Mad Hedge Biotech and Healthcare Letter
June 21, 2022
Fiat Lux
Featured Trade:
(A POTENTIAL ONE-STOP-SHOP IN THE CANCER MARKET)
(SEGN), (MRK), (PFE), (ABBV), (JNJ)
Tag Archive for: (MRK)
So far, there’s no clear leader in the cancer market. However, it looks like things might change soon if Merck (MRK) gets its way.
The biotechnology and healthcare sector has heard some interesting updates lately involving Merck and its frequent collaborator, Seagen (SEGN).
While Merck already has a stake in Seagen, it appears that the New Jersey biopharma wants the whole thing. There’s no need to panic buy just yet, though, since Merck still has to go through hoops to prove that its plan won’t cause any antitrust issues.
Moreover, Merck won’t be the only suitor. Several names in Big Pharma have been eyeing Seagen for quite some time, including Pfizer (PFE) and AbbVie (ABBV).
Even Japan’s Astellas Pharma, with a jaw-dropping $3.76 trillion market capitalization, is said to be interested.
If this does push through, it would be another massive deal since Seagen’s current market capitalization is at $31 billion.
Why is Seagen an attractive acquisition candidate?
This biotech currently has four cancer treatments available on the market.
It’s also reviewing a couple of candidates to determine how they react as part of a combo therapy with Merck’s blockbuster drug Keytruda.
Evidently, the potential to exclusively own the rights to compounds that could bolster the effects and expand the indications of its bestselling therapy is a significant motivation for Merck.
If the acquisition happens, Merck will undoubtedly be an incredibly formidable powerhouse in the oncology sector.
At the moment, the company already has 46 commercially approved indications in its cancer portfolio.
By 2028, Merck plans to see this number grow to over 80 oncology drugs, with Keytruda leading the charge.
Aside from its potential combination with Merck’s top-selling treatment, what’s more promising for Seagen is its actual portfolio of four molecules or its Big Four franchises.
These are Adcetris, Tukysa, Padcev, and Tivdak.
Adcetris has been hailed as the foundation of care for practically all types of lymphoma, while Padcev has been proven to be the standard of care for advanced bladder cancer.
Tukysa has been hailed as best-in-class for metastatic breast cancer, while Tivdak is the first-in-class for cervical cancer.
Holding such premier titles and indications ensures that these treatments generate highly aggressive revenue boosts, thereby guaranteeing their trajectory towards becoming blockbusters.
After all, you rarely hear of any blockbuster treatment being a second-line therapy.
In terms of sales, the Big Four managed to generate a total of $383 million in the first quarter of 2022. This indicates approximately 27% year-over-year sales growth, which bodes well for the future of Seagen’s portfolio.
Adcetris rakes in $181 million during the said period, Padcev contributed $100 million, Tukysa generated $90 million, and Tivdak recorded $11 million.
Tukysa’s growth was attributed to its penetration of the European market in February 2021, while Adcetris soared because of its expansion to include advanced Hodgkin lymphoma.
As for Tivdak, this particular product’s performance could be attributed to the fact that it was only approved last September 2021.
Among the four, however, Padcev showed the most aggressive rise in sales at a 44% increase year over year.
Its substantial growth is not only due to its superior efficacy over traditional treatments but also to its ever-increasing market penetration.
Aside from the US, it has successfully entered the UK, Japan, Canada, Israel, Switzerland, and the European Union.
Given its history and how it’s performing, Padcev is projected to become a blockbuster treatment before 2030.
Although the Big Four have delivered groundbreaking changes to the oncology sector, Seagen has been consistent in aggressively pursuing new candidates.
It currently has 17 programs in its pipeline, which target blood cancers and solid tumors.
Ultimately, Seagen’s goal is to become an all-around cancer biotech—aka the oncology sector's Johnson & Johnson (JNJ).
Mad Hedge Biotech and Healthcare Letter
June 16, 2022
Fiat Lux
Featured Trade:
(AN UNDERRATED LONG-TERM BIOPHARMA STOCK)
(OGN), (MRK), (PFE), (VTRS), (ABBV), (JNJ), (AMGN), (RHHBY), (BMY)
Six months into 2022, the markets are still in turmoil while highly valued stocks rapidly fall.
A way to cope with these is to search for safety and security among value-focused investments that are less at risk of sudden declines.
One business that remains profitable and is trading at a relatively affordable price, especially considering its future earnings multiples, is Organon (OGN).
Organon is a spinoff from Merck (MRK). It focuses on women’s health products, existing treatments, and biosimilars. It was launched roughly the same time Pfizer (PFE) launched its spinoff, Viatris (VTRS), in 2021.
While Organon has yet to become a superstar growth stock at the moment, it’s an excellent business to consider for a stable long-term investment.
So far, the company has managed to generate promising gross margins north of 60% and consistently proved to be profitable.
To date, Organon has over 60 treatments in its pipeline.
Thanks to strategic partnerships, Organon has become the biggest pharmaceutical company centered on women’s health.
Not only that, it has an extensive portfolio of biosimilars or biosimulators focusing on cardiovascular, dermatological, and respiratory conditions.
Meanwhile, Organon has one of the highest dividend yields among biopharma companies at 3.47%, with consistent dividend payments of $0.28 per share every quarter.
Organon’s biosimilar growth received a jumpstart from its agreement with Samsung Boepsis in 2013. The deal enables both companies to develop and market a number of biosimilar treatments focused on cancer and immunology.
Under this partnership, Organon has been granted exclusive license to manufacture, test clinically, and market inflammatory treatments like AbbVie’s (ABBV) top-selling Humira, Johnson & Johnson’s (JNJ) blockbuster Remicade, and Amgen’s (AMGN) moneymaking treatment Enbrel, as well as oncology therapies such as Roche’s (RHHBY) promising growth drivers Avastin and Herceptin.
These catapulted Organon as the leader in the fast-expanding healthcare field, where several lucrative drugs will lose their patent exclusivity before 2030.
Riding this momentum, Organon plans to expand its portfolio of biosimilars to cover more therapeutic fields like neuroscience, diabetes, and even ophthalmology.
To boost its portfolio, Organon has been collaborating with Shanghai’s Henlius Biotech to work on more biosimilars.
The Merck spinoff has agreed to pay $73 million upfront in addition to $30 million in milestone payments for the development of Pertuzumab, a biosimilar for Roche’s breast cancer treatment Perjeta, and Denosumab, a biosimilar of Amgen’s osteoporosis drug Prolia. Another Amgen drug, bone cancer treatment Xgeva, is included in the collaboration agreement.
For context, Amgen reported $873 million in sales for Prolia and $545 million for Xgeva in 2021, while Roche raked in $4 billion from Perjeta.
If this partnership works out, Organon and Henlius plan to move forward with a biosimilar to Bristol Myers Squibb’s (BMY) cancer drug Yervoy and its best-selling Opdivo.
While these are all exciting, it may still take some time for the biosimilars to be released to the market. Among them, the Prolia biosimilar has the most apparent timeline, potentially launching the product by 2024.
Although Organon has yet to make a splash in the biopharmaceutical market, the company holds impressive potential. So far this year, the stock has been up 15%—a performance that’s better than the S&P 500 that recorded 4% in losses over the same period.
More than that, its price is heavily discounted these days, offering investors an extra incentive to seize the opportunity to buy shares of this relatively new company in the healthcare sector.
It also has consistent revenue growth and a promising pipeline of diverse candidates with the potential to expand the company’s portfolio.
Taking all these into consideration makes Organon an underrated buy at the moment and a great candidate for long-term investors.
Mad Hedge Biotech and Healthcare Letter
June 7, 2022
Fiat Lux
Featured Trade:
(A LOW-KEY BIOTECH SET FOR A BULL RUN)
(REGN), (BAYG), (NVS), (RHHBY), (SNY), (ABBV), (PFE), (INCY), (MRK)
Biotechnology stocks have been sliding for months now, but scientific advancements are not slowing down.
The public’s focus on messenger RNA and gene editing may have dwindled, but the fact remains that more and more patients are benefiting from the discoveries.
More importantly, new treatments are well on their way to clinical trials.
That’s why I think Regeneron (REGN) could easily be one of the big winners in the coming years.
Despite the economic slowdown, Regeneron shares are doing okay. They have actually practically doubled since the start of 2020, when the biotech was thrust under the spotlight for its anti-COVID antibody cocktail, REGEN-COV.
Its popularity heightened when then-president Donald Trump used its treatment.
While the demand for REGEN-COV has since declined, the drug still raked in $7.5 billion in sales in 2021.
However, that would most likely not be the trend since it was proven to be not as effective against the newer strains. In addition, the FDA significantly limited the situations in which the antibody cocktail can be used.
For the foreseeable future, Regeneron shareholders’ earnings are primarily dependent on macular degeneration treatment Eylea and asthma and dermatitis drug Dupixent.
For Eylea, which Regeneron shares with Bayer (BAYG) outside the US, sales grew by 19% in 2021 to record $9.4 billion.
A vital issue Eylea faces is its expiring US patent by mid-2023, which will probably lead to more aggressive biosimilar competition as early as 2024.
Aside from that, more and more rivals are emerging, such as Beovu from Novartis (NVS) and Vabysmo from Roche (RHHBY).
Luckily for Regeneron, Beovu hasn’t gained traction due to safety issues, while Vabysmo is still struggling to establish itself as a viable alternative.
Thanks to its entrenched position as an undisputed market leader, Eylea sales will continue to be a top-selling treatment.
While things are still going well for Eylea, Regeneron has been proactive in establishing Dupixent as another key growth driver.
Dupixent, which was co-developed with Sanofi (SNY), showed off an impressive 51% jump in sales last year to rake in $6.2 billion—and this isn’t the peak yet.
Dupixent is estimated to reach over $14 billion in sales in the following years due to expanded markets.
Sales of this newer drug have caught up with Eylea’s in the past years.
In fact, Dupixent is projected to overtake Eylea sales by 2024, with the figure almost doubling by 2025 compared to the 2021 revenue.
In terms of competition in the atopic dermatitis sector, Dupixent is challenged by Rinvoq from AbbVie (ABBV), Cibinqo from Pfizer (PFE), and Opzelura from Incyte (INCY).
Nonetheless, Dupixent still looks well-positioned to expand into current and new indications in the following years and be able to fight off competitors.
It is critical for any biotechnology and healthcare business to maintain a solid pipeline to respond to upcoming patent losses and the rise of generic competition.
In this aspect, Regeneron has been performing excellently.
It has several treatments queued that complement the existing blockbusters, Eylea and Dupixent, and bolster the long-term growth prospects.
A good example is the company’s experimental treatment Aflibercept, which is slated to release Phase 3 results in the third or fourth quarter of 2022.
If this succeeds, it can enhance and strengthen Eylea’s efficacy, allowing Regeneron to retain its dominant position in the retinal market.
The company is also working on getting the green light for seven new indications on Dupixent-related treatments, which would be out by late 2022 and early 2023.
Another area under Regeneron’s radar is oncology.
While it’s cancer portfolio isn’t likely to become a significant growth driver anytime soon, there’s definitely potential here—and the potential comes in the form of in-house combos with Libtayo.
Libtayo, a cancer checkpoint inhibitor, is the most significant drug candidate in Regeneron’s oncology pipeline today.
Although it’s a latecomer to the field, Regeneron has become one of the frontrunners in the skin cancer segment with the approval of its cutaneous squamous cell carcinoma indication and the addition of the basal cell carcinoma label.
However, those are relatively minor markets. In terms of infiltrating a major market, Libtayo’s first venture is into the lung cancer sector.
But, this could be challenging since Merck’s (MRK) Keytruda has a firm hold of this market.
Still, Libtayo has the potential to achieve blockbuster status—a goal that Regeneron looks to be aggressively pursuing.
Aside from skin and lung cancer treatments, Regeneron has been developing Libtayo-based candidates for prostate cancer treatment REGN5678 and ovarian cancer therapy REGN4018. It is also working on another lung cancer treatment, REGN5093, to hopefully bolster its foothold in this lucrative market.
Needless to say, approval of these cancer treatments would be an incredible game-changer not only for cancer patients but also for Regeneron.
Overall, Regeneron is an outstanding biotechnology company and investment option. The success of its blockbuster treatments will offer a strong foundation for the company’s future growth.
If you add the more than 30 pipeline candidates of Regeneron in the mix, then it’s easy to see that a bull run might just be on the horizon for this stock.
While regulatory hurdles and emerging competitors would present challenges, it’s clear that Regeneron has these issues under control.
Moreover, the company’s pipeline has clearly shown that it’s ready to meet the challenges head-on. Hence, it would be advisable to buy the dip.
Mad Hedge Biotech and Healthcare Letter
May 19, 2022
Fiat Lux
Featured Trade:
(A RELIABLE STOCK THAT CAN WITHSTAND ANY GLOBAL SHOCKWAVE)
(JNJ), (PFE), (VTRS), (MRK), (OGN), (ABBV), (ABT), (NVO)
Investing is a long-term bet that requires patience and a strong risk appetite to enjoy eventual big wins.
In a world filled with uncertainties and gambles in the ever-evolving stock market trends, risk-averse investors are on the lookout for secure and stable options.
After all, who wouldn’t want to invest their hard-earned cash in a stock that can survive even the most intense macroeconomic shocks?
The name that easily fits these criteria in the biotechnology and healthcare sector is Johnson & Johnson (JNJ).
Reviewing JNJ’s five-year price movements from 2017 until 2022, a steady bullish trend of roughly 46% growth can be seen.
This trend has continued amid the slowdowns, with the stock delivering consistent growth and recovery despite serious dips.
In early 2020, when the COVID-19 outbreak wreaked havoc on the global economy, JNJ tanked along with other stocks. However, the company steadily showed signs of recovery mere weeks following the outbreak.
By 2021, JNJ managed to record a substantial increase of 11.4%. More importantly, it was able to sustain that trend throughout the year.
In March 2022, when the Ukraine-Russia crisis disrupted the economy, several businesses in the industry once again crashed due to supply chain and logistical issues. Amid these disruptions, JNJ still managed to stay on its growth path and develop contingencies to protect its assets.
Widely known as a global healthcare titan, JNJ holds a market capitalization that is hovering close to roughly half a trillion dollars.
As the parent company of the top-rated brands like Benadryl, Listerine, and Neutrogena, JNJ’s market operations are trifurcated into three main segments: MedTech, Pharmaceutical, and Consumer Health.
In November 2021, the company disclosed its plans to spin off its consumer arm into a separate publicly-traded company.
Similar to the move of Pfizer (PFE) with its Viatris (VTRS) spinoff and Merck (MRK) with Organon (OGN), JNJ’s goal is to reclassify a number of its international OTC drugs from its Consumer Health branch to form part of the pipeline of the new spinoff company.
Needless to say, the company’s notably diversified portfolio provides its with a competitive advantage in this highly volatile market.
Meanwhile, its other two segments are also contributing to JNJ’s growth. Its Pharmaceutical branch recorded a 6.3% increase in revenue in the first quarter of 2022, while its MedTech segment grew by 5.9%.
In total, JNJ’s sales for the first quarter of 2022 rose by 5% to reach $23.4 billion. This also boosted the company’s earnings per share to $2.67.
Riding the momentum of its strong first-quarter showing this year, JNJ once again demonstrated why it is hailed as a Dividend King.
The company hiked its quarterly dividend by 6.6% to $1.13 per share, making this the 60th consecutive annual dividend increase.
Considering that the company has been paying out dividends since 1963, this latest increase is indicative of how safe JNJ is for investors who want to multiply their cash while earning a regular income via dividends.
Moreover, JNJ is a clear frontrunner in the healthcare world and continues to work on innovative solutions to keep it ahead of its competitors.
Taking a closer look at the broader competitive field of healthcare industry players that are considered similarly sized, like AbbVie (ABBV), Abbott Laboratories (ABT), and Novo Nordisk (NVO), JNJ has the most significant market capitalization.
In this aspect, the company is the largest among its direct rivals. Therefore, it essentially reinforces its capacity to raise finances.
Given its perpetual bullish climb since its trade initiation back in 1982 and its addition to the Dow Jones Industrial Average (DJI), JNJ stock has been long known to hold strong credibility.
Actually, JNJ and Microsoft (MSFT) are the only two American companies with an AAA credit rating, a grade above the United States government itself.
This means that JNJ has such a strong sense of certainty in debt repayment that it holds a lower probability of default than the US government—an entity allowed by law to print money.
Overall, JNJ has proven to be an excellent option for risk-averse investors searching for growth and profitability.
It has strong financial fundamentals and a commanding market position, making it a highly stable and secure investment.
Moreover, its diverse portfolio minimizes the risk exposure of the company. All these make JNJ a great buy. Hence, it would be a wise move to buy the dip.
Mad Hedge Biotech and Healthcare Letter
April 26, 2022
Fiat Lux
Featured Trade:
(SLOW AND STEADY WINS THE RACE)
(GILD), (BMY), (GILD), (MRK)
Gilead Sciences (GILD) has been primarily ignored by investors who have focused more on other biotechnology and healthcare companies, particularly those that made a significant impact in the fight against COVID-19.
Reviewing the recent performance of its share price, Gilead can be best described as the ugly duckling among the Big Pharma companies in the US.
The lack of significant catalysts in the past months makes Gilead incomparable to the big movers with diversified portfolios in the space, such as Bristol Myers Squib (BMY), Johnson & Johnson (JNJ), and even Merck (MRK).
Nonetheless, I consider Gilead one of the most undervalued biopharmaceutical names in the sector.
Founded in 1987, Gilead started as a biopharma geared toward researching and developing drugs for severe and rare diseases.
Fast forward to today, it now has roughly $80.57 billion in market capitalization.
It is also widely considered the undisputed market leader for HIV treatment, with much of its revenue coming from this segment.
In its 2021 annual report, $16.3 billion of Gilead’s $27.3 billion entire revenue came from its HIV program. That’s approximately 59.7% of the total.
Globally, the market for HIV treatments reached a total of $30.46 billion in 2021.
This translates Gilead’s market share to more than 53% worldwide, with the company producing 6 of the top 10 leading products targeting the disease.
The global HIV market is expected to reflect long-term growth and is projected to reach $45.5 billion by 2028.
If Gilead sustains its market share of over 50%, it can comfortably rake in $23 billion in annual revenue from this segment alone.
While being a leader in a sustainable and stable market is definitely a good thing, Gilead has been working on diversifying its portfolio to avoid becoming too dependent on a single program.
Indicative of this plan was its efforts in 2020 when Gilead went through with 11 acquisitions and partnerships focused on oncology.
This move dramatically boosted its pipeline by 50%, with 10 drugs already queued in Phase 3 clinical trials for cancer treatments.
More importantly, this expansion to the oncology segment has also generated revenue with promising growth figures.
In fact, Gilead’s decision to focus on T-Cell therapies appears to be paying off as the company developed groundbreaking treatments with impressive efficacy rates.
In April 2022, Yescarta received the FDA's green light as the first ever CAR-T cell therapy targeting large b-cell lymphoma (LBCL).
This is an exciting update, with Gilead disclosing that 40.5% of patients who received just a single infusion of Yescarta experienced no disease progression or need for any additional cancer treatment for two years.
This is a 2.5x improvement over the current standard of care rate at 16.3%.
Yescarta’s success also serves as a promising sign for another oncology treatment, Tecartus, which targets mantle cell lymphoma (MCL).
Yescarta and Tecartus are indubitably great lucrative revenue streams in sales growth and market sizes.
The MCL market is estimated to be roughly $7 billion this year, with an annual growth rate of 7% through 2027.
In 2021, Tecartus generated $276 million in sales, accounting for 2.5% of the market share.
While that may not be an eye-popping figure, the number is actually up by 68% year-over-year, which means Gilead is slowly absorbing more and more of the MCL market share.
Notably, MCL is also quite rare, affecting only 0.5 individuals out of 100,000.
Given the figures, though, Tecartus is still well on its way to contributing more than $1 billion in sales in the following years.
Meanwhile, Yescarta offers a more promising growth story since the LBCL segment is practically 14x the size of the MCL space, as it affects 7 out of 100,000 people annually.
In 2022, the LBCL market is projected to reach $4.3 billion, with a CAGR growth rate of 15% from this year to 2030. In 2021, Yescarta raked in $695 million in sales, showing off a 41% increase year-over-year and taking over roughly 16.2% of the market share.
Given the present growth rates of both Yescarta and the LBCL market, it’s feasible for Gilead to capture at least 50% of the market by 2027.
Another notable oncology asset is Trodelvy, a metastatic triple-negative breast cancer (MTNBC) and metastatic urothelial cancer (MUC) treatment.
Like Yescarta and Tecartus, this is another potential blockbuster.
For 2022, the MTNBC market is estimated to be approximately $606 million, while the MUC market is at $1.189 billion. The growth rates for these are 4.7% and 17.9%, respectively.
In 2021, Trodelvy captured 21% of the market share with $380 million in revenue.
However, what’s more promising is that this figure indicates an 84% increase year-over-year, which shows the massive potential of Trodelvy and its ability to become a billion-dollar revenue stream in under two years quickly.
Although Gilead still has a number of therapies and drugs in the works, Tecartus, Yescarta, and Trodelvy are the frontrunners in becoming blockbusters within the next five years.
This should give the company some time to develop more treatments to boost and diversify its portfolio.
The biopharma industry is highly competitive, but Gilead appears to be healthy and attractive.
While the company continues to focus on growing its HIV segment, what makes it promising these days is expanding its oncology program, particularly its revolutionary T-Cell therapies.
Admittedly, Gilead is not as exciting as the other names on the Big Pharma list. However, its slow and steady approach to dominating massive and lucrative markets looks like an excellent winning strategy.
