Mad Hedge Biotech and Healthcare Letter
January 11, 2024
Fiat Lux
Featured Trade:
(HEALTHCARE GIANTS GO SHOPPING)
(JNJ), (MRK), (AMAM), (PFE), (HARP), (NVS), (CYTK)
Tag Archive for: (JNJ)
Ah, San Francisco, the city of fog and fabulous biotech and healthcare feasts. In case you missed it, the J.P. Morgan annual healthcare conference, the biotech Super Bowl, just kicked off this January.
Imagine a bustling downtown San Francisco, where hotels are as jam-packed as a can of sardines, but instead of fish, they're brimming with investors and healthcare execs.
Let's focus on the biotech sector, which, let's be honest, has seen its fair share of ups and downs. The past three years? More like watching paint dry.
But, as if by magic, we've seen a recent upturn. A two-month price surge that’s as unexpected as it is welcome.
The SPDR S&P Biotech ETF (XBI), our financial barometer here, has gone from a nosedive (down over 60% since February 2021) to a rocket ship (up nearly 40%). Interest rate cuts and M&A buzz are like the Red Bull in this energy drink mix.
Now, to the heart of the story: big pharma's shopping spree.
The day of surprise comes when Merck & Co. (MRK) and Johnson & Johnson (JNJ) strut in with deals that leave us wide-eyed.
And these are not just any deals, but the kind where these healthcare giants are practically throwing money like it's going out of style – over 100% premiums over the last prices. It's like offering to pay double for a house just because you love the wallpaper.
Johnson & Johnson swoops in on Ambrx Biopharma (AMAM) for a cool $2 billion. At $28 per share, they're paying a 105.4% premium.
For context, this isn't your run-of-the-mill biopharmaceutical company. Oh no, Ambrx is more like the Elon Musk of the biotech world, innovating like there's no tomorrow.
This biotech is all about cooking up some of the most cutting-edge therapies out there – think antibody-drug conjugates (ADCs) and other engineered marvels that give the immune system a superhero makeover.
On top of that, Ambrx actually has a secret weapon – their expanded genetic code technology platform called Engineered Precision Biologics (EPBs).
This technology isn't just smart; it's Einstein-level genius. It brings together site-specific conjugation with proprietary linkers and payloads. It's like building a custom-made luxury car, except this one's designed to obliterate cancer.
Researchers are raving about Ambrx's ADCs, calling them “guided missiles.” And they're not exaggerating.
These bad boys zero in on cancer cells with the precision of a sniper, taking them out without wreaking havoc on the innocent bystanders – the healthy tissue. It's pretty much like having a Swiss watch in your medical arsenal, sleek, sophisticated, and super effective.
Impressively, Ambrx isn't stopping at just being a one-hit wonder. They're pushing the envelope with enhanced antibody-drug conjugate, immuno-oncology conjugate, and bispecific candidates. These aren't just treatments; they're potential game-changers in the war against cancer.
So, when Johnson & Johnson ponied up $2 billion for Ambrx, they weren't just buying a company; they were investing in a future where cancer might just meet its match.
In fact, Pfizer (PFE) recently grabbed Seagen for $43 billion in 2023, just to get a slice of this ADC pie. It's the latest fashion in cancer treatment, and everyone wants in.
Meanwhile, Merck, not to be outdone, grabs Harpoon Therapeutics (HARP) for $680 million, a 118% premium at $23 per share. It's a biotech-feeding frenzy, and Merck's got its teeth out.
Harpoon is a clinical-stage immunotherapy company that's not just playing in the big leagues, but changing the game. They're all about developing a novel class of T-cell engagers, and let me tell you, this stuff is like the Navy SEALs of cancer treatment.
Imagine these T-cell engagers as tiny, engineered proteins. They're like undercover agents directing a patient’s own T-cells (the body's immune commandos) to seek and destroy cells waving the bad guy flag – specific proteins or antigens carried by those nasty cancer cells.
Basically, it's like having a GPS-guided missile system in your body, targeting only the rogue cells.
And Harpoon isn't just dabbling here, but also innovating with their proprietary Tri-specific T cell Activating Construct (TriTAC) platform.
Picture a pipeline, but instead of oil, it's flowing with novel TriTACs focusing on laying siege to solid tumors and blood malignancies. If successful, they plan to arm the immune system with a whole new arsenal.
Aside from these, Harpoon also whipped up something they call the ProTriTAC platform. Think of it as the James Bond of T-cell engagers – it stays under the radar (inactive) until it gets to the tumor. Once there, it's “license to kill” mode on. This prodrug concept is slick, ensuring that the therapeutic action happens right where the trouble is, and not anywhere else.
And for their third act, Harpoon presents the TriTAC-XR platform. This one's a bit of a tightrope walker, designed to dodge a potential pitfall known as cytokine release syndrome – a sort of overreaction from the immune system. It’s like having a safety net under your high-wire act.
Now, these premiums are not just showing off. They're a sign of desperate love from big pharma for these biotech beauties, a stark contrast to the recent cold shoulder of stock market blues.
Recently, there have also been whispers of Novartis (NVS) eyeing Cytokinetics (CYTK), a biotech belle with a $9.2 billion price tag. It's like the gossip at a high school prom, only with more zeros.
So, what's the takeaway from this biotech bazaar? It's simple: after a snooze-fest of a bear market, biotech's back, and it's hotter than a stolen Ferrari.
For investors, it's like watching a new season of your favorite show, only this time, the plot twists involve billion-dollar deals and cutting-edge cancer drugs. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
November 21, 2023
Fiat Lux
Featured Trade:
(A PRESCRIPTION FOR CAUTION)
(VTRS), (PFE), (JNJ), (LLY), (BMY), (TEVA), (ABBV), (CVS)
In the rollercoaster world of pharmaceutical stocks, 2023 has been like riding the Cyclone at Coney Island – thrilling for some, nauseating for others.
Take Pfizer (PFE), for instance. It’s seen its stock take a nosedive by 43.4%. That’s the kind of drop that makes you check if your wallet’s still there. Then there’s Johnson & Johnson (JNJ), trailing behind with a 16.4% decline. Not as dramatic, but still enough to make your stomach lurch.
Meanwhile, there’s Eli Lilly (LLY), playing the hero as it rockets up by an extraordinary 66.8%, thanks to its new weight-loss drugs. At this point, investors are practically throwing ticker-tape parades.
However, even with Eli Lilly’s star performance, the S&P 500 Pharmaceuticals index still shows a downturn of 2.3%.
Now, as we've seen earnings reports trickle in, a trend has started to stick out: positive results aren’t shielding drugmakers from a sell-off. Look at Pfizer and Bristol Myers Squibb (BMY), both hovering near their 52-week lows.
Still, investors are giving the biotechnology and healthcare stocks the side-eye for several reasons.
The new Medicare drug-price negotiation program is like a strict parent setting a curfew – it’s potentially restricting pricing power for certain medications. Plus, as interest rates climb, the allure of high dividend yields is diminishing faster than my motivation to hit the gym.
In this skeptical market, however, there are some optimistic investors who are digging through the bargain bin, hoping to strike gold.
Enter Viatris (VTRS), trading at just 3.3 times earnings and boasting a 5.1% dividend yield. It sounds promising, but only a few brave souls are recommending a buy.
Basically, this situation with Viatris is pretty much like finding a designer shirt at a discount store – sure, it’s cheap, but will it fall apart after two washes? Let’s take a closer look.
Viatris’s backstory is a bit of a soap opera. Born from the merger of Mylan and Pfizer's Upjohn unit, it carries the baggage of Mylan's EpiPen pricing scandal.
Since rebranding, Viatris has been trying to find its footing. Despite a shiny new business plan, which involves selling off assets for a potential $9 billion, investor confidence remains shaky at best.
Notably, its decision to exit the biosimilars market, where heavy hitters like Teva Pharmaceutical Industries (TEVA) and AbbVie (ABBV) play ball, has been seen as a bold move. Considering the potential of that market, it felt like leaving a high-stakes poker game just when the chips were starting to stack up. And with CVS Health (CVS) eyeing this lucrative space, Viatris might find itself wishing it had stayed at the table.
These past months, investors have been capturing this drama through a meme – comparing 'adjusted Ebitda' to 'free cash flow' with images of Jennifer Aniston and Iggy Pop. It’s a cheeky way of saying that Viatris’s financial projections might be wearing rose-colored glasses.
Looking ahead, Viatris is aiming for $2.3 billion in free cash flow next year, buoyed by recent sales. But the big question is: can it turn these assets into growth, or will it continue its high-wire act?
Reviewing its recent moves and their effects on the market, the Viatris saga has turned into a cautionary tale for investors in the pharma world – it’s a reminder that sometimes the threat of a nosedive is as real as the thrill of a skyrocket.
So, what’s the takeaway for those of us with skin in the game?
It seems wise to keep our eyes peeled and not jump on any bandwagons too hastily. Viatris, amidst its strategic transformations and market challenges, is worth watching with a careful eye. While its cash flow looks steady through 2027, thanks to planned asset sales, the long-term picture is as clear as mud.
As we navigate the unpredictable waves of the pharmaceutical market this year, let’s remember – it’s not just about holding on for the ride. It’s about knowing when to get on, when to get off, and maybe, just maybe, when to enjoy the view from the sidelines with some popcorn in hand. I say hold off from buying Viatris shares at the moment.
Mad Hedge Biotech and Healthcare Letter
November 14, 2023
Fiat Lux
Featured Trade:
(REWRITING BIOPHARMA’S TRADITIONAL SCRIPT)
(AZN), (JNJ), (BMY), (NVO)
In the high-stakes game of pharmaceutical innovation, AstraZeneca (AZN) isn't just playing to win; it's rewriting the rulebook.
A century-old company, born in the quiet labs of 1913 Sweden, AstraZeneca has become a linchpin in today’s cutting-edge medical advances. This isn't merely a story of corporate survival; it's a journey of transformation, emblematic of how old-world tenacity meets new-world innovation.
As we navigate the intricate world of biotechnology and healthcare, where even giants like Johnson & Johnson (JNJ) and Bristol Myers Squibb (BMY) wobble despite outperforming estimates, AstraZeneca emerges as a study in strategic agility.
Picture this: a company whose shares have seen a 5.7% dip this year, yet it stands as a beacon of opportunity for the discerning investor.
Trading at 15.6 times expected earnings over the next 12 months, it beckons with a valuation that whispers promise, floating below its five-year average.
Needless to say, these aren’t only financial figures but signposts pointing towards a rare investment opportunity in a volatile marketplace.
Let’s delve into the heart of AstraZeneca’s financial anatomy.
Twelve medicines in its arsenal are each marching towards the $1 billion revenue mark this 2023. Tagrisso, its flagship drug, contributes a mere 13.1% to its first-half revenue, showcasing a diversified portfolio that's resilient and well-balanced.
However, innovation isn't without its hurdles.
AstraZeneca faced a 16% decline in Soliris revenue due to patient transitions to newer treatments.
Here lies a lesson in the pursuit of progress – commitment to innovation and affordability can sometimes be a double-edged sword, affecting short-term gains but setting the stage for long-term sustainability. Still, AstraZeneca isn’t one to dwell on its losses for long.
Now, let's turn the page to AstraZeneca's audacious new chapter: entering the fiercely competitive arena of weight-loss medication.
Through a licensing agreement with China’s Eccogene, it's poised to develop an oral medication in the same class as Novo Nordisk’s (NVO) Wegovy drug.
But, the key factor that distinguishes AstraZeneca’s efforts is the pricing, which the company aims to be roughly half the current cost today.
To put things in perspective, Wegovy is priced at $1,349.02 per package. This figure unfolds into a weekly cost of $269.80. When extended over the span of a year, the drug becomes a more substantial financial commitment at $16,188.24.
Notably, the success of Wegovy has catalyzed Novo Nordisk's shares to soar by almost 50% this year.
Given the demand and AstraZeneca’s plan to adjust the price point, this is more than a simple business move for AstraZeneca; it's a venture that could redefine the accessibility of treatments for conditions like diabetes and obesity, impacting over 1 billion people globally.
In the crucible of the pandemic, AstraZeneca partnered with Oxford University to forge a path in the global health crisis, delivering over 3.5 billion doses of a COVID-19 vaccine worldwide.
Looking ahead, AstraZeneca’s leaders view obesity as another pandemic, signaling a strategic shift that melds business acumen with a commitment to global health.
Meanwhile, the latest earnings report from AstraZeneca is proof of its resilient business model.
Amid a 5.7% dip in its shares, the company's outlook is bullish, with an expectation of a low-teens percentage increase in total revenue excluding COVID-19 drugs.
This projection, backed by a 6% year-over-year revenue growth to $22.3 billion and an adjusted core EPS increase of 13% to $4.07, isn't only impressive; it's a narrative of sustained growth amidst adversity.
In conclusion, AstraZeneca's journey isn’t confined to financial returns; it's about being part of a narrative that’s shaping the future of healthcare innovation. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
October 26, 2023
Fiat Lux
Featured Trade:
(A CENTURY-OLD CONTENDER)
(JNJ)
For 127 years, the Dow Jones Industrial Average has been a reliable indicator of Wall Street's health. As of late, with the Dow Jones pulling back from its 2023 high, it hints at some of its components being undervalued. To the discerning investor, this presents a compelling investment opportunity.
One company that stands out in this landscape is the healthcare behemoth, Johnson & Johnson (JNJ). Its P/E ratio, at a decade-low of 15, underscores its investment appeal. This becomes particularly significant given that, historically, this number hasn't dipped this low in the past ten years.
A primary concern for potential investors might be the litigation shadowing J&J regarding its now-discontinued talcum-based baby powder.
The company's stock has faced increased scrutiny, with close to 100,000 lawsuits alleging a link between the product and cancer. While J&J has attempted court settlements, bankruptcy judges have halted these efforts twice. This ongoing legal tussle has indeed infused a certain level of unpredictability into the stock's future trajectory.
However, regarding financial stability, J&J's financials are robust.
The company enjoys the highest credit rating (AAA) from Standard & Poor's, an S&P Global division. This accolade reflects immense trust in J&J’s ability to manage its debt efficiently.
One of the pillars of J&J's consistent performance over the last 35 years has been its gradual shift in revenue focus. The company has been directing an increasing share of its net sales towards pharmaceuticals.
These products not only have higher margins but also promise quicker growth than medical devices. But it's worth noting that as the global populace grows older and healthcare accessibility improves, J&J's medical devices still hold significant revenue potential.
The healthcare sector is witnessing a paradigm shift with the incorporation of artificial intelligence (AI). An area where this amalgamation is showing promise is drug discovery.
Johnson & Johnson subsidiary Janssen discovered that AI could make drug discovery 250 times more efficient. In the world of medical research, where vast data sets need meticulous scrutiny, AI's ability to predict potential high-performing compounds can revolutionize the drug approval process.
Traditionally, getting a drug approved can take years and drain resources, sometimes to the tune of nine figures. An optimized drug development process is not just an operational win but a significant cost-saving.
For J&J, this AI-driven efficiency aligns perfectly with its strategic direction. After the recent spin-off of its consumer health business, the company is doubling down on growth initiatives.
While J&J is grappling with the expiration of exclusivity rights for some of its flagship drugs, it has set ambitious targets. By 2025, the pharmaceutical giant aims to generate over $60 billion in sales, a considerable leap from the $52.6 billion revenue of 2022.
Leadership at J&J has also played a role in its long-standing market success. Since its founding in 1886, the company has seen only eight CEOs. This continuity ensures that long-term growth strategies are not only devised but also effectively executed.
Another critical aspect to consider is the inherent defensive nature of the healthcare sector.
Even during economic downturns or stock market volatility, the demand for medical devices, prescription drugs, and healthcare services remains consistent. Being essential services, their consumption isn't optional. This gives J&J an edge as it ensures a predictable cash flow.
While the market is teeming with dividend stocks, few match the reliability of Johnson & Johnson. The company’s consistent performance over 61 years, despite numerous challenges, including recessions, global pandemics, and drastic shifts in the healthcare landscape, stands as a testament to its resilience.
Johnson & Johnson has a rich history and a vast product portfolio spanning areas like oncology, immunology, and infectious diseases. However, past performance doesn't seal the future. What gives J&J its edge is its continuous innovation and its ability to meet the ever-evolving healthcare demands.
With global demographics skewing older and advancements in medicine increasing life expectancy, the demand for healthcare is only going to grow. Companies like J&J, with their extensive product range, are well-positioned to explore these growth avenues.
So, while J&J has its set of challenges, especially legal ones, they're unlikely to impede its long-term growth trajectory. For investors eyeing a blend of stability and growth in an otherwise unpredictable market, Johnson & Johnson stands out as a prime candidate.
Mad Hedge Biotech and Healthcare Letter
October 3, 2023
Fiat Lux
Featured Trade:
(REDEFINING RESILIENCE)
(VRTX), (ABBV), (AMGN), (JNJ)
It’s not surprising that a number of investors might be hesitant to purchase stocks this month. A few might remember that a number of the most significant stock market downturns in history took place in October. Numerous stocks continue to be high-priced despite the stock market shedding a considerable portion of its earlier momentum from this year.
However, October has often proven to be a favorable month for the stock market — if you know how to choose. Moreover, while a multitude of stocks carry a high price tag, there are those that do not.
Now, imagine a pharmaceutical giant, a singular entity reigning supreme in a market valued in the billions, poised to unveil three revolutionary products by 2025, each potentially generating sales eclipsing $1 billion. Picture this company at the forefront, pioneering a cure for type 1 diabetes (T1D).
The fascinating part? This isn’t a fragment of imagination—it’s the reality of Vertex Pharmaceuticals (VRTX).
With its towering presence in the biotech sector, Vertex has a market cap surpassing $90 billion, establishing itself as the largest entity among U.S.-headquartered firms. Unlike its contemporaries—AbbVie (ABBV), Amgen (AMGN), and Johnson & Johnson (JNJ)—Vertex doesn’t distribute dividends.
Still, it remains one of the most consistent companies thanks to its remarkable trajectory starting from its inception in 1989. Since the advent of the SPDR S&P Biotech ETF (XBI) in 2006, Vertex has soared, achieving over 900% return, overshadowing the ETF’s 380% return.
The journey of Vertex is not just a tale of numbers and percentages; it’s a narrative of resilience and innovation. The company distinguishes itself with its innovative approach to addressing serious diseases, particularly focusing on cystic fibrosis (CF), and its continuous expansion in the CF treatment market.
As expected, the question of whether Vertex is a one-dimensional entity, solely reliant on CF therapies arises. Far from it.
CF isn't anticipated to be the sole catalyst for Vertex's expansion for much longer. The firm, alongside its partner CRISPR Therapeutics (CRSP), is aspiring to secure approval from U.S. regulatory bodies for exa-cel to treat uncommon hematological conditions such as sickle cell anemia and transfusion-reliant beta-thalassemia in the upcoming months. Additionally, the company envisions an imminent market introduction for VX-548, a potent, non-opioid pain medication.
Looking ahead, the future seems even more promising for this major biotech entity. Vertex is conducting a crucial clinical trial on inaxaplin, focusing on APOL1-mediated renal disease, affecting a broader patient demographic compared to CF.
Meanwhile, the financial prowess of Vertex is another facet of its diverse identity. The company has been a consistent beacon of positive free cash flow since 2016, and its financial robustness was highlighted by a 14% revenue growth in the second quarter, driven by robust international sales.
The company’s strategic investments in R&D and commercial capabilities are pivotal to leveraging the multibillion-dollar market opportunities looming on the horizon. These investments are not mere allocations of resources; they are the building blocks of Vertex’s future, the seeds sown today to reap innovations tomorrow.
An excellent example of this is Vertex’s ambitious stride into the type 1 diabetes market, marked by its acquisition of ViaCyte in a $315 million deal. Ultimately, the goal is to deliver innovative stem cell-derived cell replacement therapies as a functional cure for type 1 diabetes.
While the diabetes products are still navigating through phase 2, the anticipation is palpable regarding their role in fueling Vertex’s future growth. The company’s resilience against elevated rates and its propensity to bounce back make it a fascinating stock to consider during market corrections. It’s not just about the numbers on a balance sheet or the ticks on a stock chart; it’s about the relentless pursuit of innovation, and the unwavering commitment to making a difference in the lives of patients around the globe.
So, do these make Vertex the unstoppable stock poised to rule the next two decades? The signs are pointing to a resounding yes.
