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.
Mad Hedge Biotech & Healthcare Letter
August 6, 2020
Fiat Lux
Featured Trade:
(THE DOCTOR WILL SEE YOU NOW)
(TDOC), (MRNA), (PFE), (AZN)
With everything that has been happening in 2020, it is difficult to foresee what will transpire for the rest of the year. Although the major indexes have been trading at virtually record highs again, what is in store for the market in the second half remains a mystery.
Since the COVID-19 pandemic broke out, several businesses have shut down. However, some companies managed to survive with others even thriving in this unpredictable economy.
One of the businesses that exploded during this pandemic is Teladoc Health (TDOC).
Lockdowns and physical social distancing protocols have pushed people to find alternative ways to still go about their lives, and this is where Teladoc comes in.
With the growing fear of infection from the virus, more and more patients are opting for virtual care offerings instead of risking contamination in public.
The exponential rise for this demand was underscored in the second-quarter earnings report of Teladoc.
The company’s revenue jumped by 85% year-over-year to hit $241 million, which blew past the estimated $220.7 million projected by analysts earlier. This substantial increase was primarily fueled by the 203% year-over-year climb of visits.
As for its fee-only visits, Teladoc recorded a whopping 125% increase in the US to hit 21.8 million. Its total visits reach 2.76 million, reporting an over threefold jump from last year.
Teladoc’s paid membership total soared 92% year-over-year in the US alone, reporting 51.5 million members so far.
While this is great news to its investors, Teladoc’s outlook for the third quarter is even more promising.
The company anticipates its third-quarter revenue to be somewhere between $275 million and $285 million, showing off an approximately 103% year-over-year growth.
In terms of its 2020 earnings report, Teladoc is expected to rake in $980 million to $995 million in revenue, with a net loss somewhere between $1.45 and $1.36 for each share.
Based on its preliminary outlook, Teladoc’s growth could slow down next year. However, the company is still estimated to reach a 30% to 40% increase in revenue in 2021.
Riding the momentum of the demand for its services, Teladoc completed the $600 million acquisition of virtual care competitor InTouch Health in July.
This move is anticipated to give a boost to the company’s top line and expand the reach of Teladoc around the world. InTouch is estimated to contribute roughly $80 million in revenues.
With Teladoc’s share price skyrocketing to over 150%, none of its investors could ever find a reason to complain about the company’s performance this year so far.
With the accelerated adoption of telehealth services in various sectors and the growing number of consumers eager to receive treatment, Teladoc is expected to continue reaping the rewards.
Since the COVID-19 crisis has encouraged more people to avail of the telehealth service, it would no longer come as a surprise if most of them decide to become more permanent subscribers of the platform.
This is expected to remain the case even when the growth from this health and financial crisis starts to taper off.
Given the company’s market-leading role in this quickly multiplying virtual care market, Teladoc is well-positioned to dominate the sector in years to come. After all, being the market leader in any industry offers tremendous advantages as seen in the tight COVID-19 vaccine race among Moderna (MRNA), Pfizer (PFE), and AstraZeneca (AZN).
Although Teladoc shares do not come cheap, especially with its ever-growing popularity during the pandemic, the stock’s premium valuation is well warranted.
Teladoc is a stock for investors who are prepared to withstand the considerable volatility that oftentimes accompanies the majority of growth stocks in the biotechnology and healthcare sector. For those uncertain but are curious to own shares of this telehealth platform, the ideal move would be to start with a small position until you feel comfortable investing larger sums.
