Mad Hedge Biotech and Healthcare Letter
September 4, 2025
Fiat Lux
Featured Trade:
(SHEAR GENIUS)
(INCY), (NVS), (SNY), (MRK)
My barber Charlie has this uncanny ability to diagnose which of his clients are making money in the market just by watching how they tip.
Last Thursday, while he was working his magic on what’s left of my hairline, he mentioned how his pharmaceutical rep clients have been tipping like oil sheiks lately.
“Something big is brewing in biotech,” he said. That conversation got me thinking about Incyte Corporation (INCY).
You see, Charlie’s pharmaceutical reps understand something most Wall Street analysts miss most of the time, and that’s the difference between flashy breakthrough drugs that grab headlines and the workhorses that generate consistent cash flow quarter after quarter.
Incyte falls squarely into that second category, except their “workhorse” just delivered Q2 2025 numbers that would make a racehorse jealous.
Digging deeper, I found where things get exciting, and why my neighbor’s dermatologist probably drives a Porsche.
Incyte’s Opzelura cream isn’t just another skincare product – it’s the first and only FDA-approved treatment for vitiligo in the United States. Think about that for a moment.
When you own the sole solution to a visible medical condition that affects millions, you’ve essentially discovered a legal monopoly that patients will pay for without batting an eye.
Revenue from this little tube of magic hit $164.5 million in Q2, climbing 38.6% quarter-over-quarter and 35.2% year-over-year.
But the real treasure lies in their emerging drug Niktimvo, which just posted sales of $36.2 million with a staggering 166% quarterly growth.
Meanwhile, the clinical data backing this drug shows 86% of patients with essential thrombocythemia achieving normalized blood counts.
For a condition affecting roughly 60,000 Americans, those efficacy rates suggest Incyte has another blockbuster hiding behind the boring medical terminology.
More impressively, the financial architecture of this company reads like a masterclass in pharmaceutical economics.
Their gross margin expanded to 55.9% while operating income margin hit 25.6%, a three-year high. On top of that, their total debt sits at just $42.4 million against EBITDA of $334.5 million.
That debt-to-EBITDA ratio of 0.04x is like having a mortgage payment of fifty bucks on a million-dollar mansion.
Now here’s where Wall Street’s myopia creates opportunity.
Everyone obsesses over Jakafi’s patent cliff coming in 2028, treating it like some inevitable catastrophe. What they’re missing is the patent protection story that extends well beyond that timeline.
Opzelura’s patents don’t expire until 2040, essentially giving Incyte a guaranteed revenue stream for the next 15 years.
The May settlement with Novartis (NVS) also cut their royalty payments in half, dropping cost of goods sold guidance to just 8-9% of revenues.
Every percentage point of margin expansion in a billion-dollar revenue company translates to serious money hitting shareholders’ pockets.
The acquisition angle makes this story even more compelling.
Remember when Sanofi (SNY) swooped in and bought Blueprint Medicines for $9.5 billion in June?
Incyte trades at 13.8x forward earnings, roughly 24% below the sector median, with minimal debt, growing cash flows, and a diversified pipeline that includes povorcitinib and INCB123667.
They’re essentially gift-wrapped for a strategic buyer. Those November 2024 rumors about Merck (MRK) sniffing around weren’t idle gossip – they were reconnaissance missions.
What really seals this investment thesis is the momentum building behind their numbers.
Non-GAAP earnings per share hit $1.57, beating expectations by a nickel, while management raised Jakafi guidance from $2.95-3 billion to $3-3.05 billion for 2025.
The beauty of Incyte’s transformation reminds me of watching a small-town hardware store evolve into a regional empire. They’re systematically building a franchise that compounds value over time.
Trading at $84.61 with multiple growth catalysts, patent protection extending into the 2040s, and a strong balance sheet, this represents exactly the kind of overlooked opportunity that creates generational wealth.
My barber may think he’s just cutting hair and making conversation, but his pharmaceutical rep theory just validated what decades of investing has taught me: find companies that solve real problems for real people, then hold on tight.
My next visit to Charlie’s chair just might coincide with a very good mood and an even better tip.
Mad Hedge Biotech and Healthcare Letter
September 2, 2025
Fiat Lux
Featured Trade:
(THE 3% DIFFERENCE THAT DOESN’T MATTER)
(LLY), (NVO)
My dentist called last week to reschedule my cleaning. “Supply chain issues with the numbing gel,” he said apologetically. Funny how even the medical profession struggles with simple logistics these days.
This got me thinking about how the simplest innovations often create the biggest disruptions, and how I’ve been around long enough to recognize them when they smack you in the face.
While everyone’s arguing about whether Eli Lilly’s (LLY) new oral obesity drug beats Novo Nordisk (NVO) by 3 percentage points, they’re completely missing the real revolution happening here.
Let’s put this into a real-world context. You know that friend who sets 17 alarms just to remember their weekly injection? The one who panics when traveling because their medication needs refrigeration? Well, orforglipron just made that person’s life infinitely easier.
We’re talking about a once-daily pill you can pop with your morning coffee, no fasting required, no refrigerator gymnastics, no scheduling your life around a needle.
But this is what I find most interesting. While the Street’s obsessing over trial data showing 12.4% weight loss versus semaglutide’s 15.1% – a difference smaller than my golf handicap variation – they’re ignoring the manufacturing goldmine.
Orforglipron isn’t some finicky peptide that requires a team of Swiss chemists and a prayer circle. It’s a small molecule that can be cranked out like Tylenol, only with margins that would make a casino blush.
Think about it this way: Novo’s sitting there trying to scale peptide production like they’re handcrafting luxury watches, while Lilly’s about to fire up the pharmaceutical equivalent of a printing press.
Lower production costs mean pricing flexibility that could flip this entire market on its head. When monthly treatments cost more than most people’s car payments, whoever cracks the affordability code wins everything.
The numbers are delicious. Lilly just dropped $15.56 billion in Q2 revenue with $5.66 billion in net income, nearly doubling year-over-year.
Mounjaro and Zepbound already represent 55% of their revenue pie, but orforglipron could become the first oral drug with dual approval for both diabetes and obesity. So while Novo’s playing regulatory hopscotch with separate approvals, Lilly’s positioning for a clean sweep.
Wall Street threw a tantrum after the ATTAIN-1 data, sending shares down 12%. Classic overreaction.
These people are comparing cross-trial data like they’re judging pie contests in different states – technically possible, but completely meaningless. What actually matters is capturing market share in a segment that analysts whisper could hit $15-20 billion in peak annual revenue for orforglipron alone.
Sure, there are speed bumps. Insurance coverage can be spotty, and daily pills might cause more stomach drama than weekly shots. But even if half the patients bail out annually, the math still works when you’re fishing in an ocean with hundreds of millions of eligible patients.
The current obesity drug adoption sits at a pathetic 3% domestically and 1% globally. That means we’re basically watching the invention of the wheel here.
Lilly’s balance sheet is pretty impressive, too. Despite $39.98 billion in debt that makes headlines, their 1.28 current ratio and $3 billion quarterly cash flow mean they’re sleeping just fine at night.
An Altman Z-Score of 7.1 screams financial fortress, while that debt’s financing the manufacturing revolution that’ll leave competitors eating dust.
The valuation looks promising at 48x earnings – 83% premium to healthcare peers – but transformative drugs don’t trade on traditional metrics. The market’s pricing in the 17% annual revenue growth for nine years, which sounds insane until you realize we’re witnessing pills replace needles in a market that’s barely gotten started.
Orforglipron isn’t just another drug launch. This is the iPhone moment for chronic disease management. While everyone debates decimal points on weight loss percentages, the real play is convenience multiplied by manufacturing scalability equals market domination.
As for this recent weakness, I look at it as gift-wrapping for anyone willing to think beyond next quarter.
When orforglipron hits pharmacy shelves in early 2026 and people realize they can manage their weight easier than scheduling that dental cleaning, we’ll remember this moment as when everything changed.
Hell, at least my dentist’s supply chain problems only affect my teeth. Lilly’s solving supply chain problems that affect waistlines and wallets. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
August 28, 2025
Fiat Lux
Featured Trade:
(A PERFECTLY EXECUTED FIANCHETTO)
(ABBV), (AMZN)
I was 12 years old, sitting across from this grizzled chess master in Washington Square Park – one of those guys who could probably beat you blindfolded while eating a hot dog. He demolished my carefully planned opening in about six moves.
While I was proudly moving my knight to what I thought was a brilliant attacking position, he was already three moves into a combination that would leave my king exposed.
“Kid,” he said, tapping the board, “you’re looking at the trees, but I’m seeing the whole damn forest.”
Twenty-three years later, watching AbbVie (ABBV) navigate the pharmaceutical landscape, I finally get what that old-timer meant. While everyone else is fixated on quarterly earnings and guidance raises, AbbVie is playing an entirely different game.
The stock just popped 11.4% in August after six months of looking like yesterday’s leftovers, and suddenly everyone’s acting surprised. Here’s the thing, though – if you’d been paying attention to the signals, this wasn’t exactly a shock.
Let’s talk about what really moved the needle here, because it wasn’t just the obvious stuff everyone’s parroting about earnings beats.
Sure, AbbVie crushed their Q2 numbers with $2.97 adjusted EPS versus the $2.84-2.88 guidance range – their fourth consecutive earnings surprise, which is starting to look less like luck and more like a pattern.
But this is what really caught my attention: they’ve raised guidance five times since March. Five times.
The EU-US pharmaceutical tariff settlement at 15% instead of the nuclear option of 250% was like watching someone defuse a bomb with three seconds left on the timer.
AbbVie manufactures across Germany, Ireland, and Italy, so this wasn’t just good news. It was “dodge a massive bullet” news.
They’d already started planning $10 billion in US manufacturing expansion as insurance, including a $195 million Illinois facility. Now they can probably take a more measured approach instead of panic-building factories.
On top of these, Rinvoq just nailed its alopecia trials – 55% of severe patients getting 30mg doses achieved 80% scalp coverage in 24 weeks.
Now, before you shrug and move on, consider this: there are 7 million Americans dealing with alopecia, and Rinvoq already pulled in 13% of AbbVie’s total revenue last quarter with a 41.8% year-over-year increase.
We’re not talking about a nice-to-have drug expansion here. We’re looking at a potential blockbuster indication for an already successful treatment.
The immunology segment brings in half their revenue, and they just found another way to make it bigger.
Then there’s the Gilgamesh acquisition – $1.2 billion for psychedelic depression treatments.
On paper, it’s 28% of their 2024 net earnings, which sounds hefty until you realize this is AbbVie building out their neuroscience portfolio, which already represents 17.4% of revenues.
That means this move wasn’t really about just buying a company. Instead, they’re buying into a therapeutic area that’s about to explode. The timing here is fantastic; getting into psychedelics before the regulatory floodgates fully open is like buying Amazon (AMZN) stock in 1997.
Now, here’s where the rubber meets the road, and why I respect companies like AbbVie even when the numbers make me wince a little.
At current levels, we’re looking at an 18.36x forward P/E if that acquisition hits earnings this year – and that’s assuming the worst-case scenario of paying the full $1.2 billion upfront.
Compare that to their five-year average of 12.5x, and yeah, the stock looks stretched. By about 28%, if we’re being honest.
But this is where being a chess player helps me think differently. The 2026 forward P/E sits at 14.6x based on analyst estimates, and by 2028, we’re talking about fair valuation territory with actual upside potential.
AbbVie isn’t simply riding the Humira wave into the sunset. They’re actually methodically building the next generation of revenue streams while everyone else is still trying to figure out what post-Humira looks like.
That old chess master in Washington Square taught me something that day that I didn’t fully appreciate until decades later: the best players aren’t just reacting to what’s happening on the board right now. They’re setting up moves that won’t pay off for another five or six turns.
AbbVie’s building its psychedelic portfolio while regulators are still figuring out the rules. They’re expanding Rinvoq into new indications while competitors are still trying to catch up to their current success.
And they’re doing all of this while maintaining a dividend that’s been growing for over a decade.
Sometimes the most expensive-looking investment is actually the bargain, because everyone else is still staring at the knight while the real game is happening three moves ahead.
That grizzled master would’ve loved this stock.
Mad Hedge Biotech and Healthcare Letter
August 26, 2025
Fiat Lux
Featured Trade:
(ENJOYING THIS HEALTHCARE GIANT’S TERRIBLE, HORRIBLE, NO GOOD, VERY BAD YEAR)
(UNH)
Listen, I’ve been around this market long enough to remember when healthcare stocks were boring dividend plays that our parents owned for the steady income.
Well, times have changed, and so has UnitedHealthcare (UNH), but sometimes the old investing wisdom still applies: buy when there’s blood in the streets, especially when it’s someone else’s blood.
Let me tell you what’s really going on here while everyone on Wall Street is having conniptions over headlines.
UnitedHealth just got served a reality sandwich with a side of humble pie, and frankly, it was about time.
These folks got cocky with their Medicare Advantage pricing for 2025, underestimating medical costs by a whopping $6.5 billion. And, no. That’s no rounding error.
But here’s the thing that separates the men from the boys in this business: Warren Buffett just bought 5 million shares worth $1.57 billion.
Now, I’ve disagreed with Warren plenty over the years, but the man didn’t get to where he is by throwing good money after bad. When Berkshire backs up the truck, you better believe there’s value hiding under all that panic selling.
The numbers don’t lie, even when management wishes they would.
UNH is trading at P/E levels we haven’t seen since 2014, and the enterprise value to EBITDA ratio sits 30% below sector median.
This doesn’t signify market efficiency. Instead, this is fear creating opportunity for those of us old enough to remember that every crisis eventually becomes someone’s buying opportunity.
Now, I’m not going to sugarcoat this. The company screwed up their medical trend assumptions worse than my kid’s first attempt at filing taxes, and now they’re looking at a 41% decline in adjusted earnings per share for 2025.
But here’s what the panic merchants are missing: UNH has a plan that actually makes sense.
Come January 1st, they’re repricing 80% of their premium revenues with about 10% increases baked in. They’re also showing over 600,000 unprofitable members the door – mostly those high-maintenance PPO customers who cost more than they’re worth.
Sometimes you’ve got to fire your worst customers to save your business.
The vertically integrated model still works, even if the execution got sloppy. When you own both the insurance company and the healthcare delivery system through Optum, you control costs in ways that give traditional insurers nightmares. That’s not going away because of one bad year of underwriting.
What worries this old timer is the concentration risk building up.
More Optum patients are carrying UHC insurance, which means less diversification and more eggs in one basket. That’s fine when times are good, but it amplifies the pain when things go sideways, as we’re seeing now.
The political noise is just that – noise. Sure, the DOJ is sniffing around, but they’ve been doing that for decades.
Healthcare regulation is like the weather. Everyone complains about it, but it’s always going to be there.
Companies that process one in four healthcare dollars in America don’t get dismantled; they get regulated. There’s a difference.
Management is targeting 2-4% margins for Medicare Advantage in 2026 and full recovery by 2027. Given their pricing power and the housecleaning they’re doing with unprofitable members, those targets look achievable rather than wishful thinking.
For those of us who remember when stocks were bought based on fundamentals rather than tweet sentiment, UNH represents exactly the kind of opportunity that builds wealth over time.
The company faces real challenges, but at these valuations, a lot of bad news is already priced in.
Sometimes the best investments are the ones that make your stomach churn a little when you buy them. UnitedHealth might just be one of those times when being uncomfortable pays off handsomely down the road.
Mad Hedge Biotech and Healthcare Letter
August 21, 2025
Fiat Lux
Featured Trade:
(SLOW AND STEADY WINS)
(MRK), (LLY)
A few years back, a Merck (MRK) executive was giving a presentation to Wall Street analysts when someone’s phone started ringing with the old Nokia tune.
Without missing a beat, the executive quipped, “Well, at least that’s one technology that had a longer patent life than most of our drugs.”
The room erupted in laughter, but it highlighted a fundamental truth about Big Pharma. They’re constantly racing against the clock, knowing their biggest moneymakers have expiration dates stamped right on them.
Speaking of racing against time, let’s circle back to Merck and why it deserves your attention right now, even as it wrestles with some serious headwinds that would make most companies reach for the antacids.
Last week, while everyone was talking about Eli Lilly’s (LLY) weight-loss drug drama and Warren Buffett’s surprise romance with UnitedHealth Group (UNH), Merck quietly put together a respectable rally that caught most folks napping.
The stock’s up about 9% since April, dividends included, and trading around $84 with all the excitement of watching grass grow.
Merck also just delivered second-quarter results that perfectly embodied the phrase “good enough.”
They beat earnings expectations with $2.13 per share versus the $2.03 consensus, which sounds impressive until you realize their revenue of $15.8 billion missed estimates by a modest $60 million.
The real story hiding in these numbers is more complex than assembling furniture without instructions.
The company’s facing a pharmaceutical soap opera right now.
On one side, you’ve got Gardasil sales plummeting 54% faster than your enthusiasm for New Year’s resolutions, which explains why investors initially yawned at the earnings beat.
On the flip side, their oncology and cardiovascular portfolios are performing like seasoned professionals, with Keytruda revenue growing 9% annually despite everyone wringing their hands about its 2028 patent expiration.
But here’s where it gets interesting for those of us who actually read beyond the headlines. Management is planning a $3 billion cost-cutting initiative tied to that Keytruda patent cliff, though they’re diplomatically calling it more of a “hill” than a “cliff.”
I’ve heard politicians use less creative spin, but the underlying message is clear: they’re not planning to go quietly into pharmaceutical retirement when their blockbuster drug loses patent protection.
New products like Winrevair are showing promising early performance, and executives are touting pipeline growth across 80 trials.
Meanwhile, the company is projecting revenue near $65 billion this year, which isn’t exactly pocket change even in today’s inflated economy.
From a valuation standpoint, Merck’s trading at a discount. The stock’s sporting a forward price-to-earnings ratio sitting around 12 times expected earnings, which is conservative enough to make your accountant smile.
Add in a solid 4% dividend yield that’s above the long-term average, and you’ve got an income play that actually pays you to wait around.
The technical picture tells a story of patient accumulation rather than explosive momentum.
Shares found solid support in the low $80s earlier this year and recently broke above their 50-day moving average.
The 200-day average still looms overhead like storm clouds, but the overall trend is pointing in the right direction for those willing to exercise some patience.
Risk-wise, you’re looking at the usual pharmaceutical suspects.
There’s uncertainty around how effectively they’ll execute that $3 billion reinvestment plan, plus the ever-present question mark around post-Keytruda performance.
Gardasil faces potential tariff headwinds, though we’re still waiting for the current administration to clarify its pharmaceutical trade policies.
The options market is pricing in about a 5.2% earnings-related move for the October release, which suggests traders aren’t expecting any earth-shattering surprises.
That’s probably appropriate given Merck’s tendency toward steady, predictable performance as opposed to roller coaster updates.
Merck represents that increasingly rare breed of large-cap pharmaceutical companies that combines reasonable valuation, consistent dividend income, and enough pipeline diversity to weather the inevitable patent cliff challenges.
It’s not going to make you rich overnight, but it might just keep paying dividends while you sleep, which strikes me as a pretty decent deal in today’s market environment.
Sometimes the tortoise really does beat the hare, especially when the tortoise pays you 4% annually for the privilege of watching the race.
