(MRK) Archives - Page 10 of 26 - Mad Hedge Fund Trader

The Stock That Keeps on Giving

Although the broader market has been experiencing the worst year in a very long time, some businesses still manage to deliver excellent results.

One of them is Merck (MRK).

This biotechnology and healthcare giant has been defying gravity this 2022. While the Health Care Select Sector SPDR (XLV) has slid by quite a substantial margin this year, with the likes of Johnson & Johnson (JNJ) and Pfizer (PFE) succumbing to the pressure, Merck bucked the trend. Its shares have been up by 31% since early January.

Amid the economic and financial crises, Merck remains a promising stock with a number of factors going its way. More importantly, there is a high probability that it can sustain its momentum regardless of what happens to the broader market or the economy.

Merck’s determination to keep this momentum has once again become apparent in its recent announcement.

Earlier this week, the biotech giant disclosed that it would acquire a biopharmaceutical company called Imago BioSciences (IMG) for $1.35 billion.

This would translate to $36 in cash for every share of Imago, which is about twice its recent closing price of $17.40. The deal is anticipated to be completed by March 2023.

Like its large competitors, Merck also has a portfolio of treatments that continue to aid in the growth of its top and bottom lines.

In the third quarter of this year, the biotech’s revenue climbed by 14% year-over-year to reach roughly $15 billion. Meanwhile, its adjusted net income was $4.7 billion, showing a 4% increase compared to the same period in 2021.

Among its products, Merck has been most closely associated with the cancer drug Keytruda. So far, this treatment is on track to rake in $20 billion in net sales this year alone.

In fact, it’s expected to surpass AbbVie’s (ABBV) Humira as the top-selling drug by 2026.

With Keytruda’s patent exclusivity lasting until 2028, Merck has more than sufficient time to prepare for it. Moreover, that means the company can still rely on Keytruda as a strong growth driver for at least five more years.

However, astute investors would point out Merck’s reliance on Keytruda and the risks that come with this arrangement. With the mega-blockbuster’s $5.4 billion net sales, which comprised 36.3% of Merck’s $15 billion total sales in the third quarter, this is a legitimate concern.

It should be noted that Keytruda isn’t the only promising moneymaking treatment in Merck’s portfolio.

One of its promising treatments is its collaboration with AstraZeneca (AZN), which resulted in another cancer medicine called Lynparza. Another is Merck’s HPV vaccines, which continue to rise at a good pace. Finally, the company’s vaccine portfolio has been expanding, with its pneumococcal vaccine recently gaining approval.

Most of its therapies and even its vaccine franchises are on pace to surpass at least $1 billion in net sales this 2022. Needless to say, Merck has been successful in its quest to become more than just a cancer therapy leader.

On top of these, another good reason to take Merck into consideration is its dividend yield.

Merck’s current dividend yield is at 2.8%, which outpaces the 1.6% average yield of the S&P 500. Aside from its top-selling products and robust pipeline that easily support this payout, the company’s dividend is well-covered as well.

Overall, Merck is one of the handful of companies across all industries that has been breaking the norm of poor stock performance in this highly challenging year.

The company can offer a strong shield for wary investors as we deal with the onset of yet another recession. Not only is this biotechnology and healthcare company part of a naturally defensive sector, but its outlook also remains positive amid the issues plaguing the world.

November 1, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 1, 2022
Fiat Lux

Featured Trade:

(BARGAIN DEAL FOR A QUALITY STOCK)
(ABBV), (ABT), (RGNX), (JNJ), (MRK), (GILD), (AMGN), (LLY), (BMY), (PFE)

Bargain Deal For A Quality Stock

Biotech Letter

Uncertainty. That’s the prevalent sentiment in the investment community these days.

Investors have been hesitant to buy stocks because they believe the bear market isn’t over yet.

Moreover, investors are anxious over the possibility that the stocks will keep falling as issues like higher inflation continue to hound the market.

However, it’s critical to remember that although today’s situation is challenging, it’s only temporary. This means that businesses with solid track records and promising prospects still make excellent buys.

One of the companies outperforming the market this year but which has fallen out of investors’ favor recently, is AbbVie (ABBV).

AbbVie stock has been declining in value lately following an underwhelming third-quarter earnings report. On top of that, the looming patent expiration of its top-selling drug Humira remains a significant concern among investors.

While the Humira situation is clearly not good news for the company, the reality is that AbbVie has impressively preserved the medication’s exclusivity for almost a decade longer than initially expected. Plus, the company has been boosting Humira pricing every year to cope with the declining revenues in the EU, where it already lost patent protection in 2018.

Hence, it’s acceptable for Humira’s chapter in AbbVie’s story to end. After all, the drug has given the company so much. It has been primarily responsible for the more than 325% climb in the company’s share price since 2012 when AbbVie was spun out of Abbott Laboratories (ABT).

Nonetheless, Humira’s impending patent loss doesn’t mean that AbbVie will simply abandon its roots.

The company has since developed potential successors of Humira, namely, Skyrizi and Rinvoq.

So far, the two auto-immune drugs have delivered promising results and are on track to keep the company in tip-top shape in its post-Humira era.

These newer immunology drugs are showing impressive growth potential, with Rinvoq recording a 56% increase in revenue in the third quarter of 2022 and Skyrizi revenue soaring by 85%.

Both are also on track to beat Humira’s peak sales, with joint peak sales from Skyrizi and Rinvoq initially estimated to reach roughly $15 billion.

However, recent revenue reports show that the two could surpass the estimate and completely eclipse Humira’s more than $20 billion annual return.

Obviously, AbbVie would require more than its immunology segment if it plans to sustain a good top and bottom-line growth trajectory.

Other than the more than 10 neuroscience, hematology, immunology, and oncology candidates in its pipeline, which are projected to be ready for market launches in the three to five years, AbbVie has been diving into the aesthetics and eye care markets.

Its eye care program, specifically RGX-314, which is currently being developed in partnership with Regenxbio (RGNX), is an interesting wildcard. For context, the eye care segments for wet and dry advanced macular degeneration are roughly worth over $10 billion to $20 billion annually.

With its Humira chapter closing, AbbVie could be ushering in a new era where products from its Allergan acquisition take the lead.

For example, its Botox franchise consistently delivers impressive results. Even its Botox for migraine line has been recording double-digit revenue growth in the third quarter, indicating gains in AbbVie’s neuroscience segment.

As for the aesthetic indications of Botox, this particular portfolio could be a key driver in the company’s future growth.

Aside from Botox, AbbVie also gained access to the widely used dermal filler Juvederm. With the facial aesthetics industry pegged to experience a compound annual growth rate yearly at 14%, the market is estimated to hit $15.2 billion by 2028.

This trend of AbbVie dominating the market is likely to continue as the company is confident that competitors would be unable to develop biosimilars of Botox. That means its Botox line could keep adding to its top-line growth for an extended period.

Overall, AbbVie is a solid bet among the “Big 8” in the pharmaceutical world, which includes Johnson & Johnson (JNJ), Merck (MRK), Gilead Sciences (GILD), Amgen (AMGN), Eli Lilly (LLY), Bristol Myers Squibb (BMY), and Pfizer (PFE).

Moreover, this is an excellent time to hunt for deals as several quality stocks continue to decline, affected negatively partly by the momentum of the broader market. Among stocks to consider, AbbVie should be at the top of your list.

October 20, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
October 20, 2022
Fiat Lux

Featured Trade:

(A CURE FOR A SICKENING MARKET)
(MRK), (OGN)

A Cure for a Sickening Market

Biotech Letter

In this sickening market, it makes sense that the biotechnology and healthcare industry is proving to be a great hedge.

This sector has managed to remain one of the handful to post gains in 2022 amidst the seemingly never-ending barrage of negative news caused by the bear market, economic and political turmoil, and even health crises.

The criteria bring me to Merck (MRK), which has performed excellently this year.

Merck is a globally dominant biopharmaceutical company, standing the test of time, and having been in operation for more than 130 years.

It has consistently delivered stable results, showing off a 28% growth in sales in the second quarter of 2022. Among the names in its roster, the most profitable drug is cancer treatment Keytruda, which recorded a 30% year-over-year growth in sales during the same period.

Despite the already remarkable performance of Keytruda, this oncology medication has proven to be capable of targeting more than just lung cancer as it was recently given the green light for 6 additional indications.

In line with ensuring the company is not reliant on a single blockbuster drug, Merck has been aggressive in seeking potential high-selling candidates to add to its portfolio.

Recently, its $11.5 billion bet on Sotatercept, a heart medication, seems to have paid off as the company disclosed positive results from a Phase 3 trial focused on treating a condition called pulmonary arterial hypertension.

It was in 2021 when Merck bought Sotatercept as part of its agreement to acquire Accelerant Pharma. The goal was to find a drug to fill the anticipated revenue gap from the impending patent loss of Keytruda by 2030.

The strategy was high risk at that time because data on Sotatercept were limited on Phase 2 trial results. Nevertheless, Merck paid a significant sum to the company. That was reported as one of the biggest acquisitions of 2021.

Given the current data, the conservative estimate for Sotatercept sales is at $700 million annually. However, the established nature of the target market has some analysts pushing the forecast to potentially reach $4 billion by 2031.

However, unlike other biopharmaceutical companies that heavily depend on one or two blockbuster treatments, Merck has a strong lineup of high-margin products in the market.

Moreover, its pipeline candidates support its solid profitability and investment capital returns for several years. This becomes even more apparent with the spinoff of Organon (OGN) in 2021, where Merck retained a portfolio of drugs with strong patent protection.

It holds a moat-worthy portfolio of specialty treatments in various sectors, including oncology, immunology, cardiometabolic disease, rare diseases, and infections. It also has an extensive vaccine segment that targets HPV, pediatric conditions, shingles, and Hepatitis B.

In the past trailing 12 months, the company generated roughly $57 billion in revenue, with half coming from US sales and the rest internationally.

More importantly, Merck sports a notable 3.1% dividend yield that’s easily supported by a low 35% payout ratio. It reports a 9% five-year CAGR and has an impressive 11-year growth streak.

Throughout the years, Merck’s stock, underlying strategies, and growth model have demonstrated their resilience against macroeconomic headwinds, with the company’s core businesses firing on all cylinders.

It has one of the most solid balance sheets in the industry, which illustrates its financial flexibility to comfortably invest in promising R&D prospects and sustain its dividend at a solid pace.

Overall, Merck is an excellent choice for investors looking to deploy some capital but want to minimize exposure to volatility on top of the possibility of earning some extra dividend income.

merck

October 19, 2022

Diary, Newsletter, Summary

Global Market Comments
October 19, 2022
Fiat Lux

Featured Trade:

(THE BARBELL PLAY WITH BERKSHIRE HATHAWAY),
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October 18, 2022

Biotech Letter

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

Featured Trade:

(JUST WHAT THE DOCTOR ORDERED)
(MRNA), (MRK), (PFE)

Just What The Doctor Ordered

Biotech Letter

A newly announced collaboration extension with Merck (MRK) might just be what the doctor ordered for Moderna’s stock, which has been experiencing a decline in revenue since the public started resisting boosters.

Moderna stock rose 12% following the news that the FDA approved its collaboration deal with Merck as well as its COVID booster geared towards young kids.

Those positive updates most likely mark the end of a falling knives stage for the company, as it was coming off a 52-week low just days before the announcements.

The deal between Moderna and Merck involves a personalized cancer vaccine, which the two have been working on since 2016. The goal is to use Moderna’s technology as a combo treatment alongside Merck’s mega-blockbuster Keytruda.

The cancer vaccine, currently dubbed mRNA-4157, will be tailored for every patient. It generates a reaction according to the particular mutational signature of an individual’s tumor.

The collaboration is already in its Phase 2 trial for a high-risk melanoma vaccine.

The deal involves Merck shelling out $250 million in cash to exercise its option on this personalized cancer vaccine candidate. Had Moderna not earned copious amounts of cash over its COVID-19 vaccine over the past two years, this money would have seemed like a much bigger deal.

Nevertheless, the agreement is for a 50-50 sharing of costs and, eventually, potential profits. The results of Phase 2 should be disclosed to the public before December 2022.

Regarding how this affects Moderna’s pipeline, the collaboration demonstrates the versatility of the mRNA technology.

The other update that boosted the stock is the emergency use authorization granted to Moderna and fellow COVID-19 vaccine maker Pfizer (PFE), which allowed their boosters to be used on children.

As you know, Moderna markets and sells only a single product: SpikeVax. While this COVID vaccine is, apart from Pfizer’s Comirnaty, the most extensively used worldwide, pushing revenues to $18.5 billion in 2021, and is on track to hit roughly $21 billion in 2022, sales for SpikeVax are expected to decline now that the pandemic has been deemed “over.”

The company’s agreement to 70 million vaccine doses to the US government, on top of the option to purchase up to 230 million, which will be worth about $4.8 billion at $16 per dose, may very well be Moderna’s last to a government.

Currently, the biotech is looking into the private market, in which its vaccine may start costing up to $100.

Reviewing the demand and the current situation, my best estimate is that Moderna would earn roughly $7 billion annually from the private market for its COVID vaccine.

Nevertheless, Moderna’s vaccine has shown proof of concept. This would translate to more confidence in the company’s pipeline. Its expanded collaboration with Merck is a clear indicator of this sentiment.

In terms of the rest of its pipeline, Moderna has several candidates.

The most advanced so far are its Phase 3 programs for a flu vaccine, a respiratory syncytial virus vaccine (RSV), and a cytomegalovirus vaccine (CMV).

Considering the respiratory nature and the resounding success of its mRNA COVID vaccines, it’s reasonable to believe that the Phase 3 trials for these candidates would also be successful.

Hence, Moderna could be looking at substantial revenues once these vaccines enter the market.

While it can be argued that flu vaccines already exist, sometimes being the first to market is insufficient to keep a significant market share.

The current flu market is estimated to be worth $5 billion to $6 billion, and there are definitely a lot of competitors in the sector.

However, Moderna aims to develop a more efficacious vaccine. Needless to say, that could easily command a higher price tag and attract more customers.

Meanwhile, Moderna’s RSV vaccine—if approved—would not have any rivals. This is also another massive segment, with the market for the older adult population alone already worth $10 billion.

Both RSV and flu vaccines are anticipated to be released by late 2024 or early 2025.

When people hear Moderna, they immediately think COVID stock. Then, they immediately begin to wonder about the company’s future. Basically, Moderna has become a victim of its own success.

At the moment, the market is focused on Moderna’s potential revenue loss from its COVID vaccine. That sentiment is clearly weighing on the company’s price, making it undervalued. However, these very same fears make Moderna a steal considering the company’s long-term prospects well beyond its COVID program.

Long-term investors would see this as an opportunity to buy an innovative biotech for a bargain and reap the rewards when Moderna’s other candidates start to gain momentum.

September 27, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
September 27, 2022
Fiat Lux

Featured Trade:

(LAST CHANCE AT SALVATION)
(BIIB), (ESALY), (RHHBY), (LLY), (NVS), (AMGN), (REGN), (BMY), (ABBV), (MRK), (PFE)

Last Chance at Salvation

Biotech Letter

Biogen (BIIB) is taking another crack at Alzheimer’s. This is a crucial moment for the biotech following its move to abandon its plans to market Aduhelm, another Alzheimer’s treatment after healthcare insurers refused to pay for it despite gaining FDA approval.

The moment of truth will come this fall when Biogen and Eisai (ESALY) are anticipated to share the results of their massive trial created to determine whether lecanemab, their latest candidate for Alzheimer’s, can deliver its promise to decelerate the progression of the neurodegenerative condition in early-stage patients.

Needless to say, an effective Alzheimer’s drug would not only bring incredible development and hope for patients and their loved ones but also offer a much-needed reprieve for Biogen.

Success would push the biotech to pursue a quick turnabout, with Biogen and Eisai already planning to request an accelerated approval. If the Phase 3 data turns out promising, then the next move would be to clear the way to get Medicare coverage, ensuring that the Aduhelm debacle won’t happen again.

In terms of market opportunity, treatments like lecanemab can rake in over $20 billion in sales in the United States alone.

Still, investors remain cautious. After all, betting on a positive result of an Alzheimer’s trial has proven to be a wrong move in the past—a sentiment that’s apparent in Biogen’s beaten-down price these days.

When Aduhelm gained approval in June 2021, Biogen’s shares climbed almost 40%. Unfortunately, the price steadily fell as the biotech encountered roadblock after roadblock since the drug’s approval and commercialization.

Last year, Biogen shares rose from $270 to hit $400 following Aduhelm’s approval. These days, the biotech has been trading at roughly $205. That’s about 40% below its price in 2018.

By April 2022, Biogen threw in the towel when Medicare flat-out rejected any request to pay for Aduhelm.

More than that, though, Biogen’s results for its lecanemab trial could spell the difference for other Alzheimer’s drugs in late-stage development, including the candidates from Roche (RHHBY) and Eli Lilly (LLY).

What would happen if Biogen fails again?

A failure would make the beginning of a new period for the biotech. Looking at Biogen’s pipeline and portfolio, it’s clear that the next move would either be to sell off pieces of the company or become more aggressive in pursuing mergers.

With the primary business unable to deliver, the expectations shift to the pipeline to pick up some slack. Unfortunately, Biogen’s lineup looks underwhelming. Its disastrous Aduhelm project caused too much damage to the biotech’s finances, restricting its clinical trials.

While Biogen remains the biggest pure neurology biotech thus far, this position is under attack, and its pipeline seems too slow to react in the wake of back-to-back failures.

Reviewing Biogen’s pipeline in Phase 3 trials does not show any candidates that stand out as groundbreaking or transformative. None has the capacity to anchor the company anytime soon.

Apart from that, Biogen is facing fierce competition in its other treatments, including its MS portfolio from the likes of Novartis (NVS), Amgen (AMGN), and Regeneron (REGN).

Meanwhile, more and more pharma names are challenging its neurology drugs like Bristol Myers Squibb (BMY), AbbVie (ABBV), and Merck (MRK). Even Pfizer (PFE) is making a play in this sector with its plan to acquire neurology biotech pure-play Biohaven.

Given Biogen’s track record, the best thing to do right now is to sit and wait until the data are out. If the data turns out positive, then the opportunity would be massive enough for investors to buy in later.

Besides, Eli Lilly and Roche will also release their results in the following months. Those will offer a clearer path and better flesh out the picture of the future of this segment. Most importantly, these will provide investors with safer options to make their bets.

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