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.
Mad Hedge Biotech & Healthcare Letter
July 16, 2020
Fiat Lux
Featured Trade:
(BIOGEN’S LONG TERM UPSWING HAS BEGUN),
(BIIB), (SGMO), (RHHBY)
Biogen (BIIB) is a stock that perfectly fits the biotechnology mold.
Over the past 5 years, this Massachusetts-based company was down for roughly 25%. Five years before that though, Biogen stock catapulted 700%. A decade or so prior that, the company’s performance was flat, with a couple of extreme swings now and then.
However, the next decade could see Biogen stocks going upswing once again.
In the past 20 years, the biotechnology and healthcare sectors have been obsessed with finding a cure for cancer. With over 1.8 million fresh cases diagnosed every year, it’s understandable why the oncology space has received the most attention over the years.
Apart from cancer, companies have also made significant progress in other pressing issues like infectious diseases and cardiovascular disorders.
Now, a new market is starting to demand attention as well: the neuroscience field.
With all the demands for treatments for other diseases though, companies pulled R&D dollars away from the neuroscience budget and poured those into less risky efforts.
In comparison, Biogen doubled down spending on its neurology research.
In fact, the company has spent over $10 billion in this sector in the last 5 years. This amounts to roughly 5% of its annual market capitalization.
To bolster its neuroscience efforts, Biogen is investing in gene therapy as drivers of future growth.
Just last April, the company bought $225 million of Sangamo Therapeutics (SGMO) stock. On top of that, Biogen paid the smaller company $125 million for technology licensing. The deal also included up to $2.37 billion in royalties and milestone payments.
This newly established collaboration will see Sangamo working with Biogen to come up with gene therapies for various disorders, including Alzheimer’s disease and Parkinson’s disease.
At the moment, Biogen is focusing on the development of its Alzheimer’s treatment Aducanumab.
Alzheimer’s is a huge untapped market opportunity that presents a substantial unmet clinical demand. Right now, there are no approved treatments that could alter the natural progression of the disease.
In the US alone, there are more than 5.8 million people living with Alzheimer’s and about 500,000 new cases added annually.
This target makes Biogen’s Alzheimer’s treatment Aducanumab a potential mega-blockbuster.
Biogen’s estimated annual cost per patient for Aducanumab is $30,000.
With the number of Alzheimer’s patients in the US at the moment, back of the napkin math shows that Aducanumab can easily generate $15 billion in sales for Biogen.
Meanwhile, peak sales for this treatment could hit $20 billion — and this could even be an underestimate.
Projecting it further to 10 years down the line and putting Biogen’s market penetration at just 50%, assuming that the number of cases remains flat, then Aducanumab could reach 2.9 million users.
This means an annual astronomical cost of $87 billion for the Alzheimer’s market.
Let’s say Biogen is eventually asked to lower the price for the treatment to be accommodated by Medicare.
We use just a third of the $30,000, which puts the Alzheimer’s treatment at $10,000 each year for every patient instead. This would still rake in an impressive $29 billion for Biogen -- and these numbers only cover the US.
If we assume that the demand from the rest of the world matches the US sales, then global demand for Aducanumab could generate over $60 billion in a year based on our $10,000 per patient each year estimate.
Going back to Biogen’s initial $30,000 projection, then annual sales would reach a jaw-dropping $180 billion.
Sticking to the $60 billion per year estimate, Biogen can easily climb to $250 billion in market capitalization in the next 10 years --- an incredible jump from the $42.79 billion it has right now. The company’s shares could trade north of $1,500, providing its investors with over 400% return.
As a Roche (RRHBY) leader aptly described, “neuroscience has the potential to be in the ‘20s what oncology has been in the last decade.”
Now, Biogen is the undisputed leader in terms of pipeline candidates for the field. It has transformed itself into a research powerhouse in anticipation of its dominance in what could be the most important medical breakthroughs over the next decade or two.
After all, scientific breakthroughs allow us to live longer. In effect, a good part of our population will eventually face neurological problems that crop up later in life.
Hence, Biogen is poised to lead the charge in this grossly underserved market. The fact that the company has been keeping its pedal to the metal in terms of its R&D efforts further all but guarantees its dominance in the years to come.
Mad Hedge Biotech & Healthcare Letter
July 14, 2020
Fiat Lux
Featured Trade:
(GILEAD SCIENCES REMDESIVIR MIRACLE)
(GILD), (RHHBY), (LLY), (MYL)
Gilead Sciences (GILD) has been in the spotlight for months now. The company gained even more attention when the FDA granted it emergency authorization to use its drug Remdesivir as a COVID-19 treatment.
To date, there are roughly 20 clinical trials for Remdesivir across the globe --- and Gilead is wasting no time to expand the use of this drug.
In a recent announcement, the company shared that Remdesivir will also be tested as an inhaled formulation for outpatients.
To compare, the drug is currently given in intravenous form to patients who are already considered severe cases. This latest iteration of the drug could offer a COVID-19 treatment to those with mild cases which could eventually lead to early treatment of the disease, making hospitalization unnecessary.
At the moment, Remdesivir shortens the recovery period of hospitalized COVID-19 patients by four days or roughly 31%.
Gilead will test this inhaled formulation of Remdesivir on 60 healthy participants in the US.
Aside from testing its inhaled formulation, the company is also planning to test an IV version of Remdesivir. This could be used for outpatient settings, such as nursing homes and infusion centers.
There are also trials to determine whether the efficacy level of Remdesivir could increase if combined with other drugs. For this, Gilead is working with Roche (RHHBY) for its Actemra and Eli Lilly (LLY) to test Olumiant. Both are used to treat rheumatoid arthritis.
Since the pandemic started and Gilead’s COVID-19 efforts, the company’s shares jumped by 17.5% so far, topping the 2% decline of the S&P 500 Index.
A notable factor that has been fueling Gilead’s improvement is the US government’s confidence in Remdesivir.
In early July, the Department of Health and Human Services all but wiped clean the company’s Remdesivir supply as it contracted Gilead to sell 500,000 treatment courses to US hospitals through the end of September.
This purchase adds up to $1.2 billion in Remdesivir sales in the third quarter of 2020 alone, with the drug estimated to generate $1.8 billion in the fourth quarter.
This puts the estimated total sales of Remdesivir at $3 billion for this year.
The company set the price for each course of Remdesivir treatment at $2,340 for the government, with a price tag of $3,120 for private US insurers. At this price point, every patient is estimated to save $12,000 in hospital bills.
This is actually lower than the anticipated pricing of Remdesivir. Initially, the cost per treatment course was projected to reach $5,080.
However, this pricing estimate is intended for developed countries.
For developing countries, Gilead forged deals with various generic manufacturers to ensure that the treatment is provided at substantially lower prices.
So far, the company has established licensing deals with generic drugmakers in 127 developing countries.
One of them is Mylan N.V. (MYL), which has received authorization from the Indian government to market its generic version of the Remdesivir.
Mylan’s version, which will be sold under the brand name Desrem, is expected to be around $62.40 per vial.
This is about 80% cheaper than Gilead’s Remdesivir, which costs $390 for each vial.
Outside its COVID-19 efforts, Gilead’s FDA application for rheumatoid arthritis drug Filgotinib is expected to inject the company’s top line with a much-welcomed sales growth.
Although Gilead’s 2019 top line fell flat, its first-quarter earnings report showed a promising 5% year-over-year bump in its sales. This growth is primarily attributed to the continuous improvement of its HIV product line, which showed a 14% increase in sales.
Overall, Gilead remains a value buy.
Gilead stock currently trades at 11.6 times its expected earnings over the course of the next 12 months, which is well above its average 7.3 times earnings.
The stock offers a quarterly dividend of $0.68, yielding a reasonable 3.5% annually. As modest as it sounds, this still well above the usual 2% that shareholders typically expect from an average stock.
Mad Hedge Biotech & Healthcare Letter
July 9, 2020
Fiat Lux
Featured Trade:
(DOUBLING UP AGAIN ON BIOTECH),
(BMRN), (VRTX), (GILD), (MRNA), (CRSP)
If the volatility of the stock market lately has been making you sick, then it might be time to add more biotechnology and healthcare stocks to your portfolio. They’re all having the effect of dragging each other up in this superheated environment.
Investors looking for these businesses can find a safe haven in rare diseases big player BioMarin Pharmaceutical (BMRN), which has $16.5 billion in market capitalization.
While most businesses languished since the pandemic broke this 2020, this biotechnology company’s shares rose by 12% this year. That’s not where it ends, though.
BioMarin could still pick up even more momentum despite the second wave of COVID-19.
The company currently has an extensive pipeline aimed at rare genetic diseases, with seven already approved and marketed in over 75 countries across the globe.
Looking at BioMarin’s first quarter earnings report for 2020, the company recorded a revenue of $502.1 million. This shows a 25% increase from the $400.7 million it raked in during the same period in 2019. It also handily beat the analysts’ estimate of $468.8 million.
Among BioMarin’s products, genetic metabolic disorder infusion Naglazyme is considered the top-selling treatment.
Sales of this product climbed 32% year over year in the first quarter to hit $27.4 million, with the jump primarily attributed to an increase in sales in Russia and Brazil.
However, the rising stars of BioMarin are two enzyme replacement treatments.
One is genetic blood disorder treatment Palynziq, which skyrocketed by 181% year over year to reach $22.3 million.
The other is Batten disease treatment Brineura, which soared by a whopping 97% to rake in $24 million.
Three of BioMarin’s drugs also performed well during this quarter.
Phenylketonuria drug Kuvan recorded $15.1 million in sales, up by 14% from the same period in 2019.
Meanwhile, Morquio A syndrome medication Vimizim generated $11.4 million in sales, showing off a 9% year over year jump as well. As for Aldurazyme, this Hurler syndrome drug’s sales rose by 23% to reach 10.4 million.
Now, the company is looking into another rare-disease treatment, which could cover Hemophilia A therapies via its experimental gene therapy Roctavian. This can open up a huge market for BioMarin, with over 20,000 Americans suffering from this disease.
Roctavian is expected to receive the FDA green light earlier than its August 21 decision date, possibly marking another blockbuster drug added to BioMarin’s pipeline.
Needless to say, the steady sales growth of these products served as the major driver of the company’s improving bottom line.
Over the past 10 years, the annual revenue of BioMarin has consistently climbed and beat analysts’ expectations -- a trend that’s likely to go on in the next decade as well.
Another company that built its name on rare diseases treatments is Vertex Pharmaceuticals (VRTX).
While most stocks struggle to deal with black swan situations like the COVID-19 pandemic, Vertex is poised to enter the $100 billion market cap club soon.
In fact, the company recently updated its 2020 guidance, increasing its initial estimate from $5.1 billion and $5.3 billion to $5.3 billion to $5.6 billion.
In sum, Vertex is poised to continue its upward trajectory despite the current economic landscape.
The confidence in its growth is bolstered by its recent earnings report for the first quarter of 2020, which indicated an impressive 77% year over year to reach a net revenue of $1.5 billion.
At the moment, Vertex has $61.7 billion in market capitalization, with the company transforming into the most dominant player in the cystic fibrosis (CF) space. Actually, Vertex holds the monopoly on the approved drugs used to treat CF, namely, Kalydeco, Orkambi, and Symdeko.
Apart from its efforts to continuously dominate the CF sector, Vertex also has several moonshots that can eventually turn into major catalysts.
Among those is its partnership with CRISPR Therapeutics (CRSP).
The two biotechnology companies are developing a gene therapy called CTX001 which can cure rare genetic blood diseases. Specifically, CTX001 is designed to cure beta-thalassemia and sickle cell disease.
Apart from its partnership with CRISPR Therapeutics, Vertex also acquired Semma Therapeutics in 2019 with the goal of coming up with a cure for Type 1 diabetes. If things go as planned, a gene therapy for this genetic disease will advance to clinical testing by early 2021.
While the world is mired in crisis, the biotechnology sector has been fueled with excitement particularly because of the potential COVID-19 vaccines and cures from companies like Gilead Sciences (GILD) and Moderna (MRNA).
With insistent whispers that a second wave of the deadly COVID-19 is well on its way, opportunistic investors are actively seeking defensive stocks with businesses that can withstand the second wave of infections.
Both BioMarin and Vertex offer safe bets in this increasingly unpredictable world. Aside from proving their capacity to expand, both also have incredible room for growth.
Mad Hedge Biotech & Healthcare Letter
July 7, 2020
Fiat Lux
Featured Trade:
(THE BILLIONS IN CROSS-PRESCRIBING FOR COVID-19),
(INCY), (NVS), (REGN), (SNY), (RHHBY), (LLY), (AZN), (GILD)
Although there is no obvious connection between cancer and viral infections, Delaware-based biotechnology and pharmaceutical company Incyte (INCY) is optimistic that its blood cancer treatment Jakafi can offer a solution to the COVID-19 pandemic.
The research on Jakafi’s efficacy against the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) started in April. It’s rooted in the premise that since the drug works by inhibiting the immune cells, then it can be effective in suppressing the body’s response to the coronavirus attack.
This is promising considering that the immune system bears the brunt of the most deleterious effects of the virus, with the patients’ own cells attacking their bodies that subsequently leads to death.
Jakafi received its first approval back in 2011. While it was discovered and marketed by Incyte in the US, this drug is sold by Novartis (NVS) outside the country under the name Jakavi.
Apart from Incyte, other companies working on a similar strategy of using an autoimmune disease drug to treat COVID-19 complications include Regeneron (REGN), Sanofi (SNY), and Roche Holding’s (RHHBY).
Outside its COVID-19 efforts, Incyte is also looking into expanding the market for Jakafi.
In 2019, Jakafi sales grew by 21% to reach $1.7 billion. Revenues were derived from the drug’s three approved uses, namely, myelofibrosis, polycythemia vera, and acute graft-versus-host disease.
For 2020, Incyte estimates sales to grow to hit $1.8 billion to $1.95 billion, paving the way for Jakafi to become a $3 billion brand.
So far, Incyte is hoping to achieve this by expanding Jakafi’s indications to include atopic dermatitis. The goal is to submit this for approval by the fourth quarter of the year.
Another COVID-19-related effort linked to the company is testing rheumatoid arthritis drug Olumiant, which Eli Lilly (LLY) licensed from Incyte.
Eli Lilly is investigating this drug in partnership with the National Institute of Allergy and Infectious Diseases (NIAID) hoping Olumiant can be used to treat critically ill COVID-19 patients.
Other companies looking into the same plan are Roche with Actemra and AstraZeneca (AZN) via Calquence.
Aside from that, NIAID is also looking into the efficacy of Olumiant when combined with Gilead Sciences’ (GILD) lead COVID-19 candidate Remdesivir.
Looking into Incyte’s earnings history, it’s safe to say that the company is on its way to a brighter financial future.
Last year, Incyte’s total global revenue reached $2.16 billion, showing a 15% increase from 2018.
Aside from its best-selling drug Jakafi, Incyte has another potential blockbuster in its portfolio in the form of blood cancer treatment Iclusig. This drug, which the company licensed from Ariad Pharmaceuticals, added $90 million in sales last year.
In addition, Incyte earned $226 million in royalties from Novartis’ sales of Jakafi outside the US and $80 million from Eli Lilly’s Olumiant sales last year.
As for Incyte’s pipeline for 2020, the company kicked off the second quarter with an early FDA approval of bile duct cancer treatment Pemazyre.
This new medication is also anticipated to be another bestseller for Incyte, with a $17,000 price tag for every treatment cycle.
On average, each patient requires eight to nine cycles in a span of six months. This puts the cost for every patient somewhere between $136,000 and $153,000.
At this rate, Pemazyre can rake in $50 million for 2020 alone.
Given that the world is still struggling with the pandemic, the company reported a modest peak sales estimate for Pemazyre at $140 million.
While this may not be enough to move the needle, Incyte is optimistic that the number will rise once the crisis is behind us.
More importantly, Incyte offers a fast-growing portfolio along with promising pipeline candidates that could give bigger biotechnology companies a run for their money.
