Mad Hedge Biotech and Healthcare Letter
November 9, 2023
Fiat Lux
Featured Trade:
(AN UNDERDOG’S LONG-TERM PLAY)
(MRK)
Tag Archive for: (MRK)
When sifting through the financial performances this earnings season, a pattern emerges among pharmaceutical giants – a sell-off that persists whether the news is good or bad.
However, amidst this tumultuous landscape, there’s one name that stands out as a beacon of strategic success: Merck Pharmaceuticals (MRK).
The company’s financial metrics are noteworthy. Trading at 14 times forward earnings aligns with industry standards, signaling a stable investment to Wall Street. This valuation reflects not just current profitability but anticipates future earnings, a critical measure for savvy investors.
Merck's robust market cap of $262 billion indicates more than just its size; it signifies its influence and foresight in the biotech field.
Its recent collaboration with Japan's Daiichi Sankyo reflects this, involving a substantial $4 billion upfront investment for a partnership that could be worth up to $22 billion.
These figures aren't just impressive; they underscore Merck's commitment to advancing cancer treatment through a series of antibody-drug conjugates aimed at solid tumors.
However, everyone knows that the healthcare industry is a long game.
Merck exemplifies this, banking on long-term outcomes, particularly with Keytruda, its leading cancer drug. Bringing in $16 billion in Q3 revenue, Keytruda is a testament to Merck's ability to not only develop but also commercialize high-impact therapies.
Even as Keytruda's patent protection approaches its 2028 expiration, Merck is already grooming its pipeline, ensuring a succession of treatments to maintain its market dominance.
In the immediate term, Keytruda is on a trajectory to become the top-selling drug globally, with projections pointing towards a staggering $30 billion in sales by 2028. This continued success is not a cause for complacency; instead, it's a launching pad for Merck as it orchestrates its future portfolio with strategic precision.
That’s why the Daiichi Sankyo collaboration is pivotal even if these programs are still in the clinical trial phase.
The probability of a phase 1 trial leading to a marketable drug is a mere 3.4%, yet Merck's investment suggests confidence in these potential therapies. This foresight is critical for anyone looking beyond immediate gains toward substantial future returns.
Turning back the pages to November 2021, we find another example of Merck’s long-term outlook. At the time, the company made headlines with its acquisition of Acceleron Pharma, a move costing $11.5 billion. This strategic play wasn't a mere chance but a calculated maneuver to secure a promising asset: Sotatercept.
This drug represents a breakthrough for those battling pulmonary arterial hypertension, a severe condition that constricts blood vessels in the lungs and makes breathing a laborious task.
With analysts predicting Sotatercept's sales could soar to $2.6 billion by 2028, this acquisition is a decisive stride toward future profitability.
Shifting focus to Merck's diversified portfolio, there's more to its story than these treatments.
Its HPV vaccines, like Gardasil, represent a significant foray into preventive health. Meanwhile, its animal health division boasts the resilience of a bull market. Moreover, its R&D efforts are primed to usher in a new era of blockbusters as Keytruda nears the end of its patent life.
Dividend growth is another proof of Merck's financial health and investor-focused approach.
Over the past decade, dividends have increased by 66%, outpacing the average yield of the S&P 500. The current cash payout ratio suggests there's potential for growth, offering an attractive proposition for income-focused investors.
In the broader context of investment strategies, Merck's maneuvers construct a compelling narrative for a bullish stance. Overall, the company’s proactive and diverse approach to biotechnology makes it a noteworthy contender for investors seeking long-term growth.
While the stock market is often swayed by the immediate ebb and flow of quarterly earnings, Merck's consistent investment in their pipeline, strategic partnerships, and dividend growth paints the picture of a company poised for sustained success. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
October 19, 2023
Fiat Lux
Featured Trade:
(THE UNSUNG HERO OF PHARMA DISTRIBUTION)
(MCK), (CI), (UNH), (PFE), (MRK), (LLY), (NVO), (CAH), (COR)
McKesson (MCK) is the silent behemoth of the U.S. corporate world that's likely slipped under your radar. As the ninth-largest U.S. company by revenue, it doesn’t grab the headlines like some of its pharmaceutical peers. However, with a robust 22% stock gain this year alone, investors might want to sharpen their focus on this quiet achiever.
Now, you might mistake McKesson for a pharmacy benefit manager like Cigna Group's (CI) Express Scripts or UnitedHealth Group’s (UNH) OptumRx. But it doesn't stand shoulder-to-shoulder with pharmaceutical giants such as Pfizer (PFE) or Merck (MRK). Instead, its pivotal role ensures that prescription medications, consumed by a large fraction of Americans, reach their intended destinations.
Their operational model cuts through the noise: acquire medications from manufacturers and deliver them seamlessly to pharmacies. This spans local establishments and major national chains, including stalwarts like Walmart (WMT) and CVS Health (CVS).
Distributing medications is intricate. Not any logistics company can step up to the plate. These drugs, strictly governed by regulations, demand precision in handling and transit. Specific conditions are mandatory to retain their efficacy and, ultimately, their trust with consumers.
Newcomers in the pharmaceutical space, such as Ely Lilly’s (LLY) Mounjaro and Novo Nordisk’s (NVO) Ozempic, are set to further accelerate McKesson's growth trajectory. McKesson's operations, in tandem with Cardinal Health (CAH) and Cencora (COR)—the former AmerisourceBergen—underscore the dominance of this trio in the industry.
Given their consistent performance and notable market share, there's no mistaking their leadership. From an investor's lens, their well-established distribution networks translate to attractive returns.
The narrative enveloping McKesson has matured, particularly in the wake of the pandemic. Pre-COVID-19, the air was thick with concerns – potential drug price regulations, whispers about executive remuneration, and the ever-looming shadow of opioid liabilities.
In recent history, McKesson navigated tumultuous waters. They confronted their role in the opioid saga, culminating in a staggering $7.4 billion settlement spanning two decades. Such a settlement, rooted in claims of McKesson's hand in opioid distribution, marked a challenging chapter in the company's journey. But, like all resilient entities, they emerged with lessons and a sharper focus.
Refocusing on its core competency in drug distribution, the future projections for McKesson radiate optimism. Sales are on track for a 10% rise by fiscal 2024, aiming for the $304 billion mark. On the earnings front, a hike of 4.8% is forecasted, reaching $27.20 a share, followed by a notable ascent to 13.4% in fiscal 2025 – a jump to $30.84 a share.
While profit margins have hovered around the 4.8% range over half a decade, the company's cash flow paints a promising picture. With a robust $5 billion cash flow from the previous fiscal year, the announcement of a $6 billion share repurchase plan indicates a stronger, more liquid financial position.
McKesson’s journey, past and present, casts it as a promising investment, both for its operational prowess and its strategic repurchase blueprint. Examining its financial statements reveals a commendable reduction in net debt over the past triennium.
When McKesson is pitted against the likes of Cardinal and Cencora, optimism for its prospects feels natural. Projections indicate a growth rate between 12-14% in the years on the horizon, potentially crowning it as an industry vanguard. Valued at 15.6 times forward earnings, even if it inches above its five-year mean, the stock's appeal remains intact. Given its robust growth metrics, the stock seems a potential bargain, especially when juxtaposed with fellow S&P 500 members.
And there's more in the mix. With McKesson poised to ride the wave of prescription surges, particularly from premium medications like Ozempic, Wegovy, and Mounjaro, revenue streams seem destined for an upward course. A sentiment echoed by industry comrades, Cardinal and Cencora.
To encapsulate, in the expansive tableau of the pharmaceutical sector, where innovation meets timely delivery, McKesson etches its mark. As the healthcare matrix continues its evolution, especially in a world reshaped by a pandemic, the resilience and growth story of McKesson becomes hard to sidestep for the discerning investor. It's high time investors pivot their gaze towards this under-the-radar giant, poised for more milestones.
Mad Hedge Biotech and Healthcare Letter
October 12, 2023
Fiat Lux
Featured Trade:
(BARKING UP THE RIGHT STOCK)
(ZTS), (MRK)
When I search for investment opportunities, it's rare for an old article to capture my attention. Yet, an article from The Wall Street Journal in January titled "Americans Can't Stop Pampering Their Pets - Companies Want In" has lingered in my thoughts. While the sentiment of treating pets as family isn't new, the financial implications of this trend are profound.
The global animal healthcare market, a sector once overlooked, has now burgeoned into a significant investment avenue. Recent data reveals the global animal healthcare market size was worth $40.21 billion in 2022.
Astoundingly, it's projected to soar to $84.98 billion by 2030, growing at a CAGR of 9.81%. This growth isn't just a fluke; it's propelled by rising animal health expenditure, increasing prevalence of diseases in animals, concerns over zoonoses, and strategic initiatives by industry giants.
A case in point: In January 2023, Merck (MRK) inaugurated a state-of-the-art manufacturing facility in Boxmeer, Netherlands, specifically for companion animal vaccines, responding to surging global demand.
But what's driving this demand? The answer lies in our plates and our living rooms.
On one hand, there's a rising global appetite for animal protein. While plant-based diets are gaining traction, the majority still lean towards animal-derived sources like eggs, meat, and milk. On the other hand, the human-animal bond has never been stronger, especially with pets. This bond translates to a willingness to spend on their well-being, ensuring they receive the best care possible.
Enter companies like Zoetis Inc. (ZTS). As the world's premier provider of animal medicines, vaccines, and diagnostic products, Zoetis stands at the forefront of this booming market.
With an impressive portfolio boasting over 300 product lines, including 15 blockbuster drugs, Zoetis has strategically positioned itself in two pivotal markets: companion animals (our beloved cats and dogs) and livestock (primarily cattle). Their dominance isn't just regional; they lead in North America, Latin America, and Asia.
To provide a snapshot of their market prowess, Zoetis recently highlighted that pet expenditure remains unaffected even in economic downturns, where household budgets shrink by 20%.
This resilience proves the anti-cyclical nature of the animal health sector, especially the companion animal segment. Concurrently, the livestock market is set to flourish, driven by a global population surge.
By 2050, with 2 billion more mouths to feed, the demand for healthcare products for livestock will inevitably skyrocket.
Notably, Zoetis isn't just riding the wave; they're steering it. Their growth strategy is clear: sustain a 3-point premium over market growth in the long term. This ambition is backed by a robust product portfolio, continuous innovation, and a keen understanding of market dynamics. Their focus isn't just on current market leaders like parasiticides but also on potential future heavyweights in areas like atopic dermatitis, cardiovascular diseases, chronic kidney diseases, and oncology.
So, what does this mean for investors?
Zoetis' financial trajectory is promising. Their revenue forecast for this year stands between $8.575 billion and $8.725 billion, marking a 6% to 8% rise.
Their earnings per share is also set to climb, with projections between $5.03 and $5.14, up from $4.49 in 2022.
Moreover, their consistent dividend hikes, with a recent 15% increase to $0.38, signal a company that's not only growing but also rewarding its shareholders.
Overall, with its blend of resilience and growth, the animal healthcare market presents a compelling investment opportunity. Zoetis, with their strategic vision, robust product portfolio, and financial strength, is poised to lead this sector. For investors eyeing long-term growth coupled with stability, adding this company to your portfolio is undoubtedly a prudent move. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
October 5, 2023
Fiat Lux
Featured Trade:
(FROM FRUSTRATING WHACK-A-MOLE ATTEMPTS TO PRECISION STRIKES)
(MRK), (MRNA)
The age-old battle against cancer is getting a revolutionary upgrade, with our own immune systems leading the charge. Imagine if our body's defense system could be tweaked, tuned, and harnessed to target and decimate previously unconquerable tumors specifically. With the global oncology market previously valued at a staggering USD 167.9 billion in 2021 and anticipated to grow to about USD 286.3 billion by 2030, the promise of that dream is becoming closer to reality.
Take a moment and think about drugs called PD-1 and PD-L1 inhibitors. No, they don't play the ancient game of "whack-a-mole" with cancer cells. Instead, they orchestrate a sophisticated game of hide-and-seek, unmasking these rogue cells from the vigilant gaze of our cancer-hunting T-cells. The result? Some of the deadliest cancers, like melanoma and certain lung malignancies, are now seeing remarkable increases in survival rates. These advancements are epitomized by companies like Merck (MRK), whose collaborations with biotech giants like Moderna (MRNA) have pushed the frontier of cancer treatment.
However, the innovation doesn't stop there. Enter the realm of personalized cancer vaccines, the latest generals in this battle. Their might was most notably exhibited when Moderna and Merck recently announced that their investigational personalized mRNA cancer vaccine, when combined with Merck's KEYTRUDA, showed promising results in a Phase 2b trial for melanoma treatment.
By employing genetic sequencing, these vaccines pinpoint unique mutations within an individual's cancer. Much like how the COVID-19 vaccines rev up our immune response, these personalized armaments rally T-cells to specifically target and decimate cancer cells brandishing those identified mutations. In fact, such advancements are so promising that Moderna envisions creating a vaccine tailored for every unique cancer mutation.
In 2022, Joe Biden set an ambitious goal of slicing cancer deaths by half in a quarter-century. With early detection, prevention strategies, and these groundbreaking treatments, this goal could very well be within reach. This is also timely since, forecasting a glimpse into 2023, the U.S. is bracing for approximately 1,958,310 fresh cancer diagnoses. Alongside this daunting figure, the shadows of the ailment further extend with an anticipated 609,820 individuals succumbing to the disease.
Let’s dive a bit deeper into the intricacies of immunotherapy. At its heart, it’s about training our body to do what it's naturally designed to do – recognize and obliterate invaders. But cancer, being the wily enemy it is, has learned to don an invisibility cloak. That's where our new drugs, like PD-1 and PD-L1 inhibitors, along with vaccines, step in - revealing these camouflaged enemies and bolstering our body's defense forces to strike back.
Needless to say, this shift in perspective on cancer is a game-changer. Gone are the days of merely categorizing it by body parts. Now, armed with insights into the unique biology of tumors, coupled with advancements from pharmaceutical behemoths like Merck and biotech pioneers like Moderna, hundreds of different cancers can be identified and targeted.
It's undeniable that collaborations, such as the one between Merck and Moderna, have signaled a paradigm shift in the battle against cancer. Their shared vision of pushing forward in the field of personalized cancer vaccines can potentially redefine how we approach oncology in the coming years.
Yet, as with all wars, there are casualties. The treatments, while promising, aren't without risks. Unbridling the immune system, for instance, can sometimes lead to unforeseen reactions, some of which can be fatal. Nonetheless, the consensus is clear: these treatments are generally safer and potentially more effective than the traditional chemotherapy approach.
But what does this mean for the average Joe or Jane grappling with a cancer diagnosis? Simply put, a shimmering beacon of hope. While some cancers remain resilient to these advances, others are showing remarkable progress. However, staying updated with the latest treatments is crucial. This might sometimes involve enrolling in trials or seeking genetic sequencing of one's cancer to unlock potential targeted therapies.
The bottom line, as put succinctly by oncologists working on these treatments: “We’re not in the 1990s anymore.” With key players like Merck and Moderna at the forefront of these innovations, we might just be on the brink of turning the tide in this relentless war. Make sure you don’t get left behind. Buy the dip.
Mad Hedge Biotech and Healthcare Letter
September 19, 2023
Fiat Lux
Featured Trade:
(A SHOT AT HOPE)
(MRNA), (IMTX), (MRK), (PFE), (BMY), (GH), (ILMN), (NVS), (RHHBY), (BGNE), (AZN)
In a quaint Boston lab, as the first rays of dawn broke, a team of scientists, led by Moderna (MRNA), embarked on a mission. Their goal? To craft a solution to one of humanity's most persistent adversaries: cancer.
The grim reality remains that cancer is a leading cause of death in the United States. The statistics are daunting, with over 1.9 million new cases anticipated in 2023 and a projected death toll exceeding 600,000. The financial implications mirror this gravity, with costs expected to soar from $156 billion in 2018 to a staggering $246 billion by 2030.
As the world watched with bated breath, Moderna, already a household name for its COVID-19 vaccine, was silently weaving a narrative that could redefine the future of oncology.
Needless to say, the biotechnology sector, a realm of ceaseless innovation, has been abuzz with Moderna's latest venture. Earlier this month, the biotech announced its agreement with the German drug developer Immatics (IMTX) to develop cancer vaccines and therapies. As part of the deal, Moderna will pay $120 million in cash and will also make additional milestone payments.
This collaboration is not just about the financials; it's a beacon of hope for millions.
The partnership is set to merge Moderna's mRNA technology with Immatics’s T-cell receptor platform, focusing on various therapeutic modalities such as bispecifics, cell therapies, and cancer vaccines. Their combined research aims to leverage mRNA technology for in vivo expression of Immatics's half-life extended TCR bispecifics targeting cancer-specific HLA-presented peptides, among other innovative approaches.
With an upfront investment of $120 million, Moderna has made it clear: they're in it to win it. And the stakes? Potentially life-changing cancer vaccines.
However, this isn’t Moderna’s first foray into the realm of cancer treatments.
Building on the momentum of the technology of its highly potent COVID-19 shots, Moderna announced a partnership with Merck (MRK) earlier this year, combining their efforts to come up with treatments that can drastically reduce the spread of skin cancer. By leveraging Merck's Keytruda with its own innovative vaccine, Moderna has showcased the potential of such collaborations in advancing cancer treatment.
After all, the global community oncology services market is not just growing; it's clearly thriving.
From $47.95 billion in 2022 to a projected $53.79 billion in 2023, the numbers speak for themselves. By 2027, this figure is set to skyrocket to $81.33 billion. Such exponential growth underscores the immense potential and critical importance of advancements in oncology.
Yet, as expected, Moderna isn't the only player on the field.
Giants like Novartis (NVS) and Roche (RHHBY) have also thrown their hats in the ring, collaborating with known international cancer organizations to democratize access to cancer medicines. Among the myriad of promising stocks these days, though, Moderna, China’s BeiGene, Ltd. (BGNE), and the UK’s AstraZeneca PLC (AZN) shine the brightest.
Other notable contributors to the fight against cancer include Bristol Myers Squibb (BMY), Guardant Health (GH), Illumina (ILMN), and Pfizer (PFE). Their diverse portfolios and relentless pursuit of innovation are set to shape the future of oncology.
But as the curtains draw on this narrative, the spotlight remains firmly on Moderna. Their success with the COVID-19 vaccine has already etched their name in the annals of medical history. With their sights now set on cancer vaccines, the world waits with eager anticipation.
In the grand tapestry of medical advancements, Moderna's endeavors in the cancer vaccine domain promise to be a golden thread. Their journey, fraught with challenges and uncertainties, is proof of human resilience and ingenuity. As investors, we're not left standing on the sidelines watching history unfold; we're granted an active role in it.
The potential of Moderna's innovations in oncology beckons a promising horizon. For those looking to make a mark in the annals of medical investments, this biotech offers a gateway to the future of oncology. Act now, and be part of this groundbreaking narrative.
