Mad Hedge Biotech & Healthcare Letter
January 28, 2021
(WATCH OUT FOR THESE BUYOUT STOCKS)
(TBIO), (MRNA), (PFE), (BNTX), (SNY), (BLUE), (BMY)
Mad Hedge Biotech & Healthcare Letter
January 28, 2021
(WATCH OUT FOR THESE BUYOUT STOCKS)
(TBIO), (MRNA), (PFE), (BNTX), (SNY), (BLUE), (BMY)
Many predictions this 2021 probably won’t pan out. However, here’s a pretty safe bet: we will see a number of biotechnology company acquisitions this year.
Although it’s not easy to accurately forecast which biotechnology companies will be involved in these deals, there is a handful that qualifies as prime acquisition targets.
One of the top biotech buyout candidates in my radar this year is Translate Bio (TBIO).
Thanks to the massive success of the COVID-19 programs of Moderna (MRNA), Pfizer (PFE), and BioNTech (BNTX), a spotlight has been cast on the benefits of the messenger RNA (mRNA) technology.
That’s why I wouldn’t be surprised if bigger players in the healthcare industry decide to scoop up smaller players to stake a claim in this quickly growing space.
Among all the small-cap biotechs in play, Translate Bio is easily one of the top prospects.
Before Moderna and BioNTech hogged the spotlight with their mRNA-based COVID-19 vaccines, Translate Bio was actually one of the strong contenders in the race. Unfortunately, it failed to keep up with its peers and is now lagging well behind the leaders.
On the flip side, the attention that mRNA technology has been getting these days seemed to have strengthened the confidence of investors in the technology – an effect that Translate Bio greatly benefited from in the past months.
Despite its lagging performance in the COVID-19 race, Translate Bio has been making significant progress with its work with partner Sanofi (SNY) on their own candidate, MRT5500. If all goes well, then the product should be out by the first quarter of 2021.
Apart from that, the two have been focusing on different vaccine candidates for other viral and bacterial diseases.
Translate Bio’s pipeline also includes treatments targeting another lucrative market using the same MRT platform technology as MRT5500: cystic fibrosis (CF).
The company’s CF treatment has been causing excitement among investors because instead of offering invasive therapy, this option offers patients an inhaled version of the mRNA drug as treatment.
Moreover, the MRT platform technology of Translate Bio could be expanded to cover more than just CF – a promising diversification that encouraged big investors like Sanofi to continuously pour money into collaborations with this Massachusetts-based biotech.
As mRNA technology gains more traction, Sanofi might even reevaluate its relationship with Translate Bio and decide that it wants more than just a collaboration.
With the smaller biotech company’s modest market capitalization of only a little over $1.7 billion, an acquisition could be on the table sooner rather than later.
Another potential buyout candidate is Bluebird bio (BLUE).
Unlike its contemporaries in the biotech space, Bluebird shares plunged by nearly 50% in 2020.
Although the company offers a promising upside potential, it can’t seem to generate sufficient enthusiasm to take part in the biotech sector’s rally last year.
In fact, Blue stock continued to hover near its 52-week low despite several gene and cell therapy tickers reaching all-time highs.
While that’s obviously bad news for Bluebird shareholders, I think this makes the company an even more attractive acquisition candidate.
I think it’s important to determine the reasons behind Bluebird’s abysmal 2020 performance.
The stock had a rocky start last year, with the COVID-19 pandemic exacerbating its overall meltdown.
One of Blue’s major roadblock was its failure to secure approval from the FDA for its multiple myeloma treatment, which it has been working on with Bristol Myers Squibb (BMY).
Then, it delayed its submission for approval of its sickle cell disease treatment LentiGlobin. This was initially set for the second half of 2021 but was pushed to late 2022.
The main takeaway from this streak of negative updates is that Blue still doesn’t have its act together when it comes to dealing with regulatory approval processes.
Regardless, the potential of this biotech’s pipeline remains impressive.
Apart from its work with Bristol and LentiGlobin, Bluebird has been working on a late-stage candidate for treatment of a rare metabolic disorder called cerebral adrenoleukodystrophy with Lenti-D.
Prior to its partnership with Bristol, Bluebird was actually partnered with Celgene.
When Celgene was bought by Bristol in 2019, the bigger company continued the collaboration with Blue and expanded the partnership to cover more genetic disorders and extend to oncology treatments.
Due to the setbacks, Bluebird’s market capitalization now hovers somewhere near $3 billion.
Given all these pipeline candidates and its future plans, I suspect it wouldn’t take long before a major player takes notice of this attractive valuation and puts this bird in a cage.
Overall, both Translate Bio and Bluebird are solid companies in the biotechnology space.
While the COVID-19 pandemic slowed down some of their progress, the products in their pipelines could yield substantial value to interested acquisition partners.
Global Market Comments
January 19, 2021
(WHY THERE’S ANOTHER DOUBLE IN CRISPR THERAPEUTICS)
(CRSP), (BLUE), (EDIT), (NVS), (GILD)
No other industry has ever been watched as closely in 2020 as the healthcare and biotechnology sector, with drug developers placed under pressure to deliver COVID-19 treatments and vaccines within an unprecedented timeframe.
Despite all the attention and fanfare, the overall performance of the sector’s stocks remained underwhelming. However, 2021 promises to bring in better returns and bring back the industry to pre-pandemic performance.
For perspective, the S&P 500 Health Care Sector Index rose by 8% through mid-December compared to the 13% increase of the S&P 500.
The financial and health crises affected the performance of the subgroups in different ways. For example, the diagnostics subgroup jumped by 31% while the demand for clinical labs was up 18%.
Meanwhile, biotechnology stocks rose by 13%. In comparison, traditional pharmaceutical stocks and even hospitals only managed to record a measly 3% increase.
As for retail pharmacies, this subgroup sank by 18%.
Despite the underperformance of the industry, there are still companies that stood out this year and are poised to soar come 2021.
One of them is Vertex Pharmaceuticals (VRTX).
Vertex is possibly one of the most undervalued large-cap biotechnology stocks in the market today.
This company, which has $61.7 billion in market capitalization, has been continuously growing and transforming into the most dominant player in the cystic fibrosis (CF) space.
Truth be told, Vertex holds the monopoly on the approved drugs used to treat CF, namely, Trikafta, Kalydeco, Orkambi, and Symdeko.
With the recent approvals the company received, this momentum is expected to grow.
Vertex just won additional EU approval for its CF drug Kaftrio. This indicates another cash cow for the company as the drug, also known as Trikafta, already transformed itself into a megablockbuster in the US market.
Apart from its efforts to continuously dominate the CF sector, Vertex also has several moonshots that can eventually turn into major catalysts.
Among those is its partnership with CRISPR Therapeutics (CRSP).
The two biotechnology companies are developing a gene therapy, called CTX001, which can cure rare genetic blood diseases. Specifically, CTX001 is designed to cure beta-thalassemia and sickle cell disease.
Apart from its partnership with CRISPR Therapeutics, Vertex also acquired Semma Therapeutics in 2019 with the goal of coming up with a cure for Type 1 diabetes.
If things go as planned, a gene therapy for this genetic disease will advance to clinical testing by early 2021.
Another under the radar biotechnology stock set to soar in 2020 is Illumina (ILMN).
Illumina, with a market capitalization of $54.10 billion, is the leader in the genomics market.
Since the pandemic broke, the biotechnology sector’s leading manufacturer of hardware for genetic sequencing has been supplying testing kits for hospitals across the US.
Apart from Illumina, other companies in the genomics sectors include Vertex’s partner, CRISPR Therapeutics, which has a market capitalization of $4.48 billion, and bluebird bio (BLUE) with $4.03 billion.
In a nutshell, genomics refers to the analysis of the genetic information found in human cells. Companies working on this field aim to not only develop more accurate and efficient disease testing processes but also come up with more personalized treatments for a range of diseases including cancer.
Looking at Illumina’s profile and even taking into consideration the effects of the recession along with the competitive pressure to be expected soon enough, this biotechnology company is still set to deliver solid returns over the next 3 to 5 years.
Ever since its establishment, Illumina has been hailed as the leader in the gene-sequencing segment.
To date, the company holds almost 90% of the market.
Apart from that, the company has been an active participant in the move to lower the costs of gene-sequencing processes. In effect, Illumina managed to expand its customer reach.
Illumina’s participation in the 13-year Human Genome Project, which started at $3 billion per genome submitted for sequencing in 2003.
Nowadays, the cost has dropped to $800 for each genome, with Illumina eyeing to drop the price to $100 via its NovaSeq platform.
Based on the company’s performance in the past years, Illumina’s revenue is expected to climb higher annually in the next 5 years.
By 2021, the company is projected to report a 21.16% year over year growth in annual revenue to reach 4.23 billion.
Meanwhile, its 2022 annual revenue is estimated to hit $4.79 billion, showing off a 13.37% increase.
Despite the attention it has been receiving, Illumina remains a bargain buy.
This is because the company’s gene-sequencing projects have been moving along at a decent pace even before the COVID-19 crisis hit.
Given the company’s growth and future plans, Illumina is a no-brainer long-term investment. However, investors looking for quick returns might find the company’s pace a bit sluggish for their liking.
Among the biotechnology companies out there today, I think Vertex and Illumina stand out the most because both hold a monopoly in their respective fields.
Sure, there would be competition eventually but the combination of all their strengths and the strong potential of their pipeline put them in a league of their own.
Occasionally, I discover a piece of research from one of my other Mad Hedge publications that is so important that I send it out to everyone immediately.
Today piece from the Mad Hedge Biotech & Health Care Letter is one of the instances. It makes the case and provides the numbers as to why Biotech & Health Care will be one of two dominant sector to follow for the next decade. It also is a key plank in my argument for a return of a new Golden Age and a second “Roaring Twenties.”
Here it is.
Biotech investors, take note: 2019 was a great year for the industry, but the best is yet to come.
In the final three months of 2019, the biotech sector grew by 32% — notably outpacing the pharmaceutical industry, which only recorded a 9.5% gain.
However, the biotechnology sector is estimated to grow substantially in 2020, and reach over $775 billion in revenue by 2024 as more and more treatments for previously incurable diseases get discovered.
Looking at all the progress in the biotechnology space, this could even be the year we’d finally discover the cure to many life-threatening and debilitating conditions like cancer and Alzheimer’s disease.
With all these technological advancements, two revolutionary tools have been overhauling the entire biotechnology and healthcare industry from the ground up: precision medicine and CRISPR. Actually, the impressive growth of the biotechnology industry has been largely attributed to the excitement generated by the gene-editing sector.
While the majority of companies concentrating on the human genome are still in the research phase, the growth of this industry is undeniable.
Here’s tangible proof.
Just 20 years ago, reading all the DNA of a single person cost approximately $3 billion. Now, this price is down to only $1,000. In the future, this number will go even lower at $100. There are now gigantic factories in China sequencing DNA for companies like Ancestry.com and 23andMe.
This is just one example of how the biotechnology industry has grown by leaps and bounds. It’s also the reason behind the surge of CRISPR shares.
In effect, the specialists in this niche, including Crispr Therapeutics (CRSP), Bluebird Bio (BLUE), and Editas Medicine (EDIT), are amplifying their efforts in 2020.
Among the specialist companies, CRISPR Therapeutics is considered as one of the frontrunners — if not the top stock. This is because compared to its rivals, which are still in preclinical phases of development, CRISPR Therapeutics’ already has two drugs going through Phase 1 trials: CTX001 and CTX110.
The promising results of the company’s research resulted in a 113% rise in shares last year, with the bulk of the surge starting in October. In fact, CRISPR Therapeutics’ performance had been so impressive that its market cap reached $3.4 billion.
CTX001 is created to target patients suffering from genetic blood disorders, specifically sickle-cell disease and transfusion-dependent beta-thalassemia.
Meanwhile, CTX110 is a CAR-T treatment. The process involves the extraction of immune cells from the patient. These are then retrained and later re-introduced to the human body.
CRISPR Therapeutics’ CAR-T treatment is anticipated to be offered at a cheaper price compared to the other CAR-T therapies.
Both Novartis (NVS) and Gilead Sciences (GILD) are pursuing the same treatment. However, the cost of the therapy from the latter two is expected to reach as much as $475,000 for every patient annually.
Apart from CTX001 and CTX110, CRISPR Therapeutics has two more immunology candidates, currently dubbed CTX120 and CTX130.
If both phase trials succeed, these will bring massive home runs for CRISPR Therapeutics, especially since the cancer immunology market is expected to reach $127 billion by 2026. Over the next 10 years, this niche is estimated to reach $25 trillion in sales.
Among the gene-editing treatments under development today, CRISPR is projected to grow tenfold in the number of applications and potentially curing 89% of disease-causing genetic variations by 2026.
Taking this pace into consideration, the valuation for this market is expected to grow from $551 million in 2017 to reach roughly $3.1 billion by 2023 and $6 billion by 2025.
Meanwhile, precision medicine as a whole is estimated to show a significant jump from $48.6 billion in 2018 to $84.6 billion by 2024. In 2028, this market is expected to rake in $216 billion.
Hence, further success with CTX001 and CTX110 along with additional treatments in the drug pipeline would all but guarantee that Crispr Therapeutics could beat the market again in 2020.
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