Mad Hedge Biotech & Healthcare Letter
July 6, 2021
Fiat Lux
FEATURED TRADE:
(A PROMISING BIOTECH FOR RISK-TAKERS)
(AXSM), (AMGN), (MRK)
Tag Archive for: (AMGN)
Biotechnology companies are known as the riskiest investments in the stock market. More often than not, they are small, cash-strapped, and with futures so closely tied up to the success or failure of a single clinical study.
For each Amgen (AMGN), which exploded from a market capitalization of less than $1 billion roughly 30 years ago to a whopping $137.15 billion today, there are thousands that fail and fall into obscurity.
However, when a biotech makes it big, the rewards can be transformative—and this speckle of hope is what makes this industry incredibly exciting and interesting.
Let’s take Axsome Therapeutics (AXSM) as an example.
This stock has been beaten down, but its pipeline programs still hold the potential to inflate the portfolios of its shareholders if their science proves to be successful.
Actually, things appear to be turning around for Axsome these days.
Focused on developing novel and innovative treatments for central nervous system disorders, Axsome’s stock price recently enjoyed a 13% climb thanks to the latest development on one of its pipeline candidates: AXS-14.
AXS-14, which is a fibromyalgia treatment, should be ready for submission by the fourth quarter of 2022.
Looking at the potential target market for this drug, its estimated peak sales are somewhere in the range between $500 million to $1 billion.
Another promising treatment in Axsome’s pipeline is its novel migraine medication, AXS-07, which showed great efficacy results in its Phase 3 trial.
In addition, 74% of patients who took AXS-07 experienced no pain progression from two to 24 hours since taking the medication, with almost 50% of them no longer needing rescue medication.
Given the remarkable results for AXS-07, Axsome plans to submit it for a new drug application in the first half of 2021. In fact, this candidate has shown better results than the current gold standard, Merck’s (MRK) Maxalt.
If approved, this migraine treatment can reach peak sales from half a billion to over $1 billion in the United States alone.
However, the most promising candidate in Axsome’s pipeline is its treatment for major depressive disorder (MDD), AXS-05, which recently received priority review from the US FDA.
If things go as planned, the company plans to submit it for review by August 22 this year.
This drug is also a frontrunner medication for Alzheimer’s Disease (AD) Agitation.
On top of these, its Phase 3 clinical trial of AXS-05 showed that it significantly improved the symptoms of people suffering from depression.
Beyond these conditions, Axsome is also looking into using AXS-05 as treatment for migraines, smoking cessation, and even migraines.
AXS-05 has a massive addressable market, with roughly one-third of the 17 million adults in the US suffering from MDD. This could mean peak sales for this indication alone at $4 billion.
While Axsome still has other promising treatments in its pipeline, these three late-stage candidates clearly indicate a very high ceiling.
All of them have the capacity to reach blockbuster status once approved.
At this point and looking at its recent earnings report, Axsome recorded a cash balance of $164 million. It also still has some money left from its $225 million loan, which means the company can still sufficiently fund its operations and continue with its research into at least 2024.
Considering the timeline it has for the three candidates in its pipeline, it’s reasonable to assume that it can generate sales before that date.
All in all, they could rake in a total of at least $8 billion in sales annually for Axsome—a lucrative leap considering that the company currently only has $2.62 billion in market capitalization.
Given its vast pipeline, host of successful trials thus far, and near-term catalysts, I say this clinical-stage biotech’s lowered prices offer a cautious buying opportunity for investors with a penchant for risks.
Mad Hedge Biotech & Healthcare Letter
June 17, 2021
Fiat Lux
FEATURED TRADE:
(VALUE CREATOR STOCK OPERATING UNDER THE RADAR)
(TECH), (AMGN), (ABT), (TMO)
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.
Mad Hedge Biotech & Healthcare Letter
June 1, 2021
Fiat Lux
FEATURED TRADE:
ANOTHER BUY-THE-DIP OPPORTUNITY DROPPED IN OUR LAPS
(AMGN), (QGEN), (GH), (AZN), (MRTX), (LLY), (JNJ), (SNY), (JNJ)
The ideal stocks are those you can just buy and hold for a long time. A healthcare and biotechnology company that perfectly fits the bill is Amgen (AMGN).
Amgen wasn’t an active participant in the COVID-19 race.
Instead, the biotechnology giant chose to stick with its circle of competence and focused on delivering remarkable results to its shareholders through boosting its revenue and increasing dividends.
Recently, this hyper-focus has paid off.
Amgen received FDA approval to market a drug that targets cancer cells in an area that researchers have been attempting to hit for decades.
The new treatment, Lumakras, will be the first of its kind to target a tumor growth process commonly known as KRAS for non-small cell lung cancer (NSCLC).
To understand the extent of Amgen’s breakthrough, scientists and researchers have been working on developing a KRAS blocker for over 40 years.
Prior to this, KRAS had been known as an “undruggable” target.
Basically, Amgen came up with a drug that can target the notorious and illusive cancer-causing protein—something that was previously considered the “Achilles heel” of lung cancer tumors.
More impressively, Lumakras was approved three months ahead of its schedule.
Based on the results of its Phase 2 trials, Lumakras can stall the progress of lung cancer in roughly 81% of the patients for a median time of 10 months.
In the Phase 3 trials, Amgen is looking into testing the drug in combination with other medications to hit the tumors that developed resistance to the pill.
A key factor in Lumakras’ launch is determining the types of patients who’d benefit most from the drug.
So far, Amgen has been collaborating with diagnostic partners, particularly Qiagen (QGEN) and Guardant Health (GH), for biomarker testing.
In terms of pricing, Amgen estimates monthly spending on Lumakras to be $17,900.
In the United States, roughly 30,000 patients of KRAS-mutated lung cancers are reported annually.
That puts Lumakras sales to at least $100 million for 2021 alone.
By 2025, the drug is expected to rake in roughly $1 billion annually, with sales growing to $1.51 billion in 2026.
These are actually conservative estimates that assume only a 50% success rate from Lumakras in the next few years.
Given the provisional and accelerated approval the drug has already received from the FDA though, it is safe to say that it can achieve at least 75% success rate, which means it can generate higher revenue.
The KRAS target is not limited to lung cancer. It also appears in other solid tumors, which Amgen continues to test Lumakras in a dozen other types, including colorectal cancer.
Depending on expansion plans, Lumakras sales can reach $3.2 billion by 2030.
Again, this expansion is a conservative estimate.
If the expansion for Amgen’s drug would be anything like AstraZeneca’s (AZN) blockbuster Tagrisso, which eventually became a recommended first-line therapy option for NSCLC, then Lumakras sales can peak at $4 to $5 billion.
Considering the potential of this market, it no longer comes as a surprise that competitors are hot on Amgen’s heels just days after Lumakras’ approval was announced.
The closest rival so far is Mirati Therapeutics (MRTX), which also has KRAS-inhibitor candidates in Phase 1 and Phase 2 trials.
Prior to that, Eli Lilly (LLY) and Johnson & Johnson (JNJ) tried their hands at KRAS mutation but failed.
Aside from Lumakras, Amgen has another blockbuster candidate in store for its shareholders: asthma drug Tezepelumab.
Developed in collaboration with AstraZeneca, this drug is already in the second late-stage pipeline and has been showing promising results so far.
Globally, there are about 2.5 million patients with severe asthma, with 1 million suffering from eosinophilic asthma in the United States. Amgen is hoping to target the latter population.
If Tezepelumab gets approved, it would be in direct competition against Sanofi (SNY) and Regeneron’s (REGN) asthma drug Dupixent. Peak sales for this asthma drug is estimated at roughly $3.5 billion.
Over the past 12 months, Amgen’s stock performance has been rangebound.
Although this is obviously frustrating for growth-oriented shareholders, I think the short-term volatility of the stock may present good opportunities for value-conscious investors.
That is, I view the drop in Amgen’s share price as another favorable buying opportunity.
Mad Hedge Biotech & Healthcare Letter
May 20, 2021
Fiat Lux
FEATURED TRADE:
(REGENERATED REGENERON)
(REGN), (PFE), (JNJ), (AMGN), (BMY), (GILD), (MRK), (LLY), (SNY), (BAYRY), (NVS), (RHHBY)
The biotechnology and healthcare sectors have become attractive investment targets for investors who recognize the value and essence of these industries along with the possible risks associated with them.
While not all companies in these areas are great investments, some offer remarkable growth opportunities.
One company worth considering is Regeneron (REGN), with its strong and stable investment thesis and steady organic growth.
Regeneron joins the ranks of Pfizer (PFE) and Johnson & Johnson (JNJ) as one of the handful of biopharmaceutical companies to release solid first quarter results this 2021 compared to other big names in the industry, including Amgen (AMGN), Bristol Myers Squibb (BMY), Gilead Sciences (GILD), Merck (MRK), and Eli Lilly (LLY).
The New York-based company reported a 38% boost in its revenue compared to the same period in 2020, reaching $2.5 billion for the first quarter of 2021 alone.
Virtually all of Regeneron’s products generated solid growth during this period, with the company’s COVID-19 antibody cocktail REGEN-COV delivering the highest sales at $262 million.
To underscore just how significant REGEN-COV is to Regeneron this quarter, its absence from the roster would take away 18% from the company’s overall revenue growth.
Riding the momentum of its COVID-19 program, Regeneron has developed Inmazeb, which is a treatment for Ebola virus infection.
Aside from its COVID-19 antibody cocktail, Regeneron also saw an impressive boost in the performance of its atopic dermatitis drug Dupixent.
Dupixent, which Regeneron sells in partnership with Sanofi (SNY), generated $1.26 billion in sales in the first quarter, showing off a notable 48% increase from its 2020 report.
Although Dupixent is a shared product with Sanofi, this dermatitis drug holds incredible promise for Regeneron.
To date, only 6% of eligible patients are being treated with Dupixent. This indicates a massive space that is yet to be explored by both companies.
Taking into consideration the pace at which Dupixent has been growing so far, this drug is projected to peak at roughly $12.5 billion in sales in the coming years.
Another high-selling drug for Regeneron is wet age-related macular degeneration (AMD) treatment Eylea.
Sales for this drug, which was developed in collaboration with Bayer (BAYRY), went up from $1.2 billion in the first quarter of 2020 to $1.3 billion this year.
The increase in sales for Eylea is a welcome surprise for both Regeneron and Bayer, especially since more and more competitors are attempting to topple the drug as the top product in the niche.
Cornering the AMD segment is an attractive venture for any biopharmaceutical company.
After all, Eylea generated $4.9 billion in sales in 2020 from the US market alone.
Thus far, two main competitors have come forward as the strongest.
One is Novartis (NVS), which released Beovu in 2019.
The second, and possibly the stronger competitor between the two, is Roche (RHHBY) with Faricimab.
To ensure its dominance in the AMD market, Regeneron has been expanding the use of Eylea.
The latest development is the drug’s enrollment in the Phase 3 program, which would allow extended periods in between treatments but still deliver the same level of efficacy and safety.
Aside from these, Regeneron is looking into additional revenue streams ahead.
One growth segment is its oncology program, particularly its cancer drug Libtayo, which may soon be marketed to cover a fourth type of cancer.
Regeneron aims to submit Libtayo for review as a treatment for advanced cervical cancer.
On top of this, the drug is also a strong contender in the development of several antibody treatments.
Thus far, the company has 12 oncology antibodies under clinical development.
Overall, Regeneron’s strong results for the first quarter of 2021 highlighted its continuous evolution into a company carrying multiple and diverse portfolios of products and pipeline programs that address an extensive range of serious diseases, from COVID-19 and rare diseases to cancer.
Mad Hedge Biotech & Healthcare Letter
May 6, 2021
Fiat Lux
FEATURED TRADE:
(THE WHITE KNIGHT OF BIOPHARMA)
(PFE), (AMGN), (BMY), (LLY), (GILD), (MRK), (BNTX), (VTRS), (GSK)
After a week of dissatisfying earnings reports from huge biopharmaceutical firms like Amgen (AMGN), Bristol-Myers Squibb (BMY), Eli Lilly (LLY), Gilead Sciences (GILD), and Merck (MRK), one company has managed to buck the trend: Pfizer (PFE).
In its first quarter earnings report for 2021, Pfizer reported adjusted diluted earnings of 93 cents per share, surpassing the earlier experts’ estimate of 77 cents.
Even its reported revenue exceeded the earlier predictions of $13.4 billion, raking in $14.6 billion during the period instead.
Aside from those, Pfizer also massively boosted its projected revenue from the COVID-19 vaccine it developed with BioNTech (BNTX).
Pfizer’s COVID-19 vaccine is slated for approval to be used for 12- to 15-year-olds by next week.
On top of these, the company expects data from its third COVID-19 vaccine candidate. This recent trial is for a booster dose, which could have results by early July and possibly a full emergency approval later on the same month.
The company now estimates $26 billion in sales for the vaccine, which is notably up from its $15 billion projection in February 2021.
Pfizer is also confident in its capacity to manufacture at least 3 billion doses of the COVID-19 vaccine in 2022, with the company already negotiating agreements with countries for their 2022 supply and beyond.
While the huge boost in the company’s COVID-19 vaccine sales expectations definitely grabs headlines, Pfizer’s base business brought in notable results as well.
Apart from the vaccine, the company’s operational growth in the first quarter was mostly driven by the sales from its blood clot treatment Eliquis, which went up by 25% operationally.
Sales of its heart drug Vyndagel soared by 88%, while its cancer drug Xeljanz jumped 18%.
One of the most notable moves from Pfizer is spinning off its off-patent drug division, Upjohn, to form a new company with generic drug developer Mylan, called Viatris (VTRS).
This decision would rid Pfizer of several well-known products, such as Viagra, Lyrica, Lipitor, Celebrex, and Chantix, which were responsible for roughly 15% of its total revenues.
However, sales for these items fell by 30% in the first nine months of 2020 alone—a chronically falling performance since 2017.
By eliminating the products that no longer hold any exclusivity rights and signing them off to Viatris, Pfizer can focus on developing and marketing new and innovative treatments.
So far, this strategy has started to bear fruit.
At the moment, Pfizer has several attractive assets in its pipeline. One of them is non-small cell lung cancer (NSCLC) treatment Lorbrena, which could become one of the highest-selling products in the oncology market.
Lorbrena is estimated to grow to over $40 billion each year by the mid-2020s.
At this point, the drug is in its registration phase and was granted a priority-review status. That means approval is on the horizon in the not-so-distant future.
Other potential blockbuster oncology assets include prostate cancer drug Xtandi, NSCLC treatment Bavencio, and breast cancer medication Ibrance.
All these are in late-stage trials, which means they should be available to market soon.
In total, Pfizer currently has at least 33 drugs queued in either Phase 3 trials or registration. The list includes vaccine candidates, immunology treatments, and, of course, oncology assets.
While Pfizer lost Upjohn in 2020, it gained a new partner in GlaxoSmithKline (GSK). The two companies decided to merge their consumer healthcare programs.
This made them the biggest provider of non-prescription drugs across the globe.
By shedding its sluggishly growing assets, Pfizer managed to develop its culture into one that concentrates on developing and marketing new and innovative products.
Additionally, the company’s current portfolio holds several growing products with the potential for expansion.
Given all these changes, Pfizer raised its financial guidance for 2021 as well.
For this year, the company now estimates adjusted diluted earnings to be valued between $3.55 and $3.65 per share compared to the previous range of $3.10 to $3.20 per share.
In terms of its full-year revenue, the company raised it from its estimate between $59.4 billion and $61.4 billion to $70.50 billion and $72.5 billion.
In terms of its projected revenue compound annual growth rate, Pfizer reconfirmed that it could deliver at least 6% through 2025 and a double-digit growth on its bottom line.
Remarkably, this is still not taking into consideration its COVID-19 vaccine.
If you pull out the revenues from its COVID-19 vaccine, then the company’s projected EPS growth for 2021 is at 15%.
Adding the vaccine into the equation gives us an impressive 41% increase in its EPS.
If you consider the wild card that is Pfizer’s COVID-19 vaccine, which would include a price increase coupled with the possibility of booster shots administered annually, and combine it with its base business, then it’s easy to see how the company’s growth could be turbocharged in the next few years.
