Biotech Letter Archives

Tested and Proven COVID-19 Stock for These Uncertain Times

As we hold our breath for the results of the presidential election, it’s no surprise that investors are wondering how their portfolios will be impacted.

That’s why now is the right time to pick a stock or two that can thrive regardless of who emerges as the victor.

To do this, it’s wise to look at a company that has already experienced a boost under Trump’s presidency and could continue to enjoy the rewards even with a Joe Biden administration.

The obvious common denominator is Trump and Biden’s goal to be aggressive in COVID-19 testing for as long as the virus is around.

Pfizer (PFE), AstraZeneca (AZN), and Moderna (MRNA) are undoubtedly three of the most widely reported coronavirus stocks in the past months.

These companies were the first to launch their COVID-19 vaccine candidates in human trials and are the leaders in the race towards the finish line.

However, long-term investors may find more value betting on one of my preferred COVID-19 stocks: the $188 billion healthcare behemoth Abbott Laboratories (ABT).

Let me tell you why.

In either Trump’s or Biden’s presidency, Abbott stands to benefit.

Regardless of the winner of the 2020 election, Abbott remains a winner for as long as COVID-19 continues to threaten the world.

While the majority of COVID-19 vaccine companies have yet to generate income from their coronavirus programs due to pending FDA approvals, Abbott has been leveraging its pipeline to boost its growth even with the pandemic.

Since the early days of this health crisis, Abbott has been working to stay ahead of the pack.

To date, the company has at least seven COVID-19 tests with emergency use authorization from the FDA and are available in the market.

These tests, which boosted Abbott’s diagnostics sales by 39% in the third quarter, range from detecting active cases to identifying whether a person has been infected with the virus in the past.

The latest swab test to join Abbott’s growing lineup of COVID-19 products is called the antigen test and is designed to deliver results in as fast as 15 minutes and costs only $5.

To add convenience, this test is connected to a mobile to allow users to access their results right away.

Prior to the antigen test, Abbott launched a rapid detection test called BinaxNOW. This test can also return results on-site within 15 minutes. It has a free digital app, which sends users with negative results a “digital health pass” right on their phones.

When BinaxNOW was launched in August, the Trump administration spent $760 million for 150 million tests.

This company has supplied over 100 million COVID-19 tests and generated roughly $881 million in sales in the third quarter, up from the $615 million it reported in the second quarter.

Abbott is one of the safer stocks to own in the healthcare sector, with sales estimates for this company expected to grow by 14% in 2021 and 2022.

So far, Abbott shares have climbed 22% this year. Even amidst the pandemic, Abbott raised its full-year guidance for its earnings per share from $3.25 to $3.55.

While the company has been focused on its COVID-19 programs, this strategy is not a one-time deal.

On the contrary, the popularity of its COVID-19 testing kits serves as the much-needed door-opener for Abbott to expand its medical venues—an effort that generally takes years to develop.

For instance, its diabetes care segment alone managed to achieve a 26.9% year-over-year jump in sales to reach $843 million in the third quarter.

On top of that, Abbott has an incredibly diverse pipeline with over 100 new products across its different business units.

Abbott is a widely known dividend aristocrat, paying quarterly dividends consistently since 1924. It has a proven track record of solid performance and a carefully curated suite of businesses that promises future rewards.

At the rate the company is growing and the future projects it has in its pipeline, this dividend aristocrat would no doubt continue with this proud tradition of rewarding its investors generously.

October 29, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 29, 2020
Fiat Lux

FEATURED TRADE:

ROCHE ENTERS COVID-19 FIGHT IN STYLE
(RHHBY), (REGN), (GILD), (MRK), (ALNY), (IONS)

Roche Enters COVID-19 Fight in Style

Biotech Letter

Roche (RHHBY) is making quite an entrance in the COVID-19 antiviral treatment race, forking out $350 million in cash to gain rest-of-the-world rights to a promising new drug created by Massachusetts-based biotech company Atea Pharmaceuticals.

This is an exciting development because the partnership between the two companies holds incredible promise in the search for a COVID-19 cure.

In May, Atea Pharmaceuticals essentially dropped all its projects and rebranded itself as a COVID-19 fighter, attracting a stunning $215 million in its venture round.

Among the marquee names that invested in this 7-year-old biotechnology company are Bain Capital and RA Capital.

Going back to its work with Roche, the $350 million cash is expected to fund the ongoing clinical trials of Atea’s very own COVID-19 antiviral treatment called AT-527.

So far, the candidate is in its Phase 2 trial and slated to start global trials or Phase 3 by early 2021.

Apart from being a potential COVID-19 treatment, AT-527 is also under development as a Hepatitis C medication.

In terms of where AT-527 stands in the COVID-19 treatment race, this drug belongs to the same class as Gilead Sciences’ (GILD) Remdesivir and Merck’s experimental candidate with Ridgeback Biotherapeutics called MK-4482.

Like Remdesivir and MK-4482, Roche’s AT-527 is designed to inhibit the replication of SARS-CoV-2, the virus that causes COVID-19.

Unlike Remdesivir though, which is only available through intravenous infusion, AT-527 is an oral drug, making it a more convenient option.

This isn’t the first time that Roche’s COVID-19 efforts came under the spotlight.

Earlier this month, its COVID-19 work with Regeneron (REGN), called REGN-COV2, has been dubbed as a leading candidate in the race because of the high-profile patient who used it: President Donald Trump.

This partnership with Regeneron is expected to ramp up the manufacturing process by at least 3 and a half times compared to their individual capacities.

Outside its COVID-19 efforts, Roche has proven to be a good long-term investment.

Admittedly, the company’s third-quarter report missed the mark by 4% due to aggressive biosimilar competition. However, Roche’s pipeline of newer products has been growing nicely.

Because of biosimilar competition, sales of cancer and immuno-oncology treatments like Avastin fell by 30%, Rituxan slipped by 33%, and Herceptin dropped by 38%.

However, the performance of Roche’s new drug lineup showed promising results, with sales of these products showing off a 32% growth in the third quarter of 2020.

For example, sales of multiple sclerosis drug Ocrevus rose by 37%, while revenue from cancer treatments like Perjeta climbed 17%, Kadycla rose by 33%, and Tecentriq jumped by 49%. Meanwhile, sales of hemophilia medication Hemlibra increased by 57% .

All in all, the hits and misses cancelled out each other this quarter.

Despite the disappointment in these results, Roche stood by its full fiscal year guidance.

This is a strong indicator that the company sees a brighter fourth quarter. Overall, Roche remains in good shape.

Tecentriq has been expanding to cater to other indications such as liver cancer and even some immuno-oncology applications.

Hemlibra continues to outperform its peers, holding on to 25% of the US market share for Hemophilia-A. Even Ocrevus has been outperforming others.

Regarding pipeline developments, Roche has been pouring resources for the trials of NASH drug candidate Crovalimab, which is now in Phase 3.

The acquisition of Inflazome in September and Enterprise Therapeutics in October indicate that Roche is looking to expand in the cystic fibrosis space as well.

Its recently inked agreement with Dyno Therapeutics also signals its plans to work on gene therapies, making itself a potential threat to the likes of biotechnology companies Alnylam (ALNY) and Ionis (IONS).

Looking at everything it has done and has yet to offer, I believe that Roche shares are undervalued at below the high $40s.

This company has a healthy lineup and promising R&D strategies combined with the capacity to buy high-potential assets.

I can see the company generating mid-single-digit cash flow growth on a long-term basis, and I even expect additional improvements to the dividend.

Given the returns you can get from Roche, I can say that this stock is very much worth consideration for any investor interested in quality growth.

October 27, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 27, 2020
Fiat Lux

FEATURED TRADE:

(HOW VERTEX IS CURING THE INCURABLE)
(VRTX), (PTI), (GLPG), (CRSP)

How Vertex is Curing the Uncurable

Biotech Letter

Erratic. Unpredictable. Volatile. Take your pick of the descriptions used when it comes to biotechnology stocks. Each of these adjectives can be a fitting descriptor to the industry most of the time.

However, not all biotechnology companies fall under that category. Some are reasonably stable, offering steady and increasing profits.

Vertex Pharmaceuticals (VRTX) is one of those biotechnology stocks that you can simply buy and hold for over a decade without losing any sleep.

One of the key factors in Vertex’s success is its monopoly on the cystic fibrosis (CF) market.

CF is a rare and life-threatening genetic disease that affects a patient’s digestive system and lungs. To date, there is no cure for this condition that overshadows the lives of 68,000 individuals in the US and the EU. However, there are treatment options for it.

Vertex developed the first-ever FDA-approved drug, Kalydeco, for the condition. As expected, it gained the much-coveted head start that led to its dominance today.

Its closest rivals, Proteostasis Therapeutics (PTI) and Galapagos NV (GLPG), are years away from ever catching up to the Massachusetts-based biotechnology stalwart. Neither has an approved drug as of today.

Since the approval of Kalydeco in 2012, Vertex stock has been enjoying an upward trajectory. With the recent addition of another CF blockbuster, Trikafta, the company is anticipated to keep its momentum.

From the moment Trikafta was released to the market, Vertex’s revenue and bottom line showed impressive growth. The drug, which is a triple combination therapy, is projected to capture almost 90% of the CF market worldwide.

Needless to say, Vertex has made it in the shade for at least the next 5 years, thanks to its CF market dominance.

In its second quarter earnings report, Vertex showed a 62% jump in its revenue year over year to hit $1.52 billion. Its net income of $837 million demonstrated a whopping 213% increase compared to the same period in 2019.

As anticipated, the star of the show was Trikafta.

The drug raked in $918 million in the second quarter alone – an amount higher than the combined sales of all the drugs in Vertex’s product line and an impressive growth from the $420 million it contributed last year.

As Vertex’s bottom line grew, its margins showed substantial improvement as well. Its operating margin for the second quarter of 2020 is at 57% compared to 44% during the same quarter last year.

With Vertex’s key metrics topping expectations, the company changed its 2020 revenue guidance from $5.7 billion to $5.9 billion, showing off a noteworthy increase from the $4 billion in sales it reported in 2019.

Although its CF pipeline has a number of promising candidates, Vertex is also looking outside the market for additional avenues of growth.

One of the most promising and exciting partnerships it forged in the past decade is with gene-editing company CRISPR Therapeutics (CRSP).

Just looking at this collaboration makes it clear that Vertex is once again playing the long game.

What we know so far is that the two companies are working on a treatment, called CTX001, for rare genetic blood disorders sickle cell disease and transfusion-dependent beta-thalassemia.

They are also developing two potential treatments for alpha-1 antitrypsin deficiency (AATD), which is a rare genetic liver and lung disorder that is similar to CF.

Detractors might point out that Vertex is a pricey stock. However, this biotechnology company currently has $71.2 billion in market capitalization.

More notably, it has no debt and holds $5.5 billion in cash. That puts the true value of Vertex at roughly $65.7 billion.

I believe that the biotechnology company’s overall outlook more than does justice for its valuation.

Granted that it is trading at 11 times its revenue and 26 times its adjusted EPS, its consistent performance and promising future ensure that its investors will be getting more bang for their buck.

In a word, Vertex remains a first-rate biotechnology stock to buy.

vertex

October 22, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 22, 2020
Fiat Lux

FEATURED TRADE:

(IS THIS COVID-19 VACCINE OUTLIER ON THE FAST LANE?)
(NVAX), (PFE), (AZN), (JNJ), (SNY), (MRNA), (TAK)

Is this COVID-19 Vaccine Outlier in the Fast Lane?

Biotech Letter

It is not at all surprising that the biggest names in the healthcare industry are dominating the COVID-19 vaccine race.

After all, Big Pharmas such as Pfizer (PFE), AstraZeneca (AZN), Johnson & Johnson (JNJ), and Sanofi (SNY) are backed with vast resources that even media favorites like Moderna (MRNA) find challenging to compete against.

For months now though, going head to head with these big-name frontrunners is a clear outlier: Novavax (NVAX).

So far, there are only 10 COVID-19 vaccine candidates that have reached late-stage testing and Novavax’s NVX-CoV2373 has been performing at par (if not better) than its rivals—and the market has definitely noticed.

When 2020 started, Novavax’s market capitalization was less than $130 million and traded at roughly $4 per share.

Ten months into the pandemic, this small biotechnology company’s market cap grew to over $6.5 billion and has been trading at $110 per share—and that is already after a price decrease in the past weeks.

Given the disparity in its size and resources compared to its competitors, it’s safe to say that Novavax has been punching way above its weight class particularly in terms of landing supply agreements for its COVID-19 program.

Novavax first received a CEPI grant in March worth $4 million, which was immediately dwarfed by the $384 million the biotech company got in May.

In a matter of months, Novavax joined the major league players and secured a $1.6 billion funding courtesy of the US government’s Operation Warp Speed program.

In exchange, the biotech company will supply 100 million doses of NVX-CoV2373 to the US upon approval.

Novavax also inked an agreement with the UK for 60 million doses and another with Canada for 76 million doses.

Novavax has also landed deals with Japan through Takeda Pharmaceutical (TAK) and India via the Serum Institute of India.

As expected, the grants and supply agreements were perceived as votes of confidence on Novavax’s work and the company reaped the rewards.

In March, the prices started moving from less than $10 per share to almost $50.

By May, the price moved up to roughly $80 per share.

After its Operation Warp Speed contract in July, Novavax’s price per share soared all the way to $189 before eventually falling to $110 this October.

Novavax has only conducted late-stage testing in the UK. But, Phase 3 is expected to begin in the US soon as well.

Admittedly, a lot is riding on NVX-CoV2373.

However, the company has actually offloaded the majority—if not all—of its financial risks linked to the program.

Riding the momentum of its COVID-19 vaccine candidate, Novavax has been working on a related influenza vaccine called Nanoflu.

Given the market size for this, Nanoflu is estimated to rake in an annual revenue somewhere between $550 million and $1.7 billion.

Another potential blockbuster is respiratory syncytial virus (RSV) vaccine ResVax, which is projected to reach peak sales of $2 billion.

Novavax is also working on a vaccine candidate for the Ebola virus, the Middle East Respiratory Syndrome (MERS-CoV), and Severe Acute Respiratory Syndrome (SARS).

While NVX-CoV2373 is anticipated as Novavax’s moneymaker in the coming years, the biotech company can only realistically expect massive sales from this until 2023.

Looking at the company’s manufacturing partnerships and the aggressive timeline it has taken, Novavax is expected to produce 2 billion doses of its COVID-19 vaccine by mid-2021.

This is great news for its investors because of Novavax’s smaller market capitalization compared to its competitors.

Since the biotech company is projected as one of the first companies—if not the first—to offer a vaccine, then it can cover a substantial market share before its bigger rivals take over the market.

Even if Novavax prices its COVID-19 vaccine cheaply, say, $10 per dose, it can still generate $20 billion in annual sales.

Moreover, the late-stage success of NVX-CoV2373 will definitely cause Novavax’s stock price to skyrocket.

Despite this potential though, it’s important to keep in mind that this biotech company still has a way lower market cap than its rivals.

That means its share price will move a lot higher compared to the stocks of the other vaccine leaders.

Therefore, Novavax’s small size is not a negative for its investors—it is actually an advantage.

So for biotech investors who are searching for a promising COVID-19 vaccine stock, there’s nothing cheaper and more promising than Novavax.

October 20, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 20, 2020
Fiat Lux

FEATURED TRADE:

THE MOST FAMOUS CANCER STOCK YOU’VE NEVER HEARD OF
(TRIL), (NVAX), (PFE), (IMMU), (SHOP), (GILD), (ABBV)

The Most Famous Cancer Stock You’ve Never Heard of

Biotech Letter

Biotechnology stocks have proven time and time again to be excellent growth vehicles for risk-tolerant investors.

Underscoring this claim are companies like COVID-19 vaccine frontrunner Novavax (NVAX), which generated jaw-dropping returns on capital for their investors within an impressively short period.

Now, another biotechnology stock is showing telltale signs of following their footsteps: Trillium Therapeutics (TRIL).

Trillium’s story is a familiar one in the biotechnology industry.

Trading only in the penny stock range back in 2019, the company’s share price practically quadrupled since the start of 2020.

Taking into consideration that this meteoric rise actually happened while COVID-19 was blasting the world to smithereens, it’s hardly surprising that this news didn’t receive much media attention.

Trillium’s shares are currently up by an astounding 1,260% -- and the company still has so much room to grow from here.

For context, Trillium had a market capitalization of $7 million in November 2019. This number skyrocketed to $1.3 billion since its shift to cancer technology.

Although a lot of factors came into play, the key turning point for Trillium was when the company decided to go all-in on its cancer programs.

Ultimately, Trillium’s goal is to challenge chemotherapy.

The move to shutter its lead programs on tumor treatments and instead focus on developing cancer-fighting technology was the gamble of a lifetime for the company.

This gutsy move impressed investors, and Trillium was never the same since then.

Today, Trillium is the No. 1 stock on Canada’s S&P/TSX Composite Index, overtaking its previous leader e-commerce giant Shopify (SHOP) by almost 10-fold.

In the US, Trillium shares rank as the No. 4 best-performing company on the Nasdaq Composite Index.

While its epic stock market rally may have some investors feeling left out, all signs point to further gains in the future even for those who missed the initial boom.

Among the major capitalists of this biotechnology company is giant biopharmaceutical company and COVID-19 vaccine leader Pfizer (PFE), which invested $25 million in Trillium’s common stock.

While this equity stake may seem small in relation to Pfizer’s $212.16 billion market capitalization, this initial show of confidence is hailed as a prelude to an even bigger investment in the future.

So far, the most exciting cancer treatments in Trillium’s pipeline are TTI-621 and TTI-622.

These programs are in the same class of emerging cancer technologies, called CD47-based therapies, that prompted Gilead Sciences’ (GILD) $4.9 billion acquisition of Forty Seven, Inc. in April this year.

Aside from Gilead, AbbVie (ABBV) has also been reported to have invested a huge sum in this technology.

In simplest terms, CD47-based therapies can bypass the “don’t eat me signal” put up by some cancer cells in an effort to evade immune detection.

Thus far, both TTI-621 and TTI-622 have been showing promising results. Trillium recently announced that it will increase the dosage in these programs.

While Trillium leaders have not been specific in terms of being open to an acquisition, their recent statements indicate that they are not completely opposed to one.

It’s either that or a partnership with a company as big or even bigger than Pfizer.

As with all the biotechnology stocks, however, there will always be a risk.

For Trillium, the most evident one is competition.

While it’s true that the company has been recognized as the leader in the CD47 arena, more and more competitors are entering the immuno-oncology space.

Right now, the most obvious rival is Gilead, which added Immunomedics (IMMU) to its arsenal via a $21 billion acquisition deal.

Given the sheer amount of money that Gilead has been spending to practically corner the immuno-oncology market, it’s to be expected that more biopharmaceutical titans will enter the fray.

This is one of the reasons Trillium has been tagged as a prime candidate for a massive acquisition deal soon. So far, Pfizer is considered the most probable suitor.

Despite its astonishing performance this year, Trillium’s market capitalization still remains within the small-cap territory. That’s to be expected since its lead assets are still undergoing trials.

Considering that it is an early-stage biotechnology stock, Trillium does not have much in terms of income.

However, the company does have enough cash to last for a while. At the moment, it has $130 million cash.

With its total expenses of $38.8 million in 2019, I say this could offer the company more than three years of breathing room financially.

But it would be shocking if Trillium’s value won’t enter the large-cap territory (higher than $10 billion) if and when the company’s high-value assets reach the late-stage studies.

The fact that it’s also an attractive acquisition candidate offers incredible incentive to its investors.

Simply put, Trillium’s stock could get as much as 1,000% gain over the coming two to three years, making it an ideal investment for risk-tolerant investors.

October 15, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 15, 2020
Fiat Lux

FEATURED TRADE:

(KEEP AN EYE OUT ON THE SLOWER RUNNERS IN THE COVID-19 VACCINE RACE)
(SNY), (GSK), (MRNA), (FPE), (AZN), (PRNB)