Biotech Letter - John Thomas - Mad Hedge Fund Trader

Early Winners are Turning Up in the Covid-19 Vaccine Race

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.

July 23, 2020

Biotech Letter

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)

Why It’s Off to the Races for Bristol Myers

Biotech Letter

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.

bmy

July 21, 2020

Biotech Letter

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)

Why Pfizer and BioNTech are Now Vaccine Frontrunners

Biotech Letter

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.

pfizer

July 16, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
July 16, 2020
Fiat Lux

Featured Trade:

(BIOGEN’S LONG TERM UPSWING HAS BEGUN),
(BIIB), (SGMO), (RHHBY)

Biogens' Long Term Upswing has Begun

Biotech Letter

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.

July 14, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
July 14, 2020
Fiat Lux

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(GILEAD SCIENCES REMDESIVIR MIRACLE)
(GILD), (RHHBY), (LLY), (MYL)

Gilead Sciences Remdesivir Miracle

Biotech Letter

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.

July 9, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
July 9, 2020
Fiat Lux

Featured Trade:

(DOUBLING UP AGAIN ON BIOTECH),
(BMRN), (VRTX), (GILD), (MRNA), (CRSP)