(ABT) Archives

A Reliable Stock That Can Withstand Any Global Shockwave

Investing is a long-term bet that requires patience and a strong risk appetite to enjoy eventual big wins.

In a world filled with uncertainties and gambles in the ever-evolving stock market trends, risk-averse investors are on the lookout for secure and stable options.

After all, who wouldn’t want to invest their hard-earned cash in a stock that can survive even the most intense macroeconomic shocks?

The name that easily fits these criteria in the biotechnology and healthcare sector is Johnson & Johnson (JNJ).

Reviewing JNJ’s five-year price movements from 2017 until 2022, a steady bullish trend of roughly 46% growth can be seen.

This trend has continued amid the slowdowns, with the stock delivering consistent growth and recovery despite serious dips.

In early 2020, when the COVID-19 outbreak wreaked havoc on the global economy, JNJ tanked along with other stocks. However, the company steadily showed signs of recovery mere weeks following the outbreak.

By 2021, JNJ managed to record a substantial increase of 11.4%. More importantly, it was able to sustain that trend throughout the year.

In March 2022, when the Ukraine-Russia crisis disrupted the economy, several businesses in the industry once again crashed due to supply chain and logistical issues. Amid these disruptions, JNJ still managed to stay on its growth path and develop contingencies to protect its assets.

Widely known as a global healthcare titan, JNJ holds a market capitalization that is hovering close to roughly half a trillion dollars.

As the parent company of the top-rated brands like Benadryl, Listerine, and Neutrogena, JNJ’s market operations are trifurcated into three main segments: MedTech, Pharmaceutical, and Consumer Health.

In November 2021, the company disclosed its plans to spin off its consumer arm into a separate publicly-traded company.

Similar to the move of Pfizer (PFE) with its Viatris (VTRS) spinoff and Merck (MRK) with Organon (OGN), JNJ’s goal is to reclassify a number of its international OTC drugs from its Consumer Health branch to form part of the pipeline of the new spinoff company.

Needless to say, the company’s notably diversified portfolio provides its with a competitive advantage in this highly volatile market.

Meanwhile, its other two segments are also contributing to JNJ’s growth. Its Pharmaceutical branch recorded a 6.3% increase in revenue in the first quarter of 2022, while its MedTech segment grew by 5.9%.

In total, JNJ’s sales for the first quarter of 2022 rose by 5% to reach $23.4 billion. This also boosted the company’s earnings per share to $2.67.

Riding the momentum of its strong first-quarter showing this year, JNJ once again demonstrated why it is hailed as a Dividend King.

The company hiked its quarterly dividend by 6.6% to $1.13 per share, making this the 60th consecutive annual dividend increase.

Considering that the company has been paying out dividends since 1963, this latest increase is indicative of how safe JNJ is for investors who want to multiply their cash while earning a regular income via dividends.

Moreover, JNJ is a clear frontrunner in the healthcare world and continues to work on innovative solutions to keep it ahead of its competitors.

Taking a closer look at the broader competitive field of healthcare industry players that are considered similarly sized, like AbbVie (ABBV), Abbott Laboratories (ABT), and Novo Nordisk (NVO), JNJ has the most significant market capitalization.

In this aspect, the company is the largest among its direct rivals. Therefore, it essentially reinforces its capacity to raise finances.

Given its perpetual bullish climb since its trade initiation back in 1982 and its addition to the Dow Jones Industrial Average (DJI), JNJ stock has been long known to hold strong credibility.

Actually, JNJ and Microsoft (MSFT) are the only two American companies with an AAA credit rating, a grade above the United States government itself.

This means that JNJ has such a strong sense of certainty in debt repayment that it holds a lower probability of default than the US government—an entity allowed by law to print money.

Overall, JNJ has proven to be an excellent option for risk-averse investors searching for growth and profitability.

It has strong financial fundamentals and a commanding market position, making it a highly stable and secure investment.

Moreover, its diverse portfolio minimizes the risk exposure of the company. All these make JNJ a great buy. Hence, it would be a wise move to buy the dip.

jnj

A Bright Spot in a Gloomy Sector

Biotech Letter

In an economy continuously plagued with a rising interest rate, it’s not unheard of for risk-averse investors to steer clear of businesses with high debt loads.

After all, those kinds of companies could be the most affected as climbing interest rates inevitably lead to lower profits.

The silver lining is that there’s no need to sacrifice putting money in growth stocks altogether.

You can simply load up on ultra-conservative businesses to ensure that you don’t come off the losing end in the battle of an ever-increasing interest rate.

In the biotechnology and healthcare sector, there are a handful of promising fast-growing businesses that are not saddled with tons of debt. One of them is Vertex Pharmaceuticals (VRTX).

A continuously growing business, Vertex recorded $7.5 billion in sales in 2021, showing off a 22% increase from 2020.

Its cystic fibrosis (CF) program is a major player in its growth, particularly Trikafta/Kaftrio. On its own, this blockbuster treatment contributed $5.7 billion to Vertex’s top line in 2021.

As it expands and goes after more growth opportunities, Vertex consistently ensures that it is backed by a solid balance sheet. In total, its short- and long-term liabilities amount to roughly $3.3 billion.

With a cash balance of $6.8 billion, the company has more than enough to clear that off.

In the past 12 months, Vertex has generated roughly $2.6 billion in cash from its daily operating activities.

This biotechnology company has been in such excellent shape that it managed to buy back shares with $1.4 billion last year. That’s practically three times the $539 million it allocated to repurchasing efforts in 2020.

Meanwhile, investors who feel they missed the boat on Moderna (MRNA) now have a second shot at investing in another high-growth biotechnology company.

Plus, it still has a Moderna connection and already has a strong track record of dominating a lucrative market.

Vertex and Moderna, which saw their stock price catapult to a record-breaking 800% in the past two years, are working on an mRNA-based therapy for CF patients.

Now, you might be wondering why Vertex is pursuing this program, considering its dominance in the CF market.

In fact, the closest rival would be AbbVie (ABBV). However, Phase 2 trial results for this candidate are due in two to three years. That means Vertex will likely remain the top name in the CF space for a while. Nevertheless, Vertex appears determined to keep its lead.

So, why bother with a new program instead of bolstering the existing Trikafta pipeline?

Well, right now, Vertex has virtually covered 90% of the CF market—and this is where Moderna comes in.

What the two are trying to do is to completely cover the market and target the remaining 10% not qualified to take the existing Vertex CF treatment.

As of the last update, the remaining demographic is at 25,000 patients. This would translate to another $4 billion in commercial sales.

If they succeed, the two would have created the biggest competitor to Trikafta. That means Vertex’s most formidable rival would be Vertex as well.

Needless to say, Vertex’s continuous dominance in the CF space guarantees blockbuster levels of profits in the years to come.

Vertex has been busy expanding into additional therapeutics segments despite its resounding success in the CF space.

Another potential blockbuster is CTX001, a one-time gene-editing treatment targeting blood disorders beta-thalassemia and sickle disease, developed in collaboration with CRISPR Therapeutics (CRSP). This is by far the most exciting venture of the company, with the partners expected to file for regulatory approval by the end of 2022.

Aside from these, Vertex’s pipeline is filled with promising candidates. One is VX-147, which is a groundbreaking therapy for severe genetic kidney diseases. There’s also autoimmune treatment VX-880.

VX-548 is another exciting candidate. While this drug is aimed to be an acute pain treatment, a key characteristic is the absence of drug addictiveness.

This is a breakthrough effort because it might just be the answer to the ongoing opioid crisis.

Given the unique mechanism of VX-548, this alternative aims to deliver treatment with low addictive effects.

There are roughly 75,000 deaths reported annually caused by overdose on opioid drugs in the United States alone. This could translate to $4 billion in the addressable market.

Although these candidates are not as advanced as Vertex’s CF program, they demonstrate that the company can go beyond its well-established niche and bolsters investor confidence.

With the rising inflation and economic turbulence, it’s advisable to prioritize companies with steady cash flow and promising growth prospects

Despite the rough couple of years for the broader market, Vertex easily meets these expectations and appears to be one of the positive stories in the healthcare and biotechnology sector.

March 31, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 31, 2022
Fiat Lux

Featured Trade:

(A SUPERCHARGED BUY-AND-HOLD GEM FIRING ON ALL CYLINDERS)
(ABT), (PFE), (VTRS), (MRK), (OGN), (ABBV)

A Supercharged Buy-and-Hold Gem Firing on All Cylinders

Biotech Letter

Sell-offs can be stomach-churning, but they also offer excellent opportunities to load up on shares of companies that are typically too expensive to purchase otherwise.

You can never go wrong when you opt for dividend stocks that are impressively stable and possess a solid track record that stood the test of time.

One name that fits this description in the biotechnology and healthcare sector is Abbott Laboratories (ABT).

Over the past years, Abbott has had its hand in diverse ventures ranging from BinaxNOW antigen tests and continuous glucose monitors to Pedialyte. That’s why it comes as no surprise that the company’s over $43.1 billion revenue in 2021 was generated from extensive sources.

While the rest of the world struggled financially during the pandemic, Abbott was able to leverage the strength of its business model.

Thanks to its diverse coverage of the healthcare market, Abbott was able to readily seize the high growth potential of diagnostic tests in the early stages of the COVID-19 pandemic.

This hold of the market expanded as more tests were needed due to the emergence of multiple variants. Since Abbott already had the technology at the ready, it was able to position itself as a first mover and leader in this segment.

In addition, its diverse portfolio and strategic partnerships translated to an increase in its quarterly revenue to more than 81% in the past five years. It has also boosted Abbott’s growth at twice the S&P 500’s pace and even flagship biotech and healthcare ETFs in the past five years.

Moreover, Abbott’s dividend has consecutively increased in the past 50 years, giving the company the title “Dividend King.”

Abbott’s dividend has increased by an impressive 77% in the last five years thanks to its significant participation in the COVID-19 testing kit market.

More importantly, a market sell-off won’t necessarily affect Abbott’s business. Given its track record, it’s safe to say that its dividend will keep rising in the years to come, thereby rewarding patient long-term investors.

Among the diverse divisions within Abbott, the most exciting is its Medical Devices segment. For years, the company’s innovations in this sector have gained praise from healthcare providers for their ability to combine technology and health under one umbrella.

This segment has greatly benefited from key acquisitions, with the $5.8 billion acquisition of Alere boosting its care diagnostics sector and $25 billion merger with St. Jude’s Medical dramatically expanding its medical device department.

So far, the company has created products for stroke prevention, electrophysiology, and cardiac monitoring—all of which have targeted high-growth segments.

In this particular area, Abbott’s key growth driver is a product called Libre Freestyle. This is an integrated continuous glucose monitoring device.

Basically, it is an implanted device that helps patients with diabetes to monitor their glucose levels. It communicates with an app and, depending on the patient’s condition, is connected to an automated insulin pump.

This effectively eliminates the need for the painful finger-sticking method or self-injecting insulin.

Abbott only has two serious competitors in this breakthrough diabetes-centered technology: Medtronic (MDT) and Dexcom (DXCM).

Despite their presence, Abbott holds the lead due to its more affordable price point, with Freestyle Libre sales increasing by $1 billion in 2021 to record a total of $3.7 billion.

Another interesting department for Abbott is its Established Pharmaceuticals sector. This segment covers established drugs like cystic fibrosis drug Creon, IBS treatment Duspatal, and influenza vaccine Influvac.

While this isn’t a fast growth segment, it has become an essential contributor to the company, with most of its sales coming from wholesale agreements overseas.

Suppose the movement from other Big Pharma companies is any indication. In that case, this segment may very well be on its way to becoming another spinoff organization like Pfizer’s (PFE) move to create Viatris (VTRS) and Merck’s (MRK) decision to develop Organon (OGN).

As a biotechnology and healthcare company, Abbott does not offer the typical buzz-worthy updates that investors in this space are on the lookout for.

Instead, the company has been actively developing products for diagnostics, medical nutrition, medical devices, and surgical tools. Moreover, it focuses on harnessing solid relationships with medical professionals and health insurers.

Unlike its spinoff company AbbVie (ABBV), Abbott is regarded as a financially traditionalistic business. It is a conservative Dividend King that’s steadily growing in its established business sectors, making it a buy-and-hold gem for patient long-term investors.

October 26, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
October 26, 2021
Fiat Lux

Featured Trade:

(A BEATEN-DOWN STOCK POISED FOR A BREAKTHROUGH)
(ABBV), (ABT), (REGN), (PFE)

A Beaten-Down Stock Poised for a Breakthrough

Biotech Letter

The market's volatility has made it difficult to find high-quality stocks at reasonable prices as of late.

Despite challenges, the key to investing is never to stray from quality.

In the words of no less than Warren Buffett, “It is better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

This reminds me of one of the stocks I constantly add on pullbacks: AbbVie (ABBV).

AbbVie, which is a spinoff company from Abbott Laboratories (ABT), started trading in 2013. Since then, its name has been synonymous with its rheumatoid arthritis drug Humira—the No. 1 selling drug globally in the past years.

While AbbVie understandably relied heavily on this product for years, with 65% of its revenue coming from Humira sales in 2018, the company has already aggressively implemented ways to diversify its portfolio to prepare for the impending patent loss.

Among its efforts, one of the most exciting ones is its work with biotechnology company Regenxbio (RGNX).

AbbVie and Regenxbio have been collaborating to develop gene therapies that can treat rare eye disorders.

Basically, gene therapy is a novel approach to deal with diseases by genetically altering a patient's cells instead of the traditional method involving surgery or drugs.

AbbVie’s deal with the smaller company comprises a $370 million upfront payment to Regenxbio, with up to $1.38 billion in developmental and commercial milestones.

So far, the two have come up with RGX-314, a gene therapy candidate in Phase 2 trial for wet age-related macular degeneration (AMD).

This condition includes symptoms like blurred vision and a blind spot.

Patients can also suffer from a complication triggered by diabetes, called diabetic retinopathy, which results in damages to the retina’s blood vessels. Some cases may even lead to blindness.

In terms of the target market, the US alone has recorded over 11 million individuals suffering from some form of AMD, with the number projected to double and reach 22 million by 2050.

There’s also an urgent need for treatments for this condition, as more and more AMD cases lead to blindness annually.

In fact, diabetic retinopathy has been identified as the leading cause of blindness among adults with diabetes and the No. 1 cause of blindness among all adults in the US.

Considering the pervasiveness of diabetes and the continuously rising number of cases of this disease in the US, the number of people affected with diabetic retinopathy is estimated to virtually double from 7.7 million recorded in 2010 to over 14.6 million by 2050.

Assuming that RGX-314 gains FDA approval, AbbVie and its partner can target a market that can generate sales reaching $8.7 billion by 2025 due to the aging global population.

Meanwhile, the diabetic retinopathy segment, which has had an annualized growth rate of 6.3% since 2017, can reach up to $10.1 billion by 2025.

Given the massive addressable market, it is no surprise that the AMD segment has also attracted competitors. One of the contenders is Regeneron (REGN) with Eylea.

What makes RGX-314 more attractive, however, is that it’s a one-time treatment.

This is a massive competitive advantage over Eylea, which requires administration every four to eight weeks.

Using a conservative estimate, we can safely assume that AbbVie could take at least 8% of the market share by 2030. This would work out to roughly $2.1 billion in yearly revenue for RGX-314.

This is just one of the candidates that Regenxbio and AbbVie are working on these days, and its potential is enough to move the needle.

Other than that, AbbVie has the product portfolio from its $63 billion acquisition of Allergen, which includes the best-selling Botox.

The company also has its own homegrown drugs, cancer treatment Imbruvica, rheumatoid arthritis drug Rinvoq, and psoriasis medication Skyrizi, which all deliver strong results every quarter.

To date, they have a dividend yield of 4.7%, and the company has boosted its dividend for an impressive 8 consecutive years now.

Recently, AbbVie stock has been clobbered because Rinvoq was included in the list of drugs that the FDA instructed to carry a warning label that announced severe side effects, such as blood clots and even death.

However, AbbVie isn’t too worried about this as the company explained that the FDA based the decision on another company’s product, Pfizer’s (PFE) Xeljanz, which holds a completely different safety profile as Rinvoq.

So, what do all these mean?

This means that investors are handed a rare opportunity to buy into a solid, cash-generating biopharmaceutical titan at a massive discount.

June 17, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
June 17, 2021
Fiat Lux

FEATURED TRADE:

(VALUE CREATOR STOCK OPERATING UNDER THE RADAR)
(TECH), (AMGN), (ABT), (TMO)

Value Creator Stock Operating Under the Radar

Biotech Letter

There’s a wildly underrated and undercovered biotechnology stock despite its track record of creating long-term value and ability to outstrip its projected operational performance in the past years.

This stock is Bio-Techne (TECH).

Historically, Bio-Techne has reported impressively good margins, which could partly be attributed to the company’s incredibly strong intellectual property position.

While Bio-Techne originally concentrated on offering biotechnology solutions, it eventually embraced a diversification strategy thanks to all the dealmaking it has been doing over the years.

Back in the 1990s, Bio-Techne struck deals with promising biotechnology companies like Amgen (AMGN) and even Genzyme to acquire sections of their research departments.

Borrowing Warren Buffett’s expression, Bio-Techne’s value can be seen on the “owner earnings” it has been reporting. Thanks to a change in management in 2013, this sleepy high-margin company has been reinvigorated through various strategic acquisitions.

So far, Bio-Techne has three very active divisions.

It has its biotechnology division, which comprises 65% of its revenue and sells proteins, reagents, and antibodies right out of the freezer.

It has its protein platforms, which market instruments that push the use of the products sold by its biotechnology sector.

Lastly, it has its diagnostics sector that supplies equipment, such as those used for protein analysis, to other companies, including Thermo Fisher Scientific (TMO) and Abbott Laboratories (ABT).

Meanwhile, Bio-Techne has been making progress in stem cell research and Car-T immunotherapy, along with other kinds of cancer research.

Sales have been climbing steadily, increasing by an average of 15.7% over the last five years, with room for margins to pick up as Bio-Techne continues to integrate acquisitions.

To continue expanding its business, Bio-Techne recently shared its decision to buy diagnostics company Asuragen for $215 million.

Founded in 2006, Texas-based Asuragen develops and produces test kits for cancer and genetic carrier testing.

Estimated to contribute $30 million in revenue, Bio-Techne is actually paying only a mere 7 times its sales multiple—with the potential to jump to about 10 times as future contingent payments could boost the purchase price by an additional $105 million.

Even if that happens though, Bio-Techne will still be pumping sales at an extremely favorable multiple compared to its current multiple.

Another major acquisition of Bio-Techne is its 2018 deal with Advanced Cellular Diagnostics, which was executed to boost its diagnostics portfolio.

At the time, Advanced Cellular Diagnostics’ top line was already growing by 40% to 50%.

One of the most exciting products this acquisition added to Bio-Techne’s lineup is a tumor diagnostic test.

For context, current diagnostic tests are only 75% accurate. In comparison, Advanced Cellular Diagnostics’ test is 95% accurate. This makes the latter an extremely attractive product in the industry.

The company also has solid patent protection for new products focusing on gene and gene fragment probes.

Overall, the lineup from Advanced Cellular Diagnostics is estimated to bring in at least $50 million in additional yearly revenue for Bio-Techne.

The fact that it’s growing by 50% annually makes the acquisition one of the best buys of this biotechnology company.

Since being founded back in 1976, Bio-Techne has established itself as a steady value creator.

Needless to say, Bio-Techne is a highly profitable business, with earnings anticipated to increase by 15% annually.

Looking at the recurring nature of the company’s revenue, its consistent earnings, the potential of its Advanced Cellular Diagnostics purchase, and its prospects for more accretive acquisitions, Bio-Techne should be able to hold its mid-30s multiple to owner earnings.

Despite the pandemic’s effect on the biotechnology and healthcare sector in 2020, Bio-Techne still reported a 45% growth in its annual sales to reach $739 million last year.

So far, Bio-Techne is on track for its goal to become an over $30 million type portfolio. In terms of its five-year outlook, the company is targeting to reach $1.5 billion in the next few years.

Surprisingly, it’s still operating under the radar of the majority of investors, even in the biotechnology sector.

For biotechnology investors on the lookout for a value creator stock, it’s wise to keep an eye on Bio-Techne. Simply checking its bolt-on M&A strategy combined with its steady organic growth rate, this company has the potential to provide long-term returns.