Mad Hedge Biotech & Healthcare Letter
April 15, 2021
Fiat Lux
FEATURED TRADE:
(BET ON THIS BIOTECH STALWART)
(BIIB), (LLY), (RHHBY), (SAGE)
Biogen’s (BIIB) move to develop the first approved treatment for Alzheimer’s disease remains the biggest story in the biotechnology industry.
Now, we’re down to the waiting part of the process as the US Food and Drug Administration reviews the drug, Aducanumab.
If successful, then Aducanumab could generate a whopping $12 billion in peak sales.
The approval could also push Biogen stock up to $400. Meanwhile, a failure could let it spiral to $200.
Aside from the United States, Biogen has also applied for approval in Europe and Japan.
Apart from Aducanumab, Biogen has another Alzheimer’s disease treatment candidate, Gosuranemab.
For comparison, Aducanumab targets the amyloid plaque in the brain while Gosuranemab targets another kind of brain protein, called tau. This candidate is currently undergoing a Phase 2 trial, with results expected to be released by June this year.
While there’s still not much to go on in terms of the efficacy of Gosuranemab, positive data from its study is estimated to push Biogen stock to reach into the $350 ballpark if we base it on previous movements involving Aducanumab.
Although Biogen is definitely the face of the race to find an approved treatment for Alzheimer’s disease, it’s not alone.
To date, its strongest competitors are Eli Lilly (LLY) with Donanemab and Roche (RHHBY) with Gantenerumab.
Outside its Alzheimer’s disease programs, Biogen has been working with Sage Therapeutics (SAGE) on another potential blockbuster.
The two companies have been developing a depression drug, Zuranolone, and the data so far have offered promising results.
Like Gosuranemab, Biogen expects data on the study in the first half of 2021 as well.
If the study on Zuranolone turns out positive results, then Biogen shares are projected to jump by as much as $72.
While all these are promising, less aggressive investors may not find Biogen a suitable investment at this point. Evidently, the stock brings with it a lot of risks.
Aside from the uncertainty of its Alzheimer’s programs, there’s also the ongoing patent battle involving one of its top-selling drugs, multiple sclerosis treatment Tecfidera.
When the company lost its patent exclusivity, the FDA started to approve generic versions of Tecfidera.
This is a major concern for Biogen since Tecfidera is a substantial revenue source.
For context, this drug generated $4.4 billion in sales in the US in 2019 alone. By 2020, sales dropped to $2.6 billion.
Now, sales for this drug are estimated to reach only $1.6 billion in 2021.
While Biogen appealed its loss of patent exclusivity, the company has already taken steps to continue benefiting from Tecfidera’s success.
An obvious effort is the launch of a newer and more potent multiple sclerosis drug, Vumerity.
To attract patients and retain its customers, Biogen has been marketing Vumerity as a more powerful and effective version of Tecfidera.
In terms of the uncertainty brought by Aducanumab, it’s true that gaining FDA approval would have the Biogen stock skyrocketing.
However, rejection won’t be as devastating to the stock. While shares are expected to fall if that happens, the suffering would be short-term.
In the long run, Vumerity will gradually gain traction and eventually reach the level of success of Tecfidera, while the rest of Biogen’s pipeline programs hold the potential to add to the company’s revenue stream.
After all, Biogen is one of the first names that comes to mind when you hear the word “biotech.”
Founded in 1978, this biotechnology company has amassed a market capitalization of more than $40 billion and multiplied its annual profit to over 200%.
While its gamble on finding a treatment for Alzheimer’s disease is a risk that not a lot of investors would be willing to take, Biogen still holds one of the most promising pipeline programs in the industry and a portfolio of existing drugs with notable potential.
Going forward, approval for Aducanumab would mean a massive year for shareholders of Biogen.
If not, then this is still a respectable company with strong rewards and worth investing in, especially if you buy the dips.
Mad Hedge Biotech & Healthcare Letter
April 13, 2021
Fiat Lux
FEATURED TRADE:
(MEGA CAP PHARMA UP FOR GRABS)
(MRK), (ABMD), (ILMN), (ALGN), (JNJ), (GILD), (PAND), (ALKS), (IMV)
Since the great 2007 financial crisis, many companies have been coping to recapture their former glory. The healthcare industry is not spared of this struggle.
This makes the continuous growth of Merck (MRK) all the more impressive, with the company reaching $195 billion in market capitalization and sustaining its rise for over 130 years.
Curiously, Merck’s share price is still in the mid-$70s.
Meanwhile, other large-cap biopharmaceutical companies that offer similar products and services are trading higher.
For instance, the share price for Abiomed (ABMD) is over $330 while Illumina (ILMN) is nearly $400, and Align Technology (ALGN) is at a whopping $600.
Like Merck, investors gravitate towards Abiomed, Illumina, and Align because of their capacity to generate long-term sustainable revenues and boost earnings.
Notably, though, none of them hold the same depth or even breadth of products and services that Merck offers.
Recently, Merck disclosed some of its initiatives to boost the company’s earnings in the near- and long term.
One of the most visible efforts is its collaboration with Johnson & Johnson (JNJ) to help with the manufacturing of JNJ-78436735, in which Merck received federal funding.
While JNJ is one of the biggest healthcare companies across the globe, with a market capitalization of roughly $425 billion, joining forces with Merck will substantially boost its vaccine manufacturing capacity.
For context, JNJ’s goal prior to Merck’s help is to deliver 100 million doses by the end of the second quarter of 2021.
With Merck’s assistance, JNJ can now realistically manufacture up to 3 billion doses in 2022 alone.
This means that JNJ can implement a massive vaccination drive in the next two years since its manufacturing capacity ensures that it can deliver shots to over one-third of the population.
This is obviously good news for everyone as it means that the virus will be contained, but the enhanced manufacturing capacity also means profit accretion for both JNJ and Merck.
This partnership with JNJ is possibly a key factor in Merck’s move to invest heavily in the vaccine business.
Merck recently announced its plans to allocate $20 billion to expand its global vaccine manufacturing network from 2021 to 2024. This would mean an annual investment of $5 billion.
Part of this global vaccine plan is Merck’s acquisition of Pandion Therapeutics (PAND) in 2020.
Another recent initiative of the company is its joint effort with Gilead Sciences (GILD) to develop long-lasting HIV treatments.
Gilead will be in charge of the US market, while Merck will handle the EU and the rest of the international markets.
For starters, the companies will focus on a combination of Merck’s Islatravir and Gilead’s Lenacapavir to create a long-lasting and well-tolerate HIV treatment.
Outside these partnerships, Merck has been working on strengthening its oncology segment.
In fact, its top-selling drug, Keytruda, can be used to medicate an extensive range of indications, which include colorectal, esophageal, and even lung cancers.
At this point, Keytruda is generating north of $16 billion in sales every year and exhibiting roughly 30% growth annually.
Since the drug continues to gain approvals for additional indications, it looks like its growth runway is definitely far from over.
Keytruda is poised to reach $24 billion in annual sales in a few years’ time, which puts it on track to become the best-selling drug in the world by 2023.
Although Keytruda will be under patent protection until 2028, Merck remains active in expanding its oncology pipeline.
By then, Merck is projected to have multiple immunotherapy staples in its portfolio not only derived from its own R&D but also via partnerships like its 2020 collaboration with Alkermes (ALKS) to work on an ovarian cancer study and Immunovaccine (IMV) to cooperate on a blood cancer study.
The total oncology market is estimated to be $200 billion annually, with over 30 million cases projected to be added by 2040.
Overall, Merck is a well-oiled company that continues to deliver good results thanks to strategic acquisitions and partnerships neatly tied up together in a particular domain.
While its rival biotechnology and pharmaceutical companies become hot properties in the market and pose higher price tags, Merck silently moves forward in the shadows of sustainability and familiarity.
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.
