Mad Hedge Biotech & Healthcare Letter
August 27, 2020
Fiat Lux
Featured Trade:
(THE FUTURE OF GENE-EDITING TECHNOLOGY)
(CRSP), (VRTX), (BAYRY), (NTLA), (NVS), (EDIT), (BMY)
There are wise investments, and there are excellent investments.
CRISPR Therapeutics (CRSP) has been proving to qualify in the latter category.
In fact, the company is considered one of the best biotechnology stocks to own during these turbulent times. It is estimated to dominate the gene-editing therapy market, which will reach roughly $11.2 billion in worth by 2025.
Four years ago, CRISPR Therapeutics stock was trading at $14.09. Today, each share is worth $90.35.
This means that CRISPR Therapeutics biotechnology company has been trading for 540% more than its value since it went public in 2016.
This is a remarkable pace for a biotechnology stock, with CRISPR Therapeutics raking in $289 million in trailing 12-month revenue thanks to strategic collaborations.
It even has a decent $890 million stored in cash, with the company reporting a 16% profit margin despite not having any treatment or drug available in the market yet.
More importantly, CRISPR Therapeutics holds a novel position of being under absolutely zero pressure to push a product out the door.
Nonetheless, the investor confidence in CRISPR Therapeutics relies heavily on the company’s leading position in the groundbreaking world of gene-altering treatments.
Basically, the company specializes in creating and developing therapies for genetic diseases with either no cure available or require frequent transfusions.
Looking at the results of the recent tests on the company’s pipeline candidates, CRISPR Therapeutics is projected to transform into a household name in the next five to 10 years.
CRISPR Therapeutics has five cell therapy candidates in the clinical stage. Three of these target immuno-oncology, while the two are designed for genetic blood disorders like beta-thalassemia sickle cell disease.
Among the five, the most advanced is CRISPR Therapeutics’ collaborative work with Vertex Pharmaceuticals (VRTX) on beta-thalassemia therapy CTX001.
This candidate received a fast-track designation from the FDA, with CRISPR Therapeutics releasing promising preliminary results recently.
However, it is another Vertex collaboration drug that actually yielded CRISPR Therapeutics $25 million at the beginning of 2020.
The drug, which is developed to treat muscular dystrophy disorder, is expected to account for approximately $800 million in future milestone payments in the next few years.
Although the genetic blood disorder programs are raking in millions these days, CRISPR Therapeutics’ cancer treatment pipeline offers an even greater potential in terms of stable revenue streams.
The company is utilizing a gene-editing platform, called CRISPR/Cas9, to create “off the shelf” novel chimeric receptor (CAR) T-cells.
If successful, then CRISPR Therapeutics can use a single batch to treat a broad group of cancer patients.
This is groundbreaking because the typical way involves harvesting T-cells from the patients, tailor-fitting the therapies, then re-introducing the cells to the body.
With this technology, CRISPR Therapeutics can easily cover more markets and offer regular treatments for patients within shorter intervals.
That’s why it comes as no surprise that a major biotechnology player like Bayer (BAYR) reached out to the smaller company for a collaboration.
The CAR T-cell market is projected to hit $8.4 billion by 2027, with an estimated compound annual growth rate of roughly 15%.
Specifically, CRISPR Therapeutics expects this product to become a leader in the solid tumor cancer therapy space, pegged to reach $425 billion by 2027.
However, it is not only CRISPR Therapeutics that is widely known in the gene-editing sector.
To date, the company has two close competitors: Intellia Therapeutics (NTLA), which has a strategic partnership with Novartis (NVS), and Editas Medicine (EDIT), which is working alongside Bristol Myers-Squibb (BMY).
Both are also using the CRISPR/Cas9 technology to come up with treatments.
Although Intellia Therapeutics and Editas went public the same year as CRISPR Therapeutics, neither has performed quite as well.
For perspective, CRISPR Therapeutics currently has a market capitalization of $6.3 billion. In comparison, Intellia Therapeutics has $1.13 billion while Editas Medicine has $2.13 billion.
Keep in mind though that clinical-stage companies, particularly in the biotechnology sector, are inherently risky plays.
Among the companies in the space, CRISPR Therapeutics is emerging to be a solid bet not only from a cash perspective but also based on its strong pipeline and profitable collaborations.
Overall, CRISPR Therapeutics is still considered a high-risk option.
Hence, the safest way to invest is to build a carefully hedged portfolio filled with well-researched gene-editing stocks. This will minimize your risks and guarantee your exposure to the upside in case any of your chosen biotechnology companies makes it to the market with a groundbreaking therapy.
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).
