Biotech Letter - John Thomas - Mad Hedge Fund Trader

Is Johnson & Johnson the Best Coronavirus Stock?

To date, some coronavirus vaccine stocks have managed to offer investors huge gains within short periods.

Moderna (MRNA) is a prime example, climbing to over 400% in 2020 as more and more investors bet on the biotech’s COVID-19 program.

Interestingly, Pfizer (PFE) fell by less than 1% during the same period despite the fact that both companies led the COVID-19 vaccine race.

Actually, it was Pfizer that eventually won the first Emergency Use Authorization.

Investing in COVID-19 vaccines brought about vastly different outcomes.

Now, let’s take a look at the next company to potentially enter the market: Johnson & Johnson (JNJ).

At the moment, JNJ’s candidate is in Phase 3 trials. What makes this trial interesting is the dosing regimen.

JNJ is evaluating two options in its Phase 3 trials.

The first option, called “Ensemble,” studies the effect of a single dose of its COVID-19 vaccine.

The second option, “Ensemble 2,” examines how the vaccine works when administered in two doses.

Results are expected to be released before January 2021 ends.

If all turns out positive, then JNJ will be the third company to cross the COVID-19 vaccine race finish line.

Both Moderna and Pfizer require two doses. Even its close-to-market competitors like AstraZeneca (AZN) and Novavax (NVAX) have developed two-dose products.

Needless to say, a proven safe and effective one-dose regimen would provide JNJ’s vaccine a significant competitive advantage.

Obviously, people would prefer the idea of a one-jab vaccine instead of getting two. More importantly, this regimen would make it easier to vaccinate more individuals.

For example, Moderna’s goal is to supply 1 billion doses in 2021. However, that will only cover half or 500 million people.

In comparison, JNJ’s promise of producing 1 billion doses per year will be sufficient to immunize 1 billion individuals.

Another advantage is JNJ vaccine’s storage requirement.

Unlike Pfizer and Moderna’s vaccines, JNJ’s candidate can be stored at refrigerator temperatures for at least 3 months.

Taking all these into consideration, JNJ’s vaccine is looking promising.

Now, let’s check out its revenue potential.

Taking cue from AstraZeneca, JNJ has announced its decision to offer its vaccine on a not-for-profit basis during the COVID-19 pandemic.

This means it plans to sell the product at cost.

Without any profit from this venture, we can’t count on the COVID-19 vaccine to add to the company’s earnings in the near future.

Post-pandemic, though, the company could eventually raise the price and start benefiting from its sales.

While there’s no definitive timeline, this could be around the later parts of 2021. Based on that prediction, JNJ could start benefiting from its COVID-19 vaccine sales by early 2022.

JNJ can easily become a leader in the coronavirus market if its one-dose vaccine gains regulatory approval from health agencies across the globe.

However, I don’t expect major gains in its share price even if it does happen.

From what I’ve observed so far with Moderna and Pfizer, the shares of clinical-stage biotechnology companies tend to soar while those of bigger biopharmaceutical counterparts do not.

That’s most likely because the smaller companies will rely heavily on the COVID-19 vaccine revenue while the more established companies, with their extensive range of commercialized products, won’t.

With the sheer size of JNJ, which has a market capitalization of over $427 billion, its shares seldom make huge moves.

Still, JNJ continues to show incremental and steady growth in profits, revenue, and even share price.

In fact, the company is up by over 10% over the previous year. More importantly, investors can always count on the company for dividends.

So, I wouldn’t buy JNJ shares only for its COVID-19 vaccine candidate. It’s not the best idea to buy a stock because of a single product anyway.

But, I would definitely buy JNJ shares for its overall portfolio and its ever-reliable increasing dividend payouts.

January 19, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
January 19, 2021
Fiat Lux

FEATURED TRADE:

(CAN NOVAVAX EXTEND ITS WINNING STREAK?)
(NVAX), (MRNA), (PFE), (AZN), (BNTX), (BTC)

Can Novavax Extend Its Winning Streak?

Biotech Letter

Would you believe that there was a bigger winner than Bitcoin (BTC) in 2020?

Amid the fanfare generated by COVID-19 vaccine developers like Moderna (MRNA) and Pfizer (PFE), there’s one biotechnology company that has quietly boosted its humble $4 share price to an impressive $128: Novavax (NVAX).

As incredible as that sounds, this isn’t the most unbelievable prediction for Novavax.

Despite recording a jaw-dropping 2,600% increase last year, this Maryland-based biotechnology company is projected to sustain the momentum in 2021 and beyond.

Let me share how Novavax can achieve a long-lasting winning streak.

Unlike Moderna and Pfizer, Novavax did not utilize RNA technology to develop NVX-CoV2373. Instead, the company opted for a more established approach.

The decision to pursue a more established technology could be viewed as a cost-cutting strategy for Novavax.

Doing so means dramatically lowering supply chain pressures, such as storage issues.

In effect, the Novavax vaccine would be the more convenient option that offers an equally potent result.

At this point, Novavax has yet to reveal its Phase 3 trial results. The tests, which involve trials in the UK, would prove to be the turning point for the company’s future.

Here’s a rough estimate of how the results could affect Novavax shares.

If the results show that NVX-CoV2373 is 90% effective, this would put the vaccine in the same league as Pfizer and Moderna. Consequently, shares will go up by 30% with this news.

Meanwhile, an efficacy result clocking in at less than 80% would have the stock falling by up to 20% primarily due to the strong competition in the COVID-19 market.

Approximately $40 billion in COVID-19 revenue is at stake this year.

While competitors Pfizer, Moderna, and AstraZeneca (AZN) have already had their vaccines approved for emergency use, Novavax still has a strong chance of getting a piece of the action.

Despite these candidates getting rolled out in other countries, Novavax’s NVAX-CoV2373 remains a heavy favorite among experts and analysts alike.

At this rate, NVX-CoV2373 could generate at least $4 billion of the $40 billion COVID-19 market in 2021.

Considering that Novavax has an $8 billion market capitalization, this alone more than justifies the company’s valuation.

Admittedly, Pfizer and Moderna hold the competitive advantage in being the first to market. It wouldn’t be surprising if both would end up gobbling up market share while Novavax awaits regulatory approval.

More importantly, both have achieved the coveted name recognition when it comes to COVID-19 vaccine so that could offer them power in the soon-to-be-crowded marketplace down the road.

However, both vaccine leaders have a considerable drawback.

Their vaccines require extremely delicate storage and transportation.

In fact, Pfizer and BioNTech’s (BNTX) BNT162b2 must be stored at minus 94 degrees—a requirement that not all countries, much less commercial distributors could adhere to.

This is where Novavax’s vaccine comes in.

NVX-CoV2373 can be stored and transported at refrigerated temperatures. This means it would be easier to distribute particularly in remote areas.

Any hiccups with storage or transportation involving the Moderna or Pfizer vaccines could offer Novavax an opening to generate vaccine sales that would otherwise no longer be available.

This scenario would translate to a more dominant presence of Novavax in the second half of 2021 until the early part of 2022.

Pfizer and Moderna may have been the first to market, but Novavax’s vaccine holds the potential to generate a sizable impact on sales over the long term.

In terms of revenue, the vaccine would be a significant boost for Novavax. It would transform from a zero product revenue to billions in a short period.

While Novavax has yet to announce the official pricing for the product, we can use its US price of $16 per dose as a benchmark for the rest of the contracts.

So far, Novavax has secured roughly orders for 300 million doses in the US alone. This would amount to $4.8 billion in sales—and all signs point to the number climbing higher this year.

Novavax has been ramping up its capacity to produce as many as 2 billion doses by mid-2021.

In comparison, Pfizer has a maximum capacity of 1.3 billion doses this year while Moderna would peak at 1 billion.

Evidently, Novavax holds an edge over the two companies in terms of capacity to fill orders.

Outside its COVID-19 efforts, Novavax has another potential blockbuster in its pipeline.

Although data is sparse, the company is expected to file for regulatory approval for its experimental flu vaccine called NanoFlu.

Oddly enough, NanoFlu was the reason that Novavax trounced the cryptocurrency surges in 2020.

Investors got all fired up following the promising showing of the flu vaccine candidate, with the stock gaining unprecedented attention when it reported remarkable results in a head-to-head study against the leading flu vaccine in the market today, Sanofi’s (SNY) FluZone Quadrivalent.

With all these in mind, Novavax’s earnings outlook is showing strong signs of even more stellar and stronger performance than that of Moderna this year.

So far, earnings per share for Novavax this year is estimated at $21 while Moderna’s is $10.

Another possible game-changer for Novavax is its plan to combine a flu-coronavirus vaccine to be marketed post-pandemic.

Before making any moves though, it’s important to invest in Novavax with all the facts out in the open.

Inasmuch as it’s a promising stock, this is still a risky investment. This means that only aggressive investors should consider buying this biotechnology stock.

In a number of ways, Novavax and Bitcoin share some similarities.

Both are speculative assets that could either skyrocket or sink. They’re extremely attractive to aggressive investors on the lookout for big wins but also unafraid of massive risks.

The main difference is that with Novavax, it’s simpler to understand the reason for its rise or fall.

The potential drivers for its success or failure appear to be less cryptic than those behind the cryptocurrency.

January 14, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
January 14, 2021
Fiat Lux

FEATURED TRADE:

(ARE THESE THE NEW NEUROSCIENCE TRAILBLAZERS?)
(LLY), (BIIB), (MRNA), (DNA)

Are These The New Neuroscience Trailblazers?

Biotech Letter

Aducanumab isn’t going gently into the night.

Positive data from Eli Lilly (LLY) breathed renewed interest in the efforts to find a cure for Alzheimer’s disease, the most common form of dementia and the sixth leading cause of death among Americans.

With 1 in 10 people aged 65 and older suffering from this condition, it’s no wonder that Big Pharma has invested so much in searching for a treatment.

Lilly’s candidate, Trailblazer-ALZ 2, is in its Phase 2 trials. Results showed that the progression of moderate Alzheimer’s disease among patients who took the drug showed a 32% decline compared to a placebo.

In a sector riven by failure and with a potential target market as lucrative as $30 billion annually, investors welcomed Lilly’s news with enthusiasm.

If successful, Trailblazer-ALZ 2 could reach $5 billion in peak sales. As expected, the results boosted Lilly’s stock, with it rising by 14% from $166 to $190.

While the Lilly study is promising, it involved only 272 patients.

This is easily dwarfed by Biogen’s (BIIB) efforts to find a cure for Alzheimer’s. As of last count, the giant biotechnology company’s previous trial for its own drug, Aducanumab, involved over 3,200 patients.

More importantly, Lilly’s Trailblazer-ALZ 2 is projected to hit the market in 2025, while Biogen’s Aducanumab is “ready to go.”

Aducanumab is a monthly infusion designed as a long-term treatment for generally healthy individuals who are beginning to show symptoms of Alzheimer’s disease.

Although this treatment has yet to be approved, the FDA is said to be in favor of its approval.

Outside the US, Biogen has also filed for potential approval in Japan and Europe. All approvals could come by early to mid-2021.

If approved, Aducanumab is expected to reach $12 billion in peak sales.

While this plan is still up in the air, the $12 billion in sales alone could easily justify the entire company’s current valuation.

Despite the uncertainty, Biogen remains promising thanks to the high potential of the existing drugs in its roster and its R&D unit.

In terms of pipeline, the company has at least 30 active clinical programs. Eight of which are already in Phase 3 and filed, including Aducanumab.

In recent years, Biogen has been focusing on expanding its neuroscience segment.

With over $28 billion potential market size, it no longer comes as a surprise why Biogen is pouring in cash in this particular sector.

Bolstering its efforts in the neuroscience segment, Biogen has recently invested in the Series A round of Atalanta Therapeutics, a Boston-based pioneering neurodegenerative diseases biotechnology company founded in 2018.

Attracted by Atalanta’s research on siRNA, which are molecules that can “silence” genes in the brain, Biogen and another biotechnology bigwig, Genentech (DNA), invested a combined $110 million to get a piece of the action.

Specifically, Biogen signed up to collaborate with Atalanta on treatments for Huntington’s along with several other central nervous system disorders.

As for Genentech, the $73.9 billion valued company’s deal with Atalanta covers Alzheimer’s and Parkinson’s.

In both agreements, Atalanta gets upfront payments, milestones, and royalties.

What we know so far is that Atalanta’s siRNA can silence Huntington's disease gene for at least six months. It can also alleviate symptoms affecting the spinal cords, but this part of the research has only been done on nonhuman primates.

Biogen, which has a market capitalization of $41.15 billion, has seen its share price fluctuate dramatically due to concerns over its Alzheimer’s drug.

The company withstood significant volatility in 2020, experiencing over 40% price swings in both directions. This is primarily because of the ups and downs of its Aducanumab trials, which heavily swayed the opinion of market participants.

Moving forward, I expect Biogen to have a massive year this 2021.

That’s the upside of this stock.

Even at its midpoint and if major treatments like Aducanumab fail to gain approval, I still anticipate a respectable year for this biotechnology company. That kind of security is worth paying attention to, and it can also signal its capacity to drive strong rewards.

Biogen has been shunned in the past year due to its volatility.

After all, who would want to invest in an unpredictable drug like Aducanumab when there are major stock indices and newcomers like Moderna (MRNA) making record-breaking highs?

For investors willing to look beneath the surface though, Biogen offers so much more than what meets the eye.

January 12, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
January 12, 2021
Fiat Lux

FEATURED TRADE:

(DEFEATING GRIMMER REAPERS)
(PFE), (BNTX), (MRNA), (CVAC)

Defeating Grimmer Reapers

Biotech Letter

They say there’s always a light at the end of the tunnel, but what a very long tunnel we’re in right now.

More contagious strains of the SARS-CoV-2 have been discovered in the UK and South Africa, with these new variants threatening to make the situation worse before we even get the chance to try to make things better.

However, there’s still hope.

Just take another look at the leading vaccines developed in response to the COVID-19 pandemic and you’ll realize that we could be nearing the light at the end of this dark road.

In fact, the innovative solutions that emerged in 2020 could serve as beacons of light to illuminate the darker paths that the biotechnology and healthcare sector has been struggling with for decades.

The more we study the effects of the new vaccines, the more it becomes plausible that they could not only be used as weapons to fight off the 2020’s ultimate grim reaper, COVID-19, but also annihilate grimmer reapers like cancer.

Among the vaccine developers that launched their COVID-19 program, the technology used by Moderna (MRNA), Pfizer (PFE) – BioNTech (BNTX), and CureVac NV (CVAC) proved to be the most groundbreaking.

All these utilized the nucleic acids, more commonly known as RNA or mRNA, to create their COVID-19 vaccines.

Traditional vaccines are typically injected into the body to trigger an immune response, which would, later on, be useful in fighting off the live pathogen. The problem with this is that it requires so much time and exposes the vaccines to contamination.

In comparison, mRNA vaccines do not suffer from these setbacks. Basically, these vaccines instruct the body to replicate parts of the virus.

In the case of SARS-CoV-2, the mRNA vaccines tell our bodies to replicate the proteins wrapped around the virus. This way, the body gets to practice on the replicated proteins and prepare for the day when the actual virus shows up in the system.

By familiarizing the body with the genetic makeup of the deadly virus, the mRNA vaccines help us perfect the immune response for when the real thing attacks us—and therein lies the much bigger promise of this technology.

mRNA has the capacity to instruct our cells to create whatever protein necessary, which means it can be applied to fight off other diseases apart from COVID-19.

Researchers since the 1970s have been attempting to shed light on this technique but failed to get traction.

Due to the urgency caused by the pandemic, companies like BioNTech and Moderna have been given practically carte blanche of the funds to finally develop the mRNA vaccines and show the world not only how potent it could be but how quickly we can have it ready compared to more traditional processes.

Now, the technology is gaining more attention because it could finally be the cure to a myriad of diseases including cancer.

These days, we treat malignant tumors by zapping them with radiation or via chemicals. These methods tend to damage lots of surrounding tissues in the process.

Moderna and BioNTech have come up with a better idea.

Instead of blindly zapping in one general direction, they believe that each should be treated as a genetically unique tumor. Therefore, it would be more effective and less damaging to the patients if their immune systems are accurately programmed to attack specific enemies.

This is where mRNA comes in.

Once the antigen is identified, the scientists can determine its unique makeup or fingerprint.

Then, they can reverse engineer its entire cellular instructions to be able to come up with the blueprint that can help them develop an accurate plan on how to target the culprit.

Similar to how Moderna and BioNTech’s COVID-19 vaccines work, the body will then be conditioned to do the rest.

What’s more exciting is that these plans are no longer just ideas.

Both Moderna and BioNTech have been filling their pipelines with drug trials for cancer treatments of the skin, lung, breast, pancreas, prostate, and brain. They’ve been working on mRNA-based vaccines for a wide range of diseases as well including Zika, rabies, and even influenza.

The success of Moderna and BioNTech’s COVID-19 programs accomplished more than just giving the companies a marketable product. It turbo-charged decades-long processes.

Remember, it only took 11 months since the discovery of the SARS-CoV-2 virus for the UK and US regulators to declare that the mRNA vaccine for COVID-19 is not only safely tolerated by people but also effective.

Prior to this, no vaccine had been developed in less than four years. The approval period takes even longer.

That is, COVID-19 inadvertently led to the grand debut and definitive proof of concept of this much-awaited technology.

If you missed out on Moderna or BioNTech’s rally in 2020, buying on the dip is definitely a smart move now.

mRNA

January 7, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
January 7, 2021
Fiat Lux

FEATURED TRADE:

(LEFTOVER STOCKS RIPE FOR THE PICKING)
(ANTM), (UNH), (CVS), (TDOC)

Leftover Stocks Ripe for the Picking

Biotech Letter

One of the key things to remember in choosing companies to invest in is their long-term prospects. With these firmly in place, compounding can practically do most of the heavy lifting in the years to come.

Sure. It’s easy to be blinded by hot growth businesses these days—ones that seemingly promise unabated growth forever or those with cheap valuations but with no definitive growth prospects.

That is, you need to find businesses with not only promising prospects but are also trading at reasonable valuations. This requires a delicate balancing act.

With that balance in mind, one of the most obvious trends that fits the bill is to capitalize on the aging populations across the world.

As people age, it will drive higher demand for a myriad of healthcare services and the sector that responds most to this trend is the medical insurance segment.

Among the companies in this industry, I find Anthem (ANTM), UnitedHealth (UNH), and CVS Health (CVS) to bring the most bang for your buck.

While these companies are as fun to talk about as an actuarial table, they offer predictable cash flows and long-term prospects at reasonably priced valuations.

Let’s take Anthem for example.

From a valuation point of view, Anthem has traded hands at roughly 11.5 times its trailing earnings. More impressively, those earnings are estimated to increase by approximately 14.5% clip over the next five years.

That’s a reasonable, if not really cheap, price to pay for a company that’s well-positioned for what the future is expected to bring.

The aging population will also swell the ranks of UnitedHealth, being the largest health insurer in the country with over 14 million members in its Medicare programs.

Among the three, I find CVS the most intriguing.

The problem with this business is that people generally believe it’s only a pharmacy company. The truth is, it’s only one facet of CVS’ business, and, surprisingly, that’s its least profitable sector to date.

During the first six months of 2020, the total revenues of CVS went up 5% year over year to $132 billion.

Meanwhile, revenues of its pharmacy services sector grew by 2% compared to the same period in 2019 while its retails segment increased by 3%.

Notably, the biggest gainer is its healthcare benefits segment with a 6% jump year over year in revenues.

During these six months, CVS increased its medical memberships by 134,000 individuals to add Medicare and Medicaid insurance products.

On top of these, CVS reported that it had administered almost 2 million tests for COVID-19 in July—a number that continued to grow as the pandemic progressed throughout 2020.

Taking cue from the success of companies like Teladoc (TDOC), CVS also invested heavily in telehealth services.

In its second quarter earnings report, the company recorded a 15% increase in the number of its HealthHUB visits for regular members and Aetna cardholders.

This 2021, CVS plans to boost its digital health services by adding more segments like a behavioral support unit.

Overall, CVS has been performing better than its peers despite the pandemic thanks to its efforts on transforming itself into a more affordable healthcare benefits provider.

In fact, the company raked in $4.9 billion in profits in July 2020 alone—a whopping 48% jump from its performance in the previous year over the same period.

Most importantly, CVS is offering a dividend of $0.50 per share. Although the company hasn’t exactly raised this since 2017, it remains a preferable yield of 3.54%. This is way better than the average 1.8% payout from the S&P 500.

Despite all these, CVS is still one of the unpopular stocks among investors today.

All three companies have managed to still make a notable profit and fared relatively well despite the pandemic.

They are also underpriced, trading at roughly 14 times earnings or even less. On top of these, each pays dividends and offers an ROE of at least 11%.

Keep in mind that aging is an unstoppable and undeniable trend.

You’ve heard about the large number of Baby Boomers hitting retirement age, with the last of the roughly 72 million from that generation in the US alone turning 65 by 2030.

By 2034, older adults will outnumber children aged 18 and under. That has never happened in American history.

This isn’t a unique case in the US either.

The same is happening in Europe, where 1 of 5 people is already at least 65 years old. Asia is also expected to experience the same thing within the decade, particularly in South Korea and Singapore.

All three stocks, Anthem, UnitedHealth, and CVS offer reasonable opportunities at their current prices. They actually fit the textbook definition of value stocks. Hence, buying and holding these stocks is one of the most straightforward strategies over the next decade and beyond.

To put it simply, this only means one thing. For investors of these medical insurance stocks, time is literally on your side.

CVS

January 5, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
January 5, 2021
Fiat Lux

FEATURED TRADE:

(ANNOUNCING THE MAD HEDGE BIOTECH AND HEALTH CARE TRADE ALERT SERVICE)
(WHY ASTRAZENECA IS NOT JUST A COVID PLAY)
(AZN), (PFE), (MRNA), (JNJ), (ALXN)