Mad Hedge Biotech and Healthcare Letter
June 1, 2023
Fiat Lux
Featured Trade:
(A PRESCRIPTION FOR LONG-TERM GROWTH)
(JNJ), (LLY), (NVO), (AZN), (KVUE)
Tag Archive for: (NVO)
If you share Warren Buffett's investment philosophy of favoring enduring companies that deliver long-term performance and passive income to investors, then you'll find yourself drawn to a compelling opportunity that aligns with his principles.
Now, an opportunity presents itself for fans of Buffett's approach.
Johnson & Johnson (JNJ), a favorite of Buffett's, has recently experienced a decline of approximately 13.38% in its share price since the start of 2023, performing noticeably worse than its primary competitors in the healthcare sector, including Eli Lilly (LLY), Novo Nordisk (NVO), and AstraZeneca (AZN).
However, despite this short-term setback, the long-term outlook for Johnson & Johnson remains exceedingly promising.
Actually, J&J has reached a significant turning point as it undertakes a transformative step. The renowned pharmaceutical giant is embarking on a spin-off of its consumer health business into a distinct entity known as Kenvue (KVUE).
While consumer health products like Tylenol painkillers and Band-Aid bandages have become familiar household names, they represent a relatively small portion of J&J's revenue compared to its pharmaceuticals and medtech divisions.
By separating the consumer health business, J&J can strategically focus on bolstering its revenue growth. This move allows the company to prioritize its pharmaceuticals and medtech segments, which have shown robust performance and hold greater potential for expansion.
Consumer health, while essential in everyday life, has experienced slower growth compared to the other two sectors.
In the pharmaceutical arena, J&J boasts an impressive pipeline with over 100 candidates in development.
With the combined strength of its existing blockbusters and promising new products, J&J anticipates a substantial surge in pharmaceutical revenue.
The company aims to elevate its pharmaceutical revenue from the current $52 billion to approximately $60 billion in the coming years, demonstrating a proactive approach to driving growth.
Simultaneously, J&J is actively pursuing opportunities to enhance its medtech division. It recently completed the acquisition of Abiomed, a specialist in heart pumps.
This strategic move now positions J&J with 12 robust medtech platforms, each generating annual sales exceeding $1 billion. Such acquisitions signify J&J's commitment to expanding its medtech portfolio and staying at the forefront of innovation in this vital sector.
Evidently, J&J's decision to spin off its consumer health business into Kenvue reflects a well-informed strategy to optimize revenue growth. With a renewed focus on pharmaceuticals and medtech, supported by a robust pipeline, blockbuster products, and strategic acquisitions, J&J is poised to propel its business to new heights in the evolving healthcare landscape.
Moreover, investors will undoubtedly appreciate Johnson & Johnson (J&J) for its remarkable status as a Dividend King, marking an uninterrupted streak of more than 50 years of dividend increases.
With the stock experiencing an 11% decline this year, a prime opportunity arises to seize passive income and capitalize on the promising growth potential that lies ahead.
Overall, J&J exhibits unwavering financial stability, consistently generating revenue, profits, and free cash flow. This financial resilience is a crucial determinant for sustainable dividend increases over the long term.
Furthermore, the company's impressive AAA rating stands as a testament to its robust balance sheet, reinforcing its ability to weather potential economic downturns, even if the forecasted recession materializes before year-end.
While J&J has faced legal battles in recent years concerning opioids and talc-based baby powder, these challenges will ultimately run their course. The company has proven its resilience time and again, triumphing over adversities throughout its extensive history.
As a Dividend King, the pharmaceutical giant is currently celebrating its 60th consecutive year of dividend increases—a rare accomplishment in the corporate landscape. Presently, the company's dividend yield of 3.03% surpasses that of the S&P 500 at 1.66%.
Although the cash payout ratio of 73% may seem substantial, J&J possesses the necessary tools to sustain its long-standing approach of gradual and steady dividend growth. Investors can find solace in the security of J&J’s payouts, allowing for a good night's sleep as they navigate the markets.
Mad Hedge Biotech and Healthcare Letter
May 23, 2023
Fiat Lux
Featured Trade:
(HUNTING FOR OPPORTUNITIES IN HEALTHCARE STOCKS)
(LLY), (NVO), (VTRS), (OGN), (MRK), (TEVA), (GI), (CNC), (PFE), (GILD), (AMGN)
I've been riveted by the healthcare sector's most extravagant stocks lately.
Just look at Eli Lilly (LLY), with its jaw-dropping market value of $412 billion, making it the richest pure-play biopharma company ever. And right on its heels is Novo Nordisk (NVO), boasting a market value of $377 billion. It's enough to make your head spin.
But if you're on the hunt for value, these sky-high prices might leave you feeling a bit queasy. That's why I embarked on a mission to uncover some hidden gems in the healthcare sector.
Now, don't get me wrong. These stocks may be cheap for a reason, and it's crucial to exercise caution. When it comes to investment opportunities, it's essential to separate the diamonds in the rough from the fool's gold.
Enter Viatris (VTRS), a rising star in the generic drug manufacturing arena that has caught the attention of savvy investors seeking long-term holdings. But is it the real deal, or just another flash in the pan?
Viatris shows potential with solid revenue from branded generics like Lipitor, Viagra, and EpiPens. These household-name medicines have a lasting market demand. Plus, its generous 5.2% dividend yield surpasses the market average.
But here's the catch: Viatris is currently undervalued and has yet to prove its growth potential. Its stock price took a hit, and sales in the core generic and branded segments dipped. However, there's hope in the pipeline.
With a range of injectable generic medicines awaiting approval, Viatris could be at the forefront of the market.
By 2027, these programs could yield over $1 billion in annual revenue. While not a game-changer for the company's overall revenue, it sets the stage for future earnings growth.
At this stage, I don’t see Viatris as a slam-dunk investment. However, monitoring their strategic plan to reduce debt, improve efficiency, and drive growth is prudent. It's a work-in-progress worth monitoring for future opportunities.
Another company that caught my attention is Organon (OGN), a recent spinout from Merck (MRK) that focuses on women's health and biosimilars. This hidden gem trades at an attractive valuation of just 4.8 times earnings.
Organon & Co. is a pioneering developer and provider of prescription therapies and medical devices catering to contraception and fertility needs.
The female contraceptive market is projected to experience robust growth, with a compound annual growth rate (CAGR) of 8.5% from 2022 to 2027. Notably, Organon is among the top 5 major corporations addressing the demands in this market segment.
But that's not all.
Organon boasts a diverse portfolio that extends beyond women's health. They also offer biosimilar immunology products, two oncology treatments, hypertension therapies, respiratory solutions, dermatology products, non-opioid pain management pills, and cures for male pattern hair loss.
On its first day of official existence, June 3, 2021, Organon's management proudly announced a lineup of over 60 drug products to enhance female health, along with Merck's (MRK) former biosimilars portfolio.
The biosimilars market is projected to soar to $44.7 billion by 2026, showing an impressive CAGR of 23.5%.
As expected, the biosimilars arena has become a bustling hub with both established and emerging companies eagerly entering the space. For instance, Teva Pharmaceutical Industries Limited (TEVA) has high hopes for its biosimilar drug targeting arthritis treatment, expecting it to boost Teva's revenue significantly.
Organon has already witnessed promising revenue growth from its biosimilar drugs, with a remarkable 17% increase amounting to $116 million.
Several drug sales have experienced a surge of over 30% in the United States, Canada, and Brazil. Moreover, Organon's brands have shown strong performance in China and the Asia Pacific/Japan region.
Investing in women's health is not only a wise choice; it's a strategic move that can yield significant rewards for individual investors and portfolios. With Organon's innovative solutions, broad product portfolio, and forward-thinking approach, it stands out as a compelling opportunity in the market.
Now, let's take a look at some intriguing names that have found their way onto the list.
We have health insurance behemoth Cigna Group (GI), trading at a mere 9.9 times earnings, alongside the health insurer Centene (CNC) at 10.3 times earnings. Not to mention the presence of renowned drugmakers Pfizer (PFE), Gilead Sciences (GILD), and Amgen (AMGN) gracing this list of bargain stocks.
These seemingly cheap healthcare stocks warrant close attention for the savvy investor seeking hidden gems. Sure, the term "cheap" can sometimes be misleading, but within these underappreciated names lies the potential for hidden value waiting to be discovered.
Mad Hedge Biotech and Healthcare Letter
May 9, 2023
Fiat Lux
Featured Trade:
(WEIGHT LOSS DRUGS: THE NEXT BIG THING OR JUST HYPE?)
(LLY), (NVO), (PFE), (JNJ), (AMGN), (ALT)
Selling hot products and crushing the competition is where the real money's at. However, the challenge is to avoid falling for the hype. You need to assess a company's growth to know if it's worth investing in for the long haul.
If you have heard of tirzepatide, then you know that this drug has taken the pharma world by storm, making Eli Lilly (LLY) the talk of the town. In fact, this popular treatment helps patients drop more than 20% of their weight. No wonder it's got everyone hyped up.
But it's not just Eli Lilly that's causing a stir. Novo Nordisk (NVO) has a similar drug that's making waves, too.
In the world of pharmaceuticals, few drugs have generated as much buzz as Lilly's tirzepatide and Novo's semaglutide. These medications are projected to be among the top sellers of the decade.
These game-changing treatments have joined the ranks of iconic meds like the birth control pill, Prozac, and Pfizer’s (PFE) Viagra.
As expected, the share prices of both Eli Lilly and Novo Nordish have gone through the roof. They're already valued at around $400 billion each, placing them right behind industry leader Johnson & Johnson (JNJ).
Still, drug development is unpredictable.
A recent reminder of this was the biotech company Altimmune's (ALT) disclosure in March that a significant number of patients in a closely watched trial of its new weight-loss drug dropped out due to gastrointestinal issues.
That’s why it's essential to distinguish between opportunity and hype. More importantly, it’s critical to determine what exactly makes Lilly's tirzepatide and Novo's semaglutide so game-changing.
First, it's crucial to know that these two drugs come in various forms and are marketed for different conditions.
Novo's semaglutide is sold under the names Ozempic and Wegovy for Type 2 diabetes and obesity treatment, respectively, as well as Rybelsus, a pill for Type 2 diabetes. Lilly's tirzepatide, on the other hand, is currently only available as Mounjaro, an injection for Type 2 diabetes, but may soon have a new name added to the roster.
The real revolutionary aspect of these drugs is their effectiveness in lowering blood sugar and promoting weight loss. They mimic natural hormones that stimulate insulin production and slow digestion, making people feel fuller for longer.
Weight loss has long been a tricky area for drug development, with previous attempts being either ineffective or dangerous, resulting in many weight loss drugs being removed from the market.
But these drugs from Novo and Lilly are proving to be safe, albeit with significant side effects, and their efficacy is impressive.
In one trial, patients using Lilly's tirzepatide lost an average of 22.5% of their body weight, while patients on Novo's semaglutide lost 14.9% of their body weight in a separate trial. By comparison, a previous Novo drug called Saxenda only cut patients' body weights by 7.4%.
Another pressing question is about the availability of these drugs.
Mounjaro and Novo's Ozempic, Wegovy, and Rybelsus are already available on the market but have been in high demand and short supply.
To address this issue, both companies have announced plans to increase production. In April, Novo revealed that it had secured a new contract manufacturer, while Lilly has stated that it plans to double its production capacity for Mounjaro and similar drugs by the end of 2023.
Considering the market size and potential for these treatments, it comes as no surprise that competitors are already emerging.
Pfizer is currently developing a similar pill to tirzepatide and semaglutide, while Amgen (AMGN) is testing a weight-loss drug that uses a different mechanism.
Lilly has other weight-loss drugs in its pipeline, including a pill called orforglipron, which could launch in 2027. This is projected to generate $9.9 billion in sales in 2030.
Despite the emergence of competition, the weight-loss market is substantial enough to accommodate several drugs. Sales of obesity drugs are estimated to reach $30 billion by 2030, not including the Type 2 diabetes indication.
It's no secret that obesity and Type 2 diabetes are among the most prevalent health issues affecting millions worldwide. But did you know that the combined market for drugs targeting these conditions is expected to skyrocket to $90 billion globally by 2030?
Given the alarming statistics provided by the Centers for Disease Control and Prevention, such a staggering figure is not hard to fathom.
Almost 42% of American adults are obese, and about one in ten have diabetes. No wonder drug companies are racing to develop effective treatments to cater to this massive patient pool.
But what's interesting is that these drugs, which are not curative, could be a cash cow for pharmaceutical companies, as patients will likely need to take them for a long time.
This is why it’s easy to be bullish on the earnings potential of drugs like Mounjaro, with estimates for peak sales ranging from a heady $100 billion a year to a still impressive $40 billion.
In the pharmaceutical industry, buzz-worthy drugs are a dime a dozen, but game-changing medications that can revolutionize an entire market are few and far between.
Lilly's tirzepatide and Novo's semaglutide are just that.
These drugs have demonstrated significant weight loss in patients and are projected to be top sellers for the next decade. Despite the risks, Lilly and Novo's drugs are impressive, as they mimic natural hormones in the body, stimulate insulin production, and slow digestion to promote weight loss.
With the weight-loss market projected to reach staggering amounts by 2030, the potential is significant, but drug development is unpredictable, and competitors will inevitably emerge. Needless to say, investors must determine if these drugs' sky-high expectations are already factored into current share prices or if there's still room for growth.
While the weight-loss drug race is far from over, it’s clear that Lilly and Novo are off to a good start.
Mad Hedge Biotech and Healthcare Letter
May 2, 2023
Fiat Lux
Featured Trade:
(QUANTUM COMPUTING IN BIOTECH)
(MRNA), (IBM), (PFE), (NVS), (ILMN), (TEVA), (NVO), (RHHBY), (GOOGL)
When you think of the pioneering biotech, Moderna (MRNA), artificial intelligence (AI) and quantum computing might not be the first things that come to mind. Instead, you might associate Moderna more with its work in traditional laboratory research and as a leading coronavirus vaccine manufacturer.
However, Moderna has taken significant strides into the realm of AI. In fact, the biotech utilized AI during the early stages of developing its coronavirus vaccine and has also implemented the technology for other business purposes.
Now, Moderna is taking things a step further by partnering with International Business Machines (IBM) to explore the potential of AI and quantum computing in enhancing its messenger RNA research.
Needless to say, this innovative collaboration could potentially revolutionize the biotech industry.
To understand Moderna's recent developments in AI and quantum computing, it's important to first have a grasp of its mRNA technology.
Unlike traditional vaccine production that involves growing viruses in a lab, Moderna produces mRNA that provides the body with instructions to treat or prevent a particular illness. This innovative process is already faster than traditional vaccine production methods. But AI has played a significant role in making the process even faster.
Moderna has been able to leverage AI and automation to scale up mRNA production significantly. In fact, the company's mRNA production for experiments went from about 30 per month to 1,000 per month thanks to AI. Additionally, AI has contributed to the generation of more effective mRNA sequence designs, saving researchers considerable time.
Let's now take a closer look at the implications of Moderna's partnership with IBM.
One of the primary areas of focus is IBM's generative AI for therapeutics, which has the potential to provide Moderna researchers with a deeper understanding of molecular behavior, facilitating the development of new molecules for therapeutics.
Moreover, IBM's expertise in quantum computing could prove invaluable in speeding up the discovery of new treatments, enabling Moderna to push the boundaries of medical research and improve patient outcomes.
Quantum computing differs from traditional computing in its use of a system that allows for states beyond the binary 1s and 0s. Quantum computers can understand information as 1, 0 or something in-between, offering the potential for individual bits to be in multiple states at the same time. This characteristic may be beneficial in modeling the dynamic interactions among drugs, enzymes, cells, and proteins that are continuously changing.
The use of advanced systems in molecular modeling has been challenging for earlier generations of hardware. However, the incorporation of quantum computing could revolutionize the way biotech companies solve these complex problems.
As a starting point, Moderna will be part of IBM's enterprise accelerator program, which provides a platform for "quantum curious" companies to invest in building their expertise in emerging areas. This program gives access to IBM's network of computing systems and specialized training on the use of quantum computing for life sciences research.
As part of this collaboration, Moderna will gain access to MoLFormer, a powerful AI model that can accurately predict a molecule's properties. This tool will prove particularly valuable in Moderna's efforts to improve the lipid nanoparticles that encapsulate its mRNA treatments.
Additionally, the partnership includes investments in generative AI programs that will assist in the design of innovative mRNA-based treatments and vaccines, helping Moderna to further cement its position as a leader in the biotech industry.
IBM had previously attempted to make a name for itself in AI-powered drug discovery, offering services through its Watson platform.
However, these offerings were ultimately discontinued in 2019. Despite once partnering with major names in cancer research such as Pfizer (PFE), Novartis (NVS), Illumina (ILMN), as well as Teva (TEVA) for drug repurposing, IBM has shifted its focus to other areas of the life sciences industry.
As quantum computing technology continues to evolve, however, its potential applications have begun to attract some of the biggest names in biotech.
Companies like Novo Nordisk (NVO), Roche (RHHBY), and Boehringer Ingelheim have partnered with industry giants like Google (GOOGL) to explore the possibilities of this cutting-edge field, which is quickly moving from the realm of science fiction into a scientific reality.
As for the question of whether these moves can be a game-changer for Moderna, the answer is likely yes.
Moderna has already experienced significant benefits from AI in its processes, both in and out of the lab. With access to IBM's platforms, there is potential for further improvements in the company's research and development of new treatments and vaccines.
Efficiency, speed, and precision are crucial factors in drug and vaccine development, and any improvement in these areas could have a significant impact on Moderna's success. Although the results of the IBM partnership may not be immediately visible, Moderna's investments in AI and quantum computing could pay off in the long run.
With continuous innovation and portfolio expansion, Moderna is well-positioned to capitalize on market opportunities presented by mRNA technology and achieve substantial revenue growth in the years ahead.
Therefore, investors should not be overly concerned about short-term stock price fluctuations or declines in revenue from coronavirus vaccines. After all, Moderna has a robust pipeline and has demonstrated significant potential with promising clinical trial results.
Hence, investors should consider Moderna as a long-term investment opportunity, making it a valuable addition to any investment portfolio.
Mad Hedge Biotech and Healthcare Letter
April 13, 2023
Fiat Lux
Featured Trade:
(SMOOTH SAILING THROUGH ROUGH WATERS)
(NVO), (LLY), (SNY)
Even in the toughest of times, some stalwart companies manage to maintain their footing and keep making strides. Novo Nordisk (NVO) has taken this feat to heart by continuing its success despite facing numerous market speed bumps—making it one resilient company worth considering.
Novo Nordisk, a veteran player in the pharmaceutical industry, has been consistently delivering impressive financial results. In 2022, the company's net sales increased by a remarkable 26% year over year, amounting to approximately $25.5 billion. However, it's worth noting that currency exchange rate fluctuations may have played a role in this growth.
The company continues to showcase impressive financial performance, with net sales surging by 26% to $25.5 billion in 2022. Even after accounting for currency exchange rate fluctuations, the pharmaceutical company's revenue still jumped by a commendable 16%. Additionally, Novo Nordisk's net profit increased by 16% to $8 billion, solidifying its position as a top-performing player in the industry.
Moreover, Novo Nordisk remains a prominent contender in the diabetes drug arena, capturing almost a third of the market share as of November 2022.
Novo Nordisk's market dominance in diabetes drugs owes much to its portfolio of effective and innovative products like Rybelsus, Ozempic, and the recently approved Wegovy. This dynamic trio has been instrumental in driving the company's sales growth and maintaining its edge in the competitive pharmaceutical industry.
Ozempic has been a critical player in Novo Nordisk's revenue stream, bringing in over a third of the company's total revenue at just under $8.9 billion last year.
Novo Nordisk's market exclusivity for Rybelsus and Ozempic remains intact, giving the Danish pharmaceutical company a few more years to maximize its potential.
Both drugs are injected weekly and heavily marketed in the U.S. With patent expirations in China in 2026, followed by Europe and Japan in 2031, and the U.S. in 2032, Novo Nordisk is likely to maintain its strong position for a while yet.
As for Wegovy, the newcomer in the obesity care market contributed just 3% of the company's total revenue, with $930 million in sales for 2022. However, with its recent approval for chronic weight management by the FDA and in the UK, the potential for growth and expansion is promising.
In its 2022 annual report, Novo Nordisk announced that it controls over half the global market for GLP-1 drugs, with a market share of 54.9% in 2022, up from 52.7% in 2021. Its primary competitors include Eli Lilly's (LLY) Trulicity and Sanofi-Aventis's (SNY) Adlyxin, which exited the U.S. market at the end of 2022.
Overall, the international diabetes market seems to favor Novo Nordisk, with its market share rising from 29.3% to 31.9% from 2020 to 2022.
The company is projected to continue its success, with sales and operating profits expected to increase in the 13% to 19% range at CER in 2023, according to its annual report. Analysts' average estimate of $30.1 billion in 2023 revenues aligns with this projection, representing a 16.7% increase at CER.
Leveraging this dominance, the company is further strengthening its position in the diabetes market, a disease affecting over 415 million people worldwide, and the numbers continue to grow. According to the Centers for Disease Control and Prevention, there will be over 500 million patients by 2040.
For instance, its recent announcement of the positive results of its Phase 3b Pioneer Plus clinical trial of Rybelsus is a further testament to its ability to innovate and stay ahead in the diabetes treatment arena. The trial showed a statistically significant reduction in blood sugar levels, indicating the potential for a more intense treatment option for type 2 diabetes patients.
Meanwhile, Obesity, a major risk factor for diabetes and other health problems, also presents a significant market opportunity for Novo Nordisk.
In fact, the company's revenue from these treatments doubled in the previous year, propelling its overall sales to an upward trajectory for the past half-decade.
Needless to say, Novo Nordisk is showing no signs of slowing down, and its strong position in the diabetes and obesity treatment market is poised to fuel its growth for the foreseeable future. I suggest you buy the dip.
