Mad Hedge Biotech & Healthcare Letter
March 23, 2021
Fiat Lux
FEATURED TRADE:
(THIS ISN’T THE TIME TO HIT THE PANIC BUTTON)
(AZN), (PFE), (BNTX), (ALXN), (MRK), (RHHBY)
Everybody will have heard about the issue in Europe these days, with more countries suspending dosing of the COVID-19 vaccine from AstraZeneca (AZN) and Oxford.
However, I think gaining clarity over the situation is important.
I haven’t been the greatest advocate of the AstraZeneca vaccine because its initial rollout was, to put it mildly, botched.
At the time, it was difficult to determine just how efficacious the vaccine, AZD1222, really was, and the latest figure I heard is that it’s 60% effective.
While the European Medicines Agency declared AZD1222 as safe, many member states of the EU seem to disagree, pointing out the reports of blood clotting issues after dosing.
I can see several apparent levels of this concern, but the most pressing, clearly, is medical.
The main problem that the experts are figuring out isn’t about the fairly common blood clots, which actually occurred at background levels and can generally be observed among elderly folks.
Their focus is the extremely rare autoimmune disorder that’s triggered when the body starts aggressively destroying the platelets needed for clotting.
That particular condition is hard to treat and can even be fatal.
Although they haven’t zeroed in on the specifics of the problem just yet, the experts agree that the blood clot issue is caused by some sort of overreaction in the immune system.
The stimulus for this reaction is still under review, but there’s a growing consensus that it could be genetic predisposition in a rare group of people.
This could be the same case as the doctor in Florida who died because of his immune system’s overreaction, which was triggered by the vaccine from Pfizer (PFE) and BioNTech (BNTX).
That’s not conclusive though, since it’s the only case cited in the United States.
The experts also pointed out that the condition is extremely rare, which was why it was not observed even in the Phase 3 trial of AZD1222.
While this is clearly a medical issue, there’s also an image issue for AstraZeneca to think about. How does this negative news on AZD1222 affect the stock?
Here’s a key point to keep in mind when analyzing AstraZeneca’s potential: The company is not selling AZD1222 for a profit while we’re going through the pandemic.
That means that suspending the dosing of AZD1222 won’t hurt AstraZeneca’s profit for 2021.
However, that doesn’t mean that AZD1222 has absolutely no effect on the company’s standing.
If anything, AZD1222 is an earnings opportunity for AstraZeneca in the future because the company’s expected to raise prices and generate a profit after the pandemic.
To underscore this goal, AstraZeneca has actually been ramping up capacity to manufacture at least 3 billion doses every year.
Considering this target, AstraZeneca is clearly signaling that it has the infrastructure to become a dominant player—if not the ultimate market leader—in the coronavirus vaccine sector.
If the issues with AZD1222 are resolved, then AstraZeneca holds a product that could rake in billions in revenue in the years to come.
Notably, AstraZeneca’s shares haven’t budged much regardless of the vaccine news released.
Since April 30, which was the day that the company announced its plans to join the COVID-19 vaccine race, AstraZeneca stock has fallen by roughly 6%.
In the past 11 months, which was filled with ups and downs for AZD1222, and up until the European countries suspended dosing in March 2021, the shares barely changed.
On the whole, AstraZeneca isn’t exactly known for massive one-year gains.
Rather, investors enjoy long-term wins, as seen in the company’s impressive 75% climb in over the past five years.
So far, AstraZeneca has 38 candidates in its pipeline queued for Phase 1 trials, 54 are slated for Phase 2, and 41 are lined up to go through Phase 3.
To fight off stagnation, AstraZeneca acquired biotechnology company Alexion Pharmaceuticals (ALXN) for a whopping $39 billion last December.
This deal offers a major expansion in AstraZeneca’s portfolio because Alexion brings with it its famed rare disease drug Soliris, which generates approximately $1 billion in revenue every quarter.
For 2020 alone, Alexion was estimated to add up to $5.95 billion in sales.
By 2025, AstraZeneca projects that Alexion will be on track to consistently contribute double-digit growth in its annual revenue.
It’s reasonable to say that AstraZeneca is one of the frontrunners in the COVID-19 race.
However, the past weeks have seen the company’s woes multiply due to questions on AZD1222’s side effects.
It’s worth reminding ourselves though why huge biopharmaceutical companies like AstraZeneca, Pfizer, Merck (MRK), and Roche (RHHBY) are not sensitive to these vaccine updates: They do not rely on their vaccine revenue alone for growth.
AstraZeneca markets an extensive array of products, which include eight blockbuster drugs.
In 2020, the company’s sales climbed by 10% to reach over $25 billion year-over-year.
Therefore, the reports on AstraZeneca’s AZD1222 isn’t a cause for alarm. The company’s overall portfolio is well-positioned to drive profit higher in the next several years.
More importantly, if AstraZeneca’s track record serves as any indication, then long-term shareholders should remain optimistic about the company’s growth trajectory.
Mad Hedge Biotech & Healthcare Letter
March 18, 2021
Fiat Lux
FEATURED TRADE:
(A BLUE CHIP STOCK SELLING AT A DISCOUNT)
(LLY), (GILD), (REGN), (SNY), (AMGN), (TEVA), (NVO), (ABBV), (BMY)
It’s not unheard of in the biotechnology industry to watch the stock prices of small or even mid-cap drug developers rise and fall by 30% following trial results or new drug approval.
However, when the company is Eli Lilly (LLY), which holds a $179 billion market capitalization, then biotech investors need to pay attention.
After all, the only plausible conclusion to draw from this is that there have been some seismic advancements done by the company.
Two potentially breakthrough treatments are the culprit behind the volatility in Eli Lilly stock these days.
The first is Eli Lilly’s COVID-19 program, in which the company is looking into using Bamlanivimab (LY-CoV555) solo or combining it with Etesevimab (LY-CoV016).
What we know so far is that the combo drug can lower the risk of death and hospitalization among high-risk COVID-19 patients by as high as 87%.
In November 2020, the FDA granted Eli Lilly’s Bamlanivimab Emergency Use Authorization.
The solo treatment was also authorized for the same usage in Morocco, Europe, Canada, Rwanda, and some regions of the Middle East, where Eli Lilly is collaborating with the Bill and Melinda Gates Foundation for distribution.
Last February 2021, its combo treatment received the same approval.
To date, Eli Lilly has shipped roughly 1 million doses of Bamlanivimab and is committed to supplying an additional 1 million this quarter.
To meet the demand for the Bamlanivimab-Etesevimab combo, Eli Lilly will be working with pharmaceutical titan Amgen (AMGN).
In the company’s 2020 earnings report, Eli Lilly disclosed that Bamlanivimab accounted for $871 million of their sales.
For 2021, the market for COVID-19 treatments is valued at $27.25 billion.
Taking into consideration the competitors coming up with similar medications, such as Gilead Sciences (GILD), Regeneron (REGN), and Sanofi (SNY), the conservative estimate for the sales for Bamlanivimab alone is estimated to reach roughly $1 billion to $2 billion this year.
The second potential breakthrough that’s affecting Eli Lilly’s prices is its Alzheimer’s disease treatment, Donanemab.
Eli Lilly recently released positive data from the Phase 2 trial of Donanemab, with the treatment slowing down cognitive decline by 32% after 76 weeks.
In fact, a notable decline was already observed among the patients as early as 36 weeks.
This is an impressive result, and there’s talk that Eli Lilly’s plan of possible commercialization of Donanemab by 2024 could be fast-tracked to as early as the first half of 2023.
Interestingly, the positive news was met with negative reactions by the investors.
Eli Lilly fell by 9% following the Donanemab update, sending shares tumbling from $208.18 to $189.16.
This reaction effectively erased almost $20 billion in the company’s market value.
The negative reaction to Eli Lilly’s news may be stemming from the pending application of Biogen’s (BIIB) own Alzheimer’s drug, Aducanumab, which is expected to receive word from the FDA by June.
Investors anticipate that Aducanumab’s performance would be indicative of Donanemab’s future.
Looking at the trial results though, I can say that this shouldn’t be the case. Since the beginning, Donanemab has outperformed Aducanumab in practically every aspect.
Either way, what cannot be denied here is the market opportunity.
When the market thought that Aducanumab would get FDA approval in November 2020, the share price of Biogen saw a whopping 44% jump from $246 to $354 overnight.
Meanwhile, Donanemab’s potential sales volumes have been estimated to reach over $10 billion annually.
Other than Donanemab, Eli Lilly has been developing more contenders to boost its neuroscience division. Right now, this segment generates 6.3% of the company’s total revenues.
One of the promising drugs in the portfolio is migraine treatment Emgality, which recorded a 123% increase in sales last year to hit $362 million.
Thus far, Emgality holds at least 31% of the migraine market and still has room for growth and expansion.
This is a remarkable performance considering that its competitors include Amgen’s Aimovig and Teva’s (TEVA) Ajovy.
Another solid earner is antidepressant treatment Cymbalta, which generated over $768 million in sales last year, up by 5% year-on-year.
Outside its neuroscience efforts, one of Eli Lilly’s strongest growth drivers is its diabetes franchise.
This segment accounts for roughly 47% of its revenues and is led by Trulicity with $5 billion in sales last year, up 23% year-over-year.
Eli Lilly’s diabetes program has grown so much in the past years that it now aggressively competes against Novo Nordisk (NVO), a monopoly-like presence in this space.
In fact, Trulicity has been able to successfully protect its own market share against Novo’s heavily marketed Rybelsus, with data showing that users of Eli Lilly’s diabetes injectable recorded 60% adherence levels compared to Novo’s 43%.
In terms of expansion, Eli Lilly also won a new approval for Trulicity to be used to treat cardiovascular conditions as well.
This additional indication puts Trulicity’s peak sales at roughly $7.43 billion.
In an effort to corner the diabetes market, Eli Lilly also developed Tirzepatide.
Basically, this treatment is a long-term hedge against the pending loss of Trulicity’s patent exclusivity by 2027.
However, Tirzepatide is projected to surpass its predecessor in sales and reach double-digit billions.
Overall, Eli Lilly has positioned itself well in the diabetes market.
While it’s engaged in an aggressive battle for dominance against Novo Nordisk, there’s a lot of room for both.
The diabetes treatment segment is a continuously expanding market, with its value doubling in size from 2015 to 2015. Within this period, this market is projected to grow from $31 billion to $59 billion.
Aside from its diabetes and neuroscience programs, Eli Lilly has also been active in developing its immunology and oncology segments.
This is an ambitious plan, considering that practically all pharmaceutical companies are working on treatments in this space.
After all, the auto-immune market is massive as it’s worth well over $50 billion.
One of the bestsellers in Eli Lilly’s portfolio is plaque psoriasis treatment Taltz, which grew its sales by 31% year-over-year to reach $1.8 billion last year.
Some of the major competitors in this space are Bristol Myers Squibb (BMY) with Zeposia, Sanofi’s Dupixent, and AbbVie’s (ABBV) Skyrizi.
What could be promising news for Eli Lilly is the fact that AbbVie’s ultra-bestseller Humira is going off-patent by 2023.
This means that it could open up the market to allow both Taltz and Olumiant, another top-selling Eli Lilly treatment, to grab part of the lucrative market share.
Ultimately, Eli Lilly is a business that offers a promising commercialized portfolio and a remarkable near-term pipeline, which can reasonably support an annual revenue growth rate of roughly 10% even if we don’t factor in the effects of Donanemab.
Apart from the potential aftermath of the pending Biogen news, the fall in Eli Lilly’s shares could also be attributed to the extremely high expectation of investors.
Alzheimer’s has no approved cure, and there are only a handful of treatments developed from this neurological disease—none of which are even marginally effective.
It’s normal for investors to be wary of positive data results since they’ve been down this road before and are merely attempting to temper their excitement.
Amid the selloff, I believe that Donanemab is far from a lost cause. More importantly, I think the drop in Eli Lilly’s share price presents a rare buying opportunity for investors.
Therefore, I advise buying the dip.
Mad Hedge Biotech & Healthcare Letter
March 16, 2021
Fiat Lux
FEATURED TRADE:
(A BARGAIN BUY STOCK)
(NVAX), (PFE), (MRNA), (JNJ), (SNY)
Biotechnology stocks have been going through a rough patch in the past weeks.
These previously unstoppable stocks have trailed the same path as the market in a sell-off, which has some of their investors fighting to keep calm.
In fact, the iShares Biotech Nasdaq ETF slid over 9% in the past month—a fall that affected some players who experienced all-time highs or enjoyed four-digit gains in 2020.
Inasmuch as all these sound discouraging, the decline might actually offer an opportunity.
Now, investors can snatch up some excellent stocks at pre-pandemic prices.
Among the biotechnology stocks that have dropped more than 28% to date from their latest high points, I find Novavax (NVAX) to be one of the most promising.
Novavax rose to over 2,700% in 2020, with the stock extending its gains well into 2021.
In the first five weeks of the year, Novavax jumped 186% following positive data from the Phase 3 trial of its COVID-19 vaccine, NVX-CoV2373, in the UK.
NVX-CoV2373 is widely anticipated to be the next COVID-19 vaccine candidate to win major regulatory approval.
Its Phase 3 study in the UK showed that NVX-CoV2373 was 96.4% effective against mild, moderate, and even severe cases of COVID-19 caused by the original strain of the coronavirus.
When tested against the “UK variant,” NVX-CoV2373 showed 86.3% efficacy.
Meanwhile, NVX-CoV2373 was found to be 55.4% efficacious against the “South African” variant.
Overall, NVX-CoV2373 proved to be 100% effective in protecting patients from hospitalization and death. More importantly, the vaccine didn’t cause severe side effects.
Despite the promising results released, the biotech stock has slipped 46% since early February.
While some investors fret over the fact that rivals like Pfizer (PFE), Moderna (MRNA), and Johnson & Johnson (JNJ) have already started production and shipment of their vaccines, the developers of NVX-CoV2373 say there’s nothing to worry about.
NVX-CoV2373 doses are readily available and can be shipped as soon as Novavax gains regulatory approval.
More reassuringly, this vaccine candidate can be stored for months without any special handling.
While it hasn’t landed as many orders in the United States as its counterparts, Novavax has been securing its spot in the international markets.
The company has landed orders for roughly 200 million doses of NVX-CoV2373 for Canada, Australia, Switzerland, New Zealand, and the UK. It also has an agreement to supply 1.1 billion doses to the Serum Institute of India.
On top of these, Novavax has signed a deal to supply over 1 billion doses to COVAX, which is a global project initiated to secure fair access to vaccines for all countries.
Novavax has been boosting its manufacturing capacity as well, with the company ramping to produce over 2 billion doses of NVX-CoV2373 every year by mid-2021.
By comparison, Moderna is estimated to produce about 700 million to 1 billion doses this year.
In terms of revenue, Novavax hasn’t definitely discussed its pricing. What we know so far is the price paid by the US, which is $16 per dose.
Back of the napkin math says that brings the total to $4.8 billion for the orders from the US and the other countries so far this year and excluding the COVAX deal since the pricing might be substantially lower.
This is a massive revenue for a biotech company that doesn’t even have a product revenue yet.
Another exciting prospect is Novavax’s pipeline.
Right now, the company has another vaccine that can become a great revenue source: NanoFlu.
Before the pandemic broke, NanoFlu was actually the major reason investors flocked towards Novavax.
With its overwhelming performance against Sanofi’s (SNY) own FluZone Quadrivalent, NanoFlu has been slated for a myriad of commercial possibilities.
These include developing it as a combination vaccine with NVX-CoV2373 as well as with Novavax’s other vaccine candidate, with its experimental respiratory syncytial virus (RSV) vaccine.
Another program is looking into combining all three vaccines together.
Riding the momentum of its success with NVX-CoV2373, Novavax is also planning to develop vaccines for other coronavirus variants.
This could include a bivalent vaccine program, which is expected to commence by June 2021.
All these programs are positioning Novavax as a dominant leader in the vaccine market.
If you haven’t considered Novavax before, then now is a good time to look into the stock. This is a company that has billions in locked-in revenues coming in this year alone.
Basically, buying Novavax stock would get you revenue in the near future, new products that will generate additional sales, and pipelines that offer growth—and if you buy the stock on the dip, you’re getting all these at a bargain.
Mad Hedge Biotech & Healthcare Letter
March 11, 2021
Fiat Lux
FEATURED TRADE:
(THE TESLA STOCK OF GENETIC TESTING)
(NVTA), (CRSP), (TDOC), (RHHBY), (ILMN), (ABT), (DGX), (ROKU), (SQ), (SHOP), (TSLA)
Invitae (NVTA) is one of the biggest, albeit erratic, movers in 2020, but only a handful of investors know about the stock.
In March 2020, the stock was trading at $7.43 per share only to shoot to a whopping $61 by mid-December.
A year since then, Invitae stock sits somewhere at $40—a price that could go right up again in the months to come.
Despite the volatility, Invitae continues to generate excitement among its investors.
In fact, Invitae, which has $7.6 billion in market capitalization, is grouped in with bigger healthcare and biotechnology companies like CRISPR Therapeutics (CRSP), valued at $9.36 billion, and Teladoc Health (TDOC), valued at $28.7 billion.
Its potential is even said to match the likes of up-and-coming tech stocks such as Roku (ROKU), Square (SQ), and Shopify (SHOP), which have market capitalizations of $45.7 billion, $103.07 billion, and $134.6 billion, respectively.
Given its growth in the past months and its impressive 226.8% three-year revenue increase, the projections for Invitae look well-grounded.
In fact, I think it’s reasonable to say that Invitae could be the Tesla (TSLA) of the genetic testing industry.
The genetic testing market is estimated to be worth over $21 billion by 2027, growing at a compound annual growth rate of 10% until then.
In 2020, Invitae reported a 29% year-over-year increase in revenue at $279.6 million.
The company also saw a rise in its testing volume by roughly 41% to reach 659,000 billable units—this, despite the headwinds brought about by the COVID-19 pandemic, when the demand for genetic tests took a back seat to make way for COVID-19 diagnostic and other related medical concerns.
Although some of the tests offered by Invitae are covered by insurance carriers, those that are not covered can be availed for as low as $99 for services like noninvasive prenatal screening and $250 for diagnostic, carrier, or proactive testing.
To put things in perspective, people nowadays are more than willing to shell out at least $100 to discover their ancestry, which in most cases is something they already have an idea about.
So, why would these people be reluctant to spend a bit more than $100 to check if they have to take particular precautions to keep themselves safe from diabetes or heart disease?
In the future, Invitae is well-positioned to offer high-quality genetic tests at more affordable prices as well as cater to higher volumes.
One of the most notable moves by Invitae so far is buying ArcherDX for $1.4 billion in cash and stock in October 2020.
This is a telling move for Invitae in terms of its plans for the future.
ArcherDX is another genetic testing company, which specializes in oncology.\
Specifically, ArcherDX focuses on personalized cancer monitoring as well as liquid and tissue biopsy analysis.
Simply put, ArcherDX specializes in developing tests that determine the most suitable drugs to use for cancer treatments.
To date, there’s already a growing number of competition in the genetic testing market, making Invitae’s acquisition of ArcherDX is a smart move.
Most of them are bigger companies like Roche (RHHBY) with a market cap of $269.57 billion, Illumina (ILMN) with $58.28 billion, Abbott (ABT) with $205.28 billion, and Quest Diagnostics (DGX) $15.6 billion.
Invitae, which only has a market capitalization of $7.6 billion, is considered as one of the minor players.
With the addition of ArcherDX in its portfolio, Invitae’s growth could be fast-tracked as the combined companies could ramp up sales on top of queuing additional genetic tests in their current lineup.
Invitae’s shares have jumped by almost 100% in 2020 but saw an over 25% fall last month. Although it has yet to turn a profit since its creation in 2013, Invitae remains an attractive investment thanks to its top-line growth.
Digging into their numbers, Invitae has actually managed to cut down on its cash burn by roughly $20 million from the first quarter of 2020 through the last quarter, excluding the ArcherDX deal.
That’s a notable improvement for a company and indicative of its capacity to veer towards the right direction.
Invitae has a very strong cash position at the moment, with a massive equity offering just last January. Right now, the company’s stockpile is nearly $800 million, which could carry them for quite some time.
Looking at its path of profitability, the company is also projected to be on track for a 50% to 60% growth in the next few years.
For 2021, Invitae is looking at over $450 million in annual revenue, which is 61% higher than 2020.
At this point, Invitae offers an attractive purchasing opportunity for those who want to get in on the industry before it explodes.
Mad Hedge Biotech & Healthcare Letter
March 9, 2021
Fiat Lux
FEATURED TRADE:
(AN MRNA STOCK TO CONSIDER)
(BNTX), (MRNA), (PFE), (NVS), (SNY), (AZN), (JNJ), (NVAX), (MRK), (BMY), (REGN), (DNA), (CVAC), (FB), (TSLA), (GOOG)