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A Breakout Biotech With A Strong Staying Power

The biotechnology and healthcare sector has been ruthlessly hammered in 2021.

In fact, the largest exchange-traded funds that keep track of the biotechnology industry have been in the negative in the past months.

However, the string of bad news doesn’t automatically mean that none of the biotechs can deliver strong returns in the coming days.

An excellent example of a biotech that’s an exception to the general theme of the sector these days is none other than the famous Moderna (MRNA).

Moderna stock has already delivered a 434% gain in 2020. Meanwhile, it has so far recorded a 160% rise this year—a number that’s expected to go higher before 2021 ends.

These gains came after the biotech became one of the market leaders in the COVID-19 vaccine race, alongside Pfizer (PFE) and BioNTech (BNTX).

Considering how COVID-19 catapulted the stock to dizzying heights, some investors fear that Moderna’s performance will decline in a post-pandemic setting.

That’s not necessarily the case.

Viruses present complex problems. Right now, we’re dealing with yet another coronavirus variant, Omicron.

This latest strain appears to be more contagious than the previously discovered Delta variant, which was then reported to be more virulent than the original.

What’s the takeaway here?

COVID-19 isn’t going to disappear anytime soon. Since the vaccines and boosters seem to wane gradually, these are expected to become staples moving forward.

This means everyone will need ongoing protection, which translates to ongoing sales for vaccines and boosters for companies like Moderna.

Moreover, the continuous demand for new and more potent vaccines makes it a no-brainer that Moderna will once again deliver market-crushing performances in the next few years.

For context, the company estimates that Spikevax, its COVID-19 vaccine, will rake in roughly $15 billion to $18 billion in sales in 2021.

Orders for 2022 have been secured as well, with Moderna already locked in for over $22 billion worth of Spikevax doses through advance purchase deals.

This is still expected to rise, considering the vaccines under development for the new variants getting discovered.

But even when the panic and anxiety over the viruses subside, we can still reasonably expect roughly $15 billion in annual sales from Spikevax

After all, the vaccine and boosters are expected to become the norm eventually.

Believe it or not, though, the best reason to buy Moderna isn’t its coronavirus vaccine.

Outside Spikevax, Moderna has a long list of promising pipeline candidates under development—the majority of which are based on the mRNA technology that’s behind its potent COVID vaccine.

While that does not guarantee that all the candidates will gain approval, the fact that the technology has been proven to work on humans presents a bright future for these candidates.

The company has been actively advancing its programs using its cash on hand, with over half a dozen queued in Phase 2 trials.

A potential blockbuster is its cytomegalovirus (CMV) vaccine candidate.

CMV, a virus that can be deadly to unborn babies and individuals with compromised immune systems, currently has no vaccine.

This represents an untapped market with high demand. Conservatively speaking, Moderna can generate roughly $2 billion to $5 billion in peak sales for this vaccine if it gains regulatory approval.

Other impressive programs in the biotech’s pipeline are its HIV vaccine candidate and a personalized cancer vaccine, which Moderna has been developing with Merck (MRK).

Needless to say, both hold the potential to become game-changers not only for Moderna but also for the entire industry.

Aside from its personalized cancer vaccine, another relatively advanced program in its pipeline is its work with AstraZeneca (AZN) on the AZD8601 program.

The AZD8601 program aims to use mRNA therapies to encode for vascular endothelial growth factor-A in people who are supposed to go through a coronary artery bypass grafting.

In layman’s terms, AstraZeneca and Moderna want to develop a treatment that induces the heart blood vessels of heart bypass surgery patients to repair themselves.

However, the most exciting collaboration is Moderna’s work with Vertex (VRTX) to develop a cystic fibrosis (CF) treatment.

Considering that Vertex is practically a monopoly in the CF space, this can turn out to be a lucrative direction for Moderna as well.

In terms of competition, the biotech might go head-to-head against Vertex’s other partner, CRISPR Therapeutics (CRSP).

Until two years ago, Moderna was an obscure biotechnology company with no product out on the market.

Today, it is hailed as one of the biggest biotechs worldwide thanks to its market capitalization of roughly $120 billion, surpassing long-established names in the sectors like Gilead Sciences (GILD) and even Vertex.

Some investors point out that Moderna’s breakneck rise to the top might also mean a steady descent.

While I agree that its climb was faster than the usual biotech, I still believe that Moderna possesses the right tools to sustain its momentum for the years to come.

December 16, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
December 16, 2021
Fiat Lux

Featured Trade:

(TIME TO LOOK AT ONE OF THE LEAST FAVORED BIOTECHS)
(AMGN), (RHHBY), (PFE), (MRK), (GSK), (JNJ), (AZN)

Time to Look At One of the Least Favored Biotech

Biotech Letter

Value investing shouldn’t be an ordeal. It definitely doesn’t have to entail scouring for a needle in a haystack. The truth is, several quality discount stocks are hiding in plain sight. Unfortunately, these have fallen out of favor with investors recently.

While the market has performed quite well in 2021, the technology sector served as the primary driving force behind this positive performance.

In comparison, the healthcare sector has been besieged with negative updates throughout the year. This resulted in a number of excellent biotech healthcare names getting undervalued, and one of them is Amgen (AMGN).

Amgen is widely known as one of the biotechnology and pharmaceutical sector pioneers, alongside Genentech, which has since been acquired by Roche (RHHBY). The company focuses on specialty biologics in the fields of blood disorders, cancer, and immunology.

To date, Amgen has a market capitalization of $119 billion and has generated $25.8 billion in revenue in the past 12 months.

This biotechnology company also holds a relatively solid and steady track record of growth, having grown its revenue by roughly 65% in the past 10 years.

Amgen has also virtually not experienced any significant dip in its sales over the same period—an impressive feat considering the slowly crowding and often tumultuous biotech space.

Looking at its EBITDA margin, or earnings before interest, taxes, depreciation, and amortization, Amgen also emerges as a superior stock compared to others in the industry.

In the past five years, Amgen’s EBITDA margin has consistently been within the 50% range. This is higher than its peers, such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), and Johnson & Johnson (JNJ), which only reached 30%, while Sanofi (SNY) recorded roughly 20%.

In addition, Amgen declared a dividend worth $1.76 per share each quarter in October. This represents a 10% jump year over year.

Then, the company opened in December with another dividend increase to reach $1.94 per share by the first quarter of 2022, showing off a 10.2% increase year-over-year.

Since 2011, Amgen has been consistent in increasing its dividend payout annually—a guarantee of the company’s robust and stable business performance.

Moreover, Amgen’s dividend yield is higher than other industry leaders as well. At present, the company offers a 3.5% dividend yield. In comparison, Pfizer gives out 2.9%, while JNJ offers 2.7%.

To sustain its momentum, Amgen has been busy bolstering its pipeline.

Thus far, the company has 58 programs under development. Of these, there are 34 queued in Phase2/3 clinical trials, while there are others submitted for regulatory approval.

One of the promising programs is its collaboration with JNJ, which combines Amgen’s Kyprolis and the latter’s Darzalex Faspro.

Just this December, the US FDA approved this combination treatment for patients suffering from multiple myeloma, a rare type of blood cancer.

In terms of profitability, Kyprolis generated $1.065 billion, and Darzalex Faspro raked in $4.19 billion in sales in 2020.

The high revenues recorded for these drugs last year are indicative of the strong demand from the healthcare industry.

This means that the approval of the combination treatment could lead to a more lucrative payout for both companies moving forward.

Another promising program for Amgen is Tezepelumab, which is a severe asthma therapy it developed with AstraZeneca (AZN).

In July, this treatment was approved for Priority Review by the US FDA. The two companies expect to submit Tezepelumab for approval to the US FDA by the first quarter of 2022.

Meanwhile, Amgen is also working on its first RNA-based treatment, called Olpasiran or AMG 890. This project is for myocardial infarction patients and will work the same way as gene therapies.

Basically, its goal is to target the relevant gene to prevent any damage. Looking at its timeline, Amgen expects Phase 2 results within 6 months.

If this RNA-based project succeeds, Amgen plans to expand its portfolio to include more than 25 first-in-class therapies and three more biosimilars based on this technology.

Doing so will equip the company with a steady revenue runway while also reinforcing its position as one of the top biotechnology companies in the world.

Overall, Amgen looks extremely undervalued these days, making it attractive given how profitable this biotech is and its prospects moving forward.

December 14, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
December 14, 2021
Fiat Lux

Featured Trade:

(FROM AN UNKNOWN mRNA PIONEER TO BIG PHARMA PLAYER)
(BNTX), (PFE), (MRNA), (AZN), (JNJ), (SNY), (CVAC), (REGN), (MRK), (BMY)

From an Unknown mRNA Pioneer to Big Pharma Player

Biotech Letter

Almost everything that could go right has gone right for BioNTech so far.

Its COVID-19 vaccine with Pfizer (PFE), Comirnaty, has been breaking records left and right, and more and more approvals in other countries are piling up.

Needless to say, BioNTech has transformed into one of the most profitable biotechnology companies with a rapidly growing cash stockpile.

Now, the company is up for another challenge: the Omicron variant.

Although BioNTech and even Moderna (MRNA) insist that they offer more than COVID vaccines, the reality is that their pipelines still have not reached the stage where they can generate as much revenue.

Hence, it is no surprise that their share prices have climbed since discovering the Omicron strain.

The emergence of this new mutation sparked another competition among COVID-19 vaccine developers, specifically in the mRNA segment dominated by BioNTech and Moderna.

Since news broke about the Omicron variant, these companies have been racing to come up with the most effective vaccine against it.

BioNTech holds a competitive advantage between the two since the company reportedly has been working with Pfizer on a vaccine candidate for this type of situation months before the discovery.

In comparison, Moderna has yet to determine where their candidate stands in terms of fighting off the new variant.

The same can be said about other vaccine developers like AstraZeneca (AZN) and Johnson & Johnson (JNJ).

What happens to their efforts if the Omicron variant turns out to be less dangerous and possibly closer to the common flu?

In this case, the vaccine developers would most likely boost the prices of their products 10-fold because then they’d end up with fewer orders to private customers instead of sealing agreements with governments.

The flu vaccine market is worth roughly $8 billion annually, while the COVID vaccination market is projected to bring in approximately $25 billion each year in the post-pandemic period.

Either way, this situation could offer speculative investors a solid stream of price catalysts.

The uncertainty will result in a higher valuation for BioNTech in the short term because the company has already proven its ability to deliver an effective vaccine within a short period.

Prior to its COVID work, BioNTech was actually known as one of the “Big 3” and a pioneer in the mRNA world. At that time, it shared this title with Moderna and CureVac (CVAC).

Since then, the segment has grown, and new challengers have joined the mRNA industry.

Some of the promising ones include China’s Abogen Biosciences, which managed to raise over $700 million in funding for its own mRNA COVID vaccine, and of course, Sanofi (SNY), which splurged in a $3.2 billion acquisition of Translate Bio to access the latter’s mRNA pipeline for cystic fibrosis and several genetic conditions.

Meanwhile, BioNTech has retained its focus on cancer, with 16 of the 18 programs targeting oncology in its Phase 1 pipeline.

If BioNTech successfully develops an mRNA treatment for cancer, they’ll be breaking into a massive and lucrative market.

By 2024, the market for cancer treatments is projected to grow and reach over $200 billion.

Apart from its work on oncology therapies, BioNTech is also known for its infectious disease pipeline, including vaccines for HIV, malaria, and tuberculosis. It’s also collaborating with Pfizer on 2 influenza vaccines.

By the end of 2021, BioNTech is anticipated to release 5 updates on its vaccine trials involving solid tumors that target head and neck cancer, melanoma, and colorectal cancer.

Other than Pfizer, the company has been working with Regeneron (REGN), Genentech, Merck (MRK), Bristol Myers Squibb (BMY), and Sanofi.

In terms of performance so far, BioNTech has raked in $15.2 billion in revenues for the first three quarters of 2021, with full-year earnings expected to reach $18.1 to $19.2 billion.

Overall, I view BioNTech as a long-term investment.

While many still see it as a pure COVID play, this German company is increasingly starting to act more and more like the Big Pharma organizations.

It’s realistically expecting that its profit-generating asset, Comirnaty, may not have a very long shelf life. Therefore, it understands the necessity to come up with new products to sustain its current valuation over the longer term.

November 16, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 16, 2021
Fiat Lux

Featured Trade:

(FORGOTTEN COVID-19 STOCK STILL ALIVE AND KICKING)
(GILD), (REGN), (MRNA), (AZN), (JNJ), (PFE), (BNTX), (MRK)

Forgotten Covid-19 Stock Still Alive and Kicking

Biotech Letter

At times, it can be rewarding to go against the tide. This can also be applicable to the stock market.

Forgotten names or companies with shares that got hammered can eventually transform into remarkable investment opportunities. After all, it's always wise to invest in a quality stock when it loses some serious altitude.

Now, let's take a look at a biotechnology and healthcare business that has been performing poorly in the past 12 months but still holds a promising chance of bouncing back: Gilead Sciences (GILD).

This biotechnology giant is still reeling after its recent regulatory setback involving Filgotinib, a potential treatment for rheumatoid arthritis.

Initially, Filgotinib was slated as Gilead Sciences' next blockbuster drug. Unfortunately, the US FDA didn't agree with those plans.

The regulatory body rejected the treatment, pointing out the risks of patients developing male fertility problems as one of the significant reasons.

By November 2020, Gilead Sciences completely abandoned the Filgotinib project, at least in the United States.

Prior to this, Gilead Sciences took center stage when its Remdesivir, sold under the brand name Veklury, was identified as an effective COVID-19 treatment.

While this product has taken the back seat since other treatments from the likes of Regeneron (REGN) and especially vaccines from Moderna (MRNA), Johnson & Johnson (JNJ), AstraZeneca (AZN), Pfizer (PFE), and BioNTech (BNTX) have emerged, it still generated impressive numbers.

In the second quarter alone, Veklury brought in $829 million in revenue.

Gilead Sciences anticipate sales to reach somewhere between $2.7 billion and $3.1 billion for this drug in 2021.

Arguably, though, the biggest draw in buying Gilead Sciences stock is its HIV pipeline.

To date, the company holds roughly 75% of the market share in the US and approximately 50% in Europe.

What's even more promising is that the company's top-selling HIV product, Biktarvy, still has vast room to grow.

This is impressive considering that Biktarvy raked in approximately $2 billion in sales in the second quarter of 2021, showing off a 24.3% year-over-year jump.

Looking at its trajectory and considering that the drug generated $7.3 billion in 2020, Biktarvy sales are estimated to hit $11.7 billion in 2026.

More than the company's incredible dominance in cornering the HIV market, Gilead Sciences also has an excellent pipeline with over three dozen clinical programs queued.

Inevitably, one of its major concentrations is expanding its HIV portfolio.

In fact, it has recently teamed up with fellow biotechnology giant Merck (MRK) to collaborate on a potential HIV treatment—a candidate that's anticipated to equal if not surpass Biktarvy's fame.

One more potential blockbuster in the HIV market is Lenacapavir, which is an injection regiment that Gilead Sciences recently submitted for approval to the FDA.

If granted the green light, this will be administered once every 6 months, making it the first-ever long-acting regimen for HIV patients.

Meanwhile, the company is also growing its Hepatitis B franchise to avoid being too dependent on a single market.

So far, Gilead Sciences estimates about $1 billion in sales for this lineup in 2022, making the Hepatitis B portfolio a reliable part of the business.

Another growing section of the business is its cell therapy segment, with Yescarta and Tecartus nearing their peak performances at $1 billion in sales yearly.

Even its newly developed cancer cell therapy Magrolimab looks promising, with the potential to rake in another $1 billion in peak sales as well.

Needless to say, Gilead Sciences' new products and expansions have been displaying realistic potential to drive billions in added yearly revenue.

Overall, Gilead Sciences is a stable and profitable biotechnology and healthcare business.

It's a large-cap biopharmaceutical organization and market leader that has been solidly performing well for over 3 decades, with an influential presence in more than 35 countries.

Despite its recent challenges, Gilead Sciences remains an excellent buy, especially on the dip.

October 7, 2021

Biotech Letter

Mad Hedge Bitcoin Letter
October 7, 2021
Fiat Lux

Featured Trade:

(A RARE BLUE-CHIP STOCK IN DEEP VALUE TERRITORY)
(MRK), (NVAX), (MRNA), (BMY), (XLRN)

A Rare Blue-Chip Stock in Deep Value Territory

Biotech Letter

Merck (MRK) is facing a huge problem. In roughly seven years, its top-selling megablockbuster cancer treatment Keytruda is set to lose its patent exclusivity.

This is a major concern for the company, considering that Keytruda comprised over a third of the their revenue in 2020.

This impending “doom” appears to have scared off investors, as Merck stock has been trading at at least 12 times the earnings expected within the next 12 months.

However, it looks like Merck is slowly gearing up to reveal the solutions it came up with to address this major problem.

The first sign of a turnaround is Merck’s recent news about releasing an oral antiviral pill for COVID-19.

Immediately after the release of the positive data, the biopharmaceutical giant’s $206 billion market capitalization climbed by $16 billion, showing off an 8.4% in its share price.

In comparison, other COVID-19 vaccine stocks experienced significant selloffs. Novavax (NVAX) fell by 12%, while Moderna (MRNA) slipped by 11%.

Merck’s COVID-19 pill, called Molnupiravir, is expected to be a cheaper, safer, and more effective alternative to the current antiviral treatment available today, which is Remdesivir from Gilead Sciences (GILD).

Molnupiravir has been so promising that the US government already sealed a $1.2 billion contract with Merck to get 1.7 million doses of the drug months before the announcement.

While there’s still no final word on the pricing, the US government’s deal places the drug at $700 per dose.

Given its manufacturing capacity, Merck disclosed that it could easily produce six times that order, with the company targeting roughly 10 million courses by the end of 2021.

Using these numbers, it’s easy to see how Merck can generate $7 billion in sales of Molnupiravir alone this fourth quarter.

Although Molnupiravir’s sales won’t be a game-changer for Merck in the same way Moderna’s COVID-19 vaccine candidate changed its landscape, the $7 billion revenue would still offer a significant boost.

Another 10 million doses of Molnupiravir are slated for release by 2022, indicating higher sales for Merck in the coming months.

Aside from working as an antiviral pill, Molnupiravir is also believed to be effective against other known viruses like influenza.

Considering the surging demand for travel these days, there’s a huge possibility that Merck’s oral drug will be handed out like candy canes as a potential preventive measure.

After all, the efficacy of the COVID-19 vaccines, especially for those who got jabbed earlier than most, would start to wane at this point.

Taking into account the demand for this pill worldwide, it’s realistic to assume that Molnupiravir can generate $35 billion to $70 billion in revenue for Merck.

Even before the news about Molnupiravir broke, Merck already raised its revenue guidance for 2021 to somewhere between $46.4 billion to $47.4 billion, signaling 12% to 14% growth.

Aside from its COVID-19 drug, Merck has been busy expanding its portfolio that already covers oncology, hepatitis, and HPV.

One of its latest moves to achieve this goal is its $10.8 billion acquisition of Acceleron Pharma (XLRN)—a deal Merck snagged right under the nose of the strongest contender in the race, Bristol-Myers Squibb (BMY).

Merck’s acquisition of Acceleron will boost the cardiovascular pipeline of the company, including treatments for life-threatening blood vessel conditions.

These are on top of its growing vaccine business, which still has four queued for Phase 2 clinical trials and another for regulatory review.

These candidates effectively make Merck a critical player in the rapidly expanding vaccine market—a segment that’s projected to rise from $42 billion in 2020 to $74 billion by 2028.

Overall, Merck is one of the unparalleled blue-chip stocks trading in deep-value territory these days.

It’s hitting all cylinders, showing off a stable expansion of its key franchises and an impressive balance sheet to fund its R&D plans.

Merck has become the poster child of a remarkable stock valued at a reasonable price.

October 5, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
October 5, 2021
Fiat Lux

FEATURED TRADE:

(A BIOTECH STOCK THAT LETS YOU SLEEP THROUGH THE NIGHT)
(AMGN), (AZN), (GSK), (REGN), (SNY), (MRK)

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