Mad Hedge Biotech & Healthcare Letter
August 4, 2020
Fiat Lux
Featured Trade:
(MERCK’S SLOW BUT STEADY COVID-19 HEADWAY)
(MRK), (GILD), (REGN), (AZN), (PFE), (MRNA), (ABBV), (BMY), (RHHBY)
Is it truly better late than never?
Merck has been decisively cautious in its approach of potential COVID-19 treatments and even more so when it comes to their vaccine candidates.
Recently though, the company has finally offered a glimpse of its progress.
The first promising update is Merck’s work on MK-4482, which is an antiviral candidate aimed at treating COVID-19 patients. Basically, this candidate works by preventing the SARS-CoV-2 from replicating.
The laboratory results showed that an increasing dose of MK-4482 can effectively halt the progress of the virus in a patient’s system.
Judging from the timeline followed up to this point, Merck plans to begin huge trials by September.
The MK-4482 is expected to compete with Gilead Sciences’ (GILD) Remdesivir, with the Merck candidate possibly edging out the latter.
This is because the SARS-CoV-2 tends to mutate, rendering Remdesivir less potent the next time it is administered to patients. In comparison, MK-4482 has demonstrated an ability to fight off the mutated versions of the virus.
MK-4482 also comes in tablet form, making it a preferable and more convenient option compared to Gilead’s intravenous infusion and even Regeneron’s (REGN) injectable antiviral cocktail REGN-COV2.
On the COVID-19 vaccine front, Merck has been working with Thermis Biosciences in developing a candidate based on a measles virus vector platform originally developed by the Institut Pasteur researchers.
However, this is not Merck’s only shot on goal.
The company is also collaborating with the International AIDS Vaccine Initiative to develop another vaccine candidate, V590.
The two are using the same platform that Merck created for its already approved Ebola vaccine. The goal is to start human testing by the third quarter of 2020.
Merck is also looking into offering a single-dose vaccine instead of the double dose shots its competitors are working on, with one of its candidates developed to be taken orally instead of via injectibles.
If they succeed, then Merck’s vaccines will be more accessible and convenient for a lot of patients.
Aside from developing V590, Merck plans to use the same approved technology to advance its other antivirals in its clinical testing pipeline.
In fact, Merck’s move to acquire Thermis Bioscience demonstrates the company’s resolve to focus on strengthening its vaccine program. The primary expectation for this newly formed partnership is to come out swinging and eventually win big on the COVID-19 vaccine race.
The victory will then serve as a springboard for a new and powerful revenue stream for Merck, which would serve to quiet the fears of the company’s investors fretting over the patent expiration of blockbuster drug Keytruda.
The impending loss of exclusivity for cancer treatment Keytruda has been hanging over Merck’s head for quite some time now.
Aside from the potential biosimilar competition, Keytruda has been facing stiff competition against biotechnology giants like Bristol Myers Squibb (BMY), Roche (RHHBY), and Regeneron.
Needless to say, fears over this have been overshadowing the company’s impressive internal pipeline – a reaction that pretty much mirrors the experience of AbbVie (ABBV) on the pending patent loss of its blockbuster Humira.
However, Merck has been working on products that could rake in an additional $13 billion to $18 billion to its sales every year.
The list includes immuno-oncology antibody candidates, additional vaccines, and even HIV treatments.
The company also has more than $40 billion on its balance sheet, putting it in a favorable position to acquire more companies or products that could bolster its franchise.
Since the pandemic broke out, Merck has lagged behind its COVID-19 rivals AstraZeneca (AZN), Pfizer (PFE), and Moderna (MRNA).
Looking at its progress and future plans though, it looks like the company has set out to achieve a tortoise over the hare victory particularly in the COVID-19 vaccine race.
With incredible uncertainty hovering over the rest of 2020, it is only natural to seek stocks for an all-weather portfolio.
While there are many factors to consider, looking at businesses that allocated sensibly to capital expenditures and R&D is definitely a great way to start.
Merck’s strategic partnerships with companies like Thermis Biosciences, Taiho Pharmaceuticals, and Astex Pharmaceuticals also play significant roles in this aspect.
Although Merck has not provided a particularly strong performance so far this year, this biotechnology and health care giant is poised to stage a strong comeback when the dust settles.
Mad Hedge Biotech & Healthcare Letter
July 30, 2020
Fiat Lux
Featured Trade:
(ABBVIE'S UNEXPECTED UPSIDES)
(ABBV), (GMAB), (REGN)
After going through what could arguably be described as one of the most promising quarterly stock market performances in the past 10 years, the horrific stock market crash at the beginning of 2020 feels like a distant memory.
With the revival of the financial sector, people now will not stop complaining about exorbitant market valuations.
Despite that, not all stocks are offered at premium prices. There are several companies that remain at relatively bargain prices regardless of the encouraging market revival in the past months.
A stock that falls under this category is AbbVie (ABBV).
In the past three months, AbbVie shares jumped by over 20%. Even so, this biotechnology and healthcare stock remains unreasonably cheap, only trading at roughly 10 times its expected earnings.
Looking at the company’s profile, investors appear to shun AbbVie shares out of fear stemming from the looming US patent exclusivity loss for its highest selling rheumatoid arthritis drug Humira by 2023.
While the reality is that Humira will soon face biosimilar competition, the sales for AbbVie’s cash cow remain impressive.
In the first quarter of 2020, Humira generated $3.7 billion in revenue in the US alone, showing off a 13.7% climb year-over-year.
However, AbbVie is not twiddling its thumbs, waiting for the Humira patent exclusivity to expire in the next 3 years.
Instead, the Illinois-based company has been busy developing its next blockbuster products.
The frontrunners in AbbVie’s lineup are leukemia and lymphoma drugs Venclexta and Imbruvica.
The two generated a total of approximately $5.5 billion in annual revenues in 2019 – and 2020 is projected to record a strong double-digit growth.
In the first quarter of this year alone, Venclexta and Imbruvica raked in a total of $1.5 billion in global sales or a 32% year-over-year increase.
Still, AbbVie’s oncology franchise has yet to stop growing.
Riding the momentum of its cancer research expansion, AbbVie also recently established a partnership with Denmark’s GenMab (GMAB).
The goal is to come up with 3 anticancer antibodies, which will ultimately be able to attack cancer cells without damaging the normal and healthy ones.
If the programs succeed, AbbVie will pay $3.15 billion. This is on top of the $750 million it already offered upfront to GenMab.
However, the biggest move AbbVie made in an effort to lessen the top-line exposure to Humira is its acquisition of Allergan.
AbbVie is projected to collect over $2 billion in savings annually within 3 years since this $63 billion acquisition.
This will translate to roughly $1 per share, with 2021 earnings per share hitting $11.80 compared to $10.25 estimated in 2020.
More importantly, AbbVie gains access to Allergan’s crown jewel Botox.
While this drug is commonly known as a cosmetic procedure treatment, it can also be used to treat a wide range of medical conditions.
Just this July, Allergan received FDA approval to expand the use of Botox to cover some pediatric patients including those with cerebral palsy.
Aside from Botox, AbbVie also picked up a couple of exciting products like antipsychotic drug Vraylar.
On top of the drugs from its Allergan acquisition, AbbVie has been developing new-generation autoimmune treatments.
Two of these products, Rinvoq and Skyrizi, are expected to generate $20 billion in annual sales – a number comparable to Humira’s record.
In fact, Rinvoq is anticipated to transform into an aggressive rival of Regeneron’s (REGN) very own cash cow, atopic dermatitis drug Dupixent.
One advantage of Rinvoq over Dupixent is that AbbVie’s drug comes in the form of a pill while Regeneron’s product is an injection. This easily makes Rinvoq the more convenient option.
Even if Rinvoq fails to take away from Dupixent’s market share, the AbbVie drug can still benefit from the same group. After all, there are at least 10% to 25% of the patient pool who are unresponsive to Regeneron’s product.
That means AbbVie could earn roughly $340 million at a minimum after 2 years of its Rinvoq launch.
On the COVID-19 front, AbbVie attracted attention when its cholesterol drug Tricor was found to be effective in fighting SARS-CoV2.
There’s still no conclusive data, but the optimism was spurred when scientists at the Hebrew University in Israel and New York’s Mount Sinai Medical Center claimed that Tricor could potentially downgrade the deadly virus into “nothing worse than a common cold.”
Thanks to the promising results, the researchers will advance Tricor into animal studies.
The hope is that the drug can eventually be included in the list of treatments fast-tracked by the FDA both in the US and Israel.
Apart from that, AbbVie’s HIV treatment Kaletra has been used in China as another form of COVID-19 treatment.
Overall, AbbVie is a great pick among income-seeking investors. It offers a high yield, a promising pipeline and approved products, and a low payout ratio.
AbbVie generated $8.6 billion in revenue during the quarter that threatened to push the world into a recession, demonstrating a 10.1% increase from the same period in 2019. In terms of earnings per share, AbbVie recorded $2.02 in the said period compared to the $1.65 last year.
Mad Hedge Biotech & Healthcare Letter
July 28, 2020
Fiat Lux
Featured Trade:
(EARLY WINNERS ARE TURNING UP IN THE COVID-19 VACCINE RACE)
(MRNA), (AZN), (PFE), (JNJ), (MRK), (BNTX)
In less than six months since the pandemic broke, the world has come up with 140 vaccine candidates in pre-clinical trial phase and 23 undergoing the clinical evaluation stage.
However, the race to produce a COVID-19 vaccine recently intensified after three of the leading laboratories shared promising progress from their early human trials.
Among the frontrunners, AstraZeneca (AZN), Pfizer (PFE), and Moderna (MRNA) are dubbed as the “most ambitious” primarily due to their tight timelines for approval and their seemingly unreachable goals in terms of the total doses they could produce this year.
All the vaccine developers that released their results claimed that their candidates triggered strong immune responses with patients experiencing only minor side effects.
According to their data, their vaccines elicited similar responses as those observed from the individuals who recovered from COVID-19.
Moderna, which was the first developer to test its mRNA-1273 vaccine in humans, announced that Phase 3 of its human trials would start on July 27. This will involve 30,000 volunteers.
Moderna’s vaccine makes use of a genetic material, called mRNA, from the SARS-CoV-2 to trigger the body’s immune system to fight off the virus.
Meanwhile, AstraZeneca’s partnership with Oxford University produced what could be the most closely followed COVID-19 vaccine thus far. The candidate is tentatively known as AZD1222.
Even before the vaccine’s efficacy gets proven, the company already received a total order of 2 billion doses worldwide. Early estimates indicate that AstraZeneca can produce a million doses of its COVID-19 vaccine by September.
This partnership’s project is so sought after that rumors keep persisting that Russian spies are out to steal the research.
AstraZeneca’s approach is similar to the technique used by another vaccine maker outside the US, China’s own Cansino Biologics.
Both developers altered the genes of the adenovirus, which is another common virus, modifying it to harmlessly mimic the SARS-CoV-2. This will then induce an immune response from the body.
While Moderna was the first to enter human trials, AstraZeneca and Oxford’s candidate was the first to start the Phase 3 tests.
The reason that AZD1222 is gaining more traction than Moderna’s vaccine is because one dose of AstraZeneca’s candidate elicited an antibody response in more than 90% of the participants and a second dose managed to hit 100% -- the same level found among convalescent COVID-19 patients.
Among the three, though, Pfizer and BioNTech (BNTX) stand out because this is the only collaboration that refused government funding from the US.
This partnership uses the same approach as Moderna, with its early results also showing off promising immune responses from the participants.
Although the details have yet to be officially released, Pfizer landed its first government contract. The deal is with the UK and the New York-based biopharmaceutical company is expected to deliver 30 million vaccine doses between 2020 and 2021.
Aside from Moderna, AstraZeneca, and Pfizer, two more companies were included in Donald Trump’s Operation Warp Speed.
The fourth company is Johnson & Johnson (JNJ). The biotechnology and healthcare titan has yet to release results, with its first human trials scheduled this July and late-stage tests expected to start as soon as September. JNJ’s goal is to produce a vaccine by early 2021.
The fifth contender in the COVID-19 vaccine race is Merck (MRK).
While the rest of the developers are focusing on speed, Merck insists on taking its time before releasing their results. The company has made no announcement on its plans for human studies, with its leaders warning against accelerating the safety protocols.
At this point, there’s still no accurate way to determine the price of the COVID-19 vaccine. Nonetheless, investors are already smelling big money for this program.
A glaring example of how the COVID-19 crisis has pumped funds into biotechnology and healthcare companies is Moderna’s trajectory this year.
Prior to this pandemic, Moderna had a market capitalization of roughly $7 billion. Since February, though, this number has more than tripled its value at $23 billion.
While it is not the case for all the companies in the vaccine race, the excitement over it is understandable.
Let’s indulge in a bit of a back-of-the-envelope calculation.
If we base the estimates on the recent vaccines for diseases like meningitis B and the shingles, which cost somewhere between $300 and $400 for an entire course, then we can assume that the COVID-19 vaccine could fall near $500 per course.
That means vaccinating the entire population would rake in more than $150 billion to the company --- virtually all of its profit.
Inasmuch as that presents a lucrative opportunity, most of the leading companies already announced that they do not intend to make a profit off their COVID-19 programs.
These include Moderna, JNJ, and AstraZeneca. Meanwhile, Pfizer has yet to make that announcement.
Mad Hedge Biotech & Healthcare Letter
July 23, 2020
Fiat Lux
Featured Trade:
(WHY IT'S OFF TO THE RACES FOR BRISTOL MYERS),
(BMY), (PFE), (GILD), (REGN)
For investors, compounding has long been considered the eighth wonder of the world.
Compounding refers to growing your initial capital over time, boosted by well-timed additions to increase your pool of funds. Warren Buffet calls it “snowballing.”
For compounding to work out, though, it’s important to have a long-term investment plan.
Naturally, the first step to successfully invest is choosing the most suitable stock for your portfolio. Ideally, these businesses should have growth runways set up to thrive in the long run and coupled with clear-cut competitive advantages.
These companies should be able to pay out decent dividends as well since these can later be reinvested to accelerate returns.
Among the companies in the biotechnology and healthcare sector today, Bristol-Myers Squibb (BMY) fits the bill.
The company’s strengths lie in its oncology and hematology departments, with sales for its pipeline of drug candidates estimated to beat expectations.
With the new drugs in late-stage trials, BMY raised its annual sales forecast to reach somewhere between $15 billion and $20 billion. This number is expected to be sustained over the next 10 years.
Many of BMY’s promising programs came from its Celgene acquisition in November 2019.
While the whopping $74 billion deal faced pushback at first, the merger is expected to yield $2.5 billion in savings for BMY. This offers the company more elbow room to invest in its R&D sector.
BMY is working on combining its cancer drugs Opdivo and Yervoy with Celgene’s top moneymakers Revlimid and Pomalys, effectively transforming the New York-based company into the largest seller of cancer treatments in the world.
Outside its immuno-oncology lineup, BMY is also performing quite well in the cardiovascular field.
Its blockbuster drug Eliquis, which is a collaborative effort with Pfizer (PFE), remains one of the highest-selling treatments among atrial fibrillation patients.
In 2019 alone, Eliquis raked in $7.71 billion in sales. As for its performance this year, this heart disease drug is estimated to add another $1 billion, pushing its 2020 annual sales to $8.79 billion.
So far, 8 of BMY’s drugs available in the market generate over $1 billion in yearly sales. The company also has 9 new products undergoing Phase 3 trials, with more than 20 drugs slated for review in the next 10 years.
For 2020, BMY is projected to earn $41.8 billion in revenue and roughly $6.20 per share compared to $4.69 last year.
BMY is also anticipated to generate over $14 billion in free cash this year. Thanks to its Celgene acquisition, the company’s revenue will experience a one-time jump of about 60%.
For 2021, BMY is expected to report a 7.5% revenue growth to reach $45 billion or $7.33 per share. This is just a conservative estimate though.
BMY is an attractive stock right now.
It’s currently trading at roughly $60. The company has about $136 billion in market capitalization and pays an annual dividend of $1.80 for a yield of 3%.
In the past 5 years, except for a single quarter in 2017, BMY reported positive quarterly earnings growth.
The shares trade for 8.6 times its expected earnings in the next 12 months, which is just ridiculous for a premium stock.
In terms of its long-term earnings per share, the company is expected to report a 9.3% growth rate.
Finding value among the biotechnology and healthcare sector has become increasingly tricky.
Since the pandemic broke, industry stalwarts like Gilead Sciences (GILD) and Regeneron Pharmaceuticals (REGN) have been receiving constant media attention for their COVID-19 vaccines and treatments. This pushed their valuations to skyrocket.
However, there remain a number of reasonably affordable biotechnology growth stocks.
While these are not making headlines in the fight against COVID-19, these companies offer attractively high long-term earnings-per-share growth rates – and BMY is one of them.
Mad Hedge Biotech & Healthcare Letter
July 21, 2020
Fiat Lux
Featured Trade:
(WHY PFIZER AND BIONTECH ARE NOW VACCINE FRONTRUNNERS)
(PFE), (MRNA), (BNTX), (NVAX), (MY), (RHHBY), (SNY)
Pfizer (PFE) and BioNTech (BNTX) have stealthily positioned themselves as the new leaders in the COVID-19 vaccine race.
They recently received an FDA fast-track label for BNT162, pushing the timeline for their vaccine candidate to start late-stage trials for 30,000 patients this July as well — a timeline similar to Moderna’s plans.
Like Moderna’s vaccine candidate, Pfizer and BioNTech also use mRNA technology.
Basically, this system takes advantage of our own biological building block to trigger our body to create proteins. These can then help us protect ourselves from pathogens such as the coronavirus.
The announcement of the FDA fast-track pushed Pfizer stock to immediately jump by 5%, an impressive leap for a company with almost $200 billion in market capitalization. Meanwhile, BioNTech stock rose by 15%.
While the vaccine is anticipated to be launched by December 2020, Pfizer executives appear to be more bullish on the timeline.
In fact, the company expects a release date for the late-stage trial data to be available by September with a potential FDA approval by October.
If Pfizer’s vaccine candidate does manage to pass muster, then the two companies are expected to manufacture almost 100 million doses by the end of the year, with the number reaching 1.2 billion by December 2021.
Other than BNT162, Pfizer and BioNTech also received FDA fast track designations for two of the most advanced candidates in their pipeline, BNT162b1 and BNT162b2.
Having all these vaccine candidates under FDA fast track reviews is a welcome reprieve in this ongoing pandemic.
To say that we need an effective vaccine now more than ever is an understatement. This health crisis has been pushing not only the US but also the entire world on the brink of a financial shutdown.
So far, we have recorded over 13 million cases globally—3.5 million of those come from the US alone. With the increasing number of cases, more and more hospitals are crying out for help because they’re getting overburdened.
Apart from its coronavirus program, Pfizer offers a plethora of opportunities for investors.
In 2019, the company raked in $51.8 billion in revenue.
For this year, Pfizer has been zeroing in on improving its pipeline with eight potential blockbuster products anticipated to generate an additional $1 billion or more in annual sales.
Outside its own pipeline, Pfizer is also expected to reap the rewards from its spinoff Upjohn and the merger of this particular unit with Mylan (MYL).
The new company, called Viatris, will inherit some previous blockbusters from Pfizer.
This move is aimed to pave the way for Pfizer to focus on its rising stars like blood clot treatment Eliquis and heart failure medication Vyndaqel. Overall, these changes are projected to provide a bigger impact on Pfizer’s growth.
Meanwhile, BioNTech is also an interesting company to check out.
As with any typical biotechnology stock with no product out in the market yet, BioNTech remains speculative despite its $17.83 billion market capitalization.
However, its involvement with Pfizer in the development of a COVID-19 vaccine will definitely light a fire under this German company.
With that in mind, BioNTech shouldn’t be considered a one-trick pony.
Prior to its work with Pfizer, the company has been focused on creating individualized cancer treatments. So far, it has 10 cancer drug candidates in the 11 clinical trials underway.
Aside from Pfizer, BioNTech has also been working on other biotechnology and healthcare bigwigs like Sanofi (SNY) and Roche (RHHBY).
The race to complete the Phase 3 of the late-stage clinical trials for the COVID-19 vaccine has been tight.
Initially, it was only Moderna that held the top spot—and the stock definitely flourished because of it. Since the pandemic broke out, this biotechnology company’s stock skyrocketed to a jaw-dropping 202% year to date.
At the time, the close second was another small biotechnology with a market capitalization of $6.44 billion, Novavax (NVAX). The company’s stock also soared by a whopping 252.1% thanks to its COVID-19 efforts.
Now, Pfizer and BioNTech are well on their way to dethroning Moderna—if they haven’t done so already.
With a market capitalization of $198.42 billion compared to Moderna’s $31.9 billion, Pfizer has the upper hand in terms of resources, more extensive access to manufacturing partners, and of course, distribution.
