Mad Hedge Biotech & Healthcare Letter
July 30, 2020
Fiat Lux
Featured Trade:
(ABBVIE'S UNEXPECTED UPSIDES)
(ABBV), (GMAB), (REGN)
Tag Archive for: (ABBV)
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 2, 2020
Fiat Lux
Featured Trade:
(FIVE BIOTECH STOCKS TO BUY AT THE MARKET TOP)
(REGN), (GILD), (PFE), (ABBV)
No, this is not a typo, a misprint, nor an alcohol-induced departure from reality. I only buy stocks at market tops when I believe that newer, higher market tops are imminent. That is certainly the case with the entire biotech sector.
That’s why I moved this morning into a very aggressive triple weighting to the sector.
As the world grapples with the COVID-19 pandemic, Regeneron (REGN) has been hailed as one of the “miracle stocks” in the biotechnology sector.
Although late to the party, Regeneron quickly became a frontrunner in the race to find a COVID-19 treatment in June when the company entered clinical trials with its COVID-19 treatment candidate. The New York biotechnology company has already started manufacturing, with the company expecting trial results to be released later this summer.
Regeneron followed the lead of other biotechnology companies repurposing seasoned medicines to treat this deadly disease, such as Gilead Sciences (GILD) and Pfizer (PFE).
Prior to developing it to target SARS-CoV-2, Regeneron’s antibody cocktail had been used to treat Ebola.
In response to Regeneron’s promising progress on the COVID-19 treatment, the market showed its appreciation by pushing the company’s shares up over 60% year-to-date.
Needless to say, Regeneron has been heavily outperforming the broad biotechnology indexes and even the broader market.
However, Regeneron’s success these days isn’t only attributed to its COVID-19 efforts. In fact, Regeneron’s annual revenue has been consistently increasing for more than a decade now.
Prior to starting its coronavirus program, the company has already lined up several candidates that can serve as catalysts for growth.
One of the catalysts for Regeneron’s growth is skin cancer injection Libtayo.
At present, Libtayo dominates the advanced cutaneous squamous cell carcinoma market as seen in the 179% jump in its sales to hit $75 million in the first quarter of 2020.
Riding on the momentum of Libtayo’s current sales, Regeneron is also looking to expand its coverage to include non-small cell lung cancer and basal cell carcinoma.
This means that Libtayo still has a long way to go before it reaches its peak.
To give this drug’s potential some context, keep in mind that roughly 9,500 individuals in the United States alone get a skin cancer diagnosis every day. Meanwhile, over 3 million Americans are diagnosed with either basal cell carcinoma or squamous cell carcinoma each year.
As for non-small cell lung cancer, this disease accounts for 84% of over 228,000 cases of lung cancer in the US annually.
Combined, the market size of Libtayo could reach roughly 3.2 million patients.
Libtayo is priced at $9,100 to cover a three-week treatment course. Patients are advised to regularly take the infusion every three weeks. This puts the annual cost of Libtayo treatment somewhere around $158,000.
With this annual treatment cost and the projected total market size in mind, it’s safe to say that Libtayo can yield profits of well over 12 figures. This is the best-case scenario, though.
If we go for the least likely scenario, where Regeneron only reaches 10,000 patients for all the diseases mentioned, then the company can still generate an annual revenue exceeding $1.5 billion.
As for the other products in Regeneron’s pipeline, the company’s recent earnings report showed that sales in the first quarter were only marginally impacted by the pandemic.
For instance, Eylea’s annual growth rate was only at 6%. Nonetheless, this wet macular degeneration and metastatic colorectal cancer medication’s first quarter sales still reached a decent $1.9 billion.
Moreover, there’s a growing market that can substantially boost Eylea’s performance in the coming years.
Studies show that the global market for wet age-related macular degeneration is projected to rise at an annual rate of 7.1%. By 2024, this market could reach $10.4 billion.
Aside from Eylea, Regeneron’s eczema biologic Dupixent sales have been soaring as well. This drug went up by an impressive 124% year-over year, generating $855 million in revenue.
Dubbed as Regeneron’s “pipeline in a product,” the company is looking to transform Dupixent into a mega-blockbuster drug like AbbVie’s (ABBV) Humira.
So far, Dupixent is being studied to determine if it can also be marketed to asthma patients and recently gained approval to be cover atopic dermatitis as well.
Overall, Regeneron merits a closer look, especially among biotechnology investors searching for a dependable stock with a lot more room to grow.
Not only does the company have over $7.2 billion in cash and have minimal debt, it also has a remarkable profit growth.
In the first quarter of 2020 alone, Regeneron’s bottom line jumped by a whopping 48% year over year to reach $771 million or $6.60 per share.
Looking at its annualized rate, Regeneron stock is actually trading for roughly 22 times earnings -- a reasonable price to pay for a well-rounded blue chip company that offers such impressive growth and a strong track record.
Mad Hedge Biotech & Healthcare Letter
June 18, 2020
Fiat Lux
Featured Trade:
(ABBVIE JOINS THE CORONA FRAY),
(ABBV), (REGN), (LLY), (GMAB), (RHHBY), (AMGN), (JNJ), (NVS), (GSK), (MRK), (AZN), (SNY), (AGN), (PFE)
Mad Hedge Biotech & Healthcare Letter
June 11, 2020
Fiat Lux
Featured Trade:
(THE BIOTECH MERGER BOOM ACCELERATES)
(AZN), (GILD), (BMY), (ABBV), (AGN), (TAK), (CI), (SNY), (JNJ), (UNH), (RHHBY), (LLY)
Nothing can ever be absolutely shocking in the biotechnology and healthcare world.
I’ll admit though that the reports on AstraZeneca’s (AZN) interest in acquiring Gilead Sciences (GILD) surprised me.
The two companies touched base last month on a potential acquisition deal.
If this rumor turns into a reality, then we’re looking at what could be the biggest healthcare deal to date.
That’s saying something considering the massive mergers we’ve seen in the past years.
So far, the biggest biotechnology and healthcare deal is the $87.6 billion acquisition of Celgene (CELG) by Bristol-Myers Squibb (BMY) in 2019.
In the same year, AbbVie (ABBV) acquired Allergan (AGN) for a whopping $83.8 billion, making it the third biggest deal in the healthcare sector to date.
The year 2018 paved the way for two more massive deals in the form of Takeda’s (TAK) $81 billion acquisition of Shire, which ranks fourth overall, and Cigna’s (CI) $68.4 billion deal with Express Scripts (ESRX) in seventh place.
Fifth on the list is by Sanofi’s (SNY) $73.5 billion deal with Aventis in 2004.
Although it has been two decades since it happened, the $72.5 billion merger of Glaxo and SmithKline Beecham in 2000 still counts as one of the biggest deals in the industry. This agreement gave birth to GlaxoSmithKline (GSK).
Prior to Bristol-Myers Squibb and Celgene deal, it was Pfizer’s (PFE) $87.3 billion acquisition of Warner-Lambert in 1999 that topped the list.
AstraZeneca’s current market capitalization is roughly $140 billion. Meanwhile, Gilead Science’s market cap stands at approximately $96 billion.
With all these in mind, the AstraZeneca-Gilead Sciences merger is estimated to reach roughly $250 billion on top of the significant synergies expected throughout the years.
If these two health industry heavyweights merge, then their newly formed company would become the third biggest healthcare company in the world behind Johnson & Johnson (JNJ), which has a market cap of $384.55 billion, and UnitedHealth Group (UNH) with $293.85 billion.
Looking at this potential merger in the context of the coronavirus race, it’s safe to say that the combined efforts of AstraZeneca and Gilead would create a COVID-19 titan.
AstraZeneca’s partnership with the University of Oxford resulted in a COVID-19 vaccine candidate that was recently selected as one of the top five candidates worthy of US government support through Trump’s Operation Warp Speed program.
Meanwhile, Gilead’s antiviral medication Remdesivir has been constantly hailed as the standard of care for COVID-19 treatment since the pandemic broke.
The drug which was previously marketed as an HIV medication is now expected to generate $2 billion in sales as a COVID-19 treatment in 2020 alone.
In 2022, Remdesivir is estimated to rake in roughly $7.7 billion in sales. After that, the antiviral drug is projected to generate annual sales somewhere between $6 billion and $7 billion.
Although everything is hypothetical, let’s take a quick look at where each company stands at the moment outside their COVID-19 efforts.
AstraZeneca has been a consistent strong stock market performer throughout the years.
In the first quarter of 2020, sales improved in practically all of AstraZeneca’s territories. Although it has a diversified portfolio of drugs and a robust pipeline, the company’s hottest segment is its oncology business.
A good example of this is non-small cell lung cancer treatment Tagrisso, which is starting to live up to expectations as the next mega-blockbuster for AstraZeneca.
The cancer drug’s first quarter sales reached an impressive $982 million, showing off a 56% jump year over year.
This is promising considering that its competitors include Roche’s (RHHBY) Tarceva and Eli Lilly’s (LLY) Cyramza.
As for its 2020 revenue forecast, AstraZeneca is reported to rake in $25 billion, from which it will generate approximately $7.5 billion in operating profit.
On the other hand, Gilead also has an impressive portfolio that it can bring to the table.
In the first quarter of 2020, the company earned $5.47 billion in revenue compared to the $5.20 billion it generated in the same period last year.
Despite the decline in its hepatitis products from $790 million in the first quarter of 2019 to $729 in the same period of 2020, Gilead’s HIV line made up for the loss by bringing in over $4 billion in sales compared to the $3.6 billion it earned last year.
Not only that, some of Gilead’s other candidates are exciting.
For example, rheumatoid arthritis drug Filgotinib is expected to become another blockbuster and generate $5 billion in revenue annually.
Meanwhile, the anti-tumor treatment Magrolimab is estimated to rake in $3 billion in peak sales.
With the company’s older drugs still capable of generating strong revenue and its new candidates showing their potential for revenue expansion, Gilead can be assured of a continued cash flow well into the 2030s.
Regardless of whether this rumored mega-merger pushes through, both Gilead and AstraZeneca are attractive stocks worthy of their premium valuations.
Mad Hedge Biotech & Healthcare Letter
February 4, 2020
Fiat Lux
Featured Trade:
(ABBVIE’S BIG CORONA VIRUS PLAY)
(ABBV), (RHHBY), (GILD)
Two major issues are in the root of the panic caused by every new infectious disease.
The first is because of the uncontrollable spread of the virus, affecting thousands of people in a short span of time. This consequently pushes the public to question the capacity of their government to provide the proper healthcare to every patient, causing further confusion, alarm, and eventually, economic upheaval.
The second is the overpowering uncertainty that looms over not only the people directly affected by the disease but also the rest of the world as we feel like sitting ducks, wondering who the virus will infect next.
Both effects have become apparent with the news of a new coronavirus, known as 2019-nCoV, which originated in Wuhan, China.
The public’s reaction has come so close to mass hysteria, especially since the virus has already taken over 400 lives and infected more than 20,000 people worldwide.
The speed by which the disease is spreading is also alarming. The 2019-nCoV getting transmitted from one person to another almost as fast as the highly transmissible flu, which was not the case for its slower-moving cousins Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS).
In response to this alarming situation, the Chinese government along with the medical community has turned to unconventional means to find a cure — and giant biotechnology company AbbVie (ABBV) is at the forefront of these efforts today.
One measure taken by the health experts is using AbbVie’s off-label HIV drug, called Kaletra (aka Aluvia), to treat 2019-nCoV patients.
Kaletra has two components valuable in battling the coronavirus: lopinavir and ritonavir. Both have the capacity to block HIV viral replication.
The twice-a-day Kaletra regimen comprises taking the HIV drug and undergoing infusions of interferon, a protein that triggers the immune system.
Although the AbbVie drug has yet to be officially declared as an approved cure for the 2019-nCoV, more and more health experts in China are already using it.
The belief on this treatment’s efficacy stemmed from the statement of the head at Peking University First Hospital, who shared that he contracted 2019-nCoV but cured himself by taking Kaletra.
This Chinese doctor is currently part of the national team of experts sent by the Chinese government to tend to those in Wuhan. Aside from him, Shanghai authorities disclosed that they have already adopted the HIV treatment in handling their own patients.
However, this isn’t the first time that Kaletra was deployed as a treatment against a coronavirus.
In 2004, Kaletra was used to cure the patients of SARS-CoV. This is promising since SARS, which is also caused by a coronavirus, bears a close resemblance to the 2019-nCoV. Experts tested the drug to help treat MERS patients as well.
A roadblock for the Kaletra cure is the scarcity of the drug in China.
A lot of health professionals disclosed that they have been struggling to get their hands on the AbbVie off-patent product. In response, AbbVie donated approximately $1.5 million worth of Kaletra to help contain the 2019-nCoV.
Other biotechnology behemoths have followed AbbVie’s lead of donating funds to help with the research in China. The list includes Roche Holding (RHHBY) and Gilead Sciences (GILD).
Meanwhile, this piece of promising news is not lost in the market. In fact, AbbVie shares pushed higher the moment Kaletra’s efficacy against the 2019-nCoV was revealed.
Apart from that, this development has reminded investors of AbbVie’s promising growth lately.
Unfortunately, most of the company’s growth came from acquisitions — a path where AbbVie has an abysmal track record. More often than not, investors fear that the company overpays in deals that fail to reap the promised rewards.
Case in point: AbbVie’s hefty $63 billion acquisition of Botox maker Allergan, which is due to be finalized early 2020.
In moving to acquire a company that only has one consistent blockbuster product, experts believe that AbbVie might have pulled the trigger too soon without considering other options.
While this high-profile agreement has been such a hot topic in the investing community, I think it’s a good move towards diversifying AbbVie’s sales and injecting additional growth.
Remember, AbbVie is in desperate need for a new outlet in light of the dwindling Humira sales. Adding a high-selling and established industry leader like Botox to the mix would make AbbVie more diversified than ever, making it safer.
More importantly, AbbVie ensured that the $63 billion acquisition doesn’t run the company to the ground — and its precautionary measures showed.
The company has been consistent in its net income, reporting over $5 billion annually in the past three years. It also raked in $12.8 billion in free cash flow in 2018, proving that AbbVie is well-positioned to acquire more companies and be more creative in looking for growth targets.
Hence, I view this biotechnology stock as an underrated buy that would appeal to bargain hunters willing to hang onto it for the years to come.
Mad Hedge Biotech & Health Care Letter
October 17, 2019
Fiat Lux
Featured Trade:
(DUMPSTER-DIVING IN BIOTECH),
(ABBV)
