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The Comeback Story We're All Here For

Well, well, well. Pfizer (PFE) has been on a bit of a wild ride lately, hasn't it? Its shares have taken a nosedive, dropping over 50% since the company’s glory days in late 2021.

But before you start yelling "timber!" and running for cover, hear me out. I have a hunch that Pfizer's still got a few tricks up its sleeve that might just turn this ship around.

First off, let's talk about the elephant in the room: Pfizer's been playing a little corporate cost-saving efforts with its recent dealings with Haleon (LON), aka the Advil folks.

Remember when Pfizer and GlaxoSmithKline (GSK) decided to spin off their consumer health bits into Haleon back in 2022?

Well, now Pfizer's looking to offload a chunk of those Haleon shares for a cool $3 billion. That would take their stake from a whopping 32% to a more manageable 24%.

And as for GSK? This British biopharma is doing the same, slimming down to just 4.2%. It's like a corporate weight loss challenge, and both are ready to get lean and mean.

That's not all though. Pfizer has been on a shopping spree, dropping a jaw-dropping $43 billion on Seagen, a rising star in the cancer game.

Admittedly, this is a bold move. But, Pfizer's betting big that Seagen's going to be the game-changer they need.

And with Seagen's lymphoma drug, Adcetris, already knocking it out of the park for certain cancer patients, it might just be a bet that pays off big time.

Now, let's talk strategy. Pfizer execs recently revealed that the company would be all about innovation and pinching pennies this year.

Post-Seagen acquisition, they're laser-focused on making oncology the star of the show while also hunting down a whopping $4 billion in savings in 2024.

It's like they're trimming the fat to build some serious financial muscle, even as they brace for some of their cash cows to start slowing down.

Now, I know what you might be thinking. "But what about that Super Bowl ad? How does that fit into Pfizer's grand plan?" Honestly, I'm not entirely sure.

But what I do know is that Pfizer's oncology game is looking stronger than ever. With the FDA giving the green light for one of their leukemia treatments, Besponsa, for the kids, it's clear that Pfizer's cancer-fighting future is as bright as Times Square on New Year's Eve.

Still, Pfizer's not just relying on cost-cutting and its Seagen acquisition to weather the storm. They've got a pipeline bursting with potential, with 31 projects in phase 3 alone, which is corporate-speak for "almost ready to blow your socks off."

That's like having 31 lottery tickets, and you've got to believe that at least a few of them are going to hit the jackpot.

And with new stars like Padcev from the Seagen deal and their shiny RSV vaccine Abrysvo hitting the market, the sales needle is looking to jump up, not down.

I've been singing Pfizer's praises for a while now, and I still stand by that. Sure, their stocks have taken a hit, but that doesn't mean the fat lady's singing just yet.

If anything, it's just the intermission before the big finale. Pfizer's gearing up for a second act that's going to have us all on the edge of our seats, popcorn in hand, ready for the comeback of the century.

So, what's the bottom line here? Well, I think Pfizer's playing the long game. With a dividend yield that's like finding a twenty in your old coat pocket, they're saying, "Stick with us, we've got plans." And from where I'm sitting, those plans look pretty darn good.

August 8, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 8, 2023
Fiat Lux

Featured Trade:

(A DISCOUNTED PHOENIX SET TO RISE)
(BMY), (JNJ), (GSK), (MRK)

A Discounted Phoenix Set to Rise

Biotech Letter

The rollercoaster ride that is the equity market never fails to excite, surprise, and occasionally bemuse us. There's an erratic heartbeat in how it functions - illogical at times, downright whimsical at others. The upshot? Sometimes, great companies find themselves in the bargain bin of Wall Street – perfect for investors who love a good discount.

This is where Bristol Myers Squibb (BMY) comes in.

In the rear-view mirror of the past year, Bristol Myers Squibb hasn't exactly been the star of the stock market show. Its financial pulse has been somewhat weak, with lethargic revenue growth and, at times, flatlining completely. A big part of this has been the loss of patent exclusivity on a once superstar medication last year, causing its top line to struggle.

Flash forward to BMY dropping its Q2 2023 financial report, and the question is whether the company met the Street's expectations. Well, not exactly.

Let's dive into the numbers. The Q2 2023 revenue was a hefty $11.23 billion, albeit a 0.97% dip from the previous quarter and a 5.6% drop year-over-year. Non-GAAP net earnings clocked in at $3.7 billion or $1.75 per share, a quarter less than my earlier prediction.

The culprit? A steeper decline in Revlimid's sales than expected. The blockbuster sales were $1,468 million, a sizable 41.3% YoY drop, thanks to generics flooding the market and lower net selling prices in Europe.

Cue the traders and investors giving a thumbs down to the financials, sending the stock price spiraling down by 4.2% in just two days.

Over half a year, BMY's share price shrank by a whopping 16%, even with a bunch of positive clinical trial results and a flurry of medicine approvals.

Meanwhile, the bigwigs of the global cardiovascular and oncology drug market, Johnson & Johnson (JNJ), GSK (GSK), and Merck (MRK), have been doing a victory lap.

Still, there’s a silver lining here.

Bristol Myers is currently strutting around with a forward price-to-earnings (P/E) ratio of just 8. If you stack that against the pharmaceutical industry's average of 15.3, our friend Bristol Myers looks appealing. This is especially true when you consider the company is far from down for the count and has quite a few tricks up its sleeve to stage a solid comeback.

Projected revenue for Bristol-Myers Squibb for Q3 2023 lands somewhere in the ballpark of $10.8 billion to $11.92 billion, which, sure, marks a 4.5% dip from Q2 expectations. But hold onto your hats because Bristol-Myers Squibb's revenue is projected to comfortably clear the bar and pull in a cool $11.35 billion.

The heroes of this victory? Groundbreaking drugs like Yervoy and Opdualag have become hotter than a two-dollar pistol in the medical world.

We're talking about a Q2 2023 sales total of $154 million for Opdualag alone, up a jaw-dropping 165.6% from Q2 2022. And let's not forget this medical marvel only debuted in March 2022 and has been selling like hotcakes thanks to its performance in clinical trials.

What's more, Bristol Myers Squibb has been as busy as a bee, adding nine innovative medicines to its repertoire over the last three years. These new kids on the block are set to step up to the plate and replace older, soon-to-be patent-less drugs. They're also expected to drive sales growth into the stratosphere for the foreseeable future.

Bristol Myers Squibb is expected to report continuous growth, thanks to its proven clinical trials and potential to expand its labels. The company is already rolling up its sleeves to test the safety and efficacy of Camzyos for conditions like non-obstructive hypertrophic cardiomyopathy and heart failure with preserved ejection fraction (HFpEF).

As we look towards the horizon of 2025, Bristol Myers forecasts an impressive revenue of $10 billion to $13 billion from its freshest batch of products. Considering it pulled in $2 billion last year from these drugs, that's not too shabby. But don't think it’s resting on its laurels. The company is already testing over 50 clinical compounds across a smorgasbord of trials.

Let's also pay attention to Bristol Myers' attractive dividend profile.

The company currently offers a yield of 3.5%, dwarfing the S&P 500's average of 1.5%. Plus, it has bumped its payouts by 43% over the last five years.

With a cash payout ratio of around 42%, there's much room for this trend to continue into the foreseeable future.

Despite recent stumbles on the revenue and stock value front, BMY is no slouch. Its unyielding character and unwavering commitment to ploughing funds into fresh offerings signal a robust comeback on the horizon.

So, in the immortal words of an old Wall Street sage, it’s time to "Buy low, sell high,” and BMY is looking like quite a bargain right now.

July 27, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 27, 2023
Fiat Lux

Featured Trade:

(INVESTING IN NECESSITIES)
(KVUE), (JNJ), (HLN), (GSK), (KO)

Investing in Necessities

Biotech Letter

Everyone knows that Warren Buffett was schooled by the one and only Benjamin Graham. His game was easy-peasy early on — he hunted for dirt-cheap companies in relation to their assets, snagged them, and played the waiting game until the market woke up and realized their true worth. This was the good old 'cigar butt' investing.

It took Charlie Munger, Buffett's partner-in-crime, to shake things up. Munger nudged Buffett to eye high-quality companies with a thick competitive buffer that could weather long stretches of time.

Now with Johnson & Johnson's (JNJ) recent spinoff of Kenvue (KVUE), it seems the investment gods have dished up just the kind of opportunity Munger and Buffett would drool over.

JNJ is rolling out a red carpet, enticing its investors to trade their shares for most of its stake in Kenvue, the consumer division it made public in May.

If you're invested in JNJ, consider looking into this proposition. We're talking about a potential $35 billion transaction. Actually, JNJ is practically dangling a carrot, offering its holders $107 in Kenvue stock for every $100 in JNJ stock, capped, of course.

Basically, the JNJ deal lets holders swap all, some, or zip of their shares for Kenvue. It's a limited-time offer, expiring on August 18, with the price nailed down between August 14 to 16.

Interestingly, the Big Pharma company opted to play the game of 'voluntary exchange offer,' or 'split-off' in Wall Street jargon. A bit more elusive than your garden-variety spinoff, but trust me, it has its charm.

Why, you ask? This method tends to tighten the share count, beefing up the earnings per share.

And here's the sweetener: split-offs usually come with perks. The parent company tends to sprinkle a little discount magic for investors who decide to trade their old shares for the shiny new spinoff ones.

So, what could investors expect from Kenvue?

When it comes to its financial muscle, Kenvue's flexing a robust $20 billion in equity. The balance sheet displays a formidable $35 billion in assets squaring off against a $15 billion debt.

The first quarter has set the pace, projecting an annual revenue run rate of a cool $15.2 billion, and the operating cash flow isn't too shabby either, clocking in at $3.2 billion.

Kenvue's market valuation stands around 18 times its forecasted earnings for 2023, yielding a sweet 3.4%. That's a smidge more than J&J's yield of 2.8%.

Sure, Kenvue may not be sprinting in the high-growth lane — with earnings growth likely to pace in the mid-single digits post-2023 — but it holds a rock-solid portfolio of consumer health brands we've all grown to trust. Bonus? It trades at a discount compared to its closest peer, Haleon (HLN), GlaxoSmithKline’s (GSK) spinoff company.

Kenvue boasts a roster of brand-name products that people can't live without, and this constant demand spells nothing but growth. This spinoff is the proud holder of household names like Tylenol, Listerine, and Band-Aid.

In essence, Kenvue comes off as a Warren Buffett-type business that's up for grabs at a seemingly bargain price.

Consider for a moment why Buffett is so cozy with his long-standing stake in Coca-Cola (KO). Coke quenches the world's thirst with its myriad beverages, winning over brand loyalty and securing repeat purchases like it's a walk in the park.

My investment angle on Kenvue draws a parallel here, with a twist: Kenvue's products are absolute necessities, not just something you treat yourself to. That fact alone makes it even more appealing to me.

The company also disclosed a promising earnings range of $1.26 to $1.31 per share, with sales growth itching to hit a respectable 5%. The cherry on top? They're starting a quarterly dividend at 20 cents a share.

Now, you might be wary of growth prospects stagnating – let's face it, there's a limit to how many Band-Aids and Tylenol a household will need, right?

But here's where the plot thickens: the fine folks over at healthcare firm IQVIA (IQV) made quite the compelling argument that the over-the-counter drug market is expected to grow by a hearty 6.1% until 2025.

With a product lineup that's nothing short of a hit with consumers, a sturdy financial standing, and a rosy outlook for growth in the market it caters to, Kenvue is shaping up to be quite the catch for investors.

Of course, there are possible risks, such as a looming recession prompting even the most brand-loyal customers to opt for generic alternatives or management falling short on growth plans. That said, these potential drawbacks are dwarfed by the massive upsides of investing in Kenvue.

I think it's about time you give Kenvue some serious thought.

August 30, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 30, 2022
Fiat Lux

Featured Trade:

(THE TIMES ARE A-CHANGING)
(NVS), (LLY), (ALC), (GSK), (PFE), (JNJ), (BMY)

The Times Are A-Changing

Biotech Letter

With the US GDP sliding for another quarter, the economic projections are becoming increasingly hostile.

However, investors who have consistently been buying quality stocks could easily consider the gloomy economic conditions as a bump in the road.

One of the most resilient companies in the biotechnology and healthcare industry is Novartis (NVS).

The Swiss drugmaker, which has a massive market capitalization of $207 billion, is ranked as the sixth biggest pharma stock worldwide.

Over the past 12 months, Novartis has delivered better results than the overall pharmaceutical industry and the S&P 500. Its performance, albeit marginally better than the rest, proved its resilience amid such chaotic and complex situations.

Recently, Novartis announced that it would cut loose its Sandoz division, turning it into a standalone spinoff by the second half of 2022.

Basically, Novartis has two main segments: Innovative Medicine and Sandoz.

The company’s Innovative Medicine section comprises roughly 80% of its sales and centers on everything involving patented to prescription products.

Its Sandoz section, approximately 20% of the total sales, is further categorized into franchises: Biopharmaceuticals, Retail Generics, and Anti-Infectives.

The stay-behind business would be composed solely of the products in the Innovative Medicines segment, a combination of Novartis’ oncology and pharmaceuticals business divisions.

This makes Novartis the latest name to be added in the long line of Big Pharma players letting go of their generics division to strip away all but their core products in development.

The plan to spin off Sandoz, Novartis’ division concentrating on generics and biosimilars, has been in the works for quite some time now.

Prior to this announcement, there were even talks of a potential acquisition instead of creating a standalone company. However, no attractive enough offer was given, pushing Novartis to go ahead with its original plan.

Sloughing off the generics and biosimilars divisions could help solve some of the company’s issues.

The generic drug sector has been causing issues for drugmakers as of late, and sales of the Sandoz division have been notably stagnant compared to the steady growth of Novartis’ new drugs sector.

To put things in perspective, Sandoz’s net sales in 2021 was only $9.6 billion, while the company’s Innovative Medicine division raked in a whopping $42 billion.

Getting rid of Sandoz means Novartis could focus on more promising products in its portfolio and develop more blockbuster drugs in its pipeline.

For instance, the company can focus on expanding the treatments involving Cosentyx.

The top-selling drug in Novartis’ portfolio, making up 10% of total revenues, Cosentyx continues to rise rapidly, reporting double-digit growth.

This drug targets psoriatic arthritis and was valued at $7.15 billion in 2019. By 2027, this drug is expected to be worth $13.64 billion.

Most importantly, its patent will last longer as it will expire by 2028 in the US, 2029 in Japan, and 2030 in Europe.

Another blockbuster drug in Novartis portfolio is chronic heart failure treatment Entresto, which accounts for roughly 9% of the company’s total revenues. The growth of this product has been impressive thanks to the high demand in Europe, which means an increase in its sales is almost guaranteed.

Like Cosentyx, its patent will also last longer and is estimated to reach until 2036. This makes Entresto one of the most interesting—if not the most exciting—drug in Novartis’ pipeline.

Novartis is also becoming a significant player in the metastatic breast cancer market, estimated to grow from $15.52 billion in 2020 to $41.74 billion in 2030.

The company’s product in this segment, Kisqali, has been gradually taking up market share and is expected to gain more traction as it expands its indications.

In terms of growth, though, multiple sclerosis drug Kesimpta is the top performer in Novartis’ portfolio. In the second quarter of 2021, sales were at $22 million. In the same period in 2022, the number skyrocketed to $239 million.

Kesimpta is anticipated to become another blockbuster, especially with the projections in the multiple sclerosis market.

This segment is estimated to be worth $25.43 billion in 2022 and will grow to $33.17 billion by 2029. While the growth isn’t as massive as other segments, the exciting news is that Kesimpta has been outpacing the growth rate of the reference market thus far.

The move to eliminate Sandoz is in line with the ongoing aggressive slimming down of the company’s operations.

In 2014, Novartis sold its animal health segment to Eli Lilly (LLY). A few years after, it spun off its eye-care sector to become Alcon (ALC), then sold its consumer health segment to GlaxoSmithKline (GSK) for $13 billion.

Meanwhile, the decision to become a pure-play pharma has become a widespread trend among prominent names in the industry, with the likes of Pfizer (PFE), Johnson & Johnson (JNJ), and Bristol Myers Squibb (BMY) transforming into sleeker and slimmer businesses.

Ultimately, the goal is for these pharma giants to shed unwanted weight to compete in the faster-paced biotechnology world. The plan is to focus all their resources on advancing the science and developing the technology needed to come up with the next groundbreaking innovation.

With Novartis joining the bandwagon, we can expect its growth to accelerate over the long term as it focuses more on strengthening its already solid and impressive pipeline. I highly suggest that you buy the dip.

August 24, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 24, 2022
Fiat Lux

Featured Trade:

(A NEW KID ON THE BLOCK)
(GSK), (HLN), (UL), (PG), (JNJ), (PRGO), (PBH)

A New Kid On The Block

Biotech Letter

GlaxoSmithKline (GSK) started 2022 by turning down a $60 billion offer from Unilever (UL) for its consumer healthcare division, describing the price as too low.

By June, this same division became a standalone company named Haleon (HLN), with a market value of $29 billion—less than half the amount Unilever wanted to pay.

This means investors looking to buy shares of this spinoff still have a chance to take advantage of the bargain price.

Haleon is so far valued at roughly 13.5 times the consensus average for 2023 earnings, making it a lower multiple compared to competitors selling consumer healthcare items like Unilever, which roughly trades at 17 times its projected 2023 profits, and Procter & Gamble (PG), which trades at about 24 times its estimated earnings.

Compared to Procter and Gamble and Unilever, though, Haleon is a large-cap company that’s considered a pure-play consumer healthcare company.

It started trading as a standalone company by July, with a portfolio that included oral health items such as Aquafresh and Sensodyne, some OTC drugs like Advil and Theraflu, and several supplements including the best-selling multivitamin brand Centrum.

Keep in mind that the majority of Haleon’s core products have been practically unchanged for years. This spinoff only allotted roughly $300 million for R&D in 2021.

That comprises a mere 2.7% of its turnover. Meanwhile, GSK spent over 20% of its turnover on R&D initiatives within the same period excluding Haleon.

So far, the only notable pure-play consumer healthcare competitors are Perrigo (PRGO) and Prestige Consumer Healthcare (PBH). However, these two operate at a far smaller scale, with market capitalizations of less than $6 billion.

The absence of a competitive peer group and the limited track record of Haleon as a solo company makes this GSK spinoff more speculative compared to other consumer healthcare firms.

Haleon’s future would become clearer by the end of 2022, with more earnings reports under its belt, alongside the completed deal with Johnson & Johnson (JNJ).

JNJ also plans to create a standalone company for its consumer healthcare division in 2023. Haleon will be combined with this particular spinoff to form a new category.

Based on its current portfolio, brand recognition, and years of experience under Big Pharma’s, Haleon is projected to grow by 3.3% annually from 2023 through 2026.

At this point, Haleon is already considered a dominant player in the field. In the 2021 earnings report, this division brought $11.5 billion to GSK. That’s lower than JNJ’s own consumer healthcare division, which raked in $14.6 billion, but higher than Procter & Gamble’s $10 billion.

A standalone consumer healthcare company has the capacity to attract additional investor attention and gain higher valuations for those looking for steady—albeit not jaw-dropping—growth while earning consistent income from dividends.

Haleon announced that it intends to start paying out in the first half of 2023 “at the lower end” of the 30% to 50% range of its earnings. Looking at the company’s recent price, its 2023 dividend yield is estimated to be at 2.3%.

The consumer healthcare sector is a lucrative segment. The size of this market is estimated to reach $301.4 billion by 2027, with a 7.2% growth in CAGR throughout that period.

The demand for products in this segment tends to be unaffected by economic issues like recessions. Moreover, established brands, particularly those under Big Pharma names like JNJ and GSK, can easily set a very high barrier for competitors to overcome.

Overall, Haleon presents an opportunity for investors to bag a bargain.

It has a solid lineup of strong brands, which have shown their capacity to drum up consistent sales and demand low R&D expenses. These factors make Haleon a potential cash cow that could steadily deliver rising dividends for years to come.

Haleon is a good bet on an excellent emerging market—not to mention a virtually recession-proof—market.

haleon

August 18, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 18, 2022
Fiat Lux

Featured Trade:

(MORE THAN JUST A ONE-TRICK PONY)
(MRK), (SGEN), (SNY), (PFE), (BNTX), (GSK), (CVAC), (MRNA)

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