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The Biggest News in Biotech Today

It’s not typical for stock market news to alter the lives of millions of people across the globe, but this is what Biogen (BIIB) managed to accomplish this week.

The company received accelerated approval from the US Food and Drug Administration (FDA) for its controversial Alzheimer’s disease treatment, Aducanumab.

The drug, which is now marketed as Aduhelm, marks a potential breakthrough medication for over 6 million Americans suffering from the debilitating illness and to possibly billions all worldwide.

Basically, Aduhelm targets what Biogen calls “a defining pathology of the disease” by decreasing the amyloid beta plaque levels in the brains of patients suffering from Alzheimer’s disease.

Biogen shares spiked by roughly 60% following the Aduhelm news, with the pop in the biotechnology stock even more impressive than what was initially predicted.

This latest FDA approval also brings a ray of hope for the biotechnology industry.

Biotech shares have been in a slump this year, with the SPDR S&P Biotech ETF (XBI) falling by 9.2% thus far.

Potential second-order effects of the Biogen win can easily be seen in other developers of Alzheimer’s disease treatments.

Although the moves may not be as dramatic as Biogen’s, several biotech companies benefited from the good news.

Directly benefiting from it is Japanese drugmaker Eisai (ESALY), which has been working with Biogen on Alzheimer’s disease treatment. This company’s American depository receipts climbed by 48.2% after the news broke.

Eli Lilly (LLY), which is also working on its own Alzheimer’s therapy, saw its shares go up 9.3%.

Even Roche (RHHBY), which is still in the early stages of its development of a similar treatment, enjoyed a 1.6% increase, while an under-the-radar biotech company, Denali Therapeutics (DNLI), experienced a 7.8% increase.

Other smaller companies that benefited from Biogen’s news include Sarepta Therapeutics (SRPT), Ionis Pharmaceuticals (IONS), Intercept Pharmaceuticals (ICPT), Cassava Sciences (SAVA), and Annovis Bio (ANVS).

In terms of pricing, Aduhelm is estimated to cost $56,000 per year.

Although there is still no definite number in terms of how much Aduhelm could generate in sales for the company, there have been early estimates prior to this news.

Before this accelerated approval, Aduhelm was projected to add at least $16 billion in market capitalization to Biogen.

If successful, the drug can contribute a minimum of $10 billion in sales annually—a performance that would make Aduhelm one of the best-selling drugs of all time.

At this price point as well, the drug could peak at $5.7 billion by 2027.

Understanding that the cost is too high for some, Biogen has been working on establishing partnerships with healthcare and insurance companies to help patients cover the expenses.

So far, Biogen has been negotiating with Cigna (CI) to come up with terms to make Aduhelm available to Alzheimer’s patients via a value-based contract.

That is, the pricing will be assessed based on how responsive the patient will be to the treatment.

Biogen has also been working on collaborating with CVS Health (CVS) to develop more efficient ways to implement cognitive screenings in urban markets.

The two companies have been looking into boosting testing within underserved communities to improve early diagnosis, with the project commencing by September.

Some cities included in this initiative are Washington, D.C., Los Angeles, Dallas, Chicago, South Carolina, Atlanta, New York, Detroit, and Philadelphia.

Biogen has finally regained its momentum thanks to this accelerated and unprecedented approval.

That means we can expect Biogen to leverage this massive revenue stream to round out the rest of its programs and boost its R&D, as well as possibly compensating its shareholders with share buybacks and even dividends in the second half of this decade.

aduhelm

April 20, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
April 20, 2021
Fiat Lux

FEATURED TRADE:

(A DEPENDABLE BUT UNDERVALUED HEALTHCARE STOCK)
(UNH), (ANTM), (CI), (HUM), (CNC), (CHNG)

A Dependable but Undervalued Healthcare Stock

Biotech Letter

The ongoing seesaw fights in the stock market are causing too much drama that cunning investors can—and definitely should—steer clear from.

Instead of fretting over speculative and risky investments, it’s better off staying with tested and proven big-name companies that will remain solid buys for the years to come and continue to deliver positive results despite periods of uncertainty.

Among the huge names in the healthcare industry, United Health (UNH) is a strong contender that meets the criteria.

After almost a decade of delivering high returns, which shows off fast-rising earnings expectations, it’s interesting to see that the market has recently backed away from this blue-chip stock.

Nonetheless, the market’s skittishness offers an opening for investors looking to buy in the dip a company that pays dividends and promises to steadily boost your savings in the years to come.

Founded way back in 1974, UNH has become a top name in the healthcare industry, landing in seventh place on the Fortune 500 list.

To date, UNH has four main divisions handling its over 50 million members both in the US and across the globe: its private health insurance business UnitedHealthcare, its pharmacy benefits segment OptumRx, its healthcare services provider branch OptumHealth, and its analytics platform OptumInsight.

UNH has a market capitalization of $354 billion.

In comparison, the closest competitor is Anthem (ANTM), with $87.93 billion. In terms of market cap, the two are followed by Cigna (CI) with $85 billion, Humana (HUM) with $53.81 billion, and Centene (CNC) with $36.19 billion.

Amid the financial crisis brought about by the pandemic, UNH still reported a 6.2% jump in its revenue in 2020 to reach $257.1 billion.

The company’s most prominent growth driver is its Optum line, and UNH is making sure that this division continues to grow.

One of the most indicative moves towards that direction is UNH’s $7.8 billion acquisition announcement of technology and data analytics company Change Healthcare (CHNG), which should be completed by the second quarter of 2021.

In the agreement, UNH is offering Change Healthcare $25.75 for its shares, representing a premium of roughly 41% above the latter’s stock price.

UNH plans to merge Change Healthcare’s operation into OptumInsight, which currently handles hospital systems health plans, life sciences companies, and even governments.

In the first nine months of 2020 alone, OptumInsight generated over $1.9 billion, contributing to roughly 11% of UNH’s total bottom line.

The combination of these two will all but guarantee that UNH’s possession of the biggest and most powerful platform in the entire healthcare industry, with the acquisition projected to add approximately $470 million to the company’s adjusted earnings in 2022.

The decision to acquire Change Healthcare is part of the string of M&A deals executed by UNH to stay ahead of the game.

In 2019, it bought two companies to expand its operations: the DaVita Medical Group for $4.3 billion and Equian for $3.2 billion. Prior to these, UNH splurged on a $12.8 billion acquisition of Catamaran in 2015.

For 2021, UNH projects its earnings to increase, estimating its per-share profits to be somewhere between $16.90 and $17.40—and that estimate already took into consideration the headwinds involving COVID-19 that could still weigh on the company’s bottom line.

While this may appear optimistic, the truth is, generating strong results isn’t a novel accomplishment for UNH.

In the past three years, the company reported a net income of $10 billion or higher, with net margins recorded at 5% above its revenue.

Over the course of the last 12 months, UNH stock has climbed 24%, beating the S&P 500, which rose 18% during the same period. It also offers a decent dividend of 1.5%, which is admittedly slightly lower than the S&P 500 average at 1.6%.

Overall, UNH is a safe stock that you will not have to anxiously watch over and can hold in your portfolio for years.

More importantly, this company remains undervalued and still shows a lot of room for growth.

So if you’re a value investor looking with an interest in the insurance and healthcare services industry, then this market leader is a sustainable addition to your portfolio.

unh

June 11, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
June 11, 2020
Fiat Lux

Featured Trade:

(THE BIOTECH MERGER BOOM ACCELERATES)
(AZN), (GILD), (BMY), (ABBV), (AGN), (TAK), (CI), (SNY), (JNJ), (UNH), (RHHBY), (LLY)

The Biotech Merger Boom Accelerates

Biotech Letter

Nothing can ever be absolutely shocking in the biotechnology and healthcare world.

I’ll admit though that the reports on AstraZeneca’s (AZN) interest in acquiring Gilead Sciences (GILD) surprised me.

The two companies touched base last month on a potential acquisition deal.

If this rumor turns into a reality, then we’re looking at what could be the biggest healthcare deal to date.

That’s saying something considering the massive mergers we’ve seen in the past years.

So far, the biggest biotechnology and healthcare deal is the $87.6 billion acquisition of Celgene (CELG) by Bristol-Myers Squibb (BMY) in 2019.

In the same year, AbbVie (ABBV) acquired Allergan (AGN) for a whopping $83.8 billion, making it the third biggest deal in the healthcare sector to date.

The year 2018 paved the way for two more massive deals in the form of Takeda’s (TAK) $81 billion acquisition of Shire, which ranks fourth overall, and Cigna’s (CI) $68.4 billion deal with Express Scripts (ESRX) in seventh place.

Fifth on the list is by Sanofi’s (SNY) $73.5 billion deal with Aventis in 2004.

Although it has been two decades since it happened, the $72.5 billion merger of Glaxo and SmithKline Beecham in 2000 still counts as one of the biggest deals in the industry. This agreement gave birth to GlaxoSmithKline (GSK).

Prior to Bristol-Myers Squibb and Celgene deal, it was Pfizer’s (PFE) $87.3 billion acquisition of Warner-Lambert in 1999 that topped the list.

AstraZeneca’s current market capitalization is roughly $140 billion. Meanwhile, Gilead Science’s market cap stands at approximately $96 billion.

With all these in mind, the AstraZeneca-Gilead Sciences merger is estimated to reach roughly $250 billion on top of the significant synergies expected throughout the years.

If these two health industry heavyweights merge, then their newly formed company would become the third biggest healthcare company in the world behind Johnson & Johnson (JNJ), which has a market cap of $384.55 billion, and UnitedHealth Group (UNH) with $293.85 billion.

Looking at this potential merger in the context of the coronavirus race, it’s safe to say that the combined efforts of AstraZeneca and Gilead would create a COVID-19 titan.

AstraZeneca’s partnership with the University of Oxford resulted in a COVID-19 vaccine candidate that was recently selected as one of the top five candidates worthy of US government support through Trump’s Operation Warp Speed program.

Meanwhile, Gilead’s antiviral medication Remdesivir has been constantly hailed as the standard of care for COVID-19 treatment since the pandemic broke.

The drug which was previously marketed as an HIV medication is now expected to generate $2 billion in sales as a COVID-19 treatment in 2020 alone.

In 2022, Remdesivir is estimated to rake in roughly $7.7 billion in sales. After that, the antiviral drug is projected to generate annual sales somewhere between $6 billion and $7 billion.

Although everything is hypothetical, let’s take a quick look at where each company stands at the moment outside their COVID-19 efforts.

AstraZeneca has been a consistent strong stock market performer throughout the years.

In the first quarter of 2020, sales improved in practically all of AstraZeneca’s territories. Although it has a diversified portfolio of drugs and a robust pipeline, the company’s hottest segment is its oncology business.

A good example of this is non-small cell lung cancer treatment Tagrisso, which is starting to live up to expectations as the next mega-blockbuster for AstraZeneca.

The cancer drug’s first quarter sales reached an impressive $982 million, showing off a 56% jump year over year.

This is promising considering that its competitors include Roche’s (RHHBY) Tarceva and Eli Lilly’s (LLY) Cyramza.

As for its 2020 revenue forecast, AstraZeneca is reported to rake in $25 billion, from which it will generate approximately $7.5 billion in operating profit.

On the other hand, Gilead also has an impressive portfolio that it can bring to the table.

In the first quarter of 2020, the company earned $5.47 billion in revenue compared to the $5.20 billion it generated in the same period last year.

Despite the decline in its hepatitis products from $790 million in the first quarter of 2019 to $729 in the same period of 2020, Gilead’s HIV line made up for the loss by bringing in over $4 billion in sales compared to the $3.6 billion it earned last year.

Not only that, some of Gilead’s other candidates are exciting.

For example, rheumatoid arthritis drug Filgotinib is expected to become another blockbuster and generate $5 billion in revenue annually.

Meanwhile, the anti-tumor treatment Magrolimab is estimated to rake in $3 billion in peak sales.

With the company’s older drugs still capable of generating strong revenue and its new candidates showing their potential for revenue expansion, Gilead can be assured of a continued cash flow well into the 2030s.

Regardless of whether this rumored mega-merger pushes through, both Gilead and AstraZeneca are attractive stocks worthy of their premium valuations.

March 24, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
March 24, 2020
Fiat Lux

Featured Trade:

(THE BIG CORONA PLAY WITH TELEDOC HEALTH),
(TDOC) (HUM), (AET), (CI)

The Big Corona Play with Teladoc Health

Biotech Letter

The coronavirus disease (COVID-19) outbreak continues to inspire terror across the globe.

To date, there are roughly 398,107 confirmed cases and over 17,454 documented deaths, pushing communities to take proactive measures to stem the tide of this global pandemic.

In its wake, an increasing number of government officials and health professionals like the US Centers for Disease Control (CDC) have advised patients to take advantage of telemedicine and virtual health systems as much as possible. This is particularly helpful for those with respiratory symptoms since using these platforms could minimize contact with others along with the spread of the virus.

One of the no-brainer beneficiaries of this advice is virtual healthcare services provider Teladoc Health (TDOC).

Basically, companies like Teladoc offer personalized care without the need for patients to leave their houses. Although the kinks have yet to be worked out, the telemedicine sector should be expected to skyrocket in the weeks and even months ahead.

In fact, Teladoc shares gained 9% since February 19 -- a good sign for the company especially since the broader market went down by roughly 20% over the same period.

Earlier this month, Teladoc disclosed that the number of patient visits registered in its system showed a 50% increase week over week.

Ever since COVID-19 hit the country, the company has been fielding at least 15,000 visits on a daily basis, reaching over 100,000 weekly. Teladoc shared that it has been experiencing "visit demand consistent with peak flu volumes."

The convenience that companies like Teladoc provide can ease the burden on the broader healthcare system, which has been overworked with COVID-19 cases.

Another factor that could have contributed to Teladoc’s increasing patient load is the decision of some major health insurers to waive the patient costs for telemedicine visits.

So far, Humana (HUM), Aetna (AET), and Cigna (CI) confirmed that this policy will be relaxed throughout the national health emergency.

Needless to say, this announcement was highly appreciated by their clients, with Teladoc reporting that over half its patient visits in the past weeks are from first-time users.

However, this isn’t exactly Teladoc’s first big break.

Even prior to the pandemic and the recommendations from health experts, Teladoc has been quite impressive on its own.

Throughout the years, Teladoc has been consistent in reporting strong growth metrics. Since it went public in 2015, the stock has skyrocketed to 330% compared to the 30% gain for the S&P 500.

Reviewing its fourth-quarter earnings report for 2019, it’s clear that this is a stock for long-term investors. Based on the management’s commentary and how the story is playing out in the past months, there’s a good possibility that investors will be richly rewarded as well.

In 2019 alone, Teladoc added a total of 14 million new members to record an impressive growth rate of 61%. The company closed the year with 36.7 million patients registered in its system.

In terms of revenue, Teladoc delivered $156.5 million, showing off a 27% jump year over year.

This is particularly impressive as it eclipsed the high end of its guidance, which fell somewhere between $149 million and $153 million. It also beat the consensus estimates of analysts at $152.95 million.

This increase in revenue was bolstered by strong growths both in the US and the international markets. Its subscription-access fees reached $127 million, which was a 24% increase year over year.

Fees collected from visits showed quicker growth to contribute $29.5 million, demonstrating a 47% jump compared to the same period in 2018.

Total office visits increased by 44%, climbing to 1.24 million and surpassing the company’s guidance range of 1 million and 1.2 million as more and more patients opt for the subscription-based plans.

Meanwhile, its paid memberships in the US climbed 61% year over year to reach 36.7 million while its fee-only access soared by 104% to jump to 19.3 million members.

While 2019 was definitely a good year for the company, it’s difficult to downplay the reality that its impressive adoption curve recently could make 2020 an even better year for Teladoc.

Looking at how the company has been thriving, two things could happen for Teladoc.

One possibility is for it to develop into one of the most disruptive companies in the industry. The second possibility is that it will get acquired by a bigger player.

No matter what happens, the outcome will be a win-win for its investors.

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.