in the footsteps of the leading diabetes company worldwide, Novo Nordisk (NVO), which also struck a similar agreement worth $800 million with another biotech startup in 2018.
Aside from diabetes and obesity, Eli Lilly has also been working on dominating in the Alzheimer’s disease space.
When the FDA granted Biogen’s (BIIB) Alzheimer candidate Aduhelm with accelerated approval, it also opened a door for Eli Lilly.
Even prior to this approval, Eli Lilly has already been working on its own candidates, Donanemab. What the Biogen approval provides is a higher chance of positive review for Eli Lilly’s candidate.
In fact, mere weeks after Aduhelm’s accelerated approval, Eli Lilly announced that it would submit an application for the same authorization by the end of 2021.
At this point, the treatment holds a Breakthrough Therapy designation from the FDA.
Given this, it’s presumably a shoo-in for approval soon, thereby adding a new growth driver to the company’s extensive arsenal.
Other than the two, Roche (RHHBY) is also expected to throw its hat in the ring with its Alzheimer’s candidate Gantenerumab.
Eli Lilly’s current lineup of products is definitely worth mentioning as well.
In the first quarter of 2021, the company’s revenue climbed by 16% year over year to hit $6.9 billion.
One of its top performers is its diabetes drug Trulicity, which recorded an 18% jump in sales to reach $1.5 billion.
In terms of its bottom line, Eli Lilly projects its adjusted earnings to increase between 15% and 18% year over year in 2021.
Looking at its financials, it’s clear that Eli Lilly’s current portfolio and pipeline are favorably positioned to deliver strong financial results year after year.
Although the company hasn’t exactly catapulted to unprecedented heights, it has shown stable and consistent growth as well as notable gross margins of over 70%.
It has consistently outperformed the markets in the past five years, climbing close to 200%.
This is the reason why regardless of the ups and downs of the market, investors can easily count on this stock to climb continuously in the long run.
Mad Hedge Biotech & Healthcare Letter
July 13, 2021
Fiat Lux
FEATURED TRADE:
(SPINOFF STOCKS POISED FOR LONG-TERM GROWTH)
(VTRS), (OGN), (PFE), (MRK), (JNJ), (LLY), (ABBV),
(AZN), (GSK), (BMY), (GILD), (REGN), (PYPL), (EBAY), (CARR), (UTC)
Spinoffs have historically been known to deliver healthy returns for their investors.
A good example is PayPal (PYPL), which grew sevenfold since 2015 following its spinoff from eBay (EBAY).
A more recent example is Carrier Global (CARR), which tripled its shares amid the pandemic after its spinoff from United Technologies (UTC) last year.
Basically, spinoffs allow smaller segments of companies to thrive on their own or push high-growth divisions to expand faster.
Over the past months, the cheapest stocks found in the S&P 500 have recently spun off pharmaceutical companies: Viatris (VTRS) and Organon (OGN).
Viatris is a spinoff of Pfizer (PFE), which merged with Mylan, while Merck (MRK) jettisoned Organon (OGN) just last month.
Both are brand new and still under the radar, particularly among investors who don’t follow healthcare updates.
While these two have yet to impress the market, both exhibit potential that could make them promising long-term prospects.
Viatris holds an extensive portfolio of drugs courtesy of Pfizer’s Upjohn unit and Mylan’s pipeline.
The list includes the previously top-selling Lipitor, Viagra, Lyrica, and even Norvasc from Pfizer. It also has Mylan’s income-generating EpiPen along with the company’s HIV/AIDS therapies and 7,500 marketed products across the globe.
To date, Viatris has fallen roughly 30% from its average price target. It’s not for the subpar performance of its products though. This is mostly attributed to the lack of attention from investors and possibly a bit of skepticism from some analysts.
However, Viatris has a really good value proposition.
The main goal of the biggest names in the biopharmaceutical sector, such as Johnson & Johnson (JNJ), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca (AZN), GlaxoSmithKline (GSK), Bristol-Myers Squibb (BMY), and Gilead Sciences (GILD), is to develop and launch the best-in-class treatments to market.
To achieve that, these industry giants are granted a set period to exclusively sell and market each new drug that gains approval.
This would allow them to command a premium price, which in turn would give them the money to fund the next round of research and development needed to come with the next generation of newer and improved versions of the treatment.
However, not everyone can afford those premium prices.
So when the periods of exclusivity end, there are companies like Mylan—now Viatris—that are allowed to manufacture generic versions of those branded drugs and sell them at lower prices.
The list of drugs with soon-to-expire patents for which Viatris has been working on creating biosimilars or generic versions include Humira from AbbVie, which recorded peak sales at $20 billion; Eylea from Regeneron (REGN), which peaked at $7.5 billion; and even Allergan’s Botox, which peaked at $5 billion.
Viatris is also working on biosimilars for Roche’s (RHHBY) cancer treatments Avastin, which had peak sales of $7 billion, and Perjeta, which peaked at $5 billion.
Obviously, Viatris will not reach the same height of success as the companies that created those branded drugs.
But, if it manages to achieve even only 10% of those numbers, then it can generate roughly $4 to $5 billion in sales—and that’s just the tip of the iceberg.
So far, Viatris owns at least 1,400 approved molecules applicable in roughly 10 therapeutic segments.
It has roughly 350 products in its pipeline at the moment, with each item estimated to generate approximately $100 million to $500 million in sales.
With its current performance and access to 165 countries and territories, Viatris is expected to generate roughly $224 billion in global sales annually.
With all these in mind, Viatris’ value proposition looks impressively strong to me.
More importantly, this Pfizer spinoff has the capacity to become the world’s first dominant generic and biosimilar drug manufacturer, with its revenues potentially becoming comparable to major pharmaceutical companies at some point.
The same value proposition could be behind Organon, as this newly spun-off company markets Merck’s off-patent drugs.
While the move to separate from its parent company has yet to show tangible results, Organon is projected to rake $6.1 billion to $6.4 billion in revenue for 2021, with annual sales expected to rise in mid-single digits and dividends anticipated to be about 3%.
The biosimilars market is still relatively young, with only 60 biosimilars approved in the EU and 29 in the US thus far. In total, those represent a market worth approximately $17 billion.
Conservative estimates project that the global biosimilars market will be worth $692 billion by 2027, considerably outpacing the mainstream pharmaceutical sector.
Given their potential and prospect for future gains, the low prices for companies like Viatris and Organon present rare opportunities to grab long-term investments.
Mad Hedge Biotech & Healthcare Letter
July 8, 2021
Fiat Lux
FEATURED TRADE:
(TURNING THE BIOHACKERS’ DREAM TO REALITY)
(NEO), (AZN), (GSK), (ABBV), (ILMN), (TMO), (TXG), (BLUE), (CRSP), (EDIT)
There is a huge possibility that the first person to ever live to a thousand years old has been born in our lifetime.
That’s according to experts on life longevity. They also say that sooner rather than later, we’ll simply be checking ourselves into hospitals or clinics once every decade.
Pretty much how you’d bring your car in for a service, that’s how we’ll keep our bodies working at peak condition for centuries.
As far-fetched as it sounds, it’s undeniable that dreams of achieving immortality are as old as mankind itself.
One of the leading experts on this is the Human Longevity, Inc., which has leading genomics expert J. Craig Venter and billionaire Peter Diamandis as its founders.
Although it’s still not yet a publicly-traded company, Human Longevity, Inc. has been collaborating with cancer diagnostics firm Neogenomics (NEO).
Admittedly, NEO’s $5.32 billion market capitalization doesn’t really boost that much confidence in this company.
However, Human Longevity’s work with a Big Pharma company like AstraZeneca (AZN), which holds a market cap of $158.14 billion, definitely backs up its claims.
Moreover, AstraZeneca and Human Longevity are already halfway through their 10-year agreement that dates back to 2016.
Basically, what Human Longevity does is sequence an individual’s DNA and combine the information with an extensive list of tests to figure out how long that person will live and what steps can be taken to extend his or her life.
More impressively, the company can use the data to predict a budding disease, such as cancer, even before it exhibits symptoms.
And how much will that cost you?
Right now, the company is charging $25,000 for a comprehensive set of tests and a full profile.
In the end, you’d be given medical information about yourself that amounts to roughly 1 petabyte. For context, that’s 1,000 terabytes or 1 million GB worth of data.
While the cost is definitely high, it’s a good preventive measure to consider if you can spare the cash.
This is because the company can detect the slightest hint of diseases, which are typically at their most treatable phase.
Since the company is founded on the belief that we are all “DNA software-driven species,” it can also determine the disease-producing genes in our systems and use them as “pharmaceutical targets, so that people with those genetic changes don’t die.”
Aside from Human Longevity, another company working on this nice is called Life Biosciences, which was founded in 2017.
Since its launch, Life Biosciences has been acquiring companies left and right to boost its pipelines.
So far, it has at least 6 subsidiaries focused on developing treatments to fight the human aging process.
What makes Life Biosciences different is that it doesn’t focus on the leading causes of death, such as cardiovascular diseases or cancer.
Instead, it tries to figure out what are the underlying causes of the body’s aging. This includes stem cell exhaustion, cellular senescence, chromosomal instability, and even our metabolism.
At their core, Life Biosciences’ belief is that aging itself should not be considered a natural biological result of the passage of time.
Rather, it should be understood as a medical condition—the kind that can be treated in the same way we’d try to find medications or cures for diseases.
While Life Biosciences’ work has yet to earn any FDA approval, the involvement of GlaxoSmithKline (GSK) in its aging research seems to boost confidence in the company’s work.
Apart from GSK, a number of tech billionaires have expressly backed these efforts in the anti-aging field.
The most visible ones include Calico, which is backed by Google and AbbVie (ABBV), and Unity Biotechnology, supported by Jeff Bezos.
While Human Longevity and Life Biosciences have yet to go on IPO, there are already companies working on fields related to life longevity.
The first names that come to mind are the frontrunners of the genome sequencing market, such as Illumina (ILMN), Thermo Fisher Scientific (TMO), and 10x Genomics (TXG).
Smaller companies in this field include bluebird Bio (BLUE), CRISPR Therapeutics (CRSP), and Editas Medicine (EDIT).
Inasmuch as this is difficult to grasp at this stage, there is a massive market for this industry. In fact, the global longevity segment is projected to reach $27 trillion in 2026, which accounts for roughly 20% of the global GDP.
Meanwhile, the global market for human aging is estimated to reach at least $55 billion by 2023.
And those are just conservative estimates.
Making the public accept the idea behind longevity science has not been easy. Even with Big Pharma names backing these innovative companies, people are still wary of the concept.
After all, surveys show that most people would refuse medical treatments to slow their aging and allow them to live up to 120 or older. It’s not surprising why.
Those respondents probably witnessed how their older grandparents and parents spent their final years in pain and were subjected to invasive medical procedures. That makes the entire idea of living so long horrific to them.
However, the future imagined by these companies is different. Through their research, people can live long and still enjoy active and healthy lifestyles.
At this point, the longevity science space remains a playground dominated by a handful of transhumanists and even biohackers.
Nonetheless, the entry of the most respected researchers and the support from the biggest biopharmaceutical companies across the globe give hope that the promises the industry holds will become a reality soon.
Mad Hedge Biotech & Healthcare Letter
July 6, 2021
Fiat Lux
FEATURED TRADE:
(A PROMISING BIOTECH FOR RISK-TAKERS)
(AXSM), (AMGN), (MRK)
Biotechnology companies are known as the riskiest investments in the stock market. More often than not, they are small, cash-strapped, and with futures so closely tied up to the success or failure of a single clinical study.
For each Amgen (AMGN), which exploded from a market capitalization of less than $1 billion roughly 30 years ago to a whopping $137.15 billion today, there are thousands that fail and fall into obscurity.
However, when a biotech makes it big, the rewards can be transformative—and this speckle of hope is what makes this industry incredibly exciting and interesting.
Let’s take Axsome Therapeutics (AXSM) as an example.
This stock has been beaten down, but its pipeline programs still hold the potential to inflate the portfolios of its shareholders if their science proves to be successful.
Actually, things appear to be turning around for Axsome these days.
Focused on developing novel and innovative treatments for central nervous system disorders, Axsome’s stock price recently enjoyed a 13% climb thanks to the latest development on one of its pipeline candidates: AXS-14.
AXS-14, which is a fibromyalgia treatment, should be ready for submission by the fourth quarter of 2022.
Looking at the potential target market for this drug, its estimated peak sales are somewhere in the range between $500 million to $1 billion.
Another promising treatment in Axsome’s pipeline is its novel migraine medication, AXS-07, which showed great efficacy results in its Phase 3 trial.
In addition, 74% of patients who took AXS-07 experienced no pain progression from two to 24 hours since taking the medication, with almost 50% of them no longer needing rescue medication.
Given the remarkable results for AXS-07, Axsome plans to submit it for a new drug application in the first half of 2021. In fact, this candidate has shown better results than the current gold standard, Merck’s (MRK) Maxalt.
If approved, this migraine treatment can reach peak sales from half a billion to over $1 billion in the United States alone.
However, the most promising candidate in Axsome’s pipeline is its treatment for major depressive disorder (MDD), AXS-05, which recently received priority review from the US FDA.
If things go as planned, the company plans to submit it for review by August 22 this year.
This drug is also a frontrunner medication for Alzheimer’s Disease (AD) Agitation.
On top of these, its Phase 3 clinical trial of AXS-05 showed that it significantly improved the symptoms of people suffering from depression.
Beyond these conditions, Axsome is also looking into using AXS-05 as treatment for migraines, smoking cessation, and even migraines.
AXS-05 has a massive addressable market, with roughly one-third of the 17 million adults in the US suffering from MDD. This could mean peak sales for this indication alone at $4 billion.
While Axsome still has other promising treatments in its pipeline, these three late-stage candidates clearly indicate a very high ceiling.
All of them have the capacity to reach blockbuster status once approved.
At this point and looking at its recent earnings report, Axsome recorded a cash balance of $164 million. It also still has some money left from its $225 million loan, which means the company can still sufficiently fund its operations and continue with its research into at least 2024.
Considering the timeline it has for the three candidates in its pipeline, it’s reasonable to assume that it can generate sales before that date.
All in all, they could rake in a total of at least $8 billion in sales annually for Axsome—a lucrative leap considering that the company currently only has $2.62 billion in market capitalization.
Given its vast pipeline, host of successful trials thus far, and near-term catalysts, I say this clinical-stage biotech’s lowered prices offer a cautious buying opportunity for investors with a penchant for risks.
Mad Hedge Biotech & Healthcare Letter
July 1, 2021
Fiat Lux
FEATURED TRADE:
(NOT YOUR AVERAGE ONE-HIT WONDER)
(BNTX), (MRNA), (PFE), (REGN), (DNA)
It was only a few months ago when investors believed that COVID-19 developers like Moderna (MRNA) and BioNTech (BNTX) had enjoyed their best performances.
With the uncertainty returning, many figured that the profits and revenues for these stocks have dried up as well.
This isn’t the case these days, though. If anything, it looks like these companies have incredibly bright futures ahead.
BioNTech, in particular, shows tremendous promise after emerging as one of the most compelling success stories in the scientific world during the pandemic.
Working alongside Pfizer (PFE), this German biotechnology company created the first-ever vaccine that utilized messenger RNA to receive authorization across the globe.
Since being a first mover in the COVID-19 vaccine race, BioNTech has established a strong financial position that gave it the capacity to pursue other breakthrough treatments in its pipeline.
Moreover, the general sentiment toward BioNTech remains positive thanks to the effectiveness of its vaccine.
Just last month, the US Centers for Disease Control and Prevention disclosed the latest data on the efficacy of mRNA-based vaccines. It showed an impressive 91% reduction rate in terms of infections based on real-life reports.
The sustained demand for COVID-19 vaccines also translated to an outpouring of orders, with BioNTech recently completing another agreement with New Zealand and even the Philippines.
Health officials are also looking into the need for booster shots, which means it’s entirely possible that a whole new revenue stream could open up for BioNTech once again.
In the first quarter of 2021, revenues from BioNTech’s share from the COVID-19 vaccine marketed alongside Pfizer amounted to over $3.5 billion, including milestone payments.
This puts it on track to reach the $8.3 billion revenues estimated from the vaccine alone in 2021.
Apart from its agreement with Pfizer, this German biotech has been ramping up its own production. So far, it anticipates selling roughly 250 million doses of the COVID-19 vaccine in the first half of 2021.
Let’s say that each dose is sold at $14, and BioNTech could sustain its manufacturing capacity until December, then it can supply a total of 500 million doses.
That would rake in $7 billion in direct revenue.
On top of these, BioNTech has a separate deal with China’s Fosun Pharma.
This means that the earlier estimate of $15 billion in revenue for BioNTech this year is definitely feasible.
However, that’s a conservative estimate.
BioNTech intends to expand its manufacturing capacity to produce 3 billion doses by the end of 2021 and more by 2022.
By next year, the entire world comprising 7 billion people would be eligible to take the vaccine shots as approvals get rolled out.
Even with the competition, BioNTech stands to cover at least 30% market share or roughly 2 billion doses in the years to come.
Despite the expected price reduction to probably $10 per dose, that’s still a whopping $20 billion in annual sales for a biotechnology company with a current market capitalization of $54.10 billion.
Going back to its current deals with bigger biopharmaceutical companies, BioNTech had an impressive first quarter this year, showing off a 7,295% surge in its sales.
Leveraging this massive revenue stream, the company has boosted its pipeline programs and is pushing to ride the momentum.
So far, it has 14 drug candidates queued in clinical trials.
One of the most promising and advanced is its melanoma treatment pipeline, which has two programs slated to advance to Phase 2 within the year.
The first one, BNT111, is a collaboration with Regeneron (REGN), while the other, BNT122, is an approach developed alongside Genentech (DNA).
Aside from these programs, the company has also been busy working on developing mRNA-based treatments for various types of cancers.
If you’re one of the people who thought that the rise of the COVID-19 vaccine stocks is done the moment the entire US population gets vaccinated, then you’re not alone in that assumption.
You’d be surprised though at the strength of the staying power of companies like BioNTech have, especially when some things work out in their favor.
For context, BioNTech is only second to Volkswagen (VWAGY) in terms of profitability in Germany.
That means that a 13-year-old biotech company with fewer than 2,000 employees has grown so much in the past year that it’s now in the same conversation with a company employing over 600,000 people and has a history that predates World War II.
While COVID-19 upended the world, BioNTech has been granted the opportunity to show off its skills and grow its business
From being a virtually unknown company, it has become one of the fastest-growing biotech globally.
Looking at its performance in the past 12 months and its pipeline programs, it’s clear that BioNTech still has so much room for growth.
