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The Only Time Fighting Yourself Makes Money

If I had a dollar for every time someone told me the biotech sector was overvalued, I'd have enough to fund my own drug development program.

Yet here we are, watching the global immunology market rocket from $55 billion to $166 billion in just a decade, with the sector projected to hit $192 billion by 2028.

If you're wondering why big pharma keeps pouring billions into autoimmune research - and believe me, this question came up in every meeting last week - the answer is simple: we've barely scratched the surface.

Despite thousands of PhDs burning midnight oil in labs from Boston to Basel, we still don't have effective treatments for systemic lupus erythematosus, scleroderma, or even something as visible as vitiligo.

Want to see where the smart money is going? Look no further than the biosimilar stampede into AbbVie's (ABBV) Humira territory.

Like bargain hunters at a Black Friday sale, everyone's getting in line: Amgen (AMGN) with Amjevita, Sandoz (SDZNY) with Hyrimoz, Coherus (CHRS) with Yusimry, and Pfizer (PFE) with Abrilada.

And just when you thought the party was over, here comes Amgen's Wezlana challenging Johnson & Johnson's (JNJ) Stelara, followed by Alvotech (ALVO) and Teva's (TEVA) Selarsdi.

But here's where it gets interesting. I've identified four companies that are trading at valuations that would make Benjamin Graham smile.

First up is AbbVie, trading at 15.96x earnings (11.9% below sector median), with projected EPS growth to $15.21 by 2027.

Their dynamic duo of Rinvoq and Skyrizi is performing like a biotech version of Batman and Robin.

Rinvoq sales hit $1.61 billion in Q3 2024, up 45.4% year-over-year, while Skyrizi broke $3 billion, thanks to its mid-2024 FDA approval for ulcerative colitis.

As for Sanofi (SNY)? Now we're talking value. At 11.7x earnings - 35.39% below sector median and 1.3% below its 5-year average - it's like finding a Ferrari priced like a Fiat.

Their star player Dupixent raked in 3.48 billion euros in Q3 2024, up 22.1% year-over-year and 5.2% quarter-over-quarter.

Then, there’s Teva Pharmaceuticals. Trading at a P/E ratio of 7.88x - that's 56.5% below the sector median - while projecting non-GAAP EPS growth to $3.6 by 2028.

But here's the kicker: their clinical trial data reads like a biotech investor's dream. Their new drug duvakitug achieved 47.8% clinical remission in ulcerative colitis patients versus 20.45% for placebo (p=0.003).

In Crohn's disease? Even better - 47.8% endoscopic response compared to 13% for placebo (p<0.001).

Finally, there's Bristol-Myers Squibb (BMY). Yes, it's trading at 47.5x earnings (162.1% above sector median), but here's where patience pays off - their P/E ratio is expected to drop to 8.82x by 2027.

Meanwhile, Zeposia sales jumped 19.5% year-over-year to $147 million in Q3 2024, while Sotyktu showed consecutive quarterly growth.

The cherry on top? These companies are paying you to wait. We're talking dividend yields from 3.8% to 4.41% - try getting that from your savings account.

Looking at these numbers reminds me of the tech sector in the late 1990s, but with one crucial difference - these companies are actually making money, lots of it.

They generate significant cash flow and have strong balance sheets, unlike many of the high-flying tech companies of the dot-com era that were burning through cash with no clear path to profitability.

While others are chasing the next meme stock or crypto moonshot, smart investors are quietly positioning themselves in companies that are literally changing the face of medicine.

Remember, buying umbrellas in the summer heat has always been my style.

Right now, the immunology sector is experiencing its own kind of summer, and these four stocks are your umbrellas.

The forecast? Growth storms ahead.

January 16, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
January 16, 2025
Fiat Lux

Featured Trade:

(THE EYES HAVE IT)

(REGN), (SNY), (PFE), (BMY)

The Eyes Have It

Biotech Letter

Last week, while waiting for my annual eye exam, I couldn't help but notice the parade of elderly patients shuffling in for their regular Eylea injections. My optometrist tells me these folks show up like clockwork every 4-8 weeks, rain or shine.

That's about to change, and therein lies a multibillion-dollar story.

You see, when Regeneron reported Q3 earnings on Halloween, boy, they sure had some treats for investors. Revenue hit $3.72 billion, up 11% YoY, with EPS coming in at a sweet $11.54.

But here's what really caught my attention: their cost of revenue was $1.762 billion, while R&D and SG&A expenses ran $1.271 billion and $714.4 million respectively.

Net income? A cool $1.34 billion. Not too shabby for a company whose main product is under siege from copycats.

Speaking of copycats, let's talk about Eylea. The original formula saw revenues drop 21% YoY to $1.145 billion – that's what happens when biosimilars crash your party.

This is where it gets interesting though: Eylea HD (think of it as Eylea's muscled-up big brother) jumped from a mere $43 million to $392 million YoY.

Sure, about $40 million of that came from wholesalers stocking up like it's Black Friday at Costco, but still – that's what I call a growth story.

I've been watching Regeneron since they were just a gleam in Wall Street's eye, and they've always had a knack for turning scientific breakthroughs into cold, hard cash.

Take Dupixent, their inflammation blockbuster co-developed with Sanofi (SNY). It just got FDA approval for COPD with an eosinophilic phenotype.

Why does this matter? Because we're talking about a $6 billion market opportunity here, folks.

About 36% of COPD patients have this particular flavor of the disease and trust me, there are more of them than you'd think still wheezing away on their old inhalers.

Want to know what else is cooking in their labs? They're working on antibodies that could make blood clots a thing of the past – think better than Eliquis, which pulls in $10 billion annually for Pfizer (PFE) and Bristol Myers Squibb (BMY). Their secret? Something called Factor XI, which could be a game-changer for the 1 in 5 patients at high risk for bleeding.

And because no self-respecting biotech can resist the siren call of the obesity market, they're also cooking up their own weight loss cocktail. Results won't drop until late 2025, but if they crack the code on keeping weight off AFTER stopping treatment, they'll have something Wegovy and Zepbound can't match.

The financials are rock solid, too: $2.012 billion in cash, $7.785 billion in marketable securities, and current assets of $19.334 billion versus current liabilities of just $3.661 billion.

They've generated $3.158 billion from operations in the first nine months of 2024 alone.

Yes, there's $1.984 billion in long-term debt, but with cash flow like that, it's about as worrying as a paper cut.

I've already started nibbling at Regeneron, and I'm looking to add more if it dips further. After all, this is a company that's proven it can grow revenues at upper single digits year over year while maintaining 25% free cash flow margins - the kind of numbers that make a value investor's heart skip a beat.

Sure, there are risks lurking around every corner – biosimilars nipping at Eylea's heels, Medicare negotiations that could squeeze margins, and clinical trials that might go sideways.

But with multiple growth catalysts and a pipeline that reads like a wish list for modern medicine, Regeneron's got more upside than my daughter's college tuition bills.

As my optometrist likes to say - in the land of the blind, the one-eyed man is king. But in the land of biotech, Regeneron's got a 20/20 vision for what's coming next.

December 31, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
December 31, 2024
Fiat Lux

Featured Trade:

(SOMETIMES WALL STREET GETS IT WRONG)

(BMY), (AAPL), (MRK)

Sometimes Wall Street Gets It Wrong

Biotech Letter

Sitting in my stateroom aboard the Coral Princess, about 200 miles off Mexico's west coast, I found myself chuckling at the market's reaction to Bristol-Myers Squibb’s (BMY) latest developments. Sometimes Wall Street reminds me of my old physics professor - brilliant but occasionally missing the forest for the quantum trees.

Here's what caught my attention: BMY's stock has outperformed the broader market by +15% since July, yet still trades at a measly 7.91x forward P/E while its sector peers strut around at 20.53x. It's like finding a Ferrari in a used car lot, priced like a Corolla.

The cynics, of course, point to the patent cliff. "What about Eliquis in 2026? Opdivo in 2028?" they ask, wringing their hands. But that's exactly where it gets interesting.

Just earlier this month, BMY announced FDA approval for Opdivo Qvantig - their new subcutaneous version that cuts treatment time from 30 minutes to 5 minutes. If you've ever spent time in cancer treatment centers like I have, you know those 25 minutes make a world of difference.

BMY's commercial team expects this version to capture 75% of Opdivo's business, with 30-40% of patients switching from IV. That's not just convenience - it's strategic patent life extension.

Speaking of strategy, let's talk about their growth portfolio, which has quietly expanded 20% year-over-year and now represents 48.7% of their business.

Remember when Apple (AAPL) transformed from computers to mobile devices? BMY is pulling a similar pivot, just without the flashy keynotes.

Take their $14 billion Karuna acquisition. Their newly approved schizophrenia treatment, Cobenfy, targets a market projected to hit $15.23 billion by 2034. The timing here is masterful - monetization starts in early 2025, well before the patent cliffs hit.

Meanwhile, they're cleaning up their balance sheet faster than a neat freak with a new vacuum. They've already slashed $4.31 billion in debt this year, with plans to cut $10 billion by 2026.

Their free cash flow has grown to $13.8B, up 18.1% sequentially. At this rate, they'll have plenty of dry powder for more strategic moves.

But here's what really makes me scratch my head: while everyone's fixated on the patent cliff, BMY has quietly added 8 new oncology registrational trials in the past year. Their oncology trio - Opdivo, Yervoy, and Opdualag - is growing at 7.6% year-over-year.

Sure, Merck's (MRK) Keytruda is the 800-pound gorilla with $25 billion in sales, but BMY's playing a different game - diversification with shots on goal across multiple therapeutic areas.

Now, I'm not suggesting you back up the truck tomorrow morning. The stock might see some pressure after the January 3, 2025 ex-dividend date, possibly testing support at $51 or even $48. But with a 4.45% dividend yield and a valuation at half its historical average, patient investors might find this an interesting entry point.

Speaking of timing - Wall Street's greatest fortunes were made by investors who saw value where others saw problems. Right now, most analysts are staring at BMY's patent cliff like deer in headlights.

Meanwhile, I'm seeing a company with a 4.45% dividend yield, a growth portfolio expanding at 20% annually, and a valuation that's practically begging to double.

As I wrap this up from somewhere off the Mexican coast (where I'm supposedly on vacation but can't help analyzing stocks between rounds of Monopoly), I'm reminded of something I learned in my decades of trading: The crowd is usually looking through the wrong end of the telescope.

While they're zoomed in on 2026's patent expirations, they're missing the transformation happening right now in front of their eyes.

Maybe that's why I've averaged +50% returns for over a decade - I tend to look where others don't. BMY just might be one of those opportunities that makes next year's Christmas gift to my subscribers an even bigger winner than this year's +75.25% return.

Now, if you'll excuse me, my banjo needs tuning, and I have a Monopoly empire to build. But remember - in both board games and markets, the best players are always thinking three moves ahead. BMY's management certainly is.

November 19, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 19, 2024
Fiat Lux

Featured Trade:

(HONEY, I SHRUNK THE MARKET CAP)

(ABBV), (BMY), (AVNX)

Honey, I Shrunk The Market Cap

Biotech Letter

If you've ever wondered what $9 billion in disappointment looks like, ask the folks at AbbVie (ABBV). They've just learned the hard way that even the most promising psychiatric drugs can pull a vanishing act worthy of Houdini when it comes to clinical trials.

Their great hope, emraclidine – a name that sounds like it could either cure schizophrenia or clean your bathtub – recently face-planted in not one, but two Phase 2 trials.

Dr. Roopal Thakkar, AbbVie's Chief Scientific Officer, probably wishes this particular day came with a reset button, as the company's experimental once-daily pill performed with all the therapeutic punch of a sugar tablet in treating schizophrenia.

Somewhere, in a parallel universe, there's probably a version of Dr. Thakkar who didn't just watch $40 billion in market value evaporate faster than a teenager's allowance at a gaming convention.

Unfortunately, in our universe, AbbVie's stock took a 12.6% nosedive to $174.43.

But here's where it gets interesting, in that peculiar way that only Wall Street can manage. While AbbVie was having its very bad, no-good day, Bristol Myers Squibb (BMY) was practically dancing in the streets.

Their shares shot up 11% faster than you can say "competitive advantage." Why? Because their own schizophrenia drug, Cobenfy (another name that sounds like it came from the same random pharmaceutical name generator), just got the FDA's blessing.

Talk about impeccable timing.

Let's put this in perspective: We're talking about a global market worth $7.90 billion in 2023, projected to balloon to $11.35 billion by 2030. And it's not just about money.

The World Health Organization tells us there are 24 million people worldwide living with schizophrenia.

In the U.S. alone, it affects between 0.25% and 0.64% of adults, according to the National Institute of Mental Health. That's roughly the population of a small city, all waiting for better treatment options.

Meanwhile, other players in this high-stakes game are making moves that would impress a chess grandmaster.

Take Teva Pharmaceutical Industries (TEVA), busy cooking up a long-acting injectable version of olanzapine.

Or Alkermes plc (ALKS), sitting pretty with their $1.17 billion in revenue for 2022, thanks partly to their own injectable antipsychotic, Aristada.

Then there's H. Lundbeck A/S (HLBBF), the Danish company that spends 18% of its $2.7 billion revenue on R&D, like a scientist with an unlimited coffee budget.

And let's not forget the plucky underdog, Anavex Life Sciences Corp. (AVXL), burning through cash like a marathon runner through calories ($31.6 million in losses for 2022) while chasing their own psychiatric breakthrough.

Their compound, ANAVEX 3-71, sounds like a droid from Star Wars but might just be the next big thing in schizophrenia treatment. Or not.

That's the beauty and terror of biotech investing – you never quite know if you're backing the next breakthrough or the next spectacular failure.

AbbVie, thankfully, isn't exactly heading for the poorhouse. Their blockbuster drug Humira raked in $21 billion in 2022 alone – enough to buy everyone in New Zealand a really nice dinner.

The truth is, navigating the biotech market is less like following a recipe and more like trying to predict where lightning will strike while riding a unicycle.

So here's your biotech shopping list, served with a side of market reality.

AbbVie's spectacular face-plant has created a buying opportunity for the patient investor (that $21 billion Humira cushion makes for a soft landing).

Bristol Myers Squibb is strutting around with their fresh FDA approval like they own the place (and right now, they kind of do).

And if you're feeling particularly adventurous, Anavex Life Sciences offers a lottery ticket that might just pay off.

Whatever you choose, just remember to keep your antacids handy.

September 17, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
September 17, 2024
Fiat Lux

Featured Trade:

(A JAB WELL DONE OR A SHOT IN THE DARK)

(MRNA), (RHHBY), (NVS), (BMY)

A Jab Well Done Or A Shot In The Dark

Biotech Letter

Moderna (MRNA), the wunderkind of the COVID vaccine era, is facing a bit of a hangover. Remember when this biotech darling was riding high on vaccine sales? Well, those days are looking as distant as your last booster shot.

The company's stock had a decent first half, climbing about 20%. They even scored a win with their new RSV vaccine approval. But hold your horses, because things are getting a bit dicey.

Last month, Moderna had to revise its COVID vaccine revenue downward. Translation: people aren't lining up for jabs like they used to.

And just last week? They dropped another bombshell: Moderna's planning to slash its annual R&D spending by over $1 billion starting in 2027. On top of that, they're also pulling the plug on five programs.

But wait, there's more. Remember when Moderna was supposed to break even in 2026? Well, now they're saying it'll be 2028. That's like telling your date you'll be there in 5 minutes, then showing up two hours later.

Now, let's talk numbers. The consensus for 2025 sales was sitting pretty at $3.9 billion. Moderna's new projection? A potential downside of $2.5 billion, with a best-case scenario of $3.5 billion. As for 2024, they're looking at $3 to $3.5 billion.

And here's another head-scratcher: Despite 800,000 people over 65 in the U.S. being hospitalized last season, only 41% of this population has the COVID vaccine. Compare that to 74% with the flu vaccine. It looks like people trust the old-school flu shot more than the new kid on the block.

So, what's Moderna's game plan? They're focusing on delivering 10 products over the next three years. That's down from their previous bold claim of 15 new products in five years.

Here’s what CEO Stéphane Bancel has to say about this: "The size of our late-stage pipeline combined with the challenge of launching products means we must now focus on delivering these 10 products to patients, slow down the pace of new R&D investment, and build our commercial business."

In other words, they bit off more than they could chew and now they're trying to swallow.

Moderna's slashing its R&D investment for 2025 through 2028 by 20%, down to $16 billion. That's a $4 billion haircut.

But here's the twist - they're actually increasing investment in oncology, presumably to hopefully build a portfolio that could rival the likes of Roche (RHHBY), Novartis (NVS), and Bristol Myers Squibb (BMY).

Now, before you start thinking it's all doom and gloom, let's look at the silver lining.

Moderna expects its respiratory vaccines to be profitable this year and beyond. They're also aiming to file for approval of three new products by year-end: a next-gen COVID vaccine, a combo flu/COVID vaccine, and an RSV vaccine for younger high-risk adults.

Now, is Moderna a buy or a sell? Well, that really depends on your investment style.

Moderna's in a tight spot, but it's not game over. They're trimming the fat, focusing on what works, and betting big on oncology.

Plus, they actually have the cash to see this strategy through. So, they won't need to pass around the collection plate to reach their break-even goal. Their current situation is admittedly not pretty, but it's not a death spiral either.

For most of us, this is where the rubber meets the road. If you're up on Moderna, consider taking some profits, but don't bail completely. This could be a classic "buy the dip" opportunity for the bold.

Remembert, biotech is boom or bust, and Moderna's loaded pipeline needs just one hit to soar. Their combo vaccines could be game-changers if they pan out. And let's not forget, they cracked the mRNA code - that's not small potatoes in the world of drug development.

Bottom line: If you're risk-averse, look elsewhere. But for those with iron stomachs and long-term vision, this might be your chance to snag a potential biotech giant on sale.

September 5, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
September 5, 2024
Fiat Lux

Featured Trade:

(A VERY STRONG CELL-ING POINT)

(TXG), (NSTG), (BRKR), (ILMN), (BMY), (GILD), (BIO)

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