Mad Hedge Biotech and Healthcare Letter
September 21, 2023
Fiat Lux
Featured Trade:
(HEALTH MEETS WEALTH)
(BSX), (ABT), (JNJ), (MDT), (SYK)
Tag Archive for: (JNJ)
In a state-of-the-art medical facility, a surgeon's hands move with precision, guiding a catheter towards the basivertebral nerve. Their mission is clear: to halt the persistent pain signals traveling to the brain, offering relief to those burdened by vertebrogenic pain. This is the real-world application of the Intracept system, a breakthrough in healthcare.
Boston Scientific Corporation (BSX) has recently made headlines by announcing its definitive agreement to acquire Relievant Medsystems, Inc., the very creators of the Intracept Intraosseous Nerve Ablation System. This power move, sealed with a cool $850 million upfront cash payment, also includes some exciting performance-based bonuses over the next three years.
Let's zoom in on the Intracept system for a moment. It's the only kid on the block with a nod from the U.S. Food and Drug Administration, specifically tailored for vertebrogenic pain. This sleek, implant-free outpatient procedure employs radiofrequency energy, acting like a mute button for the pain-causing basivertebral nerve.
And with over 5.3 million Americans wrestling with vertebrogenic pain, the ripple effect of this innovation is monumental. So, mark your calendars: the acquisition is set to be finalized in the first half of 2024 once all the formalities are squared away.
On the financial front, the future's looking bright for Relievant. They're gearing up to clock sales north of $70 million in 2023, with a growth spurt expected to zoom past 50% in 2024. And while the 2024 earnings per share (EPS) might not cause a big splash, 2025 and beyond are looking sunny.
While the acquisition is a major step, Boston Scientific's journey doesn't stop there.
Their Watchman device, which dominates its market segment, is poised to bring transformative changes to atrial fibrillation treatments. Just think of this gadget as a guardian angel for patients with non-valvular atrial fibrillation, shielding them from stroke risks without the ball-and-chain of long-term blood thinners.
Apart from this, Boston Scientific dropped some exciting news earlier this year about their ADVENT Study of the FARAPULSE Pulsed Field Ablation System (PFA). This nifty gadget uses electric fields to treat atrial fibrillation (AF), sidestepping the need to heat up the tissue. The study was a trailblazer, being the first to pit the FARAPULSE system against traditional AF treatments.
However, Boston Scientific's game plan goes beyond just gadgets and gizmos.
Their keen interest in Shockwave (SWAV) and a track record of smart acquisitions hint at a company that's always two steps ahead. This forward-thinking mindset has earned them nods of approval from both the medical community and sharp-eyed investors. The success of its ADVENT study, for instance, has further underscored its growing prominence in the sector.
In today's roller-coaster financial world, with storm clouds of economic downturns gathering, investors are on the hunt for solid ground. This is where Boston Scientific comes through. They're not just a safe harbor; they're also a vessel of growth.
With two solid quarters in the bag and a projected 11% revenue growth on the horizon, they're on a skyward journey. And while there might be some chatter about its share valuation, their blend of innovation and strategy makes every penny worth it.
In a nutshell, Boston Scientific is more than a company name; it's a promise of a brighter, healthier tomorrow. Moreover, the stock has consistently outpaced the broader medical device sector, gaining an edge of about 10% over notable competitors like Abbott (ABT), Johnson & Johnson (JNJ), Medtronic (MDT), and Stryker (SYK). This performance was evident even before the company unveiled the impressive results of its ADVENT study on the Farapulse ablation.
Currently, I remain optimistic about the potential of BSX shares. Granted, a forward revenue multiple of 6.5x isn't exactly modest, and the valuation might appear ambitious when assessed through traditional metrics like discounted free cash flow. However, top-tier growth med-tech stocks rarely come with a discount tag.
Given the prospects of Farapulse, Watchman label extension studies, innovative CRM products, the Agent drug-coated balloon, and growth avenues in peripheral intervention, endoscopy, and urology, Boston Scientific stands out as a unique growth narrative. Historically, investors have shown a willingness to pay premium multiples for such consistent growth in this market segment.
Mad Hedge Biotech and Healthcare Letter
September 7, 2023
Fiat Lux
Featured Trade:
(SUGAR, SPICE, AND EVERYTHING NICE)
(NVO), (LLY), (MRK), (JNJ), (AZN), (LVMH)
If the weight-loss drug market is a tide, Novo Nordisk (NVO) stands at its crest. As investors, when we seek promising ventures, we look for history, market presence, and future potential–and this Danish pharmaceutical powerhouse seems to tick all these boxes.
Dive into the annals of Novo Nordisk's story, and you'll find a century-old legacy predominantly immersed in diabetes treatment. This enterprise, with Eli Lilly (LLY) and Sanofi (SNY), once commanded an impressive 90% insulin market share.
But things changed when Sanofi made its exit in 2019, setting the stage for Novo Nordisk's next significant act. Though others such as Merck (MRK), Johnson & Johnson (JNJ), and AstraZeneca (AZN) are present in the diabetes space, they operate in unique niches, focusing primarily on small molecules.
So, what is Novo Nordisk's contemporary claim to fame? It’s none other than the weight-loss drug, Wegovy.
As of its recent U.K. debut, Wegovy is now associated with the National Health Service. This was a strategic move that saw the company's value soar, comfortably eclipsing the luxury behemoth Louis Vuitton (LVMH).
The numbers speak for themselves: Novo Nordisk's stock surged 40% this year, pushing its market cap to an enviable $428 billion.
If they were based stateside, this positions them as the 14th most valuable entity in the S&P 500.
What's truly jaw-dropping is the scale of Novo Nordisk's success. It achieved European market leadership with Wegovy's debut in just five significant markets: Denmark, Norway, Germany, the U.S., and the U.K. The demand seems to be exploding every time the drug lands in a new market.
Meanwhile, their main competitor, Eli Lilly, isn't actually that far behind. Bolstered by their Mounjaro drug, they've seen a stock uptick of 52% this year.
Novo Nordisk's current revenue is approximately $26 billion, predominantly from its diabetes drugs lineup. However, by 2030, forecasts predict the obesity market could range from $30 billion to even $100 billion.
And only a few major players are in line to capitalize on this. Notably, Novo Nordisk and Eli Lilly are poised to dominate this space, with a combined projected market share of 82%.
Furthermore, whispers in the pharmaceutical sector suggest that Novo's golden molecule, semaglutide, has broader applications. Beyond diabetes and obesity, it might target three substantial markets in the coming decade.
Firstly, the cardiovascular space, valued at $162 billion in 2022, presents significant potential. Early indications reveal that semaglutide might offer protective benefits against cardiovascular threats. If Novo gains the necessary approvals, its market share could rise substantially.
Secondly, non-alcoholic steatohepatitis (NASH) affects nearly 30 million Americans. Market evaluations for this condition vary, with some projections reaching $62 billion by 2031.
Novo Nordisk is already deep into phase 3 clinical trials, and if semaglutide proves effective here, it would be another feather in the company's cap.
Lastly, the treatment of addiction disorders could be an untapped market for semaglutide. Preliminary research shows promise, but real-world human trials are still in their infancy. If validated, this could open another revenue stream for Novo Nordisk in the years to come.
Overall, Novo Nordisk is more than just a pharmaceutical company; it's a saga of consistent growth, innovation, and potential.
If you had invested in its shares between 2017 and 2019, today's valuation would offer substantial returns.
Admittedly, the current valuation is on the higher side. Still, context matters.
In light of the above, my advice is two-fold. For those eyeing short-term gains, a 'Hold' might be the best strategy for Novo Nordisk. But if you're in it for the long haul, with a decade or more in view, this is a definitive 'Buy.'
Mad Hedge Biotech and Healthcare Letter
August 31, 2023
Fiat Lux
Featured Trade:
(A ‘FRESH FACE’ IN THE DIVIDEND ARISTOCRATS INDEX)
(KVUE), (JNJ)
The S&P 500 Dividend Aristocrats Index has recently added a significant name to its ranks: Kenvue (KVUE).
Though referring to Kenvue as a 'newcomer' might seem paradoxical, given its impressive roster of iconic brands such as Tylenol and Band-Aid. This company has a remarkable 135-year history to its credit.
Brought to the market through a strategic spinout by Johnson & Johnson (JNJ), Kenvue debuted on the NYSE this past May, proudly showcasing a market capitalization nearing $79 billion. This masterstroke funneled a substantial $13.2 billion into JNJ's reservoir, an outcome of both debt offerings and the subsequent IPO.
The move emphasizes the strategic rationale behind the future plans of both companies: prioritizing agility, enhancing flexibility, and ensuring concentrated success.
It's then no coincidence that Kenvue soon found itself part of the portfolio of noteworthy ETFs such as ProShares S&P 500 Dividend Aristocrats (NOBL) and FT Cboe Vest S&P 500 Dividend Aristocrats (KNG). This recognition aligns with JNJ's established reputation as a dividend aristocrat.
A critical insight from S&P Global (SPGI), the guardian of this index, indicates an intriguing approach for the next two years: dividends from both parent JNJ and offspring Kenvue will be combined to determine their collective eligibility for this esteemed group. Post this period, while the specifics of S&P’s plan remain under wraps, indicators point towards Kenvue maintaining its prestigious position, especially if its revenue trajectory remains positive.
Meanwhile, Kenvue announced a promising 20-cent per share dividend as its introduction. Meanwhile, with JNJ's anticipated $1.11 quarterly payout and a bullish forecast for its 2024 free cash flow pegged at an impressive $26 billion, the emphasis on consistent, growing dividends is clear. JNJ's recent dividend of $1.19 per share, reflecting its progressive trend, further cements this.
Moreover, Kenvue's current dividend yield stands at 3.5%, impressively outperforming the average aristocrat yield of 2.5%.
In the valuation spectrum, Kenvue's shares are positioned at 17.9 times the projected 2024 earnings. While some might express skepticism over its valuation due to its newcomer status, Kenvue's robust financials and upward cash flow trajectory suggest a poised path for significant growth in the future.
Looking into its trajectory, it’s safe to say that the stock is reasonably priced. However, a thorough analysis mandates acknowledging potential headwinds.
Consider the challenges posed by an exceptionally strong 2022 cold and flu season. Moreover, we can't ignore the looming legal complications tied to talcum powder disputes.
A sigh of relief, though, is that the brunt of these talc-related litigations rests with JNJ, evident from its near-$9 billion settlement in April. Thus, concerns over Kenvue's liquidity and cash flow might be somewhat overblown.
JNJ's recent financial projections indicate an optimistic 12.5% growth in its 2023 adjusted earnings per share, year-on-year. They've also strategically classified their consumer health segment as "discontinued operations," anticipating a robust $20 billion boost in Q3, courtesy of the spinoff.
Evidently, this stock isn't just turning heads because of its dividend - though that's certainly a feather in its cap.
With a stable and progressively growing income stream, Kenvue stands resilient against economic headwinds and the erratic dance of market volatility. In the vast sea of the consumer healthcare industry, Kenvue is sailing strong. The currents are in its favor: an aging global population and a swelling demand for self-care products are the tailwinds pushing it forward.
To sum it up, Kenvue is presenting an intriguing cocktail of value, consistent income, and potential growth. For those with an eye on both income and value, Kenvue should certainly be on the radar.
Mad Hedge Biotech and Healthcare Letter
August 10, 2023
Fiat Lux
Featured Trade:
(INVESTING IN A KING)
(ABBV), (JNJ), (LLY)
The Dividend Aristocrats Club is a badge of honor for those S&P 500 stocks that have managed to increase their dividends for at least 25 consecutive years. But let's take a closer look because there's an even more exclusive club worth our attention.
Introducing the Dividend Kings, the unsung heroes of the dividend world. No need to be part of the S&P 500; these select few must achieve at least 50 consecutive years of dividend growth. That's a feat as impressive as running an investment marathon and crossing the finish line with energy to spare!
Among them? AbbVie (ABBV), is a name synonymous with financial resilience. Let's explore why this Dividend King is attracting the attention of savvy income investors.
AbbVie, with 51 years of dividend growth, has a strong financial footprint. It is the fifth-largest pharmaceutical company worldwide, with a market capitalization of $260 billion. It ranks just behind industry giants such as Johnson & Johnson (JNJ) and Eli Lilly (LLY). Its pharmaceutical line-up serves over 62 million patients annually, combating conditions like cancer and migraines.
Now, let's not overlook some recent financial trends. AbbVie recorded $13.9 billion in net revenue during the second quarter, a 4.9% drop from last year, but the net revenue only fell by 4.2% when considering currency fluctuations. A stumble? Perhaps. A fall? Not quite. This Dividend King may have more to reveal.
However, it is essential to remain grounded in reality. After all, even giants face their day of reckoning.
AbbVie's Humira, a drug that generated $200 billion over the last 10 years, lost its exclusive patent in January 2023. Biosimilar competition led Humira's total revenue to shrink by 25.2% in the second quarter.
The company’s non-GAAP diluted earnings per share (EPS) dipped by 13.6% year over year to $2.91 for the second quarter. The company's non-GAAP net margin contracted by nearly 390 basis points year over year.
Clearly, the era of Humira's dominance as the top-selling medication in history is slowly coming to an end, paving the way for a future where its sales will be reduced. A tough pill to swallow, no doubt, but it's not all gloom at AbbVie's camp.
In 2022, Humira's global sales peaked at $21.2 billion. The emergence of biosimilar versions like Amjevita from Amgen has seen global Humira sales slide to $16 billion in the second quarter. However, AbbVie is managing the decline with rapidly increasing sales from newly launched drugs.
Promising medicines such as Skyrizi, Rinvoq, Botox Therapeutic, Vraylar, and Venclexta continue to offset the withering Humira sales, with solid growth prospects in other areas and a pipeline full of potential.
These new drugs appear ready to replace the shrinking Humira revenue. With other growth drivers like Epkinly and Vraylar, AbbVie looks well-positioned for the long term.
Additionally, with a strong $23.5 billion free cash flow over the past 12 months and needing just 43% of that amount to meet its dividend commitments, the company's 4% yield remains appealing to income investors.
The decline of Humira's sales is significant but hardly a death knell for AbbVie. The company has shown resilience and adaptability, balancing both growth and income potential.
While the potential risk of a recession could disrupt these trends, AbbVie's 50-plus-year record of increased dividends suggests historical resilience.
With moderate annual dividend growth likely, and a strong foundation for future development, AbbVie represents a compelling buy for investors. The figures and financials paint a picture of opportunity; now it's time to consider whether AbbVie fits into your investment portfolio.
Remember, the crown of a Dividend King is not easily earned, and AbbVie's financial performance showcases a royal opportunity worth exploring.
Mad Hedge Biotech and Healthcare Letter
August 8, 2023
Fiat Lux
Featured Trade:
(A DISCOUNTED PHOENIX SET TO RISE)
(BMY), (JNJ), (GSK), (MRK)
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.
