(JNJ) Archives

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.

December 17, 2024

Biotech Letter

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

Featured Trade:

(THE BIG BATCH THEORY)

(CTLT), (DHR), (RGEN), (AVTR), (NVO), (PFE), (LLY), (MRK)

December 12, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
December 12, 2024
Fiat Lux

Featured Trade:

(BREAKING THE MOLD)

(MRK), (PFE), (GILD), (AZN), (DSNKY), (JNJ)

Breaking The Mold

Biotech Letter

Did you know that in the 1890s, scientists tried to cure cancer by injecting patients with... bread mold? (Spoiler alert: it didn't work.)

Fast forward to 2024, and Merck just announced something that makes moldy bread look like, well, moldy bread: their new cancer drug achieved a 100% complete response rate in its Phase 3 trial.

That's doctor-speak for "the cancer completely disappeared in every single patient." Not 99%. Not 99.9%. One hundred percent.

The drug in question is zilovertamab vedotin, and it belongs to a fascinating family of medications called antibody-drug conjugates, or ADCs.

These drugs are essentially molecular delivery trucks - the antibody part knows exactly where to go, while the drug part carries the cancer-fighting payload.

It's a bit like having a microscopic postal service that only delivers to cancer cells, except instead of Amazon packages, it's delivering something more lethal.

The story of how Merck got their hands on this drug is equally interesting.

In 2020, they wrote a check for $2.75 billion to acquire a company called VelosBio. To put that number in perspective, that's enough money to fund a small space program, or if you're feeling particularly eccentric, to buy 5.5 million laboratory mice (a purchase that would probably raise some eyebrows at the bank).

The global market for ADCs hit $7.72 billion in 2023, and some analysts predict it could reach $44 billion by 2029. I asked three different economists to explain these projections and got four different answers, but they all agreed on one thing: it's a lot of zeros.

And, as expected, the competition in this field is intense. Pfizer (PFE) bought Seagen for $43 billion. AstraZeneca (AZN) and Daiichi Sankyo (DSNKY) partnered up for Enhertu, while Gilead Sciences (GILD) nabbed Immunomedics and their wonderfully named drug Trodelvy.

Even Johnson & Johnson (JNJ), which most people associate with baby shampoo and that bottle of Band-Aids in their medicine cabinet, jumped into the fray by buying Ambrx Biopharma.

Then there's Mersana Therapeutics, partnered with Merck. They're smaller than the pharmaceutical giants, but in biotech, size isn't everything. (I once visited a lab where groundbreaking cancer research was happening in a space roughly the size of my kitchen.)

What makes Merck's achievement particularly remarkable is its rarity. In the world of cancer research, getting a 100% response rate is about as common as finding a unanimous decision on social media. It represents a fundamental shift in how we treat cancer, moving from traditional chemotherapy to these precisely targeted treatments.

For investors wanting a piece of this molecular magic, here's the thing: success in biotech isn't like picking a winning racehorse (though both can make your palms equally sweaty).

It's about finding companies that have mastered the three-ring circus of innovation, partnerships, and research pipelines. And yes, I've spent enough time in research facilities to know that "pipeline" is just a fancy word for "stuff we hope works but haven't broken yet."

Merck's perfect score suggests they've cracked one particular code, but companies like Seagen (now part of Pfizer), AstraZeneca, and Daiichi Sankyo are all pushing boundaries in their own ways.

Despite the competition, Merck's recent achievements still look the most promising. The company's breakthrough with zilovertamab vedotin suggests they're not just throwing darts at a laboratory wall - they're onto something big. So when their stock dips, smart money takes notice.

Similarly, Seagen, now under Pfizer's umbrella, looks particularly promising, especially given their established track record in the ADC space and Pfizer's deep pockets. Add them to your watchlist, too.

AstraZeneca and Pfizer, meanwhile, merit a steady "hold" position in your portfolio - like that reliable sourdough starter that keeps producing even if it's not particularly exciting at the moment.

Both companies have proven ADC programs and the resources to weather market volatility, even if they're not currently serving up the kind of headline-grabbing results that Merck just delivered.

Remember those 19th-century scientists with their bread mold? Turns out, they were onto something, even if their execution was a bit... moldy.

And while I wouldn't recommend their treatment methods today (please don't raid your fridge for experimental purposes), their spirit of innovation lives on in every precisely-targeted ADC molecule. After all these years, I guess you could say cancer treatment has finally risen above its moldy beginnings.

November 14, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 12, 2024
Fiat Lux

Featured Trade:

(BONE OF CONTENTION)

(AMGN), (NVO), (LLY), (PFE), (VKTX), (GPCR), (AZN)

November 12, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 12, 2024
Fiat Lux

Featured Trade:

(MEDTECH’S TRUMP CARD)

(RMD), (STE), (TNDM), (JNJ), (BDX), (MDT), (BSX), (SYK), (ZBH)

Medtech's Trump Card

Biotech Letter

After seeing Trump sweep back into office, my phone's been ringing off the hook with one question: "What happens to my portfolio now?"

Look, I've been around this circus since covering Reagan in the White House press corps, and I can tell you that market hysteria rarely matches reality.

But this time, we need to pay attention - especially in the $567 billion medtech industry that's about to face some serious disruption.

What's different now? Trump's not just talking about those 10% to 20% blanket tariffs anymore - he's dead serious about slapping a potential 60% tariff on Chinese imports.

And after spending years watching supply chains twist themselves into pretzels during COVID, this is going to hit different.

To understand just how big this could be, let's look at what's really at stake here.

In vitro diagnostics makes up 18% of the medtech industry, and cardiology devices are sitting at $75 billion in 2024, expected to hit $95 billion by 2028.

Those aren't just numbers on a page - they represent real money that could take a serious hit. If these tariffs go through, we're looking at a 3.2% hit to S&P 500 earnings per share in 2025.

And it gets worse - add another 1.5% drop if our trading partners decide to play hardball with retaliatory tariffs.

Given all this, where should you put your money? The answer lies in looking at who's already ahead of the curve.

Well, established players like Johnson & Johnson (JNJ) and Becton Dickinson and Co. (BDX) are looking increasingly shrewd with their local-for-local manufacturing strategy.

They might not give you the same adrenaline rush as scaling Mount Everest, but they're solid holds in this environment.

But they’re not the only companies securing their positions. ResMed (RMD), for instance, just posted third-quarter sales up 11% to $1.22 billion, with adjusted earnings jumping 34% to $2.20 per share.

That's not just good numbers - that's a company that knows how to execute regardless of who's in the White House.

In the same vein, Steris deserves attention. Their "front-shoring" strategy in Malaysia isn't just smart - it's prescient. After years of covering Asia for The Economist, I can spot smart positioning when I see it.

Now, let's talk about some of the bigger players in the room. Medtronic (MDT), our industry giant, is giving me pause.

Sure, they're a global leader, but their heavy reliance on Chinese manufacturing and components is about to become a serious headache under these new tariffs.

Same story with Boston Scientific (BSX) - they've got manufacturing facilities in China that could turn from assets to liabilities pretty quickly.

Stryker (SYK) and Zimmer Biomet (ZBH) are in the same boat, but with a twist. Both companies have been smart enough to spread their supply chains globally, but they're still catching enough Chinese exposure to make me nervous.

When those tariffs hit their component costs, watch their margins. This isn't just about bottom lines - it's about how much wiggle room these companies have to absorb higher costs without passing them on to hospitals and patients.

On the flip side, I'm watching companies like Tandem Diabetes Care (TNDM) with growing concern.

Their heavy Asian supply chain exposure under Trump's trade policies is going to be about as comfortable as my MIG-25 flight at 90,000 feet - and trust me, that wasn't comfortable at all.

But, what’s really telling is where the smart money is flowing.

Keep your eyes on three key trends that are reshaping the industry: supply chain resilience, M&A activity (now up 18% to $57.7 billion), and digital transformation.

About 30% of medtech companies are getting serious about digitizing their operations - and they're the ones to watch.

So, here's my bottom line: Trump's return is going to shake up medtech, but not every tremor is an earthquake.

The winners in this new landscape will be companies that have already diversified their manufacturing outside China, built up strong balance sheets to absorb these tariff impacts, and proven they can adapt - like ResMed and Steris have shown us.

The real champions will be those making serious investments in digital transformation. These are the companies that won't just survive Trump's trade policies - they'll thrive under them.

And if you're still holding onto companies with heavy Chinese exposure?

Well, let's just say it might be time to look for higher ground - and I'm speaking as someone who's made that call at both 20,000 feet on Everest and during the 2008 crash.

The medtech industry isn't going anywhere - people will always need medical devices. But which companies thrive under Trump's second term? That's going to depend on who's prepared for the storm and who's still standing in the open.

Now, if you'll excuse me, I've got some vintage wine to open. Making sense of these markets is thirsty work.

October 17, 2024

Biotech Letter

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

Featured Trade:

(NO TEARS HERE)

(JNJ)

No Tears Here

Biotech Letter

If you've been following my adventures in the market jungle for any length of time, you know I've got a nose for opportunity that'd make a bloodhound jealous. Well, folks, that nose is twitching something fierce, and it's pointed straight at Johnson & Johnson (JNJ).

Now, I know what you're thinking: "John, J&J? Aren't they as exciting as watching paint dry?" Before you dismiss this company, let me tell you—this isn't your grandma's Band-Aid shop anymore.

First off, let's talk about their pharmaceutical arm. It's not just flexing; it's practically bench-pressing the competition with one hand tied behind its back. I'm talking about a lineup that includes immunology juggernauts like Stelara and Tremfya, and cancer-fighting dynamos such as Darzalex and Erleada.

But here's the kicker—they've got over 40 late-stage clinical trials cooking. That's no mere pipeline; it's a veritable gusher of potential blockbusters.

The surprises from J&J don't end there. They recently spun off their consumer health unit faster than you can say "No more tears." Why? To zero in on their real money-makers: pharmaceuticals and medical devices. It's like watching a prizefighter shed weight before a title bout—leaner, meaner, and ready to deliver a knockout punch to the market.

Speaking of punches, J&J has been on an acquisition spree that'd make a Silicon Valley startup blush. On October 9th, they snatched up V-Wave for a cool $1.7 billion, adding to their previous grabs of Abiomed ($16.6 billion in 2022) and Shockwave Medical ($13.1 billion in 2024). And if you think they're splurging just for the heck of it, think again. This triple play gives J&J a solid foothold in the $60 billion cardiovascular device market, which is growing at a heart-racing 8% annually.

So, what does V-Wave bring to a giant like J&J? It's not just another cog in the medical machine. V-Wave is developing innovative treatment options for heart failure patients. Their device has already snagged the FDA's breakthrough device designation in 2019 and Europe's CE mark in 2020. For J&J, this means they can hit the ground running, spreading V-Wave's Ventura Interatrial Shunt across the globe faster than you can say "cardiovascular revolution."

As for their Q3 results? Let's just say J&J didn't settle for merely meeting expectations—they exceeded them. We're looking at a 5.4% adjusted operational revenue growth, with their cardiovascular business shooting up 26.5% year-over-year.

Now, I'm no fortune teller—if I were, I'd be writing this from my private island—but I'd bet my favorite Bloomberg terminal that their cardiovascular business is going to keep pumping life into J&J's MedTech segment. With more folks lining up for cardiovascular procedures than a Black Friday sale, J&J is poised to ride this wave like a pro surfer at Pipeline.

Of course, it's not all sunshine and rainbows. Their China business is facing more headwinds than a kite in a hurricane, thanks to an anti-corruption campaign that's thrown a monkey wrench into their marketing machine.

But hey, this is J&J we're talking about—a company that's been around since Grover Cleveland was in the White House. They've seen tougher times than this and come out swinging.

So, what's the bottom line? I'm slapping a "Buy" rating on this stock, with a fair value of $195 per share. For those of you looking for a stock that combines the stability of a mountain with the growth potential of a tech startup, J&J might just be your golden ticket.

Now, if you'll excuse me, I've got a sudden urge to go check my own blood pressure after all this excitement.

P.S. If J&J ever decides to venture into stem cell therapy for aging knees, you can bet I'll be first in line. These well-worn joints have a few more mountains to climb!

October 10, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
October 10, 2024
Fiat Lux

Featured Trade:

(BUYING TIME)

(MRK), (JNJ)

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