Mad Hedge Biotech & Healthcare Letter
April 8, 2021
Fiat Lux
FEATURED TRADE:
(A LOW-KEY POST-COVID-19 RECOVERY STOCK)
(REGN), (MRNA), (NVAX), (BNTX) (PFE), (VIR), (LLY), (RHHBY), (NVS)
If you still remember the news about the flash recovery from COVID-19 of then-President Trump during the campaign period last year, then you know that the express cure was not delivered by any of the vaccine makers that were all the rage at the time like Moderna (MRNA), Novavax (NVAX), BioNTech (BNTX), or even Pfizer (PFE).
Instead, the cure was credited to a lesser-known cocktail of antibodies, called REGEN-COV, developed by Regeneron (REGN).
Recently, the same treatment was used in Germany in response to the shortage of COVID-19 vaccines and the demand for alternatives.
Despite the promising results and the highly publicized effects of Regeneron’s treatment, the company’s share price still hasn’t shown any meaningful upside.
Nonetheless, Regeneron still secured some agreements for REGEN-COV.
Based on the June 2020 agreement of Regeneron with the US government, the company expects to sell $260 million worth of REGEN-COV in the first quarter of 2021 for a fixed number of orders.
For the second quarter of 2021, though, the two parties set different terms for their deal.
Under these new terms, the US government will pay per dose regardless of REGEN-COV’s dose size.
Given the latest numbers from Regeneron’s trials, this could mean lower costs for the company.
Data from the clinical trials showed that REGEN-COV had the same effectiveness at the lower 1,200 mg dosage compared to the currently approved amount by the US FDA, which is 2,400 mg.
In fact, Regeneron’s treatment is reported to be as effective as the COVID-19 antibody therapies developed by Vir Biotechnology (VIR) and even Eli Lilly’s (LLY) candidate.
Looking at the positive results from Regeneron’s Phase 3 trials for REGEN-COV, it’s reasonable to expect higher sales than previously estimated.
Now, Regeneron shared that it aims to supply 1.25 million doses of the COVID-19 antibody therapy at the lower but equally effective 1,200 mg dose level.
If the FDA agrees to this emergency use authorization request, then Regeneron will be able to supply twice the number of COVID-19 doses.
If it delivers these doses by June 30, the US government will buy them for $2.6 billion regardless of the dosage used.
On average, Regeneron is expected to generate roughly $2.9 billion in sales for its COVID-19 antibody treatment.
Meanwhile, if REGEN-COV gains full FDA approval and gets marketed commercially, then the treatment can rake in at least $3.5 billion and peak at $5 billion this year alone.
Outside its COVID-19 program, Regeneron actually recorded better-than-expected results last year despite the pandemic ravishing the economy.
For example, there was a rebound in demand for its top-selling Eylea, with sales of the wet age-related macular degeneration (AMD) drug rising by 10% in the fourth quarter of 2020 to reach a total of $1.34 billion.
Bolstering the dominance of Eylea in the AMD market and to combat emerging competitors like Roche (RHHBY) with Faricimab and Novartis (NVS) with Beovu, Regeneron is looking to expand the drug’s application to cover more age groups.
Meanwhile, another bestseller, Dupixent, reached $1.17 billion in sales last year.
This is an impressive climb for the atopic dermatitis medication, which was developed with Sanofi (SNY), since it only recorded $751.5 million in the same period in 2019.
That indicates roughly 75% growth, with over a million prescriptions written for Dupixent in the US alone.
However, only 6% of those eligible patients have been treated with Regeneron’s product thus far.
This means that Dupixent has a lot of room to grow, with this drug estimated to reach peak sales at $12.5 billion.
Needless to say, Dupixent is quickly transforming into a blockbuster treatment.
Since its approval for eczema in 2017, this drug has expanded its indication to cover moderate-to-severe atopic dermatitis not only among teens but also children. Notably, Dupixent holds a monopoly for this application to children.
Another revenue stream for Regeneron is its oncology sector led by Libtayo.
In 2020, net sales of this skin cancer treatment reached $348 million, showing an impressive 80% growth.
To date, Regeneron has at least 12 oncology treatments under clinical development.
In terms of the bottom line, Regeneron exceeded the expectations of $8.38 and reported adjusted earnings per share of $9.53 instead.
As vaccine rollouts continue to be a priority, it’s safe to say that the worst of the COVID-19 is just about in sight.
Consequently, investors are now looking into recovery and stocks that appear to be good buys when the coronavirus eventually becomes a thing of the past.
Regeneron is one of the attractive buys so far. While it has been underperforming in the past weeks, its business actually looks to be in great shape even if the pandemic goes on for longer.
Mad Hedge Biotech & Healthcare Letter
April 6, 2021
Fiat Lux
FEATURED TRADE:
(HIGH-YIELD STOCK UP FOR GRABS)
(ABBV), (PFE), (BRK.B), (BLK)
Something curious is happening at the FDA, and it’s causing investors to be jittery. Drugs that are sure to gain approval keep encountering roadblocks.
What began as a handful of biotechnology stocks getting trampled is turning out to be a broader pullback caused by fears of a tougher and stricter regulatory environment for drug developers.
Following these changes, the SPDR S&P Biotech (XBI) slid by roughly 12% this month.
The idea that the somewhat predictable regulatory results in the past four or five years may no longer be as predictable obviously ramped up the perceived riskiness of this industry.
One bellwether of this change is AbbVie (ABBV), which submitted an application for the expanded use of rheumatoid arthritis Rinvoq in March. It recently announced that the regulatory board is extending the evaluation for three months.
While this isn’t a cause for alarm, it’s enough to unsettle some investors since Rinvoq is expected to replace AbbVie’s blockbuster drug Humira when the latter loses its patent exclusivity in 2023.
However, the reason behind FDA’s extension is likely because of the safety concerns found in a similar drug, Xeljanz, by Pfizer (PFE).
Considering the similarities of the two, it makes sense for the regulatory board to exercise more caution on AbbVie’s product.
The rise and fall of AbbVie has always centered on Humira, with this top-selling drug raking in $19.8 billion in sales in 2020 alone. That’s actually lower than its usual revenue a few years back.
Humira’s loss of exclusivity is projected to result in medium-term headwind to the company as more and more biosimilars pressure revenue.
However, AbbVie has been working on offsetting the estimated losses by expanding its other programs.
For instance, the revenue for AbbVie’s non-Humira immunology sector, led by Skyrizi and Rinvoq, is projected to double to reach $4.6 billion in 2021.
By 2025, AbbVie expects Rinvoq and Skyrizi sales to reach $15 billion annually.
Meanwhile, a considerable uptick is anticipated from its neuroscience division’s revenue, led by Vraylar, to generate $5.7 billion in 2021.
As for its hematologic oncology franchise, spearheaded by Imbruvica and Venclexta, this sector’s revenue is expected to increase in double digits to reach $7.5 billion this year as well.
On top of these, AbbVie has been busy looking for suitable acquisitions to diversify its revenue stream.
A notable deal it made was in 2015 with Pharmacyclics. This acquisition actually added the mega-blockbuster drug Imbruvica to AbbVie’s portfolio.
In May 2020, AbbVie completed its deal to purchase Allergan. This $63 billion merger is expected to boost the global distribution capacity of AbbVie and bolster its therapeutic sales channels.
By 2023, sales of the products acquired from Allergan’s pipeline are estimated to add at least $2 billion to AbbVie’s annual revenue.
All in all, these sectors are all well-positioned to substantially offset the fall of Humira’s revenue thanks to the rapid growth and aggressive indication expansion efforts of the company.
Nonetheless, the anxiety of the delayed FDA approval for Rinvoq’s expanded use is understandable.
After all, AbbVie expects this particular drug to contribute to doubling the 2021 sales of the franchise from $2.3 billion to $4.6 billion.
Moreover, this is a cornerstone in the company’s post-Humira era in less than two years.
However, the three-month delay will have a minimal impact on the 2021 revenues of the company and a negligible effect when we consider the long term.
Realistically, this would cost AbbVie roughly less than $1 billion in sales, which amounts to less than 2% of the total projected revenues of the company this year.
During times like these, it’s crucial to remember that the pharmaceutical industry is an extremely bumpy road.
There’s no such thing as a linear progression in this line of business, which is why it’s vital to choose companies with established track records and highly capable management teams.
If it helps ease any anxiety, then it might be useful to think that AbbVie is a favored stock by Warren Buffett’s Berkshire Hathaway (BRK.B).
The Oracle of Omaha currently holds 4.27 million shares of this company. Meanwhile, BlackRock (BLK) holds 2.41 million shares, while Ken Griffin’s Citadel Advisors has 786,000 shares.
AbbVie is a mature, larger-cap biopharmaceutical stock that’s selling at an affordable price these days.
Despite the revenue declines and plunges in earnings of countless businesses in 2020, AbbVie still managed to deliver strong operating and financial results—and the company still has a long way to go.
AbbVie is expected to deliver at least 4.8% in annual earnings growth over the course of the next five years—a highly conservative estimate considering that the company reported 21.9% growth in the past five years.
Moreover, AbbVie is safely positioned to deliver 6% long-term annual dividend growth.
AbbVie was able to generate 3.3% growth in its operational revenue in 2020, recording $45.804 billion in net revenues.
In the past weeks, I’ve seen AbbVie shares go down by roughly 6%. However, I think the fear here is exaggerated and the market might be overreacting to the uncertainty caused by stricter FDA guidelines.
Instead of letting the anxiety take control, I believe it’s best to heed the advice of Warren Buffett in this situation: “The market is a device for transferring money from the impatient to the patient.”
Therefore, I think patient investors should take a look at AbbVie stock today.
Mad Hedge Biotech & Healthcare Letter
April 1, 2021
Fiat Lux
FEATURED TRADE:
(A RULE MAKER IN HEALTHCARE)
(TDOC), (SQ), (SHOP), (ROKU), (TSLA)
Monopolies. In any industry, they’re typically called rule breakers.
For healthcare, these are rule-making stocks that ultimately rise to dominance that they eventually win government-sanctioned monopolies and establish massive networks.
For biotechnology and healthcare investors who like to err on the side of caution but still want to take a dip on monopoly-like players, one stock stands out: Teladoc Health (TDOC).
Teladoc, which currently has a market capitalization of $30 billion, is one of those groundbreaking companies that use technology to disrupt the way we live.
The company’s potential is actually getting compared to the likes of other tech movers such as (SQ), Shopify (SHOP), Roku (ROKU), and Tesla (TSLA).
So far, Teladoc stock has gone up 144% over the past 12 months.
On a year-over-year basis, the total number of visits for Teladoc more than doubled from 4.14 million to reach a whopping 10.59 million. Even the international visits rose by 71%.
As expected, the COVID-19 pandemic served as a major boon to its already thriving business.
Although it wasn’t as popular at the time, the company’s operating model offered a myriad of benefits for the healthcare industry.
For one, telehealth visits are way more convenient for the patients. Since the visits won’t take as much time and effort from their end, the patients would be more motivated to regularly check in with their doctors.
In turn, the doctors would be able to offer higher-quality care since the cooperation of the patients means they can also monitor the symptoms and progress better.
Best of all, the patients are typically billed at cheaper rates compared to office visits.
I think the last one makes Teladoc an attractive winner in the eyes of practically all health insurers.
Teladoc is the biggest telehealth services provider in the United States, and one of the major steps that the company took to cement its reputation as a virtual health leader is its splashy $18.5 billion merger with Livongo in 2020.
If you haven’t heard of Livongo, this company was growing incredibly faster than Teladoc even before the merger.
Basically, Livongo collects copious amounts of information from patients. Using artificial intelligence, the company then sends personalized tips and reminders to their enrolled members with the goal to improve their overall quality of life.
Most of the patients suffer from chronic conditions, which means they would require regular nudges to ensure that they take the proper medications on time.
For example, some of Livongo’s users have diabetes. The company monitors them via wireless glucose meters, guiding the users to follow a positive lifestyle when their blood sugars begin to spike.
At the time of the merger, Livongo has already secured over 500,000 enrolled members for its diabetes platform.
This is impressive as it represents roughly 2% of the entire diabetes pool in the United States.
Aside from diabetes, Livongo has also been working on other chronic conditions like hypertension and weight management.
Considering that hypertension accounts for 7.6 million deaths per year worldwide and the extensive list of health problems associated with obesity, such as coronary heart disease and end-stage renal disease, I think Livongo has developed a highly sustainable business model that’s perfect for the “new normal.”
More importantly, the combination of Livongo and Teladoc will now allow the two companies to cross-sell their services to their users.
As for those who think that Teladoc is only a pandemic play, the company didn’t really need the pandemic for its business model to succeed.
Prior to COVID-19, its sales have been growing by an average of 75% per annum since 2013.
With its merger with Livongo, I think Teladoc has developed a stronger all-weather model for growth.
Teladoc is a rule maker and a first-mover, with the company moving the multi-trillion dollar healthcare industry to the internet.
At this point, it is the dominant name in the arena and the undisputed leader in telehealth. With everything it has to offer, I believe Teladoc is a long-term investing opportunity and it would be a good idea to buy on the dip.
Mad Hedge Biotech & Healthcare Letter
March 30, 2021
Fiat Lux
FEATURED TRADE:
(A PURE PLAY STOCK SELLING AT A BARGAIN)
(PFE), (BNTX), (MRNA), (AZN), (JNJ), (NVAX), (MRK), (VTRS), (LLY), (REGN)
It’s virtually impossible to find a period in history when drug development gained the unmitigated attention of the whole world.
Yet, this is exactly what happened in 2020 when we all waited with bated breath for the results of COVID-19 trials from the likes of Pfizer (PFE), BioNTech (BNTX), Moderna (MRNA), AstraZeneca (AZN), Johnson & Johnson (JNJ), and Novavax (NVAX).
Despite this, it is astounding that biopharmaceutical stocks are cheaper than they have ever been in the past 20 years.
Given the fact that its collaboration with BioNTech made a central figure in the COVID-19 vaccine race, I think it’s best to put a spotlight on Pfizer today.
Pfizer was the first biopharmaceutical company to successfully market a COVID-19 vaccine, BNT162b2.
Recently, Pfizer received another good news. The FDA is no longer demanding that the company transport BNT162b2 at ultra-low temperatures.
When Pfizer revealed its strong results last year, the world was impressed and no one barely noticed the ultra-cold storage requirement that the achievement entailed.
But with competitors already gaining approvals as well, this particular requirement started to pose noticeable challenges to Pfizer’s vaccine supply chain and made it extremely challenging transporting the much-needed vaccines to remote areas.
These challenges highlight the significance of the recent FDA announcement regarding BNT162b2.
In terms of market share, Pfizer holds a significant advantage over the others.
As of the year-end of 2020, the company supplied 65 million doses to developed markets.
Meanwhile, the 2021 forecast for this product is at nearly 2 billion doses. This is estimated to rake in roughly $15 billion in revenue for Pfizer.
In comparison, Moderna’s advanced purchase deals are estimated to be worth $18 billion.
To sustain immunity, there’s the possibility that the vaccine would be needed annually.
This could lead to substantial demand for doses, with a two-dose vaccine like BNT162b2 projected to reach about 10 billion doses every year.
Realistically, the rising need for doses and the manufacturing requirements will obviously pressure profit margins.
However, if the vaccine does turn out to be an annual necessity, then it could become a valuable asset.
The entire COVID-19 market is estimated at $39 billion in 2021 and $23 billion in 2022.
Pfizer and even Moderna’s first mover advantage can easily help them dominate the market this year.
This means that the competition will heat up by 2022.
To ensure that it keeps the lead, Pfizer has commenced the Phase 1 trial for a COVID-19 pill.
Pfizer’s pill, dubbed PF-07321332, aims to inhibit the enzymes that cause the SARS-CoV-2 virus to replicate. The goal is to create an antiviral drug that works pretty much the same way as the one developed for HIV and Hepatitis C.
If the trials generate positive results, then PF-07321332 could be taken at the first sign of infection.
So far, lab results have shown the pill’s potent capacity to prevent the SARS-CoV-2 virus and other coronaviruses from replicating.
Pfizer isn’t the only one that came up with the idea of a COVID-19 pill. Merck (MRK), Eli Lilly (LLY), and Regeneron (REGN) have been conducting tests for their own version of the antiviral.
However, Pfizer is more than its COVID-19 programs.
In the past, investors wondered about the long-term growth potential of this company. Some questions are linked to its Upjohn unit, which included several products that lost patent exclusivity.
This segment clouded Pfizer’s pure play revenue and even its earnings growth. However, these questions were put to an end last year when Upjohn’s finally separated from Pfizer and formed a new company, Viatris (VTRS), with Mylan.
The effect of this move showed an amplified growth for Pfizer almost immediately.
In the fourth quarter alone of 2020, the company reported $11.68 billion in revenue, indicating a 12% increase year-over-year. If we exclude the sales from the COVID-19 vaccine, Pfizer’s revenue was still up by 8%.
Every key product segment in the company recorded revenue growth, which is remarkable considering the effects of the pandemic.
Revenue for its oncology sector went up 23% to reach $3 billion, with breast cancer treatment Ibrance leading the charge with an 11% boost to its sales to hit $1.4 billion.
To ensure that it corners the market, Pfizer also launched biosimilars Zirabev and Ruxience in the same quarter. Both generated $171 million in total.
Outside its COVID-19 program, other products in Pfizer’s vaccine segment significantly contributed to the 17% increase in revenue to reach $2 billion.
For example, the pneumonia vaccine Prevnar generated $1.8 billion thanks to the 10% boost in its revenue year-over-year.
As for Pfizer’s rare disease unit, revenue went up 24% to reach $865 million.
The segment leader so far is cardiomyopathy treatment Vyndagel, which achieved a jaw dropping 96% year-over-year boost in its revenue to generate $429 million. This product won’t face patent loss until 2026, so Pfizer still has a few more years to take advantage of it.
Pfizer’s revenues in 2020 were up 2% at $41.9 billion. Considering that it still managed to boost sales despite the pandemic, there’s a good chance that 2021 will be a better year for the company.
In fact, Pfizer estimates that it would reach nearly $60 billion in revenue, with an annualized EPS of roughly $3.15 in 2021.
Global sales in the biotechnology and healthcare industry are projected to be worth $1.2 trillion annually. This is a massive market that is all but guaranteed.
The S&P 500 trades at nearly 21.5x forward earnings, with pharmaceutical companies trading at only 13.2x. That’s a whopping 60% discount.
Considering that drug stocks have historically traded at roughly the same level as the S&P 500, the current situation still offers an unmistakable promise even if nothing else happens.
Continuous development in the sector not only advances our quality of life but also offers reasonable returns to investors.
Mad Hedge Biotech & Healthcare Letter
March 25, 2021
Fiat Lux
FEATURED TRADE:
DON’T MISS THE BOAT ON THIS BEST OF BREED BIOTECHNOLOGY STOCK
(AMGN), (MRNA), (PFE), (BNTX), (JNJ), (LLY), (ABBV), (BMY), (FPRX), (BGNE)
The past few weeks have been hectic for the healthcare industry, with Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), and even Johnson & Johnson (JNJ) working hard to manufacture and distribute their COVID-19 vaccines all over the world.
There’s one major player in the healthcare industry that has been out of the spotlight for quite some time: Amgen (AMGN).
While Amgen has been doing its part from the sidelines by helping out companies like Eli Lilly (LLY) with the manufacturing of their COVID-19 drugs, it looks like investors are flocking towards businesses that allocate more resources toward fighting off the pandemic.
In fact, JNJ recently reached a new high at $170 per share.
Nonetheless, I think investors are missing out on a great opportunity by ignoring Amgen these days.
The biotech world, which basically involves formulating drugs and treatments for living organisms, was somewhat limited back in 1980.
Over the past decades, however, this industry has shifted and managed to successfully launch groundbreaking drugs commercially.
Before, only a handful of legacy companies had occupied this space. Now, so many up-and-coming companies try to conquer the biotech world.
For context, an FDA report in 2019 showed that 64% of drugs approved in the previous year were developed by biotech companies.
Moving forward, it’s reasonable to say that the biotech industry will continue to come up with breakthrough treatments for rare and complex conditions compared to our traditional pharmaceutical companies.
Actually, this sector has been hot in recent years, with companies like AbbVie (ABBV) and Celgene, now with Bristol-Myers Squibb (BMY), coming up with mega-blockbuster treatments, such as Humira and Revlimid, that rake in billions in sales annually.
Among them, Amgen has emerged as one of the most consistent and aggressive players in the biotech world, with competitors still struggling to topple some of its products after decades of being in the market.
This biotech giant has also been busy boosting its pipeline of newly developed treatments. It’s even bolstering its biosimilar lineup to ensure its dominance in the sector.
Last year, Amgen’s revenue rose by 9%, with more growth indicators lighting the way for a brighter future for the company.
While Amgen has been working on many conditions, its portfolio still looks focused on particular diseases.
In 2020 alone, Amgen’s seven blockbusters each generated over $1 billion in revenue. Among these, four managed to rake in more than $2 billion in annual sales.
Amgen’s impressive lineup of drugs includes psoriatic arthritis treatment Enbrel, osteoporosis and bone cancer injection Prolia, and even newcomer heart disease medication Repatha.
With its rivals nipping at the heels of its first-generation blockbusters like Neupogen, Amgen has been hustling to find ways to reinvent itself.
Apart from developing new drugs, the company has been looking into acquisitions to sustain its position at the top.
Recently, Amgen has been doubling down on its newest shining star: Otezla.
Otezla was one of the company’s biggest purchases, with Amgen acquiring this drug for a whopping $13.4 billion from Celgene in August 2019.
In 2019, Otezla sales rose by 25% to reach $1.6 billion. By 2020, the drug generated $2.2 billion in sales, showing off a 36.5% jump.
Over the next few years, Amgen estimates that Otezla sales will climb by over 10% annually.
Riding the momentum of not only Otezla but its entire portfolio and programs in the pipeline, Amgen aims to dominate the immunology sector.
Among the candidates in Amgen’s pipeline, the most promising is its lung cancer medication Sotorasib, which should complete Phase 2 in the first half of 2021.
Meanwhile, Amgen’s latest deal outside its own pipeline is the $1.9 billion acquisition of Five Prime Therapeutics (FPRX), which is a small biotech company developing treatments for stomach cancers. The agreement should be finalized by June 2021.
Five Prime’s experimental treatment, Bemarituzumab, perfectly aligns with the other stomach cancer medications queued in Amgen’s pipeline.
If this proves successful, then Bemarituzumab will be a strong contender against Bristol-Myers Squibb’s blockbuster treatment Opdivo.
While Opdivo has been in the market longer, Five Prime’s candidate has consistently shown stronger and more promising results since the trials started.
Prior to its deal with Prime Five, Amgen acquired a 20% stake in Beijing-based biotech company BeiGene (BGNE). This is a telling move as it indicates the company’s efforts to expand its reach in Asia, particularly in China and Japan.
Another revenue stream that Amgen has been pushing for expansion is its biosimilars sector.
The company released its first-ever blockbuster, Epogen, in 1989. Since then, this anemia drug has been a top seller. However, biosimilar competition eventually caused a decline in its sales starting in 2015.
Learning from the fall of Epogen in the hands of biosimilars, Amgen decided to turn its weakness into its strength.
Since 2015, the company has been expanding its work on biosimilars. In that year alone, Amgen developed 29 biosimilars for its own products and launched 18 more to compete with other companies.
To date, biosimilars have been generating at least $2 billion in revenues, with 10 more queued in Amgen’s pipeline.
Considering the accelerated growth of the biotechnology sector, now is not the time to count out Amgen.
Today, Amgen has transformed itself into one of the leaders in the biotech world, generating over $25 billion in revenue.
Since 1988, the company has only reported a decline in its year-over-year revenue three times: 2009, 2018, and 2019.
This performance shows tangible proof that Amgen is not a “one-hit-wonder” type of biotech stock. Instead, it demonstrates its capacity to generate solid earnings and sustainability.
Currently, Amgen trades at a price-to-earnings multiple that’s actually 40% lower than the average S&P 500 stock. Its EPS is estimated to rise in the high single digits in the next several years.
Simply looking at its 2020 fiscal report, it’s obvious that Amgen delivered an impressive performance considering the recession and the pandemic.
The company also continues to reward its shareholders with double dividend increases plus an aggressive repurchase program, which Amgen plans to spend roughly $3 billion to $4 billion.
Recently, the stock has been trading at a roughly 30% discount. This is a real bargain considering everything Amgen has to offer.
