Mad Hedge Biotech & Healthcare Letter
October 29, 2020
Fiat Lux
FEATURED TRADE:
ROCHE ENTERS COVID-19 FIGHT IN STYLE
(RHHBY), (REGN), (GILD), (MRK), (ALNY), (IONS)
Tag Archive for: (MRK)
Roche (RHHBY) is making quite an entrance in the COVID-19 antiviral treatment race, forking out $350 million in cash to gain rest-of-the-world rights to a promising new drug created by Massachusetts-based biotech company Atea Pharmaceuticals.
This is an exciting development because the partnership between the two companies holds incredible promise in the search for a COVID-19 cure.
In May, Atea Pharmaceuticals essentially dropped all its projects and rebranded itself as a COVID-19 fighter, attracting a stunning $215 million in its venture round.
Among the marquee names that invested in this 7-year-old biotechnology company are Bain Capital and RA Capital.
Going back to its work with Roche, the $350 million cash is expected to fund the ongoing clinical trials of Atea’s very own COVID-19 antiviral treatment called AT-527.
So far, the candidate is in its Phase 2 trial and slated to start global trials or Phase 3 by early 2021.
Apart from being a potential COVID-19 treatment, AT-527 is also under development as a Hepatitis C medication.
In terms of where AT-527 stands in the COVID-19 treatment race, this drug belongs to the same class as Gilead Sciences’ (GILD) Remdesivir and Merck’s experimental candidate with Ridgeback Biotherapeutics called MK-4482.
Like Remdesivir and MK-4482, Roche’s AT-527 is designed to inhibit the replication of SARS-CoV-2, the virus that causes COVID-19.
Unlike Remdesivir though, which is only available through intravenous infusion, AT-527 is an oral drug, making it a more convenient option.
This isn’t the first time that Roche’s COVID-19 efforts came under the spotlight.
Earlier this month, its COVID-19 work with Regeneron (REGN), called REGN-COV2, has been dubbed as a leading candidate in the race because of the high-profile patient who used it: President Donald Trump.
This partnership with Regeneron is expected to ramp up the manufacturing process by at least 3 and a half times compared to their individual capacities.
Outside its COVID-19 efforts, Roche has proven to be a good long-term investment.
Admittedly, the company’s third-quarter report missed the mark by 4% due to aggressive biosimilar competition. However, Roche’s pipeline of newer products has been growing nicely.
Because of biosimilar competition, sales of cancer and immuno-oncology treatments like Avastin fell by 30%, Rituxan slipped by 33%, and Herceptin dropped by 38%.
However, the performance of Roche’s new drug lineup showed promising results, with sales of these products showing off a 32% growth in the third quarter of 2020.
For example, sales of multiple sclerosis drug Ocrevus rose by 37%, while revenue from cancer treatments like Perjeta climbed 17%, Kadycla rose by 33%, and Tecentriq jumped by 49%. Meanwhile, sales of hemophilia medication Hemlibra increased by 57% .
All in all, the hits and misses cancelled out each other this quarter.
Despite the disappointment in these results, Roche stood by its full fiscal year guidance.
This is a strong indicator that the company sees a brighter fourth quarter. Overall, Roche remains in good shape.
Tecentriq has been expanding to cater to other indications such as liver cancer and even some immuno-oncology applications.
Hemlibra continues to outperform its peers, holding on to 25% of the US market share for Hemophilia-A. Even Ocrevus has been outperforming others.
Regarding pipeline developments, Roche has been pouring resources for the trials of NASH drug candidate Crovalimab, which is now in Phase 3.
The acquisition of Inflazome in September and Enterprise Therapeutics in October indicate that Roche is looking to expand in the cystic fibrosis space as well.
Its recently inked agreement with Dyno Therapeutics also signals its plans to work on gene therapies, making itself a potential threat to the likes of biotechnology companies Alnylam (ALNY) and Ionis (IONS).
Looking at everything it has done and has yet to offer, I believe that Roche shares are undervalued at below the high $40s.
This company has a healthy lineup and promising R&D strategies combined with the capacity to buy high-potential assets.
I can see the company generating mid-single-digit cash flow growth on a long-term basis, and I even expect additional improvements to the dividend.
Given the returns you can get from Roche, I can say that this stock is very much worth consideration for any investor interested in quality growth.
Mad Hedge Biotech & Healthcare Letter
October 8, 2020
Fiat Lux
FEATURED TRADE:
(CAN REGENERON TRUMP OTHER COVID-19 RIVALS?)
(REGN), (GILD), (SNY), (JNJ), (MRK)
If the experimental COVID-19 treatment of Regeneron Pharmaceuticals (REGN) is good enough for the US president, then this stock should be given more attention not only by the media but also by investors.
One of the biggest stories this October is that President Donald Trump got infected with COVID.
The bigger story for the stock market though is his choice of treatment.
According to his medical team, Trump was given Regeneron’s antibody cocktail, called REGN-COV2, which was actually developed based on the same technology used in the company’s experimental Ebola treatment.
Although REGN-COV2 is still in the trial phase, reports that Trump already beat COVID just three days since his diagnosis are doing wonders for the stock.
Apart from REGN-COV2, Trump also received Gilead Sciences’ (GILD) Remdisivir as well as dexamethasone, a common generic steroid he once touted as a “miracle COVID-19 cure.”
The president was given aspirin and famotidine, which is more widely known as Johnson & Johnson (JNJ) and Merck’s (MRK) Pepcid.
On top of these, he took zinc, Vitamin D, and two immune-boosting supplements.
Compared to how far Gilead’s Remdesivir has gone in terms of offering treatment to COVID-19 patients with severe symptoms, Regeneron’s candidate is nowhere near the finish line.
Among all these drugs, however, Regeneron enjoyed the most advantage, with its stocks rising to roughly 5% since the announcement. Gilead also experienced a boost from the news, with a 3% jump.
What does this mean for investors?
Well, this news triggered aggressive buying of Regeneron shares. As expected, the unusually heavy volume pushed the stock price up.
While it would be tempting to join the market mob in buying a hot stock in the hopes of it getting even hotter, you might want to consider switching gears instead.
Hot stocks that dominate the news tend to cool and end up sliding at some point.
Rather than buying Regeneron stock right now, think about buying its bullish call options.
Options are always cheaper than their associated stock, which means you’ll be less at risk if something happens that lowers the stock price.
Even if the stock continues to advance, investing in options will still ensure that you get a nice return.
After all, each options contract represents 100 shares of stock.
To date, Regeneron’s stock is up 7.2% at $605.
That means you should buy bullish November $600 call options for roughly $40 with the expectation that REGN-COV2 gets approved—or at least stays as a strong contender until the next earnings report.
Since Regeneron released its 2019 third-quarter earnings report on November 5, it’s reasonable to assume that the company will follow the same timeline for 2020.
Therefore, setting the expiration to November ensures that you cover its third-quarter earnings report this year.
Aside from that, you’ll have enough time to gauge the success of REGN-COV2 and how the results will affect the stock price.
If the company’s share price reaches $665 at the expiration date, which is its peak price in the past 52 weeks, the call would be worth $65. If it hits $700, then the call will be worth $100.
For context, Regeneron stock has been anywhere between $279.22 and $664.64 in the past 52 weeks.
If REGN-COV2 gains approval, its projected 2021 sales could reach $1.8 billion. Meanwhile, its 2022 sales could hit $2.4 billion, with a decline to $1.7 billion by 2023.
Outside its COVID-19 efforts, the company has a promising portfolio to keep investors interested.
Regeneron’s annual revenue for its marketed drugs has been consistently climbing since 2012, with the biotechnology company’s earnings beating estimates in the last four quarters.
At the moment, the company has over 30 programs in its pipeline, 9 of which are in Phase 3, ensuring that its portfolio still has so much room for growth.
At the height of the pandemic, Regeneron maintained its stellar balance sheet in the second quarter.
One of its top-selling drugs is atopic dermatitis medication Dupixent, which it developed with Sanofi (SNY), with $770 million in sales for that period alone.
Looking at the drug’s track record, Dupixent is projected to rake in $6.3 billion in sales in 2021.
However, the top performer in the second quarter is eye injection Eylea, which contributed $1.1 billion in sales.
Meanwhile, skin cancer treatment Libtayo generated $63 million and cardiovascular disease drug Praluent raked in $47 million.
Regeneron also finished the second quarter with $943 million in net cash flow, which is a massive jump from the $188 million it reported in the same period in 2019.
On top of Regeneron raking in huge rewards for ’s COVID-19 treatment if approved, the company also has other promising products in its portfolio—ones that can still sway investors in their favor regardless of REGN-COV2’s future.
Mad Hedge Biotech & Healthcare Letter
September 24, 2020
Fiat Lux
(PLAY YOUR CARDS RIGHT WITH MODERNA)
(MRNA), (PFE), (AZN), (BNTX), (JNJ), (MRK), (VRTX), (CRSP)
The COVID-19 race is entering the home stretch, and it could only be a matter weeks before the world finds out which among the leading vaccine candidates will work.
For months, Moderna (MRNA) has been dubbed as the leader of the pack, with the company’s shares reaping the rewards thanks to this year’s wild growth and promising clinical results.
Now, it looks like Moderna is on the verge of officially claiming the crown as promising reports surfaced from its late-stage clinical trials.
If the Moderna’s COVID-19 vaccine candidate, called mRNA-1273, is proven to be at least 70% effective, the company will immediately ask for an emergency authorization to use it on high-risk patients.
Like Pfizer (PFE), Moderna is also expecting results to come as early as October. With potential delays in the trials, the company thinks the data would be released by November at the latest.
Moderna is also looking into building footprints outside the United States.
Part of its efforts to expand its potential market reach for mRNA-1273, Moderna opened a commercial hub – its first ever – in Switzerland, where it has already been collaborating with Swiss drug manufacturer Lonza (SWX: LONN).
This is a good move for Moderna.
After all, Europe presents a substantial market for the COVID-19 vaccine. For context, the European Union has over 446 million people while the US only has 328 million.
To date, Moderna has agreed to supply 100 million doses of its COVID-19 vaccine to the US government for up to $1.525 billion. The contract also provides for an optional additional 400 million doses, depending on mRNA-1273’s performance in the trials.
Meanwhile, Moderna already secured a deal with the Swiss federal government to deliver 4.5 million of mRNA-1273.
While it has yet to announce a similar deal with the rest of the EU, the company is reported to be in the advanced stages of its negotiations with other member countries, where it is estimated to provide an additional 160 million doses.
Overall, the global manufacturing projection for Moderna falls somewhere between 500 million and 1 billion doses starting in 2021.
Looking at the agreements, we can conservatively say that mRNA-1273 could rake in $12.4 billion in sales for Moderna by 2022.
Despite the current payment plans implying that each dose of Moderna’s vaccine would only cost $15.25, the company already received government funding of roughly $2.5 billion.
Taking those expenses into account, the actual value would be somewhere between $25 and $30 per dose.
In comparison, Pfizer’s vaccine candidate with BioNTech (BNTX) is estimated to cost less than $19.50 per dose while Johnson & Johnson (JNJ) announced that it will offer its vaccine at $10 per dose.
Meanwhile, AstraZeneca’s (AZN) candidate with Oxford University is expected to be even cheaper at $2.96 to $4 per dose.
With its COVID-19 vaccine rivals offering decidedly cheaper options, Moderna will need to leverage its first-mover advantage if it hopes to fight for a decent market share.
Outside COVID-19 vaccine efforts, Moderna has a rich pipeline, with 23 candidates distributed over 22 programs and 6 modalities.
Aside from the urgent need to offer a vaccine to the world, there is another reason why Moderna is focusing on the COVID-19 program right now.
If proven successful, the program can be used to validate another experimental vaccine, called mRNA-1647, which targets congenital cytomegalovirus infection.
Although CMV is identified as one of the leading causes of birth defects in the US, there remains no approved vaccine for it.
However, there is a catch.
Moderna will not be able to reap the full benefits of the CMV vaccine.
In fact, it will only be able to receive 50% of its profits if it becomes successful since mRNA-4157 is being developed alongside Merck (MRK).
The idea is for the drug to boost the oncology sector of Merck, with the goal of finding another blockbuster like the melanoma drug Keytruda.
As impressive as the CMV vaccine is as a product to launch in the market, there is a huge possibility that Moderna would not necessarily benefit from a large windfall because of it.
Aside from Merck, Moderna is also working with another biopharmaceutical giant and competitor in the COVID-19 vaccine race: Vertex (VRTX).
Moderna and the Massachusetts-based giant are collaborating to develop a treatment for cystic fibrosis, a niche that Vertex has dominated for years.
This is actually their second collaboration, but this project seems a tad more ambitious than the earlier one: Moderna and Vertex are working to develop a one-time treatment for cystic fibrosis using mRNA technology.
Basically, the two companies want to use gene-editing techniques to modify a patient’s DNA and correct the cells that cause cystic fibrosis.
The collaboration will span 3 years, with Vertex paying Moderna $75 million upfront. The smaller biotechnology company is also eligible for an additional $380 million in milestone payments plus royalties.
Notably, this is not the first cystic fibrosis treatment collaboration that Vertex formed with gene-editing companies.
Earlier this year, the company also secured a license option with CRISPR Therapeutics (CRSP) to work on practically the same thing.
Clearly, Vertex is hedging its bets on two potential options with this second partnership with Moderna.
Thanks to its trailblazing COVID-19 vaccine candidate, Moderna has become one of the most sought-after stocks of 2020, with its year-to-date growth reaching a stunning 360% last July.
Despite the temptation to bet big on Moderna stocks, bear in mind that early leaders like this biotechnology company will be facing incredible pressure from pharmaceutical titans like Pfizer, Johnson & Johnson, and AstraZeneca – all of which have the capacity to meet the manufacturing and distribution demands across the globe.
At best, a company with Moderna’s size would probably receive a slice of the market in the early days.
At worst, it might struggle to keep a foothold as stronger and larger competitors flood the market with cheaper but equally effective alternatives.
Nonetheless, this is not to say that you should completely avoid smaller biotechnology companies just because they are too small to compete with the larger fish.
Rather, I think it would simply be prudent to invest based on each player’s proven ability and outlined plans to meet the demand at a mass scale.
Doing so would guarantee that you not only limit your risks but also allow you to reap the rewards of successful vaccine deployment. If you play your cards right, then you might even get a handful of different COVID-19 vaccine winners in your back pocket.
Mad Hedge Biotech & Healthcare Letter
September 22, 2020
Fiat Lux
Featured Trade:
(WHY MERCK IS UNDER-APPRECIATED IN THE COVID-19 RACE)
(MRK), (PFE), (MRNA), (RHHBY), (REGN), (BMY), (GILD)
The excitement over the COVID-19 vaccine candidates has boosted the shares of the most widely reported companies like Pfizer (PFE) and Moderna (MRNA). Meanwhile, other developers have not received the same love from investors.
However, it looks like another COVID-19 vaccine player will be joining Pfizer and Moderna under the spotlight: Merck (MRK).
Merck recently announced that it is now ready to test its vaccine on humans. The trials will be conducted in Germany, and the company has been scouring government databases for viable volunteers.
Unlike Pfizer and Moderna, which are utilizing a novel technology that will need two vaccine doses to be fully effective, Merck is working on two different COVID-19 vaccine candidates designed to work with only a single dose.
This could offer Merck a clear advantage over its competitors.
Also, one of Merck’s candidates could be taken in oral form. This is another significant advantage since it would make the vaccine easier and more convenient to administer.
Merck’s vaccine candidates contain a destabilized version of the same virus that causes measles. This virus is then used to deliver the coronavirus’ spike protein to the patient’s immune system, which would trigger an immune response.
The goal is not only to create a vaccine that would offer protection using a single dose, but also utilizing an existing and reliable technology that can be readily scaled up for mass production.
Since we need to immunize roughly 7 billion across the globe, Merck’s plan to manufacture a single-dose vaccine would be more convenient instead of using multiple doses.
Overall, the COVID-19 vaccine market could reach $50 billion in revenue by 2030.
Apart from its vaccine candidate, Merck is also looking into an antiviral treatment for COVID-19 patients
If successful, this product would be competing against Gilead Sciences’ (GILD) Remdesivir. Just like one of its vaccines, Merck is also developing a treatment in oral form instead of a hospital infusion.
Merck’s Remdesivir alternative can reduce the severity of the COVID-19 by interrupting the virus’s capacity to replicate.
Unlike Gilead’s drug, which can only be used in severe cases, Merck’s candidate can be prescribed immediately after a patient is diagnosed with the disease.
This COVID-19 cure is set to begin its Phase 3 trial this September, with Merck is confident that it can manufacture millions of doses before 2020 ends.
Experts dubbed this drug as an “underappreciated COVID-19 treatment,” which is estimated to reach blockbuster status.
Aside from not getting enough credit for its COVID-19 efforts, Merck is also not receiving enough attention for its pipeline.
So far, the company holds the leading drug that boosts the immune system to fight off cancer: Keytruda. It also has one of the leading vaccine franchises in the world.
Keytruda can easily generate $14.5 billion in sales in 2020 alone, which represents a 30% jump from its 2019 performance. More importantly, the drug can reach $22 billion by 2025.
However, investors are worried over Merck’s dependence on the drug, which comprises 30% of its revenue. In fact, Wall Street keeps zeroing in on the 2028 patent expiration of Keytruda.
At the moment, Keytruda faces competitors like Roche Holding (RHHBY), Regeneron Pharmaceuticals (REGN), and Bristol Myers Squibb (BMY).
However, Merck is not the type to put all its eggs in a single basket.
The company is developing new products that can generate an additional $13 billion to $18 billion in sales annually.
Among these treatments is another potential immuno-oncology antibody, which has been sent to clinical trials this year. Merck also has a long-term HIV treatment queued for clinical studies.
One exciting drug candidate is ARQ531, which is a potential cancer therapy. This projected blockbuster was part of Merck’s $2.7 billion acquisition of ArQule in January.
Other than this acquisition, Merck also obtained the rights to several cancer treatments, which are hailed to be more effective than the conventional chemotherapy, thanks to its acquisitions of Astex Pharmaceuticals and Taiho Pharmaceuticals.
In terms of its vaccine franchise, this arm of the business is projected to generate $9 billion in annual sales in 2021, with the revenue steadily rising to $100 billion in the next several years.
In particular, Merck is looking into developing further its cervical cancer vaccine Gardasil. So far, this vaccine is estimated to generate roughly $3.9 billion in sales in 2020 and reach $5.5 in 2023.
The focus on boosting its vaccine franchise is a strategic move considering that vaccines are generally a durable business and are typically immune from any generic competition.
Although it is not one of the leading vaccine developers in the COVID-19 race, Merck has positioned itself as the leader in the cancer drug development sector and its distribution over at least the next decade.
I believe that Merck’s prudent business, strategic acquisitions, and exciting pipeline will gradually push the stock to the top.
In summary, I think that Merck is a good stock to buy. For those searching for a strong biopharmaceutical play at a reasonable price, this company should be on your shortlist.
Mad Hedge Biotech & Healthcare Letter
September 15, 2020
Fiat Lux
Featured Trade:
(ASTRAZENECA’S BUMP IN THE ROAD)
(MRNA), (AZN), (PFE), (MRK), (JNJ), (GSK), (SNY), (CVAC), (BNTX), (INO)
Moderna (MRNA) was the first company to test its COVID-19 vaccine candidate on humans. However, AstraZeneca (AZN) and its partner Oxford University have been setting out the most aggressive timelines.
In fact, AstraZeneca sealed deals with the promise of delivering vaccine results as early as September.
The possibility of that happening, already precariously hanging by a thread, was completely eliminated earlier this month when the company halted its COVID-19 vaccine program after a subject showed severe adverse reactions.
Needless to say, news of AstraZeneca’s suspension of its late-stage 30,000-patient trial rattled the markets.
However, it looks like investors are simply shaking off the panic as other COVID-19 vaccine stocks continue to gain momentum.
In fact, even AstraZeneca only suffered a 2% slide following the announcement.
Shares of its COVID-19 rivals Pfizer (PFE), Merck (MRK), Johnson & Johnson (JNJ) went up 1% each, while GlaxoSmithKline (GSK) and Sanofi (SNY) rose 2%.
Bigger jumps were seen in smaller biotechnology companies with Moderna and CureVac (CVAC) being 4% higher and Novavax (NVAX), Inovio (INO), and BioNTech (BNTX) climbing 6%.
Still, a lot is riding on AstraZeneca’s vaccine candidate. The company has secured more contracts compared to its rivals.
To date, AstraZeneca has disclosed deals to supply roughly 3 billion doses to different nations including the US, Europe, Australia, Japan, Brazil, Latin America, and even China.
Its leading competitors, Moderna and Pfizer, have only managed to commit a small fraction of AstraZeneca’s supply.
Although AstraZeneca’s decision would cause some delay, experts assure the public that this is a normal occurrence in the vaccine development process.
It is actually a good sign especially given the fast-tracked timelines for the COVID-19 programs.
This voluntary pause from AstraZeneca means that the standards for vaccine development are still stringently followed by the developers despite the tight deadlines and competition.
A third-party safety board was already assigned to review AstraZeneca’s case, with the company expecting results in the next weeks.
So, what happens next?
There are few possible outcomes of this scenario. The ideal result would be for the board to find that the adverse effect has no connection to AstraZeneca’s vaccine candidate.
If this is the case, then the company can restart trials as early as next week. Although it obviously suffered a delay, AstraZeneca says it is still on track and can submit efficacy data before 2020 ends.
If everything else falls into place and from a manufacturing standpoint, AstraZeneca can still deliver a vaccine by the end of the year or early 2021.
If the adverse effect is caused by the vaccine though, then it could spell trouble not only for AstraZeneca but also for some of its rivals using the same technology.
The company utilized a neutralized virus for delivery, which is the same method used by other developers like Johnson & Johnson.
In comparison, Moderna and Pfizer’s vaccine candidates used a new technique involving messenger-RNA. This method stimulates a person’s body to produce a protein, which can help build immunity against the coronavirus.
The worst-case scenario is that if the problem turns out to be an immune reaction to the coronavirus fragments.
This would set back all the COVID-19 vaccine developers because it is the common element among them.
Although the COVID-19 vaccine candidate is a high-value product, AstraZeneca remains poised to prosper no matter what happens as a result of the pandemic or even the overall financial market.
The company is consistently generating strong revenue growth. In particular, its cancer lineup of non-small cell lung cancer treatments Tagriss and Imfinzi, and ovarian cancer therapy Lynparza have been showing remarkable momentum amid the crisis.
However, it is AstraZeneca’s pipeline that makes this stock impressive.
So far, the company has 166 programs that are under clinical development. Of those, 24 have already reached late-stage trials.
What’s even more exciting is that 9 of these late-stage studies are for new drugs. Meanwhile, the remaining 15 are additional approvals for expanded indications of existing products.
AstraZeneca offers one of the most promising product portfolios and clinical pipelines in the healthcare and biotechnology industry. It also provides impressive shareholder reward programs.
Most importantly, this single COVID-19 vaccine candidate is definitely not a make-or-break type of development for the company – not by a very long shot.
Therefore, bargain hunters may want to capitalize on AstraZeneca’s shares on any weakness resulting from this trial suspension.
