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AbbVie Joins the Corona Fray

Although late to the party, giant biopharmaceutical company AbbVie (ABBV) is now going all-out on its coronavirus disease (COVID-19) treatment program.

The Illinois-based company, which has a market capitalization of $162.95 billion, aims to come up with a treatment that can block the SARS-CoV-2 coronavirus that causes COVID-19. The drug is currently dubbed 47D11.

AbbVie is working on this cure alongside Netherlands’ Erasmus Medical Center and Utrecht University as well as China’s bio-therapeutics developer Harbour BioMed.

It’s worth noting that AbbVie isn’t the first company to use this approach.

Earlier this year, Regeneron (REGN) announced a similar strategy to beat COVID-19. Its experimental cure, called REGN-COV2, is an antibody cocktail composed of two to three proteins working together to fight off the virus. The company plans to start clinical trials sometime this month.

Aside from AbbVie and Regeneron, Eli Lilly (LLY) is also utilizing the same technology.

In fact, the Indiana-based biotechnology leader already started dosing actual patients with COVID-19 with its experimental treatment, LY-CoV555.

Eli Lilly’s drug was actually developed using the antibodies collected from one of the first patients in the US to recover from the disease.

Using the same approach to find a COVID-19 cure isn’t the only thing Regeneron and AbbVie have in common, though.

To bulk up its oncology pipeline, AbbVie forged a partnership with Danish biotechnology company Genmab (GMAB) earlier this month.

Interestingly, Genmab is the same company behind the clinical progress of the bispecific antibody treatments of both Regeneron and Roche Holding (RHHBY).

AbbVie and Genmab agreed to collaborate on bispecific antibody development to come up with treatments that can target cancer cells and strengthen immune cells. The three drugs included in the deal are epcoritamab (DuoBody-CD3xCD20), DuoHexaBody-CD37, and DuoBody-CD3x5T4.

Aside from the three candidates already lined up, the two companies are also ironing out details on four additional cancer treatments.

The deal is estimated to be worth almost $4 billion, with AbbVie paying $750 million upfront.

On top of that, Genmab will also be entitled to get potential payments of up to $3.15 billion in milestone payments. The four potential cancer treatments could also entitle Genmab with an additional $2 billion.

Since bispecific antibodies are hailed as the “next-generation cancer therapy,” this market continues to attract big names in the industry.

So far, the list of companies working on bispecific antibodies includes Amgen (AMGN), Johnson & Johnson (JNJ), Novartis (NVS), GlaxoSmithKline (GSK), Merck (MRK), AstraZeneca (AZN), and Sanofi (SNY).

Aside from improving its oncology lineup, Abbvie has shown more creativity in diversifying its products.

Throughout the years, AbbVie had been considered as a strictly pharmaceutical company in the past. However, its recent purchase of Allergan set off a series of decisions that showcased the company’s plan to expand its portfolio.

With AbbVie’s revenue reaching $33.3 billion in 2019, several experts disagreed with the company’s decision to buy Allergan (AGN).

However, the move is estimated to add roughly $50 billion to the company’s annual revenue and help AbbVie’s bottom line.

One of the biggest products added to AbbVie’s portfolio is Botox, which has been long-regarded as Allergan’s prized cash cow.

In fact, this widely popular injectible raked in $1.02 billion in sales for Allergan in the fourth quarter of 2019 alone. Another promising product is the dermal filler Juvederm, which brought in $347.3 million in the same period.

Despite the excitement from the newly formed partnerships, a lot of investors remain apprehensive over AbbVie’s future.

These fears are rooted in the doomsday countdown for the company’s blockbuster rheumatoid arthritis drug Humira — and for good reason.

In its 2020 first quarter report, AbbVie recorded $8.6 billion in revenue, indicating a 10.1% jump year over year.

From this, Humira contributed nearly 58% despite the growing number of biosimilar rivals in Europe. In fact, Humira sales reached $4.7 billion, showing a 14.5% climb from the same period last year.

In 2019, experts predicted that Humira is poised to overtake Pfizer’s (PFE) Lipitor as the top-selling drug of all time by 2024.

AbbVie’s rheumatoid arthritis drug is estimated to reach a whopping $240 billion in sales in the next four years.

As expected, biosimilar competition, led by Amgen, has been licking their chops to get a piece of the action for years now, and they would do everything to dethrone AbbVie from its top spot in the autoimmune diseases sector.

Hence, AbbVie implemented two strategies to address this issue.

The first is forestalling the inevitable. In a recent court victory, AbbVie secured patent exclusivity for Humira until 2023.

Although this only leaves AbbVie with three short years to deal with the problem, it’s sufficient period for the company to execute its second plan: “Humira on steroids.”

Since Humira’s patent exclusivity has been a sore issue for AbbVie for years, the company decided to solve it by creating a stronger version of the drug.

The new antibody treatment, called ABBV-3373, is said to be more effective than Humira.

If all goes well in its clinical trials, then this “new Humira” can very well be AbbVie’s next megablockbuster and main moneymaker after 2023.

Humira isn’t the only big seller in AbbVie’s lineup.

Other blockbusters include cancer drug Imbruvica, which recorded $1.2 billion in revenue in the first quarter, up by 20.6% compared to the same period last year. Another cancer drug, Venclexta, is also performing well, bringing in $317 million in net revenue.

AbbVie has been boosting its next-generation treatments as well.

So far, two more Humira-like drugs stand out --severe plaque psoriasis medication Skyrizi and rheumatoid arthritis treatment Rinvoq.

Skyrizi’s annual sales are projected to grow from $1 billion to hit $4.4 billion by 2025, with the numbers going higher than $7.4 billion in the following years.

Rinvoq is expected to bring in $3.7 billion in sales by 2025 and increasing to reach $5.9 billion after that.

Right now, AbbVie appears to be oddly cheap as its shares are trading at only 9 times its expected earnings this year. This is possibly due to the anxiety over the loss of Humira’s patent exclusivity by 2023.

As AbbVie has shown in the past months, it has solid plans on how to deal with the impending loss. Its acquisition of Allergan, partnership with Genmab, and development of the “next Humira” all prove that claim.

June 16, 2020

Biotech Letter

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

Featured Trade:

(THE ONE BRIGHT STAR IN THE HEALTHCARE INDUSTRY),
(ANTM), (TDOC), (CVS), (HUM), (CNC), (UNH)

The One Bright Start in the Healthcare Industry

Biotech Letter

The COVID-19 crisis has yanked the rug from under companies across all industries, and among the businesses that experienced a completely altered landscape these days is the health insurance industry. Imagine a business where sales increase fourfold overnight, but the customers can’t pay.

With the unemployment rate rising to historic levels since the pandemic hit, more people are dropping off commercial coverage rolls. Visits to the doctors and other elective procedures have been postponed indefinitely. Even political talks on healthcare reforms appear to be tabled until 2021.

Overnight, some doctors at country hospitals have seen workloads double and the suicide rate soar, while those in private practice are essentially unemployed.

While healthcare stocks are understandably struggling to survive, there are standouts that managed to take the blow without crumbling to ruins.

One of them is Anthem (ANTM).

With a market capitalization of $75.78 billion, Anthem is one of the biggest health insurers in the United States today.

Recently, the company wielded its power to offer $2.5 billion worth of premium credits as a form of financial assistance to its members during the pandemic.

This comes in the form of cost-share waivers, extensions for their virtual care coverage, and even assistance for struggling employers to help in maintaining the healthcare of their own employees.

While a lot of companies have been rapidly downgrading 2020 guidance due to the pandemic, Anthem updated its 2020 forecasts to reflect an increase in its adjusted net income from $19.44 per share to an eye-popping $22.30.

This indicates that Anthem has extra bandwidth for growth primarily thanks to its stable revenue stream, increasing membership, and solid earnings.

In its first quarter report for 2020, Anthem’s operating revenues jumped by 20.7% year over year to reach $29.4 billion, with profits from its IngenioRx launch.

As for its net income in the said period, Anthem raked in $1.52 billion or roughly $5.94 per share compared to $5.91 per share in 2019.

Anthem even increased its dividend by 19% in January.

However, it’s Anthem’s cash flow that continues to impress. From 2019 up until the first quarter of this year, Anthem’s cash flow surged by 58% year over year.

One of the main factors that boost the growth of a health insurance company is membership, and Anthem managed to tick off that box as well in the first quarter.

Anthem’s medical enrollment climbed to 42.1 million members, showing off a 3.2% increase year over year. With backing from government business enrollment as well as commercial and specialty businesses, this number is expected to climb higher this year.

Even Anthem’s inorganic growth ventures promise great results, with acquisitions and collaborations continuously boosting the Medicare Advantage growth of the company.

A good example is its acquisition of the Medicaid members in Missouri and Nebraska via WellCare Health at the beginning of 2020. This led to 849,000 lives added to its government business enrollment since 2019.

Meanwhile, its acquisition of AmeriBen added 452,000 members to its commercial and specialty business sector.

Anthem’s takeover of Beacon Health, which is the biggest independent behavioral health firm in the US, serves to further strengthen its position in this sector. This move added roughly 300,000 Medicaid members under Anthem’s coverage.

In terms of adapting to the needs of its members during the pandemic, Anthem is making more aggressive moves to promote its telehealth services.

Although this sector is currently widely associated with Teladoc Health (TDOC), which has a market capitalization of $12.93 billion, the rest of the league is catching up quick.

Since the average cost per telehealth session is roughly $100 less compared to fees paid in visits to the doctor’s office, this is definitely a platform-managed care providers are looking into.

According to Anthem, its telehealth app recorded over 170,000 new downloads since the COVID-19 crisis started.

It also reported a 250% surge in the demand for its virtual care services.

Anthem isn’t the only health insurer joining the telehealth fray. CVS Health (CVS), Humana (HUM), Centene (CNC), and even industry leader UnitedHealth Group (UNH) has been looking into the service.

In this period of uncertainty, choosing a stable company with a robust outlook and sold at a reasonable price is always a wise investment.

With Anthem’s profits projected to grow by roughly 47% over the next years, this company’s future offers security to its investors. Its impressive cash flow also plays a significant role in its higher share valuation.

anthem

December 19, 2019

Diary, Newsletter, Summary

Global Market Comments
December 19, 2019
Fiat Lux

Featured Trade:

(WHY THE REAL ESTATE BOOM HAS A DECADE TO RUN),
(DHI), (LEN), (PHM), (ITB)
(PLAY IT SAFE WITH ANTHEM), (ANTM), (CI)

Play It Safe With Anthem

Diary, Newsletter, Research

One of the notable lessons in value investing is this: boring is oftentimes a good thing. Tangible proof of this principle is to be found in Anthem Inc (ANTM), which is a virtually inconspicuous stock but is performing satisfactorily for its investors.

Here’s a brief background on this relatively obscure stock.

Anthem is offering various healthcare plans to corporations and individuals. The holding company also provides its services to Medicare and Medicaid markets, which are comprised of approximately 40 million Americans.

Aimed at becoming a one-stop-shop for its clients’ insurance needs, the company’s offerings include dental and vision services and life insurance. To date, Anthem is ranked among the top five healthcare and insurance providers in the United States while it placed No. 29 among Fortune 500 companies. Clearly, this “unknown” stock is one of the industry leaders today.

Where does Anthem currently stand?

While the healthcare industry seems to be struggling with countless changes courtesy of the Trump administration, Anthem appears to be well prepared to handle whatever comes its way.

Here’s a case in point.

Anthem had to retrench on their Obamacare services last year. Despite that, the company still impressed its investors with a 3.8% improvement in its operating revenue year over year. That's not bad for an insurance company.

How did the company manage to recoup its losses? The lost revenues from Obamacare were counterbalanced by a boost in new insurance premiums along with an increase in the number of Medicare enrollments.

Since its fourth-quarter results in 2018 pleasantly surprised investors and analysts alike, it’s anticipated that Anthem will perform just as well or even better this year. So far, predictions for Anthem’s performance in 2019 remain bullish.

The stock market noticed. Since October, the stock has gone ballistic, rocketing an impressive 30%.

However, no company is perfect. One major red flag for Anthem is its ongoing lawsuit against another healthcare provider, Cigna (CI), over their botched merger plans. If the legal battle continues, then Anthem is poised to incur substantial long-term expenses.

Bottom Line

All in all, Anthem is a solid stock that offers an attractive combination of stability and continuous long-term growth in anyone’s portfolio. Thus far, the company has performed well and managed to provide acceptable financial results to its investors.

Although its business has not grown by leaps and bounds, its modest growth in the past years and the projected consistency in its stock performance in the years to come make Anthem a reasonable investment.

Buy Anthem on the next decent dip.

October 29, 2019

Biotech Letter

Mad Hedge Biotech & Health Care Letter
October 29, 2019
Fiat Lux

Featured Trade:

(THE BIG MEDICARE PLAN WITH HUMANA),
(ANTM), (CI), (HUM), (UNH)

The Big Medicare Play with Humana

Biotech Letter

Sometimes, markets are right, and sometimes, they are wrong. With regard to the healthcare industry these days, they have definitely got it wrong. For they are overweighting the political risk to this group presented by the 2020 presidential election.

Even if the most extreme leftist candidate, Elizabeth Warren, wins, she will still have to get the plans through congress. And after the experience of the last three years, you can bet the next congress will be a pretty moderate bunch.

Just as President Trump found it impassable to kill Obamacare, even with an all-Republican Congress, Warren will find it equally difficult to get the most expensive form of Medicare for all passed into law.

Take this view, and all of a sudden, the healthcare industry becomes wildly cheap. In fact, it is one of the lowest valued, highest earning sectors in the entire stock market.

Shares of managed care companies have certainly struggled this year. For instance, Anthem (ANTM) went down 5.1%, Cigna (CI) sunk 13.2%, UnitedHealth Group (UNH) declined by 2.2%, and Humana (HUM) fell 0.3%.

Due to the country’s turbulent political climate courtesy of the impending 2020 elections, investors are anxious over Medicare for All, which has the capacity to shut down the entire industry altogether.

As expected, these fears have weighed heavily on health insurance stocks and these companies are anticipated to experience a rollercoaster of emotions in the next year and a half. However, there could be convincing reasons for Humana to stand out from the rest.

Zeroing in on “population health management” along with “social determinant of health,” the company has been working on boosting its dominance on nonclinical services to deliver better health results. This is because approximately 80% of health outcomes are linked to nonclinical issues. Hence, this initiative could lead to improved products for customers and cost savings.

This is why Medicare Advantage, which allows private insurers to collaborate with Medicare for care coverage, turned into the “crown jewel” of Humana’s growth strategies. Basically, this plan appears and functions like a private health plan but is actually a government-sponsored program.

To date, Humana is the second biggest Medicare Advantage provider growing its membership by 15% during the second quarter of both 2018 and 2019.

As of 2018, the company holds a 17% share of the 20.4 million people enrolled in the Medicare Advantage program, with plans comprising roughly a quarter of the managed care’s medical membership. This accounts for almost three times the industry average, which indicates a positive growth for Humana as Medicare is projected as the fastest-growing sector of the insurance industry in terms of spending.

Actually, basic math could easily illustrate Humana’s upward trajectory as well. The number of Americans eligible for a Medicare plan is increasing by roughly 3% annually. Based on data from the Congressional Budget Office, the number of Medicare recipients opting for Medicare Advantage is estimated to climb from 34% of those eligible for Medicare in 2018 to 42% by 2028. Clearly, this increase offers a lot of room for growth, and Humana is smack dab in the center of it.

Although UnitedHealth actually has more members in the said program at the moment, no other managed care company is as intensive and focused as Humana. In fact, 73% of Humana’s consolidated revenue comes from its Medicare Advantage membership earnings alone. This makes the company a Medicare Advantage pure play.

Holding its position as one of the leaders in this private option available within the Medicare community, Humana has established a stronghold in this ever-evolving and constantly turbulent industry. So far, the stock’s price target is projected to hit $315. Long-term investors could also finally expect to shake off healthcare fear jitters and big rewards from 2021 onwards if the elections result in Democratic leadership.

Looking at Humana’s earnings history, it can be seen that it has grown from $7.75 per share in 2015 to $14.55 by 2018. For this year, the company’s projected earnings is expected to reach $17.50 a share. However, the possibility of a federal tax on health insurers could pose a threat to the company’s growth.

Humana is well-poised for advancement on the back of its strategic plans involving its Medicare business and promising initiatives. In the past years, Humana has been deploying excess capital and hiking its dividend. Just in February 2019, the company increased its dividend by 10% to reach 55 cents a share.

As part of its repurchase strategy, Humana allocated $3 billion for its buyback plans. These moves further indicate the financial capacity of the company and could hopefully reinvigorate investor confidence.

February 22, 2019

Diary, Newsletter, Summary

Global Market Comments
February 22, 2019
Fiat Lux

Featured Trade:

(FEBRUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (MU), (AMD), (LRCX), (GLD), (FXE), (FXB), (AMZN),
(PLAY IT SAFE WITH ANTHEM), (ANTM), (CI)

February 20 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader February 20 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: If there is a China trade deal, should I buy China stocks, specifically Alibaba?

A: To a large extent, both Chinese and US stocks have already fully discounted a China trade deal, so buying up here could be very risky. The administration has been letting out a leak a day to support the stock market, so I don’t think there will be much juice left when the announcement is actually made. The current high levels of US stocks make everything risky.

Q: Is it time to buy NVIDIA (NVDA)?

A: The word I’m hearing from the industry is that you don’t want to buy the semiconductor stocks until the summer when they start discounting the recovery after the next recession (which is probably a year off from this coming summer). The same is true for Micron Technology (MU), Advanced Micro Devices (AMD), and Lam Research (LRCX).

However, if you’re willing to take some heat in order to own a stock that’s going to triple over the next three years, then you should buy it now. If you’re a long-term investor, these are the entry points you die for. Looking at the charts it looks like it is ready to take off.

Q: Should I be shorting the euro (FXE), with the German economy going into recession?

A: No. We’re at a low for the euro so it’s a bad time to start a short. It’s interest rates that drive the euro more than economies. With the U.S. not raising interest rates for six months, maybe a year, and maybe forever, you probably want to be buying the currencies more than selling them down here.

Q: Would you buy the British pound (FXB) on Brexit fears?

A: I would; my theory all along has been that Brexit will fail and the pound will return to pre-Brexit levels—30% higher than where we are at now. I have always thought that the current government doesn’t believe in Brexit one iota and are therefore executing it as incompetently as possible.

They have done a wonderful job, missing one deadline after the next. In the end, Britain will hold another election and vote to stay in Europe. This will be hugely positive for Europe and would end the recession there.

Q: What do we need to do for the market to retest the highs?

A: China trade deal would do it in a heartbeat. If this happens, we will get the 5% move to the upside initially. Then we’re looking at a double top risk for the entire 10-year bull market. That’s when the short players will start to come in big time. You’d be insane to new positions in stocks here. There is an easy 4,500 Dow points to the downside, and maybe more.

Q: Do you think earnings growth will come in at 5%, or are they looking to be zero or negative?

A: Zero is looking pretty good. We know companies like to guide conservative then surprise to the upside; however, with Europe and China slowing down dramatically, that could very well drag the U.S. into recession and our earnings growth into negative numbers. The capital investment figures have been falling for three months now. US Durable Goods fell by 1.2% in January.

This explains why companies have no faith in the American economy for the rest of this year. This was a big reason why Amazon (AMZN) abandoned their New York headquarters plans. They see the economic data before we do and don’t want to expand going into a recession.

Q: When will rising government debt start to hurt the economy?

A: It already is. Foreign investors have been pulling their bids for fear of a falling US dollar. They have also become big buyers of gold (GLD) in order to avoid anything American, so we have a new bull market there. In the end, the biggest hit is with business confidence.

Nothing good ever comes from exploding US deficits and companies are not inclined to invest going into that. That is a major factor behind the sudden deterioration in virtually all data points over the past month.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

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