Mad Hedge Biotech & Healthcare Letter
August 25, 2020
Fiat Lux
Featured Trade:
(LET THE VACCINE PRICING WARS BEGIN)
(MRNA), (MRK), (PFE), (BNTX), (AZN), (JNJ), (NVAX), (SNY)
The COVID-19 vaccine race is winding down to its final lap, with at least seven candidates already undergoing Phase 3 trials.
Now, one question inevitably arises: How much will these vaccines cost?
Moderna (MRNA), one of the frontrunners in this race, revealed that its vaccine, mRNA-1273. will be priced somewhere between $32 and $37 for each dose.
The moment this pricing was announced, health advocates were up in arms to point out the high price of the vaccine especially with the funding Moderna received from the US government.
However, the company clarified that this would only apply to “small-volume” transactions.
According to Moderna, the pricing for their coronavirus vaccine should be viewed in two phases: the pandemic and the endemic periods.
During the pandemic period, the coronavirus vaccine would be given a price “well below” its actual value. The pricing will change and eventually be more in line “with other innovative commercial vaccines” when the crucial period passes.
For reference, flu shots are typically priced somewhere between $50 to $120 depending on the clinic while a single-dose HPV vaccine from companies like Merck (MRK) can cost up to $235.
Despite the clamor to further investigate this pricing scheme, Moderna sealed another deal with the US government worth $1.525 billion if the company succeeds in meeting its promised timeline.
This will translate to roughly $100 million doses.
It also stands to gain an additional $8.125 billion in follow-up doses plus the $300 million bonus if it can score an FDA approval by January 31, 2021.
Another frontrunner in this coronavirus vaccine race is Pfizer (PFE).
Among the healthcare and biotechnology companies working on a vaccine, Pfizer and its German partner BioNTech (BNTX) are reported to have the most lucrative contract with the federal government to date.
The company recently sealed a $1.95 billion deal for 100 million doses. This puts Pfizer’s coronavirus vaccine at roughly $20 per dose.
Both vaccine candidates from Pfizer and Moderna require two doses.
In comparison, Johnson & Johnson (JNJ) has a “one-and-done” vaccine candidate. That is, the Ad26.COV2-S showed potential that it could only require a single dose.
This is definitely a competitive edge as it will eventually be a cheaper and more convenient alternative to the two-dose vaccine offered by its competitors.
In terms of pricing, JNJ recently landed a $1 billion contract with the US government to deliver 100 million doses. This translates to $10 per dose.
However, AstraZeneca (AZN) appears to be the favored candidate by the US government.
In fact, recent reports suggest that the Trump administration is considering bypassing normal regulatory standards in the UK to fast track the delivery of the vaccine candidate to the US — all before election day.
What we know so far is that AstraZeneca, which is developing its vaccine in collaboration with the University of Oxford, signed a deal with the US government worth $1.2 billion.
This will amount to 300 million doses of their vaccine candidate, which puts the cost of each dose to roughly $4. At this price point, AstraZeneca offers the cheapest option.
Meanwhile, small-cap biotechnology company Novavax (NVAX) recently signed a similar deal with the government.
The Maryland-based company agreed to manufacture 100 million doses of its vaccine for $1.6 billion. This works out to approximately $16 per dose.
Next to Moderna, Novavax’s journey this year has been considered a “Cinderella story” by a lot of investors.
The company ended 2019 all banged up, with the biotechnology stock falling by almost 90%, thanks to its failed respiratory syncytial virus (RSV) vaccine candidate.
However, Novavax rose from the ashes following the encouraging results of its late-stage study for NanoFlu, another vaccine candidate.
By March 2020, Novavax’s flu vaccine released promising data that put NanoFlu in direct competition against Sanofi’s (SNY) flu vaccine Fluzone Quadrivalent.
Riding the momentum of their success with NanoFlu, Novavax joined the COVID-19 vaccine race with NVX‑CoV2373.
While companies like Pfizer, Moderna, JNJ, and AstraZeneca have been gaining media attention, an increasing number of health experts and analysts are claiming that Novavax’s candidate might just be the best in class.
Outside the companies under Trump’s Operation Warp Speed, China’s state-owned company, Sinopharm, also announced the pricing for its COVID-19 vaccine candidates.
The pricing is quite higher than those put forward by other vaccine developers, with the Beijing company quoting $145 for two doses.
Aside from China, Russia also has a vaccine candidate expected to be out in the market soon.
Vladimir Putin claims that Russia’s coronavirus vaccine candidate is similar to the one created by AstraZeneca and Oxford University.
No information has been given on either the results of the vaccine’s late-stage trials or its pricing.
To date, the World Health Organization (WHO) has recorded 7 vaccine candidates undergoing Phase 3 clinical trials, while there are 15 more going through Phase 2 expanded safety trials.
An additional 25 candidates are currently under Phase 1 small-scale trials plus another 138 pre-clinical candidates slated for human trials soon.
The development and success of at least one coronavirus would undoubtedly reverse the economic and financial damage brought by the pandemic. Hopefully, that time will come soon.
Mad Hedge Biotech & Healthcare Letter
August 20, 2020
Fiat Lux
Featured Trade:
(ZOETIS CONTINUES TO DELIVER MORE BANG PER BUCK)
(ZTS), (PFE)
The isolation brought by the pandemic-induced lockdowns has increased people’s reliance on their pets.
In the past months, stories have circulated around the country about the animal shelters being empty for the first time in recent history.
Aside from seeing this as a feel-good report, it can also be perceived as an investing opportunity. For businesses that specifically cater to these products and services, this phenomenon can easily translate into growing revenue.
One of the pet-related companies that benefited from it is Zoetis (ZTS).
Zoetis offers an extensive range of products that cater to both pets and even farm animals. Their list includes drugs, diagnostics, pesticides, and vaccines.
Originally, Zoetis was a subsidiary of biotechnology and healthcare giant Pfizer (PFE). It eventually broke away from its parent company and entered the stock market sometime in 2013.
For roughly seven years, Zoetis stock has impressively trounced the average market returns – and that momentum is projected to continue in the next five years.
In the second quarter of 2020, Zoetis reported $1.5 billion in revenue. This is flat compared to last year’s report, but it still surpassed the consensus Wall Street estimate of $1.36 billion.
In terms of net income, the company reported $377 million or $.079 for each share. This showed a modest increase from the $371 million or $0.77 per share it earned during the same period in 2019.
Despite the turbulent situation in the US, the market still served as one of the positive contributors in Zoetis’ second quarter.
The company recorded a 6% year over year jump in its revenue in the US, allowing it to reach $832 million. Unfortunately, revenue for its livestock products dropped by 18% year over year.
Sales for its companion-animal offerings also increased by 19%, with the climb largely attributed to the upsurge in demand for Zoetis’ growing Simparica brands.
In May, Zoetis lowered earnings expectations for 2020 due to the coronavirus pandemic.
However, Zoetis stock managed to exceed expectations. In fact, the animal healthcare stock is up by over 20% in the past three months.
Given its positive performance in the second quarter, Zoetis has increased its full-year 2020 guidance.
The company anticipates an annual revenue of $6.3 billion to $6.476 billion, which is a leap from its previous estimate of $5.95 billion to $6.25 billion.
Projections for its earnings per share is now in the range of $3.14 to $3.32 from the previous $2.80 to $3.07.
More importantly, Zoetis is looking into expanding its massive roster.
Since its most recent product Simparica Trio, which is a three-in-one preventive treatment for dogs, garnered much success in the market, the company is expected to release at least two new products before the year closes.
Aside from that, Zoetis may also expand into new markets within the animal healthcare sector.
One of the telltale signs is the company’s recent acquisitions, which include Performance Livestock Analytics, Platinum Performance, and other regional diagnostic laboratories.
In 2019, Zoetis forged a partnership with Colorado State University to study the livestock immune system. This could signify the company’s interest in another service, such as providing antibiotics to animals that are identified as sources of meat.
The demand for animal healthcare products and services has been consistently reliable, with the market estimated to reach $177.1 billion in 2027.
With the need for these goods spanning across the globe, companies that offer cater to these markets can expect a steady revenue stream and growth in the years to come.
Among the companies in this sector, Zoetis is the biggest with trailing 12-month revenues of roughly $6.3 billion and a market capitalization of $75.72 billion.
It prides itself on a notable profit margin of 25.4% and an impressive 63.6% return on equity. Adding these two metrics to the fact that the company has a 35.6% quarterly earnings growth year over year makes Zoetis a safe and long-term bet.
Mad Hedge Biotech & Healthcare Letter
August 18, 2020
Fiat Lux
Featured Trade:
(MORE DARK HORSES IN THE COVID-19 VACCINE RACE)
(CVAC), (MRNA), (BNTX), (PFE), (GSK), (AZN), (JNJ), (NVAX)
Another biotechnology company is cashing in on its COVID-19 vaccine efforts: CureVac (CVAC).
CureVac, which has a market capitalization of $9.9 billion, is hoping to follow the footsteps of Moderna (MRNA) and BioNTech (BNTX).
Earlier this year, both small-cap companies saw their value skyrocket, with Moderna now reporting a market capitalization of $27.3 billion while BioNTech is at $16.3 billion.
While the jump in their market capitalization is definitely newsworthy, what is even more impressive is that neither company has a product out in the market today. That is, up until the pandemic struck.
Now, CureVac is looking into raking in the same benefits from its own COVID-19 vaccine work.
Here is a snapshot of how well this stock is doing so far.
CureVac, which raised $213.13 million in its IPO, initially priced its shares at $16 each, started trading at $44 per share and ended the day at $55.90 per share.
The week after, CureVac shares started trading at $79.33 in the premarket hours of Monday, with the price expected to reach an all-time high of approximately $85 per share.
Aside from the Bill and Melinda Gates Foundation, CureVac also attracted backing for its COVID-19 vaccine candidates from the German government and GlaxoSmithKline (GSK). So far, the company has recorded $640 million in funding for its coronavirus program.
What we know about CureVac’s vaccine candidate is that it utilizes the same mRNA-based technology as Moderna and Pfizer (PFE).
While the newly minted biotechnology company is behind competitors, the results of their study are expected to be released by the next quarter.
Prior to prioritizing its COVID-19 vaccine work, CureVac has been focusing on developing cancer and rare disease treatments.
CureVac is also developing CV8102, which is a treatment that can target four different kinds of tumors.
Another frontrunner in its pipeline is CV7202, which is its rabies drug candidate. Its second-generation lipid nanoparticle (LNP) flu vaccine, called CV6301, is also a promising treatment.
Apart from CureVac, another small-cap biotechnology company has been competing against the COVID-19 vaccine frontrunners like AstraZeneca (AZN) and Johnson & Johnson (JNJ).
Earlier this month, Novavax (NVAX) announced the launch of the Phase 2B clinical trial of its COVID-19 vaccine.
The trial for the coronavirus vaccine, called NVX-CoV2373, is set in South Africa and is anticipated to not only provide the company with a larger group but also test the vaccine’s efficacy in an environment where the disease is currently surging.
Although Novavax is also behind the leaders, the level of transmission rate in South Africa, which accounts for half of the COVID-19 cases in Africa, is expected to provide the company a better chance of evaluating its candidate.
Other than that, Novavax has also secured manufacturing deals that can handle more than 2 billion doses.
Novavax has been working on a COVID-19 vaccine since February, with the company receiving $388 million in funding from the Coalition for Epidemic Preparedness Innovations.
By July, the company received a $1.6 billion investment from the US government courtesy of Trump’s Operation Warp Speed project.
If Novavax’s vaccine candidate earns approval, then the company could realistically expect over $10 billion in annual sales.
Riding the momentum, Novavax has also been working on a flu vaccine candidate, called NanoFlu, which can record as much as $1.7 billion in yearly sales.
With the current financial climate, the unprecedented demand for a vaccine will unsurprisingly drive the shares of companies like Novavax and CureVac even higher.
However, it is better to err on the side of caution when it comes to these ultra risky biotechnology companies.
The biotechnology industry has no shortage of investors on the lookout for stocks that can easily make them filthy rich. Although these high-profile stocks can definitely result in massive gains, there are still a number of critical caveats to bear in mind.
While waiting for the actual candidates to get launched, it is safer to bet on tested and proven businesses for now and perhaps dip your toe in the unfamiliar water currently dominated by these small-cap biotechnology companies.
Mad Hedge Biotech & Healthcare Letter
August 13, 2020
Fiat Lux
Featured Trade:
(HOW ROCHE’S STRATEGIC MOAT KEEPS IT AFLOAT)
(RHHBY), (MRK), (GILD), (LLY), (BPMC), (PFE), (JNJ), (ABBV), (NVS)
Moat is a concept that Warren Buffett's followers are well-acquainted with.
In a nutshell, it describes a company’s capacity to keep its competitive edge over its rivals. For the Oracle of Omaha, the safest bets are businesses with large moats because it indicates a strong ability to ward off competitors.
One company that has a particularly strong moat is Roche (RHHBY).
Roche has been at the forefront of the fight against the COVID-19 pandemic.
In mid-March, Roche became the first-ever commercial company to receive an FDA Emergency Use Authorization for its COVID-19 tests. What made this kit, called Cobas SARS-CoV-2 test, impressive is that the turnaround time of less than 4 hours was incredibly fast compared to others.
By April, Roche’s tests were already administered to roughly 4 million people, with some users paying as low as $5 for every test.
Following the success of its tests, Roche ventured into developing a COVID-19 cure.
While there’s still no conclusive data on its tests, Roche secured agreements with the European Commission to be one of the suppliers of the experimental COVID-19 drugs to any of the 27 EU members looking to buy for their constituents.
The deal involves Roche’s RoActemra. Meanwhile, the other supplier is Merck (MRK) with its Rebif.
Aside from that, Roche is also working alongside Gilead Sciences (GILD) in investigating whether Remdesivir could work better when combined with RoActemra.
The other drug undergoing similar compatibility tests with Remdesivir is Eli Lilly’s (LLY) Olumiant.
However, there remains a much bigger story for Roche outside its COVID-19 efforts.
Looking at the company’s first-quarter earnings report, Roche’s pharmaceutical arm generated over 80% of its total revenue for that period.
This is primarily thanks to its strong lineup of drugs, which recorded a 7% increase to reach roughly $13 billion in sales compared to the previous quarter. Overall, Roche recorded a 52.9% growth in its year-over-year quarterly earnings.
The key growth drivers of the company came from its oncology sector.
Leading the charge is bladder and urinary tract cancer treatment Tecentriq, followed by breast cancer drug Perjeta.
Roche’s efforts to expand the label of its blockbuster drug Tecentriq sets expectations for further growth as well.
To further boost its dominance in the oncology field, Roche recently signed an agreement with Blueprint Medicines (BPMC) to gain commercial rights to market thyroid and lung cancer treatment Pralsetinib outside the U.S., excluding Greater China.
This will allow Roche to directly compete with Eli Lilly’s newly gained blockbuster drug Rotovmo, which the company got from its $8 billion takeover of Loxo Oncology in 2019.
Apart from its oncology sector, Roche also saw promising results from other treatments like hemophilia medicine Hemlibra and multiple sclerosis treatment Ocrevus.
On top of Roche’s 37 approved treatments in the market today, the company is expected to submit regulatory findings for almost 20 products this year alone.
Meanwhile, Roche’s $4.3 billion acquisition of Spark Therapeutics in 2019 provided a much-need boost to the company’s gene therapy space.
Despite the uncertainties brought about by the pandemic, Roche’s shares still saw a 10.5% jump this year. In fact, the company increased its 2020 earnings estimate by 0.8% while it expects a 1.4% rise in 2021.
For context, Roche generated $61.5 billion in revenue in 2019 and raked in approximately $13.5 billion in profits. To date, the company pays its shareholders a dividend that yields close to 2.5%.
These reports highlight Roche’s financial stability and strength.
So far, Roche has been able to corner three of the major diseases today: cancer, hemophilia, and multiple sclerosis.
This makes the company one of the biggest names in the biotechnology and healthcare sector in terms of sales.
In fact, Roche is projected to be the No.1 in the field by 2026 with an annual revenue of $62 billion, achieving a compound rate of over 3.6% since its 2019 numbers.
Pfizer (PFE) is expected to land second place, with sales estimated to reach over $56 billion. The rest of the list includes companies poised to record more than $50 billion in sales, namely, Johnson & Johnson (JNJ), AbbVie (ABBV), and Novartis (NVS).
Mad Hedge Biotech & Healthcare Letter
August 11, 2020
Fiat Lux
Featured Trade:
(THIS IS NO MONKEY BUSINESS)
(JNJ), (MRNA), (AZN), (PFE), (MRK), (INO)
Hot on the trail of Moderna (MRNA), AstraZeneca (AZN), and Pfizer (PFE), biotechnology and healthcare titan Johnson & Johnson (JNJ) recently shared its progress on its COVID-19 vaccine candidate.
Recent reports show that JNJ’s vaccine protected the monkeys enrolled in its experiment from SARS-CoV-2 infection.
The success of this experiment pushed the company’s coronavirus vaccine efforts to start with human trials in the US and in Europe by the third quarter of 2020.
Hopefully, the JNJ will be able to provide conclusive data on its human trials by September.
Since the results of the human trials will take months before getting released, the efficacy and potency of JNJ’s vaccine can only be determined based on the available monkey data.
According to these, the JNJ vaccine might be more similar with Merck’s (MRK) candidate. That is, it might only require one injection compared to at least two doses required by its fellow vaccine makers.
Basically, this vaccine candidate involves a common cold virus called adenovirus or Ad26.
This virus is then modified to carry the coronavirus spike protein genetic material. When injected into humans, the modified Ad26 then slips into the cells and triggers the body to produce the coronavirus proteins.
Since Ad26 has been modified to only mimic the SARS-CoV-2, it cannot replicate but can trigger the body into putting up defenses against the COVID-19 virus.
The Ad26 vaccine uses the same technology the company applied in its Ebola vaccine sent to the Democratic Republic of Congo in 2019.
JNJ’s vaccine candidate received approval from European regulators in July, making it the first-ever virus-assisted gene delivery treatment approved for any disease.
Since March, JNJ has been working on at least seven variations of the Ad26 vaccine. The idea is to come up with various candidates that will target different types of patients.
Aside from JNJ, COVID-19 vaccine leader Moderna has also released its monkey data for its vaccine trials.
In the Moderna experiment, the monkeys were given two shots of the vaccine in the course of four weeks. After a month, the same animals were infected with the SARS-CoV-2.
The results showed that no trace of the coronavirus was found in some of the vaccinated monkeys. While others still got infected, the virus gradually disappeared over time without any treatment.
Another COVID-19 frontrunner, Inovio Pharmaceuticals (INO), also released its monkey data.
The report covered four months from the day the monkeys were injected with Inovio’s vaccine candidate. According to the company’s findings, the infected animals only had traces of the coronavirus in their noses and lungs.
Other than JNJ, Moderna, and Inovio, both Pfizer and AstraZeneca also shared promising monkey data.
With a market capitalization of roughly $388 billion, JNJ is considered as one of the biggest biotechnology and healthcare companies in the world.
Apart from that, JNJ is one of the only two companies with an AAA credit rating. The other company is Microsoft (MSFT).
Needless to say, investing in an AAA-rated business with an impressive balance sheet makes buying JNJ stock an extremely low-risk and safe financial move.
JNJ has also been consistently regarded as a blue-chip dividend stock, offering a dependable 2.7% dividend.
While this may not be the highest yield you can get in the industry, JNJ has proven itself capable of handling the ups and downs of the market.
In fact, while most of the companies struggle to keep their heads above water, JNJ has surprisingly suffered minimal impact from this pandemic.
The company reported $20.7 billion in total revenue in the first quarter of 2020, showing off a 3.3% year-over-year climb in earnings and a 56.1% increase in earnings per share.
In JNJ’s second-quarter report, the company boosted its 2020 full-year guidance, with pharmaceutical revenue jumping to $18 billion and posting $3.6 billion in profits despite the 10.8% drop in sales.
One caveat when thinking about investing in JNJ is its widely reported talcum powder scandal. However, this issue poses no significant risk to the stock price since JNJ has already been penalized with billions of dollars.
More importantly, the company disclosed that it would no longer be selling baby powder. Clearly, the issue has been put to rest.
Regardless of how the COVID-19 vaccine race works out for JNJ, the company remains a solid investment. Its diverse product line alone makes it a financially resilient business. JNJ offers products from household items like Tylenol and Band-Aids to blockbuster drugs like severe psoriasis treatment Stelara.
Although JNJ is not particularly cheap at the moment, this stock is one of those investments that should be acquired at every pullback.
Since it is somewhat overvalued right now, my advice is to wait for a stock price correction soon and then pounce on the opportunity to own shares in this AAA-rated company.
