Mad Hedge Biotech and Healthcare Letter
August 27, 2024
Fiat Lux
Featured Trade:
(NOT ALL THAT GLITTERS IS LILLY)
(JNJ), (LLY), (CRSP), (ISRG)
Tag Archive for: (JNJ)
I've been so busy chasing after Eli Lilly (LLY) and its trillion-dollar dreams that I nearly overlooked a gem in the making.
While everyone's obsessing over LLY's march towards that coveted $1 trillion market cap, there's another pharma giant that's been quietly chugging along, building value like it has for over a century.
I'm talking about Johnson & Johnson (JNJ). You know, that little company that's only been around for 138 years.
I understand that JNJ isn’t as exciting as the likes of Crispr Therapeutics (CRSP) with their fancy gene editing therapies, or Intuitive Surgical (ISRG) with their robotic surgeons, but, let me tell you, sometimes boring is beautiful – especially when it comes with a 3% dividend yield and a rock-solid business model.
Let's break it down, shall we?
First off, JNJ isn't sitting on its laurels. Just last week, they dropped $1.7 billion to snatch up a private heart-device company. That's not chump change, even for a behemoth like JNJ.
And speaking of big moves, the FDA just gave them the green light for a chemotherapy-free lung cancer treatment.
We're talking about Rybrevant plus Lazcluze, which showed a 30% reduction in the risk of disease progression or death compared to AstraZeneca's (AZN) offering.
That's not just incremental progress – that's potentially life-changing stuff for patients.
But they’re not stopping there. They're also shelling out $600 million upfront (with potential milestone payments up to $1.1 billion) for V-Wave, a company making shunts for heart failure patients.
This deal's expected to close before the year's out, beefing up JNJ's already impressive MedTech division.
Now, let's talk numbers. JNJ's current market cap is sitting pretty at just under $400 billion. Sure, it's not in Lilly's $850 billion stratosphere, but remember – slow and steady wins the race.
And speaking of winning races, JNJ was the global leader in pharmaceutical sales last year, raking in $85 billion. That's a cool 30% higher than their closest competitor, Roche (RHHBY).
But here's where it gets interesting for value hunters. JNJ's currently trading at an enterprise value of 12.8 times forward EBITDA. In English? It's reasonably priced compared to its peers.
Even better, it's trading near the bottom of its five-year range for forward P/E ratio, EV-to-EBITDA, and price-to-free cash flow. Translation: This stock's on sale, folks.
Now, I know what some of you are thinking. "But what about those talcum powder lawsuits?" Fair question.
JNJ's looking at potentially settling around $6.5 billion worth of claims. That's not a small amount, even for these guys.
But here's the kicker – they've got over $25 billion in cash on hand and generated about $19 billion in free cash flow over the last 12 months. They can take the hit and keep on ticking.
Let's talk products. Stelara, Tremfya, Darzalex, Erleada – these aren't just random drug names. They're cash cows for JNJ. And with a diverse portfolio where no single drug accounts for more than 13% of total sales, they're not putting all their eggs in one basket.
Still, I'm not saying JNJ is going to double overnight. This isn't some flashy tech stock riding the AI hype wave.
But for those of us with a long-term horizon and a love for steady income, JNJ looks mighty attractive.
Think about it – they've raised their dividend for over six decades straight. That's longer than some of you reading this have been alive.
And with a 77% payout ratio, they've got room to keep that streak going.
Sure, over the past decade, JNJ's total return of 106% might not set your hair on fire. It lags behind the S&P 500's 234% and even the Health Care Select Sector SPDR Fund ETF's (XLV) 189%.
But remember, past performance doesn't always guarantee future results.
Here's my take: JNJ isn't for the get-rich-quick crowd. It's for investors who appreciate a good night's sleep knowing their money's in a company that's weathered world wars, depressions, and yes, even lawsuits.
Will JNJ hit that trillion-dollar mark? I'd bet my last bottle of Tylenol on it. It might take a decade, but hey, good things come to those who wait.
Mad Hedge Biotech and Healthcare Letter
August 13, 2024
Fiat Lux
Featured Trade:
(THE RISE OF THE STEADY EDDIES)
(CNC), (UNH), (PFE), (JNJ), (ABBV), (LLY), (BIO), (UHS), (WAT), (AMGN), (REGN), (VRTX), (CRSP), (MRNA)
Think of the market as a body fighting off an infection. Tech stocks might be the flashy antibodies, but healthcare is the steady, reliable immune system, keeping things stable when the going gets tough. And right now, that immune system is looking stronger than ever.
Skeptical? I get it. We've heard the hype about healthcare before. But this time, it's different.
The Healthcare Select Sector SPDR ETF (XLV) has been on a tear, up 9.3% this year as of Thursday's close. That's nearly keeping pace with the broader S&P 500's 12% gain - a remarkable feat in a market that's been anything but stable.
But what's even more impressive is the turnaround. Back in mid-July, XLV was lagging behind like a three-legged horse in the Kentucky Derby, up only 8.3% while the S&P 500 was showing off with an 18% gain.
In fact, out of the 63 healthcare stocks in the S&P 500, only a dozen have been slacking off since July. The rest? They've been outperforming like it's going out of style.
So what changed?
Well, it wasn't so much that healthcare stocks suddenly discovered the fountain of youth. No, my friends, it was more like the rest of the market decided to take a swan dive off the high board.
You see, while tech stocks were busy doing their best Icarus impression – flying too close to the sun and then plummeting back to earth – healthcare stocks were steady as she goes. It's like the old tortoise and hare story, except in this version, the hare got distracted by shiny objects and ran off a cliff.
Now, let's shine the spotlight on some of the key players driving this healthcare rally.
Remember those health insurers everyone was worried about back in spring? The ones that had investors biting their nails over the future of Medicare Advantage? Well, they've made a comeback.
The S&P 500 Managed Health Care index was down 12% in mid-April, looking about as healthy as a chain smoker with a Big Mac habit. But now? It's up 4.5% since the start of the year.
Companies like Centene (CNC) and UnitedHealth Group (UNH) have bounced back faster than a rubber band on steroids.
And it's not just the insurers. Big Pharma's been flexing, too.
Pfizer (PFE), the company that became a household name faster than you can say "vaccine," is holding steady. Johnson & Johnson (JNJ) is up 2.2%, probably thanks to all that baby powder they're not selling anymore.
Meanwhile, AbbVie’s (ABBV) up 11% since July. These guys are like the Energizer Bunny of the pharma world – they just keep going and going.
But the real showstopper? Eli Lilly (LLY). This biopharma has been on a tear since the beginning of 2024. Up 45% on the year at one point, they've been climbing faster than a squirrel up a tree with a dog in hot pursuit.
Then, there are companies like Bio-Rad Laboratories (BIO), up 20% since July. Universal Health Services (UHS)? Up 18% since July. Waters (WAT), the life sciences tools folks? Up 15%.
Even the biotechs are out to impress.
Amgen (AMGN), the granddaddy of biotech, is up 10% year-to-date. They're selling drugs like Prolia and Enbrel faster than hotcakes at a lumberjack convention.
And Amgen’s pipeline? It’s packed with potential blockbusters, setting the stage for further expansion in the future.
Gilead Sciences (GILD)? Up 15% year-to-date. Turns out, their COVID-19 treatment, Remdesivir, is back in vogue like bell-bottom jeans. And their HIV and hepatitis C drugs? They're still growing stronger.
But the real rock star of biotech? That'd be Regeneron Pharmaceuticals (REGN). These guys are up over 30% year-to-date. They're treating everything from eye diseases to cancer to inflammation.
Vertex Pharmaceuticals (VRTX) is another one to watch. Up 12% this year, they've got the cystic fibrosis market cornered. And they're not stopping there – they're expanding faster thanks to their collaboration with the likes of Crispr Therapeutics (CRSP).
Now that I’ve mentioned gene therapy, I know you're wondering about Moderna (MRNA). After all, weren’t they the darlings of the COVID era? Well, yes and no.
Their stock's down about 35% year-to-date, but don't count them out just yet. Their mRNA technology is hotter than a jalapeño popper fresh out of the fryer. They might be down, but they're definitely not out.
So, what's the takeaway here? I suggest you keep your eyes peeled on the biotechnology and healthcare sectors. After all, in this market, the best offense might just be a good defense – and what's more defensive than betting on the sector that keeps us all alive and kicking?
Mad Hedge Biotech and Healthcare Letter
July 16, 2024
Fiat Lux
Featured Trade:
(SMALL GIANTS RISING)
(GMAB), (OPHLY), (VRTX), (INCY), (BIIB), (AHKSY), (ALNY), (ARGX), (BGNE), (MRNA), (NBIX), (BNTX), (IPSEY), (CTLT), (NVO), (LLY), (JNJ), (GILD), (ABBV), (MRK), (SNY), (BMY), (GSK)
Remember when David took down Goliath? Well, history's repeating itself in the biotech arena, and this time, David's got deep pockets and a Ph.D.
Since April, I've been watching a trend on the so-called "next-generation" players in biotech and healthcare world. It reminds me of the massive changes I witnessed in Asian markets back in the '70s.
Over the past months, companies like Genmab (GMAB), Ono Pharmaceutical (OPHLY), Vertex (VRTX), Incyte (INCY), Biogen (BIIB), and Asahi Kasei (AHKSY) have been making waves that would impress even the most seasoned surfer. And these next-gen dealmakers aren't just dipping their toes in the M&A pool - they're doing cannonballs.
With cash reserves that would make Scrooge McDuck blush, these companies are overturning industry norms, already joining the prestigious $100 billion market cap club. At this celebration, the champagne flows freely.
So, what’s the play here?
With IPOs cooling down like day-old coffee, companies eyeing public debuts are now ripe targets for acquisition, more tempting than a juicy peach.
This fresh class of biotechs, unphased by the FTC's scrutiny that acts like kryptonite to pharma giants, are acting more like rocket fuel for these agile consolidators.
They slide through regulatory gaps faster than a greased pig at a county fair, grabbing six out of ten biopharma M&A deals in the second quarter alone. They’re not just taking a slice of the pie—they’re rewriting the recipe.
And if we're talking about firepower? These newcomers boast an average of $3.8 billion in pro forma adjusted cash, which isn't just walking-around money — that's "buy a small country" money.
But don't think for a second that this cash is just sitting pretty in their coffers. These upstarts are putting their money where their mouth is.
Take Incyte, for instance. They flexed their financial muscle with a $2 billion buyback in May 2024, sending a clear message to the market: "We're here to play, and we're playing to win."
And that's just the tip of the iceberg. The industry as a whole is lounging on a cool $1.5 trillion. That's enough liquidity to stretch the imagination — perhaps even to purchase a small planet. Mars, anyone? Elon might give us a discount.
But this financial might isn't just about buying power – it's about survival. As I said before, Big Pharma is teetering on a patent cliff that threatens to erode their revenue streams. To stay competitive, they're scrambling to replenish their pipelines, acquiring promising assets and gobbling up innovative technologies with the voracity of Pac-Man on steroids. And it's not just the usual suspects making moves.
This sense of urgency has created a fertile ground for an emerging cohort of aggressive dealmakers. Companies like Alnylam (ALNY), argenx (ARGX), BeiGene (BGNE), Moderna (MRNA), Neurocrine Biosciences (NBIX), BioNTech (BNTX), and Ipsen (IPSEY) are biting off more than the market expected them to chew, and they're coming to the table hungry.
And these companies aren't just nibbling around the edges. They're making bold moves, acquiring cutting-edge biotech firms with promising pipelines. We're talking oncology, epilepsy, kidney diseases, cardiovascular plays – it's like someone turned a medical textbook into a shopping catalog.
In fact, even the big boys are flexing their muscles.
Novo Holdings (NVO) dropped a jaw-dropping $16.5 billion on Catalent (CTLT). That's not even for a drug - it's for manufacturing. Talk about betting on the picks and shovels in this biotech gold rush.
Eli Lilly (LLY) just plunked down $3.2 billion on Morphic Therapeutic (MORF), betting big on inflammation, immunity, and oncology.
Johnson & Johnson's (JNJ) been on a shopping spree, too, snagging Numab's Yellow Jersey for $1.25 billion and Proteologix for $850 million. Both plays in inflammation and immunity - clearly, they've found their sweet spot.
Biogen's not twiddling its thumbs either, striking a deal with HI-Bio worth up to $1.8 billion.
Not to be outdone, Gilead (GILD) shook hands with CymaBay Therapeutics to the tune of $4.3 billion. Even AbbVie (ABBV), playing it cooler, still dropped a cool $250 million on Celsius.
Meanwhile, Merck's (MRK) set its sights on EyeBio for up to $3 billion, focusing on ophthalmology.
Sanofi (SNY), Bristol Myers Squibb (BMY), GSK (GSK) - they're all in, placing their chips on everything from rare diseases to generics to asthma. Clearly, the Big Pharma giants are also trying to keep up with this shift.
As the biotech field evolves, watching these underdogs will be like watching history in the making — where today's Davids become tomorrow's Goliaths. I suggest you keep a close eye on the names above. Adding them to your portfolio would mean you’re not just watching the giants rise — you’ll be a part of the story.
Mad Hedge Biotech and Healthcare Letter
June 11, 2024
Fiat Lux
Featured Trade:
(THE CAPITAL CURE)
(ABBV), (MRK), (PFE), (RHHBY), (JNJ), (AZN), (GSK), (MRNA), (BNTX), (CRSP), (NTLA), (BEAM), (TPTX), (ZNTL), (MRTX), (BPMC), (MGNX), (TYRA), (SPRT), (VRTX), (FOLD), (RARE), (CRBU)
Imagine you're the CEO of a major pharmaceutical company. You've got blockbuster drugs that are raking in billions, a cushy corner office, and a corporate jet at your disposal. Life is good.
But then, you look at the calendar and realize that your patents are about to expire. Suddenly, that jet feels more like a crop duster, and your corner office starts to feel like a broom closet.
That's the reality facing Big Pharma right now. These pharma big shots are sweating bullets over losing their golden geese like AbbVie's (ABBV) Humira and Merck's (MRK) Keytruda.
That’s roughly $300 billion in products about to get kicked to the curb.
But these guys didn't get to the top by sitting on their hands. They've got a war chest of $1 trillion, and they're not afraid to use it.
Major pharmaceutical giants like Pfizer (PFE), Roche (RHHBY), Johnson & Johnson (JNJ), AstraZeneca (AZN), and GlaxoSmithKline (GSK) are about to go on the mother of all shopping sprees.
Why the rush? Because they're staring down the barrel of a patent cliff that's going to make the Grand Canyon look like a pothole.
We're talking $198 billion worth of branded drugs going off the patent cliff between 2021 and 2025. That's a gut-wrenching 56% jump from the last five years.
But don't think for a second that they're just going to sit back and watch their profits go up in smoke. No sir, they're on the hunt for the next big thing, and they've got their sights set on some juicy targets – and biotech is at the top of their list.
Leading the biotech charge are mRNA pioneers Moderna (MRNA) and BioNTech (BNTX), each sitting on a gold mine of potential blockbusters taking on everything from flu to cancer vaccines.
Underdogs like CRISPR (CRSP) biotech stars Intellia (NTLA) and Beam Therapeutics (BEAM) are also squarely in Big Pharma's acquisition crosshairs for their cutting-edge work in genetic disease treatments.
But beyond the headliners, don't overlook the sleeper hits that could catalyze the next big boom.
Oncology, in particular, is a prime hunting ground, accounting for 37% of pharma M&A deal value in 2023 as the $392 billion global cancer drug market continues to boom.
Companies like Turning Point Therapeutics (TPTX) and Zentalis Pharmaceuticals (ZNTL), with their promising targeted therapies for various solid tumors, are particularly attractive prospects.
Mirati Therapeutics (MRTX), focused on KRAS inhibitors, and Blueprint Medicines (BPMC), specializing in precision therapies, have also caught the eye of big pharma with their innovative approaches.
Additionally, companies with late-stage assets like MacroGenics (MGNX), Mereo BioPharma (MREO), and Tyra Biosciences (TYRA) could offer promising near-term revenue opportunities for acquiring companies looking to bolster their oncology portfolios.
Close behind are rare disease treatments, snagging 16% of new drug approvals and 9 of the top 100 deals last year in this $262 billion market ripe for more growth.
This lucrative sector has captivated pharma giants, who see potential in companies like Sarepta Therapeutics (SRPT) and Vertex Pharmaceuticals (VRTX), leaders in rare disease therapies with strong financial performance and consistent growth.
Aside from these, smaller biotechs like Amicus Therapeutics (FOLD) and Ultragenyx Pharmaceutical (RARE), focused on developing innovative therapies for a range of rare diseases, are attracting attention for their potential to address unmet medical needs and deliver substantial returns on investment.
But the real wild card everyone wants a piece of is cell and gene therapies. This medical Wild West is projected to explode to $66.8 billion by 2030, with the FDA already greenlighting 6 cutting-edge therapies like next-gen CAR-T treatments from Caribou Biosciences (CRBU) in 2023 alone.
Notably, the buying frenzy is very much already underway. In fact, 2023 saw the biggest biotech M&A spree in a decade, with a staggering $122.2 billion changing hands as the FDA approved 50% more new therapies.
Pharma mega-mergers also hit $135.5 billion as firms raced to reload pipelines.
Interestingly, these deals are only the tip of the iceberg. As Wall Street predicts, with record-smashing deals, sky-high demand, and new approvals surging, "biotech's got plenty of reasons to be cautiously optimistic."
Especially if interest rates finally cooperate, throwing gasoline on the M&A bonfire and making biotech the belle of the ball as soon as late 2024.
So keep your eyes peeled and your powder dry. I suggest you add these innovative biotech names to your watchlist, and you might just discover the next blockbuster drug or breakthrough therapy that could reshape medicine – and deliver explosive returns in the process.
Mad Hedge Biotech and Healthcare Letter
April 30, 2024
Fiat Lux
Featured Trade:
(HITTING CTRL+ALT+DELETE ON DRUG R&D)
(DNA), (GOOGL), (JNJ), (ILMN), (JNJ), (ALTO), (GROIV)
Forget your classic biotech launch story. One of 2024's most lavishly funded biotech upstarts is taking a massively ambitious swing at reinventing the entire drug development process.
I'm talking AI, venture billions, and some serious star power all rolled into one wild capital extravaganza.
The company behind this cash-flushed disruption bid is Xaira Therapeutics. And they've snagged a bona fide heavy hitter as CEO — Marc Tessier-Lavigne, the ex-president of Stanford and former chief science officer at Genentech (DNA).
His mandate is simple: turn Xaira's billion-dollar AI vision into cold, hard, realized potential.
Tessier-Lavigne is a true believer when it comes to AI's potential for transforming every clunky, painfully inefficient step of conventional drug R&D. We're not just talking incremental improvements here.
The man thinks smart deployment of generative AI could legitimately deliver "two- or three-fold" increases in both speed AND success rates across the entire confounding slog of getting new medicines approved.
That's one heckuva rallying cry.
But Tessier-Lavigne has legitimate grievances with the antiquated status quo. We all know the drug development game is brutal.
By most credible estimates, only about 1 in 10 drug candidates that make it to human trials ever get approved for use. Attrition rates are staggering, even before reaching those do-or-die clinical trials – that's money, research hours, and hope down the drain.
Xaira plans to flip that script. Their pitch: AI is their ace in the hole.
We're talking about designing entirely new drugs from scratch, pinpointing disease targets faster than ever, and finally cutting those mammoth clinical trials down to size. Think of it as the entire process of getting a machine learning upgrade.
And they're not starting from zero. Xaira tapped into the brains behind groundbreaking protein science: biochemist and computational biologist David Baker's team at the University of Washington. These are the geniuses who revolutionized protein structure prediction, and several of their top scientists are now on Xaira's payroll.
For the key task of AI-driven lead design, Xaira is leaning heavily on the advanced protein modeling systems developed in David Baker's acclaimed lab at the University of Washington.
To actually design the new candidate drug molecules, Xaira is deploying advanced AI systems developed in Baker's lab. We're talking cutting-edge tech like RFdiffusion and RFantibody.
These use similar "diffusion" AI architectures that power viral image generators like DALL-E, except instead of churning out weird digital art, they generate brand-new protein structures from scratch.
On the biology side, Xaira has assembled specialist teams from genomics titan Illumina (ILMN) and proteomics upstart Interline Therapeutics. The goal is to use AI to decipher complex disease mechanisms on a molecular level at an unprecedented scale and quality.
As for the money side, Xaira's co-founders are a duo of biopharma's biggest VC shot-callers: Bob Nelsen from ARCH Venture Partners and Vik Bajaj, who leads the investment crew over at Foresite Capital's in-house incubator.
The rest of Xaira's bulging investor list reads like a who's who of the VC world's heaviest hitters from coast to coast.
But let's get one thing straight: deploying AI for drug discovery itself isn't new. Investors have poured hundreds of millions into previous AI-oriented biotech upstarts with remarkably little tangible progress to show for it so far.
That’s why plenty of scientists remain deeply skeptical about the real-world viability of using in silico methods to design brand-new proteins capable of becoming actual medicines.
But Xaira's leaders are taking an unmistakably bullish stance. As Tessier-Lavigne brazenly stated, "We believe the technology is ready for making therapeutics today. And it's only going to get better and better going forward." Shots fired.
And this startup isn't just flexing impressive scientific ambition and bravado, either.
Xaira's boardroom and executive lineup is stacked with certified rockstars spanning the lofty peaks of biopharma's regulatory, academic, and corporate pillars.
The company's board alone includes former FDA head Scott Gottlieb, Stanford chemist Carolyn Bertozzi (you know, the Nobel laureate), and even ex-Johnson & Johnson (JNJ) CEO Alex Gorsky.
Clearly, this isn't some penny-ante upstart's advisory council.
Speaking of going big, let's talk about Xaira's huge VC funding for a minute. Their over $1 billion haul puts them in a seriously elite company among the top five largest VC-backed biopharma raises of all time.
We're talking the same rarified air as anti-aging disruption play Altos Labs (ALTO) and Roivant Sciences' (ROIV) $1.1 billion mega round from 2017.
That's an outrageously rich launch valuation for an upstart AI biotech without a single disclosed pipeline product. But it reflects the blazing hot enthusiasm and optimism around applying machine learning to overcoming drug development's biggest bottlenecks and inefficiencies.
In that vein, Xaira's most direct competition comes from other prominent AI drug trailblazers like Alphabet's (GOOGL) Isomorphic Labs and Flagship Pioneering's Generate Biomedicines.
All three of these hyper-funded disruptors are in a race to develop superior AI systems for accurately modeling protein structures or generating wholly new proteins from digital representations.
Of course, Xaira's monster ambitions will ultimately live or die based on tangible results and clinical execution over the long haul.
Love it or hate it, though, the great AI-powered biopharma upheaval is officially underway thanks to Xaira's monster VC haul. Whether the company can truly live up to its gargantuan hype and disruption premise, well, that multi-billion dollar enigma should start getting some added clarity in the not-too-distant future.
Let's see if these self-professed drug R&D revolutionaries have the disruptive chops to put their lofty money where their mouths are.