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More Than Just A One-Trick Pony

When executed correctly and sufficient time is allocated, stock market investing can be highly rewarding. But, what can investors do to make the most of their opportunities in the market?

The short answer: Choose businesses that have or are building a strong competitive advantage.

Those investing in the biotechnology and healthcare sector know that buying companies with promising portfolios and diverse pipelines is vital.

After all, a solid lineup can generate and secure steady cash flow to fund R&D efforts as well as acquisitions to expand the pipeline. Consequently, this guarantees steady growth in revenues as existing products face patent exclusivity losses.

Within this sector, one of the companies with a strong portfolio and promising pipeline is Merck (MRK).

Merck has become practically synonymous with Keytruda—the #1 cancer drug in terms of sales globally. In the first 6 months of 2022 alone, this drug already raked in $10.1 billion in sales.

While several biotechnology companies would be content with this top-tier drug in its portfolio, Merck refuses to be a one-trick pony.

Leveraging its $222 billion market capitalization, the fifth-biggest pharmaceutical company on the planet has been steadily expanding its portfolio.

In fact, Keytruda only made up 33% of its total $30.5 billion sales in the first half of the year.

Merck has built a formidable oncology lineup and developed several blockbuster treatments in this space.

Its flagship, Keytruda, climbed 30% year-over-year in its second-quarter earnings report to record $5.3 billion for that period. Other cancer treatments improved their performance as well. Lynparza grew 17% while Lenvima rose 33%.

Amid these growths, Merck remains aggressive in expanding its oncology lineup. Earlier this year, the healthcare world has been abuzz with Merck’s plan to buy cancer-centered biotech Seagen (SGEN).

The deal, if it pushes through, would be reportedly worth $40 billion and add 4 already approved cancer drugs to Merck’s portfolio.

On top of these market-ready products, Seagen will also bring numerous late-stage candidates to the table.

Merck also recently inked a smaller deal with Orion Corporation. The agreement, worth $290 million, will grant Merck access to Orion’s drug candidate for prostate cancer.

Meanwhile, Merck just announced its plan to catch up with its peers in the COVID-era race. Specifically, the biotech giant has finally become more invested in entering the messenger RNA technology segment.

Earlier this week, Merck struck a $3.7 billion deal with Cambridge-based private biotech Orna Therapeutics for the latter’s novel take on mRNA called oRNA.

Basically, Orna’s approach involves altering the mRNA strands in such a way that it creates a circle instead of a line.

According to the firm, this will be a more effective way to apply the technology to mRNA-based vaccines and therapies.

This isn’t the first time Merck collaborated with a smaller firm to pursue mRNA technology.

As early as 2015, Merck has already been investing in this segment. In fact, it was one of the early partners of Moderna (MRNA), signing a series of agreements with the latter including collaborations on infectious diseases programs.

While some of the programs have been discontinued, Merck and Moderna continue to work together on a personalized cancer vaccine program.

Amid these efforts, Merck is still regarded as a laggard compared to its Big Pharma peers in terms of making huge investments in the mRNA space.

Recent mRNA collaborations include Sanofi’s (SNY) $3.2 billion deal with Translate Bio, Pfizer’s (PFE) massive investment in BioNTech’s (BNTX) technology, and GlaxoSmithKline’s (GSK) deal with CureVac (CVAC).

Nevertheless, the deal with Orna suggests a shift with Merck’s strategy.

Overall, Merck is a premier biotech and healthcare business with a strong portfolio and a promising pipeline.

Its profitability and expansion over the past years have been proven to be top-notch, and it’s not farfetched to expect the same or even better results in the future. I recommend buying the dip.

merck biotech

August 2, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 2, 2022
Fiat Lux

Featured Trade:

(A RISING TIDE LIFTS ALL BOATS)
(MRNA), (PFE), (NVAX), (SNY), (BNTX)

A Rising Tide Lifts All Boats

Biotech Letter

Moderna (MRNA) shareholders have one major worry in recent months: that the biotech company’s billion-dollar COVID-19 vaccine sales will eventually dry up.

After all, roughly 67% of the US population has already been fully vaccinated. Hence, it’s not surprising for investors to wonder whether the company’s glory days are over.

As a result, Moderna’s share price has taken a hit. The stock has slipped by over 35% so far in 2022. However, this looks more like an overreaction rather than a response to anything the company has done.

If anything, it seems that investors have read the situation wrong since Moderna recently received a billion-dollar vaccine dollar from the US.

The deal isn’t for the original version of its COVID-19 vaccine though. Instead, it’s for an updated booster candidate that targets the original coronavirus and the emerging omicron BA.4 and BA.5 strains.

Moderna will receive $1.74 billion to supply the US with 66 million doses of the updated booster. This means the price per dose would be $26.36.

This pricing is lower than the deal with Pfizer (PFE) for a similar booster, which had an implied price per dose of $30.48. In total, Pfizer is set to receive $3.2 billion for 105 million doses.

Nevertheless, this new Moderna contract shows a substantially higher price compared to the previous deal wherein the US paid $3.3 billion for 200 million doses.

That particular deal implied that the price per dose of the vaccine was at $16.50. in comparison, Pfizer’s vaccine was priced at $24 per dose.

A probable explanation for this disparity in pricing is the fact that Moderna received approximately $1 billion in funding from the US government courtesy of its Operation Warp Speed program. Meanwhile, Pfizer refused to participate in such a scheme.

Taken together, Moderna and Pfizer are slated to deliver 171 million doses of the updated booster by fall and winter.

Admittedly, those won’t be sufficient to cover the entire US population. This is why both contracts have options that would allow the government to add 300 million doses each as needed.

In terms of delivery, Moderna announced that its candidate should be ready for the fall vaccination campaign by the end of August.

Outside its coronavirus vaccine efforts, Moderna has a promising pipeline of candidates. To date, the company has 46 programs under development including personalized cancer vaccines.

Of these, Moderna has three candidates queued for Phase 3 trials. All of them are investigational vaccines. One is for the flu, another is for the respiratory syncytial virus (RSV), and the third targets the cytomegalovirus (CMV).

The flu vaccine has competition in Sanofi (SNY) and possibly Novavax (NVAX). However, there are no CMV and RSV vaccine candidates in existence.

Needless to say, getting the green light from the FDA for one or both of these vaccine candidates would be a massive win for Moderna.

More importantly, the company would hold the precious first-to-market competitive edge.

Another exciting candidate is Moderna’s collaboration with Vertex Pharmaceuticals (VRTX). The two are working on an inhaled candidate treatment for patients with cystic fibrosis.

Considering that Vertex is practically a monopoly in this space, its partnership with Moderna could mean a potential game changer in the industry.

Overall, Moderna’s lucrative deal with the US government could be indicative of another exciting period for coronavirus vaccine stocks.

After all, a rising tide lifts all boats.

Moreover, this group had the best performers on the market in the past years. Novavax skyrocketed by 2,700% in 2020 following the announcement of its COVID-19 program. BioNTech (BNTX) jumped by 600%, while Moderna climbed by an impressive 1,200%. Even Pfizer reaped rewards from its coronavirus candidate as it rose by 59% during the same period.

While these vaccine stocks won’t likely repeat their stellar performances, there are still several investment opportunities involving these companies.

The key is to choose a business that does not simply depend on its coronavirus vaccine gains but also leverages the opportunities to expand and diversify its portfolio.

This is what Moderna has been doing. With numerous programs in its pipeline, the company has turned itself into a multi product business that offers stability and growth. Investors eager to add a vaccine stock in their portfolio should buy the dip.

July 28, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 28, 2022
Fiat Lux

Featured Trade:

(IS THIS THE NEXT MODERNA?)
(BVNRY), (SIGA), (EBS), (INO), (MRNA), (BNTX)

Is This The Next Moderna?

Biotech Letter

The growing concern for a potential global outbreak of monkeypox has sent shares of the biotechnology company behind the only approved vaccine soaring.

From a market value of $1.2 billion in May, Bavarian Nordic (BVNRY) has now reached $3.4 billion.

More than that, this figure is expected to climb higher as the World Health Organization (WHO) recently declared monkeypox a “public health emergency of international concern.”

Bavarian Nordic wasn’t the only vaccine maker that benefitted from this announcement. Shares of other developers, notably Siga Technologies (SIGA), Emergent Biosolutions (EBS), and Inovio Pharmaceuticals (INO), were also buoyed.

To date, there are roughly more than 16,000 recorded cases of monkeypox worldwide and 5 deaths. Most regions are categorized as moderate risk, while Europe is placed at high risk due to the number of infections in the area.

Siga Technologies rose 26% following WHO’s announcement. This company develops an antiviral named TPOXX, which is approved by the EU to use against monkeypox. The US has also stockpiled this drug despite not yet being approved by the FDA.

Meanwhile, Emergent Biosolutions climbed 11% after the news came out. While it’s also not yet marketed commercially for this particular outbreak, this biotech has developed a smallpox vaccine that could be applied as a preventive measure for monkeypox.

As for Inovio Pharmaceuticals, which rose 6%, the company does not have a monkeypox-centered product in its pipeline or portfolio. However, the biotech worked on an experimental vaccine against smallpox in 2010. This candidate is reportedly able to provide protection against monkeypox.

Despite all these candidates, Bavarian Nordic’s monkeypox vaccine, called Jynneos, is expected to remain the dominant vaccine. Apart from the US, it was also approved as a monkeypox vaccine in the EU and Canada.

Jynneos, which is administered in two doses, works as a non-replication live virus vaccine. It uses a modified or altered version of a virus that came from the same family as the monkeypox. The goal is to train the immune system to fight off monkeypox and smallpox infections.

Essentially, Jynneos is an advanced version of Emergent Biosolutions’ smallpox vaccine.

Considering the potency and safety of Jynneos, experts believe that no other smallpox or monkeypox candidate could rival Bavarian Nordic’s vaccine in the next 10 to 20 years.

Aside from the difficulties of developing a new and better vaccine, gathering data to prove the efficacy of the candidates would be highly challenging. Large-scale clinical trials involving humans might not be possible, both from an ethical and practical point of view.

Since it’s the only vaccine authorized so far, Bavarian Nordic is arguably the best bet for investors looking to capitalize on this demand.

Moreover, the biotech company has a strong balance sheet and can produce at least 30 million doses of its product. It also has several candidates in its pipeline, making it a safe play in this space.

In terms of competitors, the closest would most likely be Siga Technologies, which has a market capitalization of $1.3 billion. This biotech has a similar profile to Bavarian Nordic.

Meanwhile, its vaccine, TPOXX, showed little to no side effects. More than these, Siga recently received approval from the EU. That means gaining FDA approval in the US could very well be on the way as well.

Overall, there’s an apparent demand for the monkeypox vaccine. Right now, it’s only offered to individuals suffering from monkeypox or with significant exposure to infected people.

While it may not reach the heights of Moderna (MRNA) and BioNTech (BNTX) in terms of skyrocketing share prices, Bavarian Nordic’s vaccine is a great stepping stone for the company.

After all, Jynneos is basically a cousin to the smallpox vaccine that practically saved humanity.

So, if someone gets it, they would probably get the vaccine, just like you would rush to the hospital for a tetanus shot if you stepped on a rusty nail. Without these vaccines, life and the economy as we know them today would not be possible.

bavarian nordic

June 23, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
June 23, 2022
Fiat Lux

Featured Trade:

(AN A-RATED STOCK FOR THE ANXIOUS INVESTOR)
(PFE), (AZN), (MRK), (NVO), (BNTX), (VLA), (GSK)

An A-Rated Stock for the Anxious Investor

Biotech Letter

Choosing businesses with size and scale in their favor is more often than not a wise move for investors.

After all, these companies tend to be well established in their respective fields and hold a higher chance than their peers in terms of sticking around for a long time.

Pfizer (PFE) is an excellent example of a mature biopharmaceutical stock that could efficiently deliver great rewards to investors for many years.

However, the elephant in the room for this stock is whether the bumper profits from its COVID-19 vaccines will be sustained in the long term. These concerns have kept a lid regarding the company’s valuation.

If we strip out Comirnaty from the conversation, Pfizer will still have a decent valuation in relation to its share price today.

It has a current P/E of 11x and market capitalization to operating cash flows of 8.9x. In contrast, fellow vaccine maker AstraZeneca (AZN) has been trading at a negative P/E and a stressful market cap to operating cash flow of 27 times.

For added context, Big Pharma names Merck (MRK)’s P/E is 17x while Novo Nordisk (NVO) has been trading 37 times.

Going back to Pfizer, the company’s first-quarter earnings results for 2022 indicated a strong performance and reinforced its guidance this year.

For the full year of 2022, the company projects sales within the range of $98 billion to $102 billion.

To offer you a better picture of the scale of this growth, this would amount to 150% times the yearly sales between 2018 and 2020

It would actually be a quarter higher than the 2019 and 2020 sales combined.

If this roughly $100 billion forecast is achieved, Pfizer will become the first-ever pharmaceutical stock to reach that goal.

To put this in perspective, if we consider Pfizer as a country or a territory, then its GDP would be ranked 64th globally.

This would put it above Ethiopia and immediately behind Puerto Rico.

During this period, Pfizer recorded $25.7 billion in revenue, showing off an impressive 82% operational growth rate year-over-year and a 76% EPS growth.

Comirnaty, co-created with BioNTech (BNTX), raked in $13.2 billion, reporting a 282.1% spike for Pfizer

Meanwhile, the newly launched COVID-19 treatment, Paxlovid, generated $1.5 billion in revenue.

Pfizer’s consistent exponential growth, as shown in the first-quarter earnings, isn’t solely dependent on its COVID vaccines.

While Comirnaty and Paxlovid comprised over 50% of the $25 billion revenue in that period, sales from other segments continued to rise.

For example, stroke and blood clot treatment Eliquis generated $1.8 billion, up by 12% from its 2021 first-quarter sales of $1.2 billion. Meanwhile, heart failure treatment Vyndamax jumped by an impressive 41% to hit $612 million.

On top of its solid drug development pipeline, Pfizer has been leveraging its bumper cash flow to pursue bolt-on acquisitions of promising biopharmas.

Just last month, Pfizer acquired Biohaven Pharmaceuticals for $11.6 billion in cash. The smaller company’s primary treatment is Rimegepant, a migraine medication approved in both the US and Europe.

Aside from that, Pfizer threw its weight behind a fellow COVID vaccine maker, a French biotechnology company called Valneva (VLA).

Valneva’s most promising program is its late-stage development of a vaccine for Lyme disease.

When Pfizer announced its decision to add $95.6 million to the project plus up to $100 million in milestone payments, it triggered a massive 81% surge in Valneva stock price.

Pfizer and Valneva’s partnership for developing a Lyme disease vaccine started in 2020 when the bigger biopharma paid $130 million upfront.

This latest revision of their deal will not only up Pfizer’s stake in Valneva to 8.1% but also allow the French biotech to continue with its Phase 3 trial without the fear of straining its cash position.

Pfizer currently holds a distinct position in its history, with gushers of cash coming practically from all places.

These sums can only be expected to go higher with the anticipated listing of its consumer healthcare business, which it co-owns with GlaxoSmithKline (GSK). While there’s no official word yet on the deal, Pfizer’s plan to sell its stake could generate roughly $19 billion.

Moreover, the company maintains a respectable dividend yield of 3% and a net debt of roughly $10 billion, which can be completely paid off using its operating cashflows for three to four months.

This enables Pfizer to sustain a comfortable credit rating of “A” Stable from Fitch, thereby making it financially stable and safe from the ever-increasing interest rates.

Needless to say, Pfizer is the kind of stock that offers rare stability in this turbulent period.

pfizer stock

May 26, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 26, 2022
Fiat Lux

Featured Trade:

(WAITING FOR THIS BIOTECH TO STOP MONKEYING AROUND)
(INO), (BVNKF), (EBS), (JNJ), (PFE), (MRNA), (BNTX), (AZN), (NVAX), (REGN), (QGEN)

Waiting for This Biotech to Stop Monkeying Around

Biotech Letter

Almost immediately after US President Joe Biden advised that “everybody” should be concerned over the new worldwide outbreak of the monkeypox virus, the shares of biotechnology and healthcare companies working on monkeypox treatments and vaccines started to rise.

Shares of Danish company Bavarian Nordic (BVNKF), the only monkeypox vaccine developer approved in the US, were up 5.8% in premarket following the announcement.

Bavarian Nordic’s vaccine, called Jynneos, uses a live version of the smallpox virus, which has been altered so that it no longer can replicate in the recipient’s body or cause any infection.

Instead, it has been engineered to activate the immune system and prepare the body’s defenses to fight off smallpox and monkeypox viruses.

Based on data from Africa, two shots of Jynneos, administered 28 days apart, recorded up to 85% in terms of efficacy against monkeypox.

In 2019, Jynneos received regulatory approval from the US FDA for both smallpox and monkeypox.

Aside from Bavarian Nordic, shares of Emergent BioSolutions (EBS) also rose by 11.8% following Biden’s announcement.

While Emergent has no vaccine specifically for monkeypox, it has a smallpox vaccine that can be used to prevent monkeypox.

It can be recalled that Emergent BioSolutions has been an exiled ticker after the US Congress launched an investigation on the manufacturing issues in its Bayview Facility in 2021.

Although the company has managed to clean up that mess and is back to working with Johnson & Johnson (JNJ) to produce COVID-19 vaccines, EBS has yet to return to investors’ good graces.

While the scale of the threat has yet to be determined, the US has secured contracts for Jynneos and Emergent BioSolutions’ vaccine and is already stockpiling in case of an outbreak.

What’s curious, though, is that another company has benefited from this announcement despite not having any monkeypox or even smallpox vaccine candidates.

Inovio Pharmaceuticals (INO) shares rose by 12.2% following the announcement—a surge that couldn’t be adequately explained since the company has no relevant product and does not seem to have any program even remotely linked to this potential outbreak.

As far as I can tell, the last time Inovio even mentioned monkeypox was in 2010 when it discussed a potential experiment on a vaccine that could protect nonhuman primates against the virus. However, nothing came out of that plan either.

If Inovio sounds familiar to you, it’s probably because it was one of the frontrunners in the early days of the COVID-19 vaccine race.

However, it eventually lagged behind the likes of Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), and AstraZeneca (AZN).

One primary reason for this is the FDA’s decision to suspend Inovio’s Phase 3 trial in late 2020, with the study only resuming sometime in 2021.

As if that’s not enough, Inovio also faced some internal battles following the resignation of its CEO.

Now, the company has shifted gears and plans to offer its COVID-19 candidate as a booster shot instead of a primary vaccine.

The change of plans regarding the COVID-19 vaccine might be disappointing for some, but it’s essential to be realistic about expectations.

At the moment, the vaccine landscape has been dominated by Pfizer and Moderna, with AstraZeneca and Johnson & Johnson gaining ground as well.

Just recently, another challenger joined the fray: Novavax (NVAX).

Needless to say, the COVID-19 vaccine market is becoming crowded, and the competition is getting more intense.

Considering that Inovio has yet to catch up with the development of its candidate, it would be unwise to challenge the already established developers dominating the market today.

Hence, offering its COVID-19 candidate as a booster would provide it with higher marketability since health experts encourage people to mix and match their vaccines.

Outside these efforts, Inovio is a leader in developing DNA plasma-based vaccines. Before the pandemic, the company had been working on an extensive pipeline using this technology.

One of the most promising DNA-based vaccines from Inovio is VGX-3100, which targets an HPV-triggered disease called cervical dysplasia. Simply, this is a pre-cancer condition.

Inovio’s candidate is the first-ever DNA-based treatment that reached Phase 3 trials and reaped positive results.

This is an exciting development, especially in light of Inovio’s partnership with Qiagen (QGEN), as the two can leverage their work to determine which patients are at risk.

Basically, Inovio and Qiagen might just be on the verge of coming out with a preventive vaccine for cancer.

If things go according to plan, the data should be released by the second half of 2022. In terms of price, VGX-3100 is expected to cost roughly $10,000.

Aside from these, Inovio is also collaborating with Regeneron (REGN) to develop a cure for glioblastoma, an incredibly aggressive type of brain cancer. So far, Phase 2 trial results look promising, and the partners are on their way to progressing to Phase 3.

Inovio’s pipeline covers many DNA vaccines targeting infectious diseases and cancers. Most are still in the early phases of development.

While the programs in Phase 2 and 3 trials are promising, I think it’s still too early to predict whether Inovio is truly capable of delivering on its promises.

I know that Inovio shares look like such a bargain these days, especially if the company ends up receiving regulatory approvals in the coming months, but I’m not yet fully convinced.

Overall, Inovio is worth considering right now. It’s definitely on my list.

But before I commit, I’d like to see at least whether the company’s COVID-19 and HPV pipelines can move past the latest headwinds and advance to the next levels.

May 6, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 6, 2022
Fiat Lux

Featured Trade:

(A PANDEMIC CONQUEROR READY FOR MORE)
(PFE), (BNTX), (AMGN), (JNJ), (BIIB), (RHHBY), (SGMO), (BMRN)

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