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)
Mad Hedge Biotech & Healthcare Letter
March 4, 2021
Fiat Lux
FEATURED TRADE:
ARE WE THERE YET: HOW THE JNJ VACCINE COULD BE THE ANSWER
(JNJ), (MRNA), (PFE), (BNTX), (MRK), (SNY)
Since the pandemic started, we’ve had two extremely similar COVID-19 vaccines approved: the mRNA vaccines created by Moderna (MRNA) and Pfizer (PFE) / BioNTech (BNTX).
Now, there’s another coronavirus shot that gained FDA approval: Johnson & Johnson’s (JNJ) adenovirus jab.
In fact, JNJ’s candidate received a unanimous approval from the FDA—a first among the COVID-19 vaccine developers.
Results showed that JNJ’s shot has 66% effectivity at preventing coronavirus infections and 85% effective at blocking severe COVID-19 cases when allowed at least four weeks to take effect.
Taken at face value, the numbers from JNJ’s trials may not seem as impressive as the two-shot vaccines of Moderna or Pfizer, which both demonstrated efficacy results of over 94% in their 2020 reports.
However, it’s important to not make any conclusions based on incomplete data.
After all, drawing comparisons among different vaccine studies performed at different periods is practically comparing apples to oranges.
That’s why Dr. Anthony Fauci and other experts declared that they’ll just take whichever vaccine shot they could avail of.
Actually, the JNJ vaccine may be the ideal option for some people.
Since the JNJ vaccine shows less severe reactions compared to Pfizer and Moderna’s vaccines, this could be preferable for people who couldn’t tolerate the side effects.
Although the side effects of Pfizer and Moderna are temporary, some people need to take days off to recover. Sadly, not everyone has the luxury to do that.
The fact that it’s a single jab vaccine makes it an attractive option for young and healthy individuals, who can’t afford to go back to get a second shot.
It’s also less fragile and can be stored in a regular fridge for three months without the need for any hyper-cold storage system like the mRNA vaccines require. This would make it an attractive option for rural areas.
Plus, JNJ tested its candidate at the height of the pandemic. That means the numbers the company released could have been affected by the situation at the time.
Although JNJ’s vaccine does not completely get rid of the disease, it delivers on the promise of protecting the patients from the worst possible scenarios of COVID-19: hospitalization and death.
Basically, the JNJ vaccine is cheap to manufacture as well as pretty simple to administer and get.
People can get some dependable viral protection within a span of four weeks, without the need to return for a second jab.
As a bonus, the JNJ vaccine could even protect you better from the new variants that are starting to spread fast.
Despite the $410 billion market capitalization of JNJ though, it looks like the New-Jersey-based giant isn’t up for the massive rollout the world expects from its vaccine.
This is where Joe Biden steps in.
With the goal of having every American vaccinated by the end of May, Biden tapped Merck—a fierce rival of JNJ—to help out with the production.
While Merck’s own COVID-19 vaccine program was shut down, this company remains the leading vaccine developer across the globe.
This means it knows a thing or two about fast-moving mass production during outbreaks—and this is exactly the kind of expertise JNJ needs.
If things work out, JNJ should be able to produce 94 million doses by the end of May—roughly 7 million doses ahead of what’s stipulated in its contract—and the full 100 million by June.
This arrangement isn’t anything new. Since the COVID-19 pandemic, competitors have been joining forces to find ways to put an end to the crisis.
In January this year, Sanofi (SNY) announced that it would be collaborating with BioNTech to help manufacture additional doses of the COVID-19 vaccine it developed with Pfizer.
When JNJ receives authorization from the EU as well, Sanofi would also be there to help with the production.
The JNJ vaccine could just be the escape hatch we’ve all been waiting for since the pandemic started.
With this FDA authorization, we’d be able to vaccinate millions more at a breakneck speed.
Mad Hedge Biotech & Healthcare Letter
March 2, 2021
Fiat Lux
FEATURED TRADE:
(ANOTHER PLAYER JOINS THE ALZHEIMER’S DISEASE DRUG RACE)
(SAVA), (PFE), (HLUYY), (LLY), (AVXL), (CRTX), (BIIB), (GILD)
Over 5.8 million people in the United States live with Alzheimer’s disease, and there are at least 487,000 new cases recorded every year.
Sadly, there has been no new treatment approved for this condition since 2003.
It isn’t for the lack of trying though.
In fact, large-cap biotechnology companies like Pfizer (PFE), H Lundbeck A/S (HLUYY), and Eli Lilly (LLY) have tried their hands at coming up with a drug to treat Alzheimer’s disease.
Unfortunately, none of them succeeded.
Amid the failure of these industry giants to develop a cure, a small-cap biotechnology company based in Austin, Texas has emerged with a potential answer to the problem.
Cassava Sciences (SAVA), which has a market capitalization of $2 billion, is offering investors a different direction—and its efforts haven’t gone unnoticed.
Over the past 12 months, Cassava stock rose by a whopping 668%.
The overwhelming interest in the stock is understandable.
In February, Cassava released promising reports about its own Alzheimer’s drug candidate, Simufilam.
Patients who took Simufilam for six months showed 10% improvement on their cognition tests, while their dementia-related behavior improved by 29%.
The next stage would be for Cassava to go through Phase 3 of the study for Simufilam.
Interestingly, the success of Simufilam’s trials has not only benefited Cassava but also several smaller biotechnology companies working on Alzheimer’s disease treatments.
Specifically, Anavex Life Sciences (AVXL), which only has a market capitalization of almost $900 million, gained an impressive 129.4% boost.
Meanwhile, Cortexyme (CRTX), which has a market capitalization of $1.07 billion, rose by 57.8% this year following the positive data release.
While Cassava’s results are definitely worth looking into, it’s critical to understand the limits of the data the company has provided the public thus far.
My caution against Cassava at this point is not based on the belief that its Alzheimer’s disease program will fail.
Rather, I’m wary of the stock because its value right now is heavily based on the misunderstood perception that Simufilam has already succeeded.
Looking at the current data from the company, I believe that the skyrocketing price at this point remains unjustified.
It’s important to keep in mind that the FDA will not grant approval to a drug unless it shows satisfactory effectiveness in Phase 3 clinical trial.
A fairly recent example of a cautionary tale is the fanfare generated by Biogen (BIIB) when it released promising data for its own Alzheimer’s drug, Aducanumab.
However, this isn’t to say that Simufilam won’t make it, or that it will experience the same issues faced by Biogen.
This simply means that valuing this stock requires a more sober assessment. It’s challenging to determine its actual value right now with all the speculative fever surrounding it.
Remember, clinical trials for Alzheimer’s disease would set a company back roughly $1.8 billion on average.
It also typically takes more than four years to complete. At this point, Cassava only has approximately $94.3 million in cash.
This means it would need to either land a development partner to help shoulder the expenses or sell additional stock to come up with additional funds.
The Alzheimer’s drug market is massive, which is a clear indicator of the dire need in this space because there remain no reliable drugs available.
On the low end of the estimate, the global Alzheimer’s drug sales is projected to be $3.5 billion back in 2018.
On the high end, the number could reach $4.9 billion in 2013 to over $13.3 billion by 2023.
What are the prospects of an effective Alzheimer’s disease drug? Let’s go back to Biogen.
Its Aducanumab, which never managed to release impressive data, still estimated peak sales of roughly $4.2 billion.
Back of the envelope math says that an approved, safe, and effective treatment would undoubtedly generate blockbuster multi-billion dollar sales.
After all, large-cap companies pay a premium for exclusive rights to promising drugs.
To use an approved exclusive drug as an example, let’s take a look at the September 2020 deal between Immunomedics and Gilead Sciences (GILD).
Prior to the deal, Immunomedics developed an exclusive and promising chemotherapy drug called Trodelvy.
Like Aducanumab, that treatment was valued to rake in $4 to $5 billion in peak sales.
Seeing the potential, Gilead Sciences bought out Immunomedics to get Trodelvy.
The deal? It was worth $21 billion, or approximately 100x where Cassava trades when 2021 started.
Although it’s difficult to determine how much Cassava would eventually be valued, the sales for its Alzheimer’s drug should project better numbers than the regularly doubted Aducanumab.
The bottomline is this: Cassava is a promising stock that offers an Alzheimer’s disease drug candidate that reported better results than what the big players in the industry achieved so far.
Investors should expect volatility from this company in the next few months or even years as it enters a crucial stage: the Phase 3 trials, otherwise known as the drug development graveyard.
Mad Hedge Biotech & Healthcare Letter
February 25, 2021
Fiat Lux
FEATURED TRADE:
(AN UNDER THE RADAR BIOPHARMA PLAY)
(ALNY), (PFE), (BNTX), (MRNA), (NVS), (GME), (BX)
Financial markets have been incredibly volatile in the past months primarily due to the COVID-19 pandemic.
The situation was made even more unpredictable by the GameStop (GME) and bitcoin drama.
So it’s expected that investors are looking for guidance in this time of instability, and a good place to start is the Blackstone Group (BX).
Considering that the basic philosophy of this company is to “buy, fix, and sell,” it’s safe to say that Blackstone only puts its money, time, and effort in promising investments.
Around the time of the pandemic outbreak last year, Blackstone poured in roughly $2 billion investment in a biopharmaceutical company, Alnylam Pharmaceuticals (ALNY).
While Alnylam may be virtually unknown to the public, this is actually a promising company with an impressive backstory.
Founded in 2002, Alnylam is mainly known for its technology, RNAi or RNA interference.
This is a gene-silencing technique, which was discovered by Andrew Fire and Craig Mello back in 1998. The two won the Nobel Prize for it in 2006.
Even before the Nobel, Alnylam has already seen the potential of this technology and started developing it in the early 2000s.
For decades, this work had been underappreciated—up until the COVID-19 pandemic.
This is because the leading vaccine candidates right now, developed by Pfizer (PFE)-BioNTech (BNTX) and Moderna (MRNA), are both mRNA-based drugs.
Although the vaccine developers customized the technology, they still used the same delivery technique that Alnylam developed.
Clearly, there has been a lot of piggybacking on this discovery.
While Moderna, Pfizer, and BioNTech used the technology to create RNA-based drugs for the COVID-19 vaccines, Alnylam decided to utilize it to develop treatments for other diseases.
The first approval was hereditary transthyretin-mediated amyloidosis drug Onpattro, launched in 2018.
As of 2020, sales of this high-priced therapy reached roughly $300 million, ensuring that it was on pace with the company’s target.
Alnylam’s second approved treatment is ultra-rare genetic disease drug Givlaari, which hit the market early last year.
By the third quarter of 2020, sales of this acute hepatic porphyria drug climbed by $67 million despite the effects of the pandemic.
In the next decade, Givlaari is estimated to peak at $550 million annually.
By 2025, yearly sales for Givlaari and Onpattro are projected to hit roughly $1.5 billion in total.
Riding this momentum, Alnylam has been collaborating with Sanofi (SNY) to develop another rare disease drug, Vutrisiran. This could rival the company’s own Onpattro.
Aside from Vutsiriran, Alnylam and Sanofi are also working on a potential novel hemophilia treatment, Fitusiran.
The latest treatment to gain approval is rare kidney disorder drug Oxlumo, which is estimated to net Alnylam roughly $380,000 per patient annually.
While this may be a hefty price tag, it’s expected that insurance companies and governments will be the ones to ultimately shell out the money for these rare disease drugs.
Before 2021 ends, Alnylam is expected to gain FDA approval for another potential blockbuster drug, Inclisiran. This is a cholesterol-fighting treatment, which is a work in progress with Novartis (NVS).
Over the past decade, Blackstone has been quietly stashing multi-billion-dollar stakes in the life sciences.
In 2020 alone, the company poured roughly $16 billion into the industry. This is its largest investment theme for the entire year.
While this business has yet to make a dent on Blackstone’s $600 billion assets, the attention that the companies have been getting is worth noting—and a good place to start is Alnylam.
For a better context of its potential, Blackstone invested $3 billion in a dating app called Bumble (BMBL) back in 2018.
Fast forward to 2021, this company is now worth approximately $14 billion following its recent IPO.
With a market capitalization of roughly $15 billion and for a company that’s not anticipated to generate over $1 billion in annual revenue until 2022, Alnylam’s current price might be considered high by some investors.
Looking at its pipeline though, which is filled with potential blockbusters, and its track record that shows that the company definitely knows how to launch new drugs to the market, I believe Alnylam stock is worth considering right now.
