Mad Hedge Biotech & Healthcare Letter
February 18, 2021
Fiat Lux
FEATURED TRADE:
(WARREN BUFFETT’S BIOPHARMACEUTICAL BETS)
(MRK), (ABBV), (BMY), (PFE), (NKTR), (VZ), (CVX), (AAPL), (BRK.B)
Aside from the recent big moves involving Verizon Communications (VZ), Chevron (CVX), and Apple (AAPL), Warren Buffett has also been busy with biopharmaceutical stocks.
Just before 2020 ended, Berkshire Hathaway (BRK.B) made notable changes in its positions particularly in Merck (MRK), AbbVie (ABBV), Bristol-Myers Squibb (BMY), and Pfizer (PFE).
Berkshire boosted its investment in Merck by 28.1% to reach 28.7 million shares.
Meanwhile, its AbbVie holdings were increased by 20% to hit 25.5 million shares.
It also added 11.2% in its investments in Bristol, totaling to 33.3 million shares.
In contrast, the company cut 3.7 million shares from its Pfizer holdings.
In terms of growth potential, these biopharmaceutical companies hold the most promising prospects in the next decade.
Merck, hailed as a vaccine stalwart, is behind the blockbuster cancer treatment Keytruda.
For context, Keytruda generated $14.4 billion in sales in 2020 alone.
Despite fears over the expiring patent exclusivity of this drug, the company still trades at roughly 11.5 times earnings and is actually projected to achieve 11% long-term EPS growth rate.
Merck also continues to leverage Keytruda in the development of the next generation of treatments in its pipeline.
In fact, the company recently sealed a clinical collaboration with Nektar Therapeutics (NKTR) to assess the effectiveness of Keytruda when combined with Nektar’s own bempegaldesleukin in the treatment of squamous cell carcinoma.
Other than expanding its oncology sector, Merck has been developing its animal health business as well. So far, this particular segment has grown by 7% year over year, reaching $4.7 billion in 2020.
If things work out, then Merck could emerge as a huge competitor against Pfizer’s own animal healthcare spinoff, Zoetis (ZTS), in the future.
To date, Merck has at least 31 candidates in Phase 2 trials and 25 more undergoing Phase 3 studies.
Needless to say, these will be valuable in enriching the company’s lineup especially with the challenges that Keytruda will face in the next years.
As for AbbVie, this company trades at approximately 8.3 times the earnings estimated in the next 12 months. This is well below its five-year average of 10.4 times earnings.
However, the company is projected to show at least 13% EPS growth rate in the long term.
Despite the challenges of 2020, with the company going down 2.6%, the long-term prospects for AbbVie remain positive.
Although AbbVie broke through the dermatology market following its acquisition of Botox-maker Allergan in the past year, it still has to contend with a major problem: arthritis medication Humira.
Humira is not only AbbVie’s top-selling treatment but also the best selling drug in the world today.
In 2020 alone, this anti-inflammatory treatment raked in $19.8 billion in sales. However, AbbVie might soon lose this edge since its exclusive rights to Humira in the US will expire in 2023.
Amidst the anxiety over this issue though, AbbVie continues to defy expectations.
Last year, the company reported a 65.9% growth in its net revenue despite the overall slowdown caused by the pandemic.
As for 2021, AbbVie is anticipating an even better year thanks to its portfolio diversification efforts.
To date, the company’s lineup now spans neuroscience, immunology, eye care, women’s health, and of course, aesthetics.
Meanwhile, Bristol Myers has been pegged to achieve roughly 8% growth rate in the long term. Right now, the stock trade at 7.9 times earnings estimated over the next 12 months.
Like AbbVie and Merck, Bristol has been dealing with patent expiration issues—a problem that pushed its stock down by 4.1% so far this year.
One of the major updates involving Bristol is its massive $74 billion acquisition of Celgene in 2019.
While the deal raised a lot of eyebrows at the time, it brought cancer blockbuster Revlimid into the company’s fold.
Revlimid, which still enjoys protection from a flood of generics for a few more years, has been pumping up sales for Celgene nonstop for over a decade. The drug is expected to generate the same, if not higher, profits for Bristol.
Two more blockbuster drugs in Bristol’s lineup are facing impending patent exclusivity issues, Opdivo, which would expire in 2028, and Eliquis in 2026.
Nonetheless, the positives outweigh the negatives for Bristol. After all, this company invested so much in diversification.
Sales of Opdivo, Revlimid, and Eliquis continued to trend upwards last year.
Opdivo alone managed to generate $7 billion in annual revenue, prompting Bristol to expand the indications for this product.
However, the more promising news lies in the updates that the recently launched products, like multiple sclerosis drug Zeposia and anemia treatment Reblozyl, are gaining traction in the market.
Thanks to the development of its pipeline, the company expects that its new product lineup would account for roughly 27% of its total revenues by 2025.
Overall, Berkshire’s choice of biopharmaceutical companies are offering promising growths in the next several years despite the setbacks they are facing today.
While some investors get alarmed over negative updates, it looks like the Oracle of Omaha is following his own advice: “Whether we're talking about socks or stocks, I like buying quality merchandise, when it is marked down.”
Mad Hedge Biotech & Healthcare Letter
February 16, 2021
Fiat Lux
FEATURED TRADE:
(SHORT-SQUEEZE DRAMA: BIOTECH EDITION)
(SRNE), (NVAX), (AZN), (MRNA), (PFE), (GILD), (GME)
The fuss over GameStop (GME) has aimed the spotlight on several small- and even mid-cap stocks that hold a high level of short interest.
For quite some time now, retail investors have been identifying others with similar qualities as GME: a short interest standing at more than 20% of the total float, a market capitalization above $1 billion, and a stock price of roughly $20 per share or even less.
Now, these traders have turned their attention to the biotech industry and one stock that caught their attention is Sorrento Therapeutics (SRNE).
In 2020, Sorrento was hailed as one of the hottest COVID-19 stocks as it jumped an impressive 135% since the year started.
However, the hype dissipated quickly, with the stock falling almost 50% by August that same year.
The company’s volatility was expected considering Sorrento’s early entry, but delayed progress in the COVID-19 race.
As 2020 rolled out, investors started ditching the stock in favor of other developers like Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), Novavax (NVAX), and AstraZeneca (AZN).
Come 2021, however, the stock seems to bounce back.
Sorrento’s shares have been climbing since the year started following the company’s encouraging data on COVI-MSC, which is its entry in the race to find a potent COVID-19 treatment.
COVI-MSC works as a stem cell treatment developed for COVID-19 patients suffering from acute respiratory distress.
Based on its report in January, Sorrento disclosed that the first three individuals who went through their COVI-MSC treatment were discharged from the hospital within only a week.
Meanwhile, the fourth patient, the one who needed mechanical ventilation due to deteriorating respiratory condition, experienced rapid improvement of his condition and was discharged from the hospital the night of his third COVI-MSC infusion.
On a more promising note, none of the patients experienced any adverse effect following their COVI-MSC treatment.
Outside its COVID-19 treatment program, this San Diego-based biotechnology company has been working on therapies for cancer, neurodegenerative, autoimmune, and inflammatory conditions.
It has multiple “shots on goal” particularly in the oncology department, with its non-small cell lung cancer treatment Abivertinib as the leading candidate to date.
Sorrento’s pain management pipeline, which is headlined by Ztildo, is ripe for expansion thanks to its strategic collaboration with SCILEX.
The company also has its hands in other high-growth sectors in the biotech world, paying particular attention to non-opioid pain relief and immunotherapy.
These projects indicate that Sorrento is no one-trick pony.
In fact, even if its COVID-19 program falls flat – a very real possibility considering that COVI-MSC still needs to go through multiple trials – Sorrento has several initiatives to fall back on.
With three shots on goal, namely, its COVID-19 program, its oncology platform, and non-opioid pain treatment, Sorrento has ensured that it’s well-positioned for success.
If approved, Sorrento’s current pipeline comprising diagnostic kits and therapies could generate over $2 billion in short-term sales.
At the moment though, Sorrento’s $4.02 billion market capitalization makes it a tiny biotechnology company compared to its competitors.
Given its robust pipeline, it’s evident that Sorrento still needs to boost its capitalization to push through with all the plans.
For context, its most dominant rival in the COVID-19 treatment market is Gilead Sciences (GILD), which has $84.38 billion in market capitalization, rakes in $800 million each quarter from sales of Remdesivir.
Let’s say Sorrento expands to the vaccine market, it still cannot catch up with the leader in that arena, Moderna (MRNA), which has $70.97 billion in market capitalization.
Looking at Sorrento’s performance, this company remains an underappreciated stock loaded with potential.
From a business perspective, Sorrento offers a solid pipeline of candidates that could present promising results to push the stock price up.
At this point, the positive updates on its COVID-19 program can cause the stock price to rise exponentially, putting short sellers looking in an unfortunate position.
Overall, Sorrento has the potential to double in value. However, bear in mind that it still has a long way to go. Hence, this company is best as a long-term investment.
Mad Hedge Biotech & Healthcare Letter
February 11, 2021
Fiat Lux
FEATURED TRADE:
(WHEN TECHNOLOGY MEETS HEALTHCARE)
(TDOC), (FB), (AAPL), (AMZN), (NFLX), (GOOGL)
The decision to invest in FAANG stocks—Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL)—is basically a no-brainer.
These are some of the most highly rated stocks to date, and these companies continue to grow in value.
In fact, they managed to soundly outperform the 16% returns of the S&P 500 in 2020, with the weakest stock in the list, Google’s Alphabet, climbing 31% while Apple rose by an impressive 81%.
Outside of FAANG, those who read my Mad Hedge Technology Letter know of the advantages of Software-as-as-a-Service (SaaS) and the growth of the companies behind it.
I’ve always been a fan of emerging innovations, and this is one of the reasons why I’m excited about the collaboration between technologies like SaaS to bolster age-old industries like the healthcare field.
It’s dubbed healthcare-as-a-service (HaaS).
So far, one promising stock comes to mind when it comes to HaaS: Teladoc Health (TDOC).
Teladoc is one of the companies that benefited massively from the COVID-19 lockdowns.
So far, this healthcare stock is up by over 40% year to date after skyrocketing 139% in 2020.
During the first nine months of 2020, it recorded a whopping 163% rise on virtual visits compared to the same period in 2019. Meanwhile, its revenue rose by 79%.
The convenient technology it offers, which allows patients to connect with physicians without physically visiting the doctors’ offices, allowed Teladoc to enjoy strong growth amid the pandemic.
However, Teladoc isn’t merely a reasonable investment during the COVID-19 pandemic.
The company has been quietly gaining traction in the past years.
In its 2015 to 2019 reports, Teladoc reported an impressive growth in its revenues at 78%, 59%, 89%, 79%, and 32%, respectively.
The telehealth market is projected to grow to nearly $560 billion by 2027—an estimate that’s over 9 times the $61.4 billion the industry was worth in 2019.
Needless to say, the growth in the telehealth industry is just beginning, and Teladoc is well-positioned to take advantage of the momentum.
In 2020, it has strengthened its position with its massive $18.5 billion merger with Livongo Health.
Given Livongo’s more specialized portfolio, which puts a premium on chronic care and diabetes, the newly combined companies can offer a more extensive scope of telehealth services.
By 2023, the combined Teladoc and Livongo is estimated to generate more than $3 billion in sales alone.
As for its 2021 plans, Teladoc welcomed the new year with a partnership with continuous glucose monitoring (CGM) systems manufacturer DexCom.
With this collaboration, the company would be able to offer its users “CGM-powered insights.”
In other words, patients would be able to conveniently see and monitor their own glucose levels.
While Teladoc clearly benefited from its partnerships with Livongo and DexCom, its core business continues to show strong growth.
In its third quarter earnings report, which was released days before its Livongo merger, it more than doubled its $138 million sales in 2019 to $288.8 million in 2020.
Meanwhile, the total number of its telehealth visits increased by a staggering 206% to reach 2.8 million.
With the addition of new services in its roster, Teladoc is presented with a considerable growth opportunity just by simply boosting the usage of its current clients.
To give you a better picture of how big this could get, the company recorded a total of 73 million members by the end of the third quarter last year.
Following the mergers and the new deal last January 2021, Teladoc is anticipating an additional 65 million clients.
Teladoc is one of the most exciting healthcare stocks out there today. Its move to combine technology and doctor’s visits make it a uniquely innovative and stand-out business in an age-old industry.
More importantly, it has shown that its growth is not solely reliant on the demands brought about by the COVID-19 pandemic. Instead, it has made key moves to fortify its market share.
Mad Hedge Biotech & Healthcare Letter
February 9, 2021
Fiat Lux
FEATURED TRADE:
(NEW GENERATION OF BIOTECH PLAYERS)
(OCGN), (PFE), (MRNA)
Thanks to COVID-19, a new generation of biotechnology players are gaining more traction in the market these days.
For decades, the biotech industry has been notoriously difficult to break into.
However, the pandemic has served to level the playing field—and the small-cap biotechs are definitely taking advantage of the opening.
The latest to cash in on the opportunity is Ocugen (OCGN).
Founded in 2013, this Pennsylvania-based biotechnology company attracted media attention when it announced its partnership with India’s Bharat Biotech earlier this month.
The agreement between the two companies centered on Bharat’s COVID-19 vaccine candidate, Covaxin, which Ocugen plans to bring to the United States as soon as possible.
Ocugen will hold the US rights to Covaxin and be in charge of the development, regulation, and even commercialization within that market.
Even without any upfront payment, Ocugen will get 45% of the profits from the US markets in return.
While the news only broke this year, the partnership between the two has been months in the making, with Ocugen reaching a tipping point in December 2020 when it recorded a jaw-dropping 800% rise.
When this deal was announced, Ocugen shares were projected to rise from $4.50 to $8, showing off an already impressive increase from its measly 29 cents valuation less than a year ago.
Ocugen blew past those projections though as it’s now trading at $15 per share.
The kicker? The stock still has room to grow.
Realistically speaking, Ocugen shares can reach $20 to $25 after FDA approval this year. If its other candidates in the pipeline work out, then we can even see it hit $50 at some point.
Considering that Ocugen was able to sell 3 million common shares at a price that’s 46% higher than where the stock was when it closed last Friday, it’s clear that there’s a lot of optimism on the company these days.
The next question is this: Will Covaxin even gain approval in the US?
It can.
If it’s any indication, Covaxin has already been granted emergency use authorization in India.
Moreover, Covaxin was developed by Bharat, which is a highly reputable biotechnology company in India with 25 years of experience in the vaccine-making industry.
In fact, Bharat has developed over 16 vaccines and four bio-therapeutics, so it’s safe to say that the company knows its way around the business.
More than that, Bharat is confident that Covaxin can be effective against the new UK and South African variants of the coronavirus, making this vaccine candidate more potent than the other products under development today.
Unlike the vaccines of Pfizer (PFE) and Moderna (MRNA), Covaxin does not need ultra-cold freezers for storage. It can simply be stored at room temperature, making it a convenient option for a lot of distributors.
Prior to its deal with Bharat, Ocugen has been focused on its gene therapy which carries the potential to treat multiple retinal diseases with just one drug.
They call their breakthrough technology “one to many,” meaning the product could be the answer to several eye-related diseases.
Some of the rare conditions Ocugen has been working on are wet age-related macular degeneration, diabetic macular edema, and diabetic retinopathy.
Ocugen’s growth prospects, especially in 2021, heavily relies on the company’s ability to get an emergency use authorization for Covaxin in the US.
This means that investors should brace themselves for volatility in the next months as the vaccine candidate moves forward with the clinical trials.
In terms of long-term prospects, it remains to be seen how Ocugen will take advantage of the momentum it gained from the COVID-19 partnership with Bharat.
Mad Hedge Biotech & Healthcare Letter
February 4, 2021
Fiat Lux
FEATURED TRADE:
(IS THIS THE NEXT BIOTECH DARLING?)
(VXRT), (MRNA), (PFE), (BNTX), (AZN), (NVAX)
If you were given the chance to choose, how would you prefer to get vaccinated against COVID-19: by getting an injection or by taking a pill?
For a lot of people, it’s a no-brainer to choose the pill—and one biotechnology company has been working hard to turn that into a reality: Vaxart (VXRT).
Last January 2020, Vaxart was only a micro-cap stock focused on developing a lineup of oral-tablet vaccines as treatments for viral infections.
When news broke that the company has been developing a COVID-19 vaccine in the form of a pill, its shares rocketed by over 1,250% in the past 12 months.
From a micro-cap stock trading for as little as $0.70 last year, Vaxart has been trading somewhere between $21 to $23 per share since 2021 started.
In fact, Vaxart even managed to outpace other biotechs already leading in the coronavirus market like Pfizer’s (PFE) partner BioNTech (BNTX), and Moderna (MRNA).
If Vaxart’s vaccine, VXA-CoV2-1, receives regulatory approval, then its COVID-19 vaccine candidate offers key advantages over its rivals.
The first is that VXA-CoV2-1 comes in the form of pills, making it a more convenient and generally preferable option for a lot of patients.
The second is that VXA-CoV2-1 can be stored at room temperature, which eliminates any type of special handling unlike the vaccines of Pfizer-BioNTech, Moderna, and even AstraZeneca (AZN).
The third is that you can take VXA-CoV2-1 on your own. Since these are pills, there is no need for a healthcare worker to administer the COVID-19 vaccine.
This means that VXA-CoV2-1 can be delivered for at-home use.
These advantages effectively eliminate barriers in the healthcare systems, making it easier and more convenient to purchase and deploy VXA-CoV2-1.
Looking at all potential markets, Vaxart could find a niche in underdeveloped regions.
On top of all these conveniences, the technology used to develop VXA-CoV2-1 can also be utilized in creating an oral vaccine against other diseases.
So far, VXA-CoV2-1 is only in Phase 1 of its clinical trials, with new data expected to be released this February.
Prior to this, results showed that VXA-CoV2-1 eased lung viral load and alleviated lung inflammation in hamsters that were infected with COVID-19.
While all these definitely sound amazing, everything is still in very early stages. Plus, results from hamster studies are a far cry from showing efficacy in human beings.
This makes the Phase 1 data release a sort of make-or-break event for Vaxart.
Other than its COVID-19 vaccine candidate, Vaxart has been working on an oral vaccine for influenza as well.
This product is currently undergoing Phase 2 clinical trials and has so far surpassed the efficacy of Sanofi’s (SNY) Fluzone by 8%.
In terms of pipeline growth, Vaxart is still no match to Moderna, which has developed technology that could cure cancer and other rare diseases. It’s probably closer to Novavax (NVAX), which is also working on an influenza vaccine.
So, is Vaxart the new darling of the biotech world?
It definitely has the potential.
However, its success hinges on everything aligning perfectly. But as a certain guy named Murphy has pointed out, that oftentimes does not happen.
Vaxart is subject to forces beyond its control.
There’s no absolute guarantee that its COVID-19 vaccine candidate will fare well in all the clinical trials.
Vaxart has a viable path of delivering humongous gains this year. However, this path is also riddled with lots of risks.
It is a highly risky stock and is best left to aggressive investors.
Moreover, Vaxart is in a precarious position right now, wherein a failed clinical result in human studies would be devastating for the shares.
On the other side, a positive human data readout would send the shares soaring in the next months.
Truth be told, sky would be the limit for Vaxart’s stock price if FDA actually approves its oral vaccine candidate.
Undoubtedly, Vaxart will be at the center of debates between short-sellers and passionate bulls throughout 2021. The bottom line is that will always be a trade-off of risk and reward in any type of investing.
If you have faith in Vaxart’s science and are confident that you have the stomach for a crazy roller-coaster ride, then you can give this biotech stock a chance.
Otherwise, play it safe and invest in less volatile biotechnology stocks instead.
