Mad Hedge Biotech and Healthcare Letter
April 14, 2022
Fiat Lux
Featured Trade:
(A BIOPHARMA STOCK BENT ON REDEMPTION)
(MRK), (BMY), (ABBV), (ORGN), (PFE), (VTRS), (MRNA), (BNTX), (CRSP), (VRTX), (BLUE), (BIIB)
Tag Archive for: (BMY)
It looks like we’re about to bear witness to a redemption journey.
Once upon a time, Merck (MRK) was a major player in the cardiovascular sector. Over the years, it has gradually diminished to a minor league name.
However, Merck has plans to reverse this fortune and reclaim its dominance in the cardio market. To date, it has eight new drug approvals and a slew of expanded labels queued in the next couple of years.
This decision is evident in Merck’s move to outbid Bristol Myers Squibb (BMY) in the auction for Acceleron Pharma, shelling out a whopping $11.5 billion to boost its cardio pipeline considerably.
While the deal may seem like a massive risk, Merck is confident that this deal holds the potential to open up the path to single-product peak sales reaching $10 billion by the mid-2030s.
In fact, there’s no need to wait for long to see some solid proof of Merck’s multibillion-dollar bet, as Acceleron already has a candidate set to be put on display by the end of 2022 or early 2023.
This Acceleron acquisition forms part of the “New Merck” touted when the company welcomed a new CEO and came on the heels of the success of the leadership that brought the mega-blockbuster cancer drug Keytruda.
It also signifies Merck’s conscious efforts to ease their heavily criticized over-dependence on Keytruda.
While the drug will lose patent protection after 2028, Keytruda still holds a significant portion of Merck’s sales. The treatment accounted for roughly 35% of the company’s total revenues last year.
The patent loss of a significant moneymaker is a typical problem for virtually every Big Pharma company, with AbbVie (ABBV) and Bristol Myers Squibb coming to mind as the most recent examples.
The go-to solution to this is pursuing mega-money mergers: AbbVie acquired Allergan for $63 billion while Bristol splurged on Celgene at $74 billion.
This quickly bolsters the existing pipelines and portfolios of the companies and assuages the fear of investors over impending revenue losses.
Instead of following this pattern, Merck did the opposite in 2021.
The company decided to downsize and established a spinoff segment: Organon (ORGN). The idea is to offload its biosimilars and other legacy products to focus on its core strengths.
This is reminiscent of Pfizer’s (PFE) move to spin out its Upjohn unit and merge it with Mylan to form Viatris (VTRS).
This move looks to have worked well for Merck and Organon as it allowed the parent company to focus on its blockbuster brands.
For instance, Bridion recorded a 28% year-over-year rise in 2021 to reach $1.53 billion in sales, while ProQuad reported a 14% increase to hit $2.14 billion.
Meanwhile, Gardasil rose to an impressive 44% to contribute $5.7 billion.
Even Merck’s Animal Health sector grew by 18% to record $5.6 billion.
There’s also Keytruda, which is projected to become the highest-selling drug at $24.3 billion by 2026.
These are only some of the blockbuster products in Merck’s portfolio expected to continue increasing revenues this 2022.
In addition, the company expects at least $5 billion from its COVID-19 antiviral drug Molnupiravir.
Looking at the trajectory and growth of the pipeline and existing programs, Merck estimates an additional 17% increase in its year-on-year revenue in 2022 to reach $56.1 billion to $57.6 billion.
Despite the move to establish a spinoff unit, the Acceleron deal hints at the possibility that Merck might be shifting to an open checkbook strategy.
Considering how relentlessly it pursued the deal, there’s a chance that the company would be at the bargaining table for a while in search of ways to protect itself against the pending Keytruda patent loss.
Some contenders for a potentially splashy offer from Merck are Moderna (MRNA) and BioNTech (BNTX), which could bolster the bigger company’s mRNA pipeline.
It can also splurge on gene therapy experts by targeting CRISPR Therapeutics (CRSP) and even Vertex (VRTX).
However, given bluebird bio’s (BLUE) flailing performance as of late, this small biotech could very well be a contender for a bargain deal.
Speaking of discounted stocks, Biogen (BIIB) is also reportedly under consideration simply because of its deeply discounted price following its disastrous Alzheimer’s disease program.
Whatever move it makes, one thing is sure: Merck, with its $208 billion market capitalization, is in a healthy and stable place financially.
More importantly, it has an excellent product portfolio and an exciting pipeline.
It has shown remarkable growth in the past years and impressive efforts to secure a great future, making it a solid stock to buy and hold for a long time.
Mad Hedge Biotech and Healthcare Letter
March 15, 2022
Fiat Lux
Featured Trade:
(AN UNDER-APPRECIATED STOCK WITH A BOATLOAD OF CASH)
(BMY), (CRSP), (VRTX), (BLUE), (GILD), (NVS)
Warren Buffett is nothing but a dyed-in-the-wool type of investor. A key strategy in his success is to target companies with notably solid fundamental businesses but with shares trading at a bargain or at least a discount in relation to their intrinsic value.
Needless to say, this value-oriented tactic has worked well for roughly six decades, with Berkshire’s stock delivering total returns of 6,450% on its capital.
Taking a cue from the Oracle of Omaha’s playbook, let’s take a look at one of the cheapest biotechnology and healthcare stocks in Berkshire’s portfolio to date and see how it has been performing.
At a hair below eight times its forward earnings, Bristol Myers Squibb (BMY) comes out as Berkshire’s third-cheapest stock holding overall.
This pharmaceutical giant, which has a market capitalization of $144 billion, is the sixth-biggest in the list of what is informally called the “Big 8” US pharma firms.
However, BMY’s stock had fallen by -2% in the past 12 months after experiencing some genuine momentum in 2021 when it reached $69 in August. The share price fell to $54 in December. It has since recovered and is now at $65.
A primary reason for investors snubbing this pharmaceutical giant is the impending loss of market exclusivity of three of its best-selling treatments, Revlimid, Opdivo, and Eliquis.
Although it’s reasonable to be anxious over these patent expirations, BMY has developed a great plan to not simply offset the future decline in sales but also to sustain the momentum of its top line all the way until 2030.
Basically, BMY has lined up multiple new drug launches spaced in the following years, with a number of these candidates expected to become potential blockbusters.
Another key part of the company’s growth strategy is acquisitions.
One of the significant moves BMY executed in recent years is its whopping $74 billion acquisition of Celgene in 2019, which is expected to bolster its immunology and oncology sectors. This was immediately followed by a $13 billion buyout of MyoKardia in 2020, which would expand its cardiovascular roster.
Celgene's deal granted BMY a valuable collection of pipeline assets, which the company has been leveraging in preparation for the patent cliffs.
Aside from the added $15 billion in annual revenue stream from Revlimid, which BMY used to boost its cash flow and pay off some debts, the company also inherited Reblozyl.
Since the acquisition, Reblozyl has gained approval for beta-thalassemia and anemia patients.
While this is not as groundbreaking as the gene therapies offered by CRISPR Therapeutics (CRSP), Vertex (VRTX), and even bluebird bio (BLUE), this treatment can still reach peak sales of $2 to $4 billion annually.
Another Celgene candidate poised to become an additional revenue stream for BMY is Inrebic, a JAK2 inhibitor created for myelofibrosis and polycythemia vera. This is projected to rake in $400 million in peak sales.
Zeposia, a treatment for autoimmune conditions, has already gained approval for multiple sclerosis and is queued for clinical trials for Crohn’s disease and ulcerative colitis.
If it receives the green light for all three, this is another $3 billion opportunity for BMY.
The inherited assets from Celgene are Breyanzi, a CAR-T therapy approved for large B-cell lymphoma, and Abecma, which is also an approved treatment for multiple myeloma.
These last two treatments are potential blockbusters as well.
Breyanzi’s list price is $410,000, with the therapy estimated to reach $3 billion in peak sales. Meanwhile, Abecma is listed at $491,500 and is projected to peak at $1 billion.
By 2029, BMY expects to develop new revenue streams worth $25 billion from its current portfolio and growing assets.
Looking at the above assets, BMY’s strategy becomes evident.
When BMY acquired Celgene for an exorbitant amount three years ago, the bigger company’s management team showed just how prepared they were to take the hit in the form of substantial debts in exchange for massive steps forward.
Adding to its expansion efforts, BMY has recently completed a deal with Century Therapeutics.
This marks BMY’s major foray into the promising cell therapy space.
While BMY has not concentrated on this sector before, it already has promising candidates in the form of its Celgene assets, Breyanzi and Abecma.
So far, Century and BMY have agreed to develop four different CAR-T cancer therapies on top of expanding the indications for Breyanzi and Abecma.
At the moment, the big pharma names focusing on this sector include Gilead Sciences (GILD) and Novartis (NVS).
This means BMY has a fighting chance to dominate in this market following its strategic collaboration with Century.
If all goes according to plan, BMY’s work with this cell therapy company might even turn out to be as lucrative as its deal with Celgene acquisition.
Overall, BMY has proven itself to be a reliable money-making titan in the biotechnology and healthcare industry.
BMY is a growth machine that consistently comes up with ingenious plans to grow over the years.
From $20.8 billion in 2017, its profits skyrocketed to an impressive $46.4 billion in 2021, indicating a remarkable 123% increase.
Moreover, the company anticipates that its free cash flow will surpass $50 billion by 2024, implying that it’s not worried over the impending loss of patent exclusivities and flexing its ability to generate a boatload of cash to complete even more collaborations and acquisitions.
Mad Hedge Biotech and Healthcare Letter
March 10, 2022
Fiat Lux
Featured Trade:
(COULD THIS BE THE NEXT BIOTECH BUYOUT CANDIDATE?)
(BLUE), (AZN), (ABBV), (BMY), (VRTX), (CRSP)
What is the common denominator of giant drugmakers AstraZeneca (AZN), AbbVie (ABBV), and Bristol Myers Squibb (BMY)?
Aside from being three of the biggest healthcare companies across the globe, all three have also completed high-profile acquisitions amid the pandemic.
AstraZeneca acquired Alexion Pharmaceuticals for $39 billion in December 2020.
Meanwhile, AbbVie wrapped up its whopping $63 billion acquisition of Allergan in May 2020.
As for BMY, this biopharma titan followed its jaw-dropping $74 billion acquisition of Celgene with a $13 billion merger with MyoKordia.
Since then, these deals have bolstered the lineups and deepened the pipelines of all three drugmakers, helping them secure their dominance in the healthcare space.
As for the acquirees, they also benefited from the transactions, particularly those struggling to get through tough situations prior to getting bought out.
With that in mind, it looks like the biotechnology and healthcare sector has another potential high-profile acquisition candidate: Bluebird Bio (BLUE).
Bluebird Bio has recently fallen from investors’ grace following multiple setbacks.
The biotechnology company, once considered a trail-blazer in the gene therapy space, now finds itself without a CFO and left behind by competitors.
Its peers, who were initially eons away in terms of pipeline development, have figured out ways to work around Bluebird’s patents and even managed to outpace the company in launching new gene therapies to market.
Given all these factors, it is no surprise that investing in Bluebird bio has become synonymous with a recycler searching for value in random scraps and parts.
Over the last three years, Bluebird Bio’s shares have plummeted by more than 90%. From a $1.39 billion market capitalization, it is now at roughly $330 million.
That is a horrible performance based on any metric.
Bluebird bio has faced several headwinds that caused its stocks to fall apart.
One problem is the delay in the company’s Biologics License Application in the US for its transfusion-dependent beta-thalassemia treatment, LentiGlobin.
Bluebird Bio initially planned to complete this rare blood disorder therapy’s application by the second half of 2020. However, the company failed to submit some information requested by the FDA.
Another LentiGlobin-related issue is the temporary pause on the clinical trial for sickle cell disease treatment. Eventually, the suspension was lifted, but not before investors scurried away from the stock, following back-to-back concerns over the same treatment.
Other aggravating factors include Bluebird’s move to exit the European market following disagreements over the pricing of some of its gene therapies.
These issues saw Bluebird’s market cap sink, positioning it lower than rival gene-editing companies today.
Needless to say, this deeply discounted value could attract a bigger and expanding biopharma seeking to dip its toes in the gene-editing space.
While Bluebird might be struggling these days, it remains a promising company thanks to its candidates.
This becomes even more exciting since the company announced its plans to concentrate on severe genetic diseases. Although this is a small niche, there’s massive potential in this market.
A strong candidate in its roster is Zynteglo, which gained regulatory approval in 2019 and has yet to reach blockbuster status.
Patients with beta-thalassaemia normally have no other choice but to get blood transfusions regularly. Zynteglo drastically challenges this standard by offering a one-time curative treatment. In fact, saying that this is a life-changing breakthrough is an understatement.
Another potential blockbuster is Skysona, a treatment for a pediatric neurodegenerative disorder called cerebral adrenoleukodystrophy. This neurological disease is extremely rare, affecting only 50 patients in the US annually.
As for its pipeline, Bluebird has three major candidates nearing FDA approval in the US. This means 2022 and 2023 will be critical years for the company.
The first product is Lenti-D, which is similar to Skysona. If things go according to plan, then this treatment might receive the green light by August 2022.
Another product is Beti-cel, which was initially launched as Zynteglo. When this successfully penetrates the US market, this first-ever gene therapy option for beta-thalassemia will rake in roughly $1.87 billion by 2024.
Considering the potential of this market, Beti-cel inevitably finds itself facing off strong competitors in the space.
Thus far, the strongest is Vertex Pharmaceuticals (VRTX), which recently announced an additional $900 million investment in its collaboration with CRISPR Therapeutics (CRSP).
The third candidate is Lovo-cel, which is a sickle cell disease treatment.
This could be a major product for Bluebird, given the over 100,000 patients in the US alone that the company can target.
The goal is to finish the validation process by 2022 and submit Lovo-cel for approval by the first quarter of 2023.
Outside its pipeline candidates and approved products, Bluebird's manageable debt is another thing that makes it attractive for a potential buyout.
After all, cash is king, especially when it comes to biotechnology companies.
At the moment, Bluebird still holds roughly $442 million in the bank, and $46 million of this is restricted.
This indicates unrestricted liquid assets of approximately $396 million—an amount higher than its current market cap.
Consequently, this will allow Bluebird to comfortably weather at least the rest of the year until 2023.
It possesses a relatively solid secure position to hold itself together until its pending candidates start raking in revenues on their own.
Admittedly, Bluebird Bio has had several challenging years. There will still be uncertainties ahead, but it’s undeniable just how promising the company is at this point.
Overall, this stock is worth serious consideration, particularly for companies looking to get a head start in the gene-editing sector.
Mad Hedge Biotech and Healthcare Letter
February 10, 2022
Fiat Lux
Featured Trade:
(A HEALTHCARE ENIGMA TO ADD TO YOUR WATCHLIST)
(GILD), (JNJ), (PFE), (ABBV), (LLY), (MRK), (BMY),
(AMGN), (MRNA), (AZN), (REGN), (BNTX), (NVAX)
The top names in the biopharmaceutical world based on their market capitalization include Johnson & Johnson (JNJ), Pfizer (PFE), AbbVie (ABBV), Eli Lilly (LLY), Merck (MRK), Bristol Myers Squibb (BMY), Amgen (AMGN), and Gilead Sciences (GILD).
Among these names, Gilead is often viewed as an enigma, given its history and the challenge in predicting its share price trajectory.
Over the past months, Gilead has been testing the patience of investors. In fact, the company is projected to experience a fall in revenues this year from $27 billion in 2021 to $24.05 billion in 2022.
The latest news that added to their anxiety was the pause on clinical trials for its cancer therapy, Magrolimab.
This came after its short-lived dominance in the Hepatitis C segment.
At that time, the sales of its leading drug Sovaldi skyrocketed from $140 million in 2013 to a jaw-dropping $10.2 billion by 2014.
Meanwhile, another Hepatitis C treatment, Harvoni, single handedly raked in $13.8 billion in sales in 2015, pushing the entire company’s revenues to an impressive $32.6 billion.
Unfortunately for Gilead, it became the victim of its own staggering success.
Its Hepatitis C treatments, Sovaldi and Harvoni, were incredibly effective and managed to cure the patients within months. The demand for these drugs fell because the patient pool gradually ran dry.
By 2019, the Hepatitis C franchise of the company had declined and managed to scrape $2.9 billion in combined sales.
Since then, though, the company has been struggling to regain investors' faith.
Nevertheless, these recent developments are not enough reasons to panic. If anything, Gilead has simply become even more attractively priced due to the fallout.
In 2020, Gilead managed to report its first year-on-year increase in revenues since its glory days in 2015.
As the COVID-19 pandemic started to take hold of the world, it was Gilead’s Veklury (Remdesivir) that secured the first-ever Emergency Use Authorization from the FDA.
While Veklury was eventually overshadowed by COVID-19 vaccines from Pfizer, Moderna (MRNA), JNJ, and AstraZeneca (AZN), as well as other treatments and antibody cocktails from Eli Lilly, Regeneron (REGN), and Merck, Gilead’s candidate managed a comeback by the fourth quarter of 2021 after experts declared it to be effective against the Omicron strain.
In effect, Veklury had a major impact on the company’s 2021 performance, recording $5.6 billion in annual sales.
Although this is not as illustrious or groundbreaking as its Hepatitis C treatments, the reemergence of Gilead as a frontrunner in the pandemic is proof that the company has not lost its knack for discovering and developing a winning formula for blockbuster treatments.
Another avenue that Gilead has been exploring is actively acquiring assets to expand its portfolio.
One notable move in that direction is its $11.9 billion acquisition of Kite Pharma, a leader in the cell therapy space, in 2017. Thus far, this agreement has yielded two drugs: Yescarta and Tecartus.
Since oncology is one of Gilead’s major areas of concentration, the commercialization of these two treatments conveys a promising future.
While both are yet to become blockbusters, the field of cell therapy has been rapidly expanding and turning into a critical therapeutic option for certain patient categories.
Yescarta is projected to rake in $1.5 billion in revenues if it receives the FDA green light for large B-cell lymphoma
Considering that its last trial data showed off a 60% improvement with Yescarta compared to standard of care in terms of halting the disease’s progression or even death, there’s a huge possibility that Gilead will be delivering good news soon.
As for Tecartus, this treatment received approval for acute lymphoblastic leukemia last year and is aiming to expand to cover mantle cell lymphoma by July 2022.
With its list price of $373,000, this CAR-T therapy is projected to reach blockbuster status in the following months as well.
Another oncology drug anticipated to reach blockbuster status soon is metastatic triple-negative breast cancer treatment Trodelvy, which Gilead gained access to following a $21 billion deal with Immunomedics in 2020.
Given its current approved indications and the queued trials to expand its coverage, Trodelvy is projected to reach $4.7 billion in peak sales.
Going back to the 2022 revenue forecast for Gilead, I think the change is from the company’s anticipated decline in Veklury sales.
Since Pfizer, BioNTech (BNTX), Novavax (NVAX), and Moderna have been actively working on Omicron-focused vaccines and treatments, Gilead expects its Veklury revenues to shrink as well.
Overall, Gilead still presents an excellent opportunity for long-term investors.
Despite its setbacks, the company has proven that it still holds the knack of rolling out remarkable and effective best-in-class treatments.
Moreover, its pipeline is filled with promising candidates poised to deliver in the years to come. So, don’t be too quick to write off Gilead just yet.
Mad Hedge Biotech and Healthcare Letter
February 1, 2022
Fiat Lux
Featured Trade:
(A SHIFT IN NEUROSCIENCE BIOTECH)
(BIIB), (AXSM), (PFE), (BMY), (MRK), (NVS), (ABBV), (GSK), (JNJ), (LLY), (RHHBY), (TAK)
Industry experts typically describe mergers and acquisitions as the life force that propels the biotechnology and healthcare sector forward.
Based on that description, it’s safe to say that the segment’s health has plummeted, considering the sluggishness observed last year.
In 2021, the M&A of this industry had fallen to one of its lowest recorded levels in history.
During this period, the deals only amounted to $108 billion for the entire year. This number was approximately 40% of the total recorded in 2019.
Despite the sluggishness in 2021 and the relatively slow start in 2022, this year is still projected to push the would-be buyers into more aggressive action.
After all, several key products are facing patent expiration before this decade ends.
The list includes Big Pharma players like Pfizer (PFE), Bristol Myers Squibb (BMY), Merck (MRK), and Novartis (NVS).
This means that a massive deal might be on the horizon, pretty much when AbbVie (ABBV) executed its jaw-dropping $63 bill acquisition of Allergan in 2019 following its problems with generics competing against its blockbuster drug Humira.
Aside from patent protection concerns, another factor in play is the intense competition in lucrative research sectors such as immunology, neurology, rare diseases, and oncology.
Add to this the constant pressure of Congress to pull down drug prices, and it becomes apparent why companies—big or small—turn to mergers and acquisitions for survival.
Simply put, biotech and healthcare companies have no other choice but to be aggressive in looking for external innovation to secure the continuous transformation of their businesses.
On that note, I think there could be major acquisitions to be announced in 2022.
One deal I’m looking forward to is Biogen’s (BIIB) potential acquisition of Axsome Therapeutics (AXSM).
To remain competitive in the neuro stage, Biogen must keep up with the times—and a deal with Axsome might just be the solution.
Axsome’s size and price, with a market capitalization of $992 million, appear to be just the right fit for Biogen to gobble up.
More importantly, its portfolio is an excellent fit for Biogen. Both focus on neurological diseases, making their pipelines complementary to each other.
So far, Axsome has several leading candidates in the clinical stages.
One is AXS-05, which is a treatment for major depressive disorder (MDD).
Apart from MDD, this candidate is under late-stage review to target Alzheimer’s disease agitation.
In addition, Axsome is looking to advance AXS-05 in late-stage trials for smoking cessation therapy.
Needless to say, AXS-05 would go hand in hand with Biogen’s own approved, albeit controversial, Alzheimer’s drug Aduhelm.
Another promising candidate is AXS-07, a potential competitor of Pfizer and Novartis’ migraine medication. This drug has been submitted for FDA approval and might be launched by the second quarter of 2022.
There’s also AXS-12, which is a narcolepsy treatment candidate, and AXS-14, which is geared towards fibromyalgia. Both candidates are slated for FDA review by the third or fourth quarter of 2022.
For over 20 years, even the biggest and most powerful drug companies have stayed away from working on treatments specifically for the brain and central nervous system (CNS).
That’s not surprising considering the sheer number of failed programs in neuroscience, pushing drugmakers to believe that we still don’t have sufficient data on the subject, so the money might be better spent elsewhere.
Nowadays, though, the CNS landscape is starting to shift.
GlaxoSmithKline (GSK) recently embarked on reviving its CNS program by striking a $700 million deal with a smaller biotechnology company called Alector.
Meanwhile, Pfizer and Novartis reached an agreement with Biohaven Pharmaceuticals for the latter’s migraine treatment and Parkinson’s drug.
Aside from these, Johnson & Johnson (JNJ), Eli Lilly (LLY), Roche (RHHBY), and Takeda (TAK) are anticipated to secure CNS-centered deals soon.
Despite the lower number of M&A deals last year, the volume of strategic collaborations in the neuroscience sector climbed by about 50% in 2021 compared to its 2020 performance.
By 2022, this space is projected to become even more investable, considering the number of biotechnology companies focusing on CNS. Watch out for blockbuster deals in this sector.
