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.
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.
