Mad Hedge Biotech & Healthcare Letter
June 29, 2021
Fiat Lux
FEATURED TRADE:
(BREAKING NEW GROUND WITH THIS BIOTECH STOCK)
(NTLA), (REGN), (PFE), (ALNY), (EDIT), (CRSP)
The biotechnology world started the week right with a milestone announcement from its gene therapy sector.
Intellia Therapeutics (NTLA), along with its partner Regeneron (REGN), developed a potential cure for a genetic liver disease that previously had no cure.
Using the Nobel Prize-winning Crispr technology, Intellia was able to come up with the first-ever treatment for a disease that had been known to be extremely progressive and even fatal.
This achievement has been described to “open up a whole new area of therapies for patients that wasn't there.”
This is because instead of simply treating the symptoms of particular diseases, Intellia was able to demonstrate that it is possible to use gene editing to come up with a cure.
As expected, shares of Intellia shot up the moment the news broke, rising by 40% by the start of the week.
While this is definitely an incredible update for its investors, what’s even more impressive is the fact that this achievement marks the beginning of a revolution in the way we treat diseases.
Intellia’s treatment, called NTLA-2001, is delivered intravenously into the patient’s body. It’s designed to specifically target a progressive form of liver disease called ATTR amyloidosis. This disorder, while rare, is often fatal.
Right now, there are two companies working on this fast-growing segment. Pfizer (PFE) has Vyndagel and Vyndamex, while Alynlam Pharmaceutical (ALNY) has Onpattro. All these treatments are administered through infusions.
At this point, Alnylam holds the gold standard for ATTR treatment with Onpattro, as it delivers 80% capacity for blocking harmful proteins and reducing blood levels. Patients also need to go in every three weeks for dosing.
In comparison, Intellia’s NTLA-2001 is a one-time treatment. That in itself is a massive advantage for the company.
To add to that lead, Intellia’s candidate also showed an ability to drop protein levels by as high as 96% within just a matter of weeks, with no adverse side effects observed in patients.
This is possibly because the gene therapy was delivered directly to the patient’s liver, which is the source of the issue.
While the results are already promising, Intellia believes that it can achieve better outcomes in the future. According to its researchers, the company is looking into using a bone marrow delivery system to boost the efficacy rate of NTLA-2001.
So far, Intellia has received additional funding via a grant from the Bill & Melinda Gates Foundation to pursue the bone marrow delivery system idea.
If that works out, then the same system can be used to develop treatments for reverse sickle cell anemia and even cover other cardiovascular indications.
Although there’s still no word about the pricing for NTLA-2001, we can use Onpattro as reference for now. Alnylam’s treatment is priced at roughly $450,000 annually.
ATTR holds a fairly huge market. Going back to 2020, Onpattro generated over $300 million in revenue and is estimated to rake in more than $400 for 2021.
Considering that Intellia offers a one-and-done option, we can reasonably assume that the demand would be much higher for NTLA-2001.
Overall, ATTR’s total addressable market is estimated to be at $15 billion. However, ATTR is only the tip of the iceberg.
Studying the liver alone would reveal several genetic diseases that Intellia could address with its technology. Other than those, Crispr could still be applied to dozens of disorders linked to solid tumors.
In fact, the market for solid tumors is actually where the fortunes lie in the gene-editing field, with the sector projected to grow to $424.6 billion by 2027.
Another lucrative market is the genetic disorder segment, with estimated sales anticipated to reach $47.7 annually by 2023.
So far, there appear to be only three companies focused on utilizing Crispr technology to develop cures for these diseases: Intellia, Editas Medicine (EDIT), and of course, CRISPR Therapeutics (CRSP).
Considering the incredibly broad market and the limited number of companies addressing these needs, I say there’s more than enough room for all of them to flourish.
If Intellia continues to discover ways to effectively treat these, then this biotechnology company will not only be considered a godsend to humanity as a whole but also transform into a waterfall of cash for its shareholders.
Mad Hedge Biotech & Healthcare Letter
June 24, 2021
Fiat Lux
FEATURED TRADE:
(AN ANIMAL HEALTH CARE STOCK WORTH A LOOK)
(ZTS), (PFE), (ELAN), (LLY), (IDXX), (CHWY), (FRPT)
The animal health industry has been expanding rapidly over the past years, particularly on the pet side.
If you’re treating your pets more like people, then you’re part of the growing number of customers doing the same thing.
While the “humanization” of animals has actually been going on for years, house pets have made an inexorable transition from the backyard to the couch as more and more people treat their pets as family, especially during the pandemic.
Sales for pet supplies continue to surge as pet owners splurge on everything for their furry friends, from kibble to supplements.
In fact, animal health product sales went up 7% in 2020, generating roughly $11 billion despite the pandemic—a trend that’s expected to gain even more momentum as retail sales start to shift from vet clinics to stores and online platforms.
Pfizer’s (PFE) spinoff company, Zoetis (ZTS), is the undisputed leader in the animal healthcare industry with a proven track record and a rich history spanning 65 years.
The way the company handled the challenges in 2020 showcased its ability to not only rise to the occasion but also turn red-hot despite the setbacks.
Meanwhile, Zoetis stock experienced continuing growth in 2021.
Revenues from its Simparica franchise, which fights off heartworms and other parasites in dogs and cats, grew by 133% year-on-year in the first quarter of 2021 thanks to its expansion in the US, Europe, Australia, and Canada markets.
Next to the US, Zoetis’ biggest market is China. In the first quarter of this year, the company saw a 75% climb in its revenues in the region, raking in $123 million for the period.
Simparica Trio, which generated $90 million in the first quarter alone, also received approvals in new markets, such as Japan and Mexico.
Its predecessor, Simparica, also continues to rake in good numbers, with $74 million in sales during the same period.
However, another player appears to be making big moves to dethrone the company.
Elanco Animal Health (ELAN), which is a spinoff of Eli Lilly (LLY), struck an impressive $440 million deal to acquire Kindred Biosciences (KIN) in an effort to bolster its drug pipeline.
This deal, which is expected to close in the third quarter of this year, will focus primarily on Elanco’s pet dermatology segment.
The move to invest in dermatology is a great decision for Elanco. Dermatology has become one of the fastest growing divisions of pet care.
For context, Zoetis’ 2020 revenues for this segment reached $925 million, recording a $170 million boost from its 2019 earnings.
The dermatology segment grew 24% year on year in the first quarter of 2021 as well, recording $245 million in revenues for this period.
Looking at the performance of the products in this segment, Zoetis is on track to exceed the $1 billion revenue estimate for 2021.
Outside its dermatology segment, Zoetis also enjoyed a 47% year-on-year growth in its diagnostics sector in the first quarter—a trend that’s anticipated to improve in the long run due to the company’s continuous expansion globally.
Zoetis stock is projected to continue its momentum throughout 2021 and well beyond 2022.
For this year, the company estimates revenue growth by 9% to 11%, which would be driven by the pet care segment, additional product launches, and rising demand for their existing drugs. The reopening of the economy also plays a key role in this growth.
Other than Elanco and Zoetis, some companies working on dominating the booming animal health care sector include Idexx Laboratories (IDXX), Chewy (CHWY), and FreshPet (FRPT).
Overall, Zoetis stock has offered excellent returns for its investors. Looking at its pipeline programs and future plans, the company shows great potential for growth in the coming years.
Investors on the lookout for a stock in the animal health industry would be wise to take Zoetis into serious consideration.
Mad Hedge Biotech & Healthcare Letter
June 22, 2021
Fiat Lux
FEATURED TRADE:
(PRIMED FOR DOMINANCE)
(TDOC), (AMZN), (AMWL), (WMT), (CVS), (ARKK), (TSLA)
While growth stocks have already begun clawing their way back following the losses they suffered earlier this year, there are still former market favorites struggling to bounce back.
One of them is Teladoc Health (TDOC).
To date, Teladoc is still trading at roughly 40% below its previous highs.
While this can be frustrating for its investors, the current situation might just be an opportune time to add this stock to your portfolio.
Teladoc emerged as the leader in virtual care in 2020 by being at the right place at the right time when the pandemic struck. That year, the company’s revenue rose by a whopping 145% compared to its 2019 performance.
These days though, the stock has lost half of its value. Although that’s definitely a head-scratcher, Teladoc’s 51.5 million paid memberships in the United States alone still make it the most dominant force in this industry.
For a long-term investor, the situation presents a compelling opportunity.
Teladoc is a growing business that’s expanding both in the US and globally. While penetrating more markets would happen over time, the basic footprint has been established. This offers Teladoc much-needed exposure to a massive addressable market.
The global market for telemedicine is estimated to expand from $49.9 billion in 2019 to a jaw-dropping $459.8 billion by 2030.
In North America, which holds roughly 34.4% of the market share in 2020, the telemedicine market generated $19.23 billion during the pandemic.
Taking into consideration Teladoc’s revenue of $967.4 million for its US segments in 2020, it becomes clear that the company is only getting started, as this comprised only 5% of the market size.
If the company maintains its momentum, then the next 10 years would be an incredible journey for Teladoc investors.
Despite the disappointing share price performance of Teladoc in the past months, the company’s actual business has sustained its growth.
Revenue continues to rapidly rise, showing off a 151% growth in the first quarter of 2021.
This impressive growth has prompted Teladoc to boost its full-year revenue guidance to $2 billion, which indicates an 80% year-over-year gain.
Impressive growth has been observed all around, with access fee revenue going up 183% while visit fees climbed 24%.
Considering the size of the market, it no longer comes as a surprise that Teladoc is facing competitive threats.
Amazon (AMZN) and Amwell (AMWL) have recently entered the virtual care market. Even Walmart (WMT) and CVS (CVS) have been working on toppling Teladoc as well.
Despite the competition, Teladoc remains ahead of the pact thanks to its continuous efforts to innovate.
For example, the latest innovation from Teladoc is Primary360.
This product is designed to take virtual healthcare to the next level. It offers personalized service at the patient level. Here’s a preview of how it works.
Traditionally, patients go to their doctors when they discover a health problem. This is a reactive way of dealing with health. In contrast, Primary360 is proactive.
That is, the product monitors the patients individually from annual checkups to ongoing treatments to manage chronic conditions. Through closely monitoring the patients, Teladoc is able to perform earlier diagnoses of potential diseases and help doctors reach better outcomes for treatments.
To better picture the long-term rewards of this company, it’s good to keep in mind that Teladoc is actually the second biggest holding of Cathie Wood’s ARK Innovation ETF (ARKK), next only to Tesla (TSLA).
Teladoc Health emerged as one of the most popular pandemic plays in 2020.
While the stock tumbled when vaccines hit the market, its projected growth trajectory remains promising. In fact, Teladoc’s revenue growth is anticipated to skyrocket over the remainder of this decade, with telemedicine estimated to reach roughly half a trillion dollars by 2030.
For investors on the lookout for long-term plays, Teladoc Health's tumble has presented a good opportunity to add it to your portfolio.
Mad Hedge Biotech & Healthcare Letter
June 17, 2021
Fiat Lux
FEATURED TRADE:
(VALUE CREATOR STOCK OPERATING UNDER THE RADAR)
(TECH), (AMGN), (ABT), (TMO)
There’s a wildly underrated and undercovered biotechnology stock despite its track record of creating long-term value and ability to outstrip its projected operational performance in the past years.
This stock is Bio-Techne (TECH).
Historically, Bio-Techne has reported impressively good margins, which could partly be attributed to the company’s incredibly strong intellectual property position.
While Bio-Techne originally concentrated on offering biotechnology solutions, it eventually embraced a diversification strategy thanks to all the dealmaking it has been doing over the years.
Back in the 1990s, Bio-Techne struck deals with promising biotechnology companies like Amgen (AMGN) and even Genzyme to acquire sections of their research departments.
Borrowing Warren Buffett’s expression, Bio-Techne’s value can be seen on the “owner earnings” it has been reporting. Thanks to a change in management in 2013, this sleepy high-margin company has been reinvigorated through various strategic acquisitions.
So far, Bio-Techne has three very active divisions.
It has its biotechnology division, which comprises 65% of its revenue and sells proteins, reagents, and antibodies right out of the freezer.
It has its protein platforms, which market instruments that push the use of the products sold by its biotechnology sector.
Lastly, it has its diagnostics sector that supplies equipment, such as those used for protein analysis, to other companies, including Thermo Fisher Scientific (TMO) and Abbott Laboratories (ABT).
Meanwhile, Bio-Techne has been making progress in stem cell research and Car-T immunotherapy, along with other kinds of cancer research.
Sales have been climbing steadily, increasing by an average of 15.7% over the last five years, with room for margins to pick up as Bio-Techne continues to integrate acquisitions.
To continue expanding its business, Bio-Techne recently shared its decision to buy diagnostics company Asuragen for $215 million.
Founded in 2006, Texas-based Asuragen develops and produces test kits for cancer and genetic carrier testing.
Estimated to contribute $30 million in revenue, Bio-Techne is actually paying only a mere 7 times its sales multiple—with the potential to jump to about 10 times as future contingent payments could boost the purchase price by an additional $105 million.
Even if that happens though, Bio-Techne will still be pumping sales at an extremely favorable multiple compared to its current multiple.
Another major acquisition of Bio-Techne is its 2018 deal with Advanced Cellular Diagnostics, which was executed to boost its diagnostics portfolio.
At the time, Advanced Cellular Diagnostics’ top line was already growing by 40% to 50%.
One of the most exciting products this acquisition added to Bio-Techne’s lineup is a tumor diagnostic test.
For context, current diagnostic tests are only 75% accurate. In comparison, Advanced Cellular Diagnostics’ test is 95% accurate. This makes the latter an extremely attractive product in the industry.
The company also has solid patent protection for new products focusing on gene and gene fragment probes.
Overall, the lineup from Advanced Cellular Diagnostics is estimated to bring in at least $50 million in additional yearly revenue for Bio-Techne.
The fact that it’s growing by 50% annually makes the acquisition one of the best buys of this biotechnology company.
Since being founded back in 1976, Bio-Techne has established itself as a steady value creator.
Needless to say, Bio-Techne is a highly profitable business, with earnings anticipated to increase by 15% annually.
Looking at the recurring nature of the company’s revenue, its consistent earnings, the potential of its Advanced Cellular Diagnostics purchase, and its prospects for more accretive acquisitions, Bio-Techne should be able to hold its mid-30s multiple to owner earnings.
Despite the pandemic’s effect on the biotechnology and healthcare sector in 2020, Bio-Techne still reported a 45% growth in its annual sales to reach $739 million last year.
So far, Bio-Techne is on track for its goal to become an over $30 million type portfolio. In terms of its five-year outlook, the company is targeting to reach $1.5 billion in the next few years.
Surprisingly, it’s still operating under the radar of the majority of investors, even in the biotechnology sector.
For biotechnology investors on the lookout for a value creator stock, it’s wise to keep an eye on Bio-Techne. Simply checking its bolt-on M&A strategy combined with its steady organic growth rate, this company has the potential to provide long-term returns.
Mad Hedge Biotech & Healthcare Letter
June 15, 2021
Fiat Lux
FEATURED TRADE:
(A STOCK TO ADD TO YOUR RETIREMENT PORTFOLIO)
(MRK), (REGN), (GSK), (LLY), (GILD)
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.
