Mad Hedge Biotech & Healthcare Letter
March 18, 2021
Fiat Lux
FEATURED TRADE:
(A BLUE CHIP STOCK SELLING AT A DISCOUNT)
(LLY), (GILD), (REGN), (SNY), (AMGN), (TEVA), (NVO), (ABBV), (BMY)
Tag Archive for: (NVO)
It’s not unheard of in the biotechnology industry to watch the stock prices of small or even mid-cap drug developers rise and fall by 30% following trial results or new drug approval.
However, when the company is Eli Lilly (LLY), which holds a $179 billion market capitalization, then biotech investors need to pay attention.
After all, the only plausible conclusion to draw from this is that there have been some seismic advancements done by the company.
Two potentially breakthrough treatments are the culprit behind the volatility in Eli Lilly stock these days.
The first is Eli Lilly’s COVID-19 program, in which the company is looking into using Bamlanivimab (LY-CoV555) solo or combining it with Etesevimab (LY-CoV016).
What we know so far is that the combo drug can lower the risk of death and hospitalization among high-risk COVID-19 patients by as high as 87%.
In November 2020, the FDA granted Eli Lilly’s Bamlanivimab Emergency Use Authorization.
The solo treatment was also authorized for the same usage in Morocco, Europe, Canada, Rwanda, and some regions of the Middle East, where Eli Lilly is collaborating with the Bill and Melinda Gates Foundation for distribution.
Last February 2021, its combo treatment received the same approval.
To date, Eli Lilly has shipped roughly 1 million doses of Bamlanivimab and is committed to supplying an additional 1 million this quarter.
To meet the demand for the Bamlanivimab-Etesevimab combo, Eli Lilly will be working with pharmaceutical titan Amgen (AMGN).
In the company’s 2020 earnings report, Eli Lilly disclosed that Bamlanivimab accounted for $871 million of their sales.
For 2021, the market for COVID-19 treatments is valued at $27.25 billion.
Taking into consideration the competitors coming up with similar medications, such as Gilead Sciences (GILD), Regeneron (REGN), and Sanofi (SNY), the conservative estimate for the sales for Bamlanivimab alone is estimated to reach roughly $1 billion to $2 billion this year.
The second potential breakthrough that’s affecting Eli Lilly’s prices is its Alzheimer’s disease treatment, Donanemab.
Eli Lilly recently released positive data from the Phase 2 trial of Donanemab, with the treatment slowing down cognitive decline by 32% after 76 weeks.
In fact, a notable decline was already observed among the patients as early as 36 weeks.
This is an impressive result, and there’s talk that Eli Lilly’s plan of possible commercialization of Donanemab by 2024 could be fast-tracked to as early as the first half of 2023.
Interestingly, the positive news was met with negative reactions by the investors.
Eli Lilly fell by 9% following the Donanemab update, sending shares tumbling from $208.18 to $189.16.
This reaction effectively erased almost $20 billion in the company’s market value.
The negative reaction to Eli Lilly’s news may be stemming from the pending application of Biogen’s (BIIB) own Alzheimer’s drug, Aducanumab, which is expected to receive word from the FDA by June.
Investors anticipate that Aducanumab’s performance would be indicative of Donanemab’s future.
Looking at the trial results though, I can say that this shouldn’t be the case. Since the beginning, Donanemab has outperformed Aducanumab in practically every aspect.
Either way, what cannot be denied here is the market opportunity.
When the market thought that Aducanumab would get FDA approval in November 2020, the share price of Biogen saw a whopping 44% jump from $246 to $354 overnight.
Meanwhile, Donanemab’s potential sales volumes have been estimated to reach over $10 billion annually.
Other than Donanemab, Eli Lilly has been developing more contenders to boost its neuroscience division. Right now, this segment generates 6.3% of the company’s total revenues.
One of the promising drugs in the portfolio is migraine treatment Emgality, which recorded a 123% increase in sales last year to hit $362 million.
Thus far, Emgality holds at least 31% of the migraine market and still has room for growth and expansion.
This is a remarkable performance considering that its competitors include Amgen’s Aimovig and Teva’s (TEVA) Ajovy.
Another solid earner is antidepressant treatment Cymbalta, which generated over $768 million in sales last year, up by 5% year-on-year.
Outside its neuroscience efforts, one of Eli Lilly’s strongest growth drivers is its diabetes franchise.
This segment accounts for roughly 47% of its revenues and is led by Trulicity with $5 billion in sales last year, up 23% year-over-year.
Eli Lilly’s diabetes program has grown so much in the past years that it now aggressively competes against Novo Nordisk (NVO), a monopoly-like presence in this space.
In fact, Trulicity has been able to successfully protect its own market share against Novo’s heavily marketed Rybelsus, with data showing that users of Eli Lilly’s diabetes injectable recorded 60% adherence levels compared to Novo’s 43%.
In terms of expansion, Eli Lilly also won a new approval for Trulicity to be used to treat cardiovascular conditions as well.
This additional indication puts Trulicity’s peak sales at roughly $7.43 billion.
In an effort to corner the diabetes market, Eli Lilly also developed Tirzepatide.
Basically, this treatment is a long-term hedge against the pending loss of Trulicity’s patent exclusivity by 2027.
However, Tirzepatide is projected to surpass its predecessor in sales and reach double-digit billions.
Overall, Eli Lilly has positioned itself well in the diabetes market.
While it’s engaged in an aggressive battle for dominance against Novo Nordisk, there’s a lot of room for both.
The diabetes treatment segment is a continuously expanding market, with its value doubling in size from 2015 to 2015. Within this period, this market is projected to grow from $31 billion to $59 billion.
Aside from its diabetes and neuroscience programs, Eli Lilly has also been active in developing its immunology and oncology segments.
This is an ambitious plan, considering that practically all pharmaceutical companies are working on treatments in this space.
After all, the auto-immune market is massive as it’s worth well over $50 billion.
One of the bestsellers in Eli Lilly’s portfolio is plaque psoriasis treatment Taltz, which grew its sales by 31% year-over-year to reach $1.8 billion last year.
Some of the major competitors in this space are Bristol Myers Squibb (BMY) with Zeposia, Sanofi’s Dupixent, and AbbVie’s (ABBV) Skyrizi.
What could be promising news for Eli Lilly is the fact that AbbVie’s ultra-bestseller Humira is going off-patent by 2023.
This means that it could open up the market to allow both Taltz and Olumiant, another top-selling Eli Lilly treatment, to grab part of the lucrative market share.
Ultimately, Eli Lilly is a business that offers a promising commercialized portfolio and a remarkable near-term pipeline, which can reasonably support an annual revenue growth rate of roughly 10% even if we don’t factor in the effects of Donanemab.
Apart from the potential aftermath of the pending Biogen news, the fall in Eli Lilly’s shares could also be attributed to the extremely high expectation of investors.
Alzheimer’s has no approved cure, and there are only a handful of treatments developed from this neurological disease—none of which are even marginally effective.
It’s normal for investors to be wary of positive data results since they’ve been down this road before and are merely attempting to temper their excitement.
Amid the selloff, I believe that Donanemab is far from a lost cause. More importantly, I think the drop in Eli Lilly’s share price presents a rare buying opportunity for investors.
Therefore, I advise buying the dip.
Mad Hedge Biotech & Healthcare Letter
December 10, 2020
Fiat Lux
FEATURED TRADE:
(A STOCK TO SWEETEN YOUR YEAR)
(NVO), (LLY), (MRK), (PFE)
Diabetes is one of the major health issues plaguing the United States, with the CDC reporting that over 34 million people are suffering from this disease – and 20% of them are not even aware of their condition.
More alarmingly, there are at least 88 million individuals that are already in the prediabetic stage.
Since the number of people with diabetes has multiplied in the past 20 years, it presents a massive market for a lot of biotechnology and healthcare companies.
In 2019, the diabetes treatment and drug sector in the US alone recorded a landmark valuation of more than $15 billion and the CDC expects this number to reach $16 billion by 2025.
That’s why it comes as no surprise that more and more companies are attempting to corner the diabetes market.
Since it was founded back in 1876, Eli Lilly (LLY) has been known as the king of the diabetes industry.
However, one competitor has been aggressively working to dethrone Eli Lilly: Novo Nordisk (NVO).
In 2019, NVO’s share in the global diabetes market reached an impressive 29%.
Now, the company aims to boost its share to reach more than 33% by 2025.
Looking at its track record, NVO’s goal of becoming one of the most dominant forces in the diabetes sector is very close to reality.
The company recorded consecutive revenue and net income increases for the past three years.
According to its second quarter report for 2020, NVO reported $4.8 million in revenue. Meanwhile, its net income reached $1.7 billion, representing an 11% boost compared to its performance in the same period last year.
NVO has also seen a promising growth from its newly launched Type 2 diabetes treatments, Ozempic and Rybelsus.
Ozempic alone has been phenomenal, with the drug already reporting $1.1 billion in sales for the first half of 2020 in the US.
This shows off an impressive 156% increase from its record during the same period in 2019 – and the drug has yet to reach its peak.
To put things in perspective, Ozempic recorded $1.7 billion in annual sales last year, a substantial jump from the $264 million it earned when it was launched in 2018.
Rybelsus is another drug expected to take in huge numbers for NVO. The drug has already brought in $64.5 million in revenue in the first six months since its launch in the fourth quarter of 2019.
While all these sound promising, NVO actually has another trick up its sleeve.
The company is planning to sustain its growth by catering to large and well-defined but underserved sectors.
Interestingly, this is similar to the strategy used by Merck (MRK) and Pfizer (PFE) from 1982 to 2000.
At the time, the two healthcare titans decided to cater to the then under-penetrated market of cardiovascular disease.
Initially, the goal was to provide treatments that can abate the risk factors of a heart disease called atherosclerosis. Merck and Pfizer isolated two issues they wanted to address: hypertension and high cholesterol.
Apart from eventually creating drugs specializing in these health issues, Pfizer went on to discover that an ingredient of its products has the sought-after side effect of letting men feel “young” and active once again.
Thus, the best selling Viagra was born.
From the way NVO has been handling its pipeline candidates, a similar result might be well on its way.
For instance, its moneymaker Ozempic is now considered a promising candidate for another underserved market: the progressive liver disease NASH.
Other than that, NVO is also working on listing obesity as a chronic disease. That way, insurers will be required to cover treatment for the condition.
To date, there are 650 million people categorized as obese and only 2% of them are seeking treatment.
Once again, Ozempic will be a stepping stone in this plan.
NVO has been testing the drug’s efficacy on diminishing the patient’s appetite, calling the experimental Ozempic application AM833.
This can gradually transform into a solid revenue source as there are roughly 460 million people suffering from diabetes worldwide, and only 6% of them are in control of their condition.
Basically, NVO is aiming to prevent complications derived from obesity and diabetes.
With such a distinct approach to the growing opportunities, NVO is undoubtedly on its way to building a mega-franchise.
Despite the COVID-19 pandemic wreaking havoc across the globe, NVO is one of the handful of companies with rising earnings expectations this year.
From the previous guidance of $2.72 earnings per share, the company increased it to $2.86 for the rest of the year. Even its 2021 forecast climbed from $3.05 EPS to $3.14.
Overall, this company offers a solid and sustainable revenue stream along with a promising pipeline of candidates with the potential to become mega-blockbusters well beyond the diabetes sector.
Mad Hedge Biotech & Healthcare Letter
September 29, 2020
Fiat Lux
(WHY THE PANDEMIC ISN’T STOPPING ELI LILLY’S WINNING STREAK)
(LLY), (PFE), (MRNA), (AZN), (GILD), (INCY), (REGN), (NVO), (BIIB)
Vaccine developers have taken center stage on Wall Street since the pandemic started, with companies like Pfizer (PFE), Moderna (MRNA), and AstraZeneca (AZN) enjoying soaring share prices for months now.
One of the primary reasons for this popularity is the US government’s Operation Warp Speed, which poured $11 billion into its chosen COVID-19 vaccine programs.
Realistically, the cold, hard truth is that a COVID-19 vaccine will not be the panacea for this deadly virus.
While the vaccine developers are rushing to complete their clinical trials, more people continue to die from COVID-19.
With almost a million deaths and over 30 million cases recorded to date, the need for treatments is more pressing than ever.
Among the companies working on COVID-19 treatments, one name has been quietly making headway: Eli Lilly (LLY).
So far, the company has two potential treatments that can cure COVID-19 patients.
One is its rheumatoid arthritis drug Olumiant, which the company developed with biotechnology firm Incyte (INCY).
Results showed that the treatment can lessen the days patients stay in hospitals when combined with Gilead Sciences’ (GILD) Remdesivir. Not only that, the combination also reduced the severity of the disease and allowed for less-intensive hospital care.
Once all the results have been tested and validated, Eli Lilly will seek an emergency authorization from the FDA.
Aside from Eli Lilly and Gilead Sciences, Pfizer is also working on a potential COVID-19 treatment. Although not much is known about the New York biopharmaceutical giant’s version of the antiviral drug, the target approval date is set in the second half of 2021.
Riding on the momentum of its successful Olumiant trials, Eli Lilly is working to extend its winning streak by being one of the first to develop a preventive COVID-19 treatment specifically designed for elderly patients.
Eli Lilly is developing the potent monoclonal antibody treatment, called LY-CoV555, with AbCellera. The Phase 3 trials conducted in nursing homes were launched in August and the company expects the results to be available by March 2021.
While using monoclonal antibody treatment is groundbreaking technology, Eli Lilly is not alone in the field.
The company faces considerable competition from other healthcare giants like AstraZeneca and Regeneron (REGN).
Nonetheless, the antibody market is massive enough for sharing, with this market estimated to rake in as much as $10 billion annually.
Conservatively speaking and assuming that Eli Lilly fails to attract major market share, there’s still a decent chance that the sales of LY-CoV555 can go beyond $1 billion every year starting 2022.
Outside its COVID-19 programs, Eli Lilly is a dominant player in the diabetes market, with Trulicity leading the charge along with up and coming products like Humalog, Jardiance, Basaglar, and Humulin.
The company is expected to attract at least 13.8% of the market share this year, ranking second only to Novo Nordisk (NVO) and its 30.7% hold of the sector.
In the second quarter earnings report this year, Trulicity sales showed a 20% year-over-year jump to reach $1.2 billion in that period.
This is an impressive performance as investors expect the diabetes drug to surpass its 2019 sales of $4.1 billion.
Although Trulicity delivers substantial sales, it is remarkable that Eli Lilly is not overly reliant on the drug.
In fact, the diabetes drug’s total revenue only accounts for less than one-fifth of the company’s overall sales.
To boost its presence in the diabetes market, Eli Lilly added another potential blockbuster in its pipeline: Tirzepatide.
This drug is projected to become “best-in-class for lowering glucose, weight loss, and cardiovascular risk.”
To date, Tirzepatide is undergoing Phase 3 trials to test it on diabetes, obesity, and heart disease. It is also queued in Phase 2 trials for the liver disease NASH.
The potential of Tirzepatide is hinged not only in being a diabetes drug but more importantly, as an obesity drug.
If successful, Tirzepatide is estimated to hit peak sales of $10 billion annually, with the number trailing by 2025 to record $3.7 billion.
Another potential moneymaker for Eli Lilly is Verzenio, which showed an impressive 56% increase in sales in the second quarter to contribute $208.6 million.
In a bid to expand its oncology pipeline, Eli Lilly is looking into adding a new indication for Verzenio as well.
The company recently released the promising results for the oral tablet as an early-stage breast cancer treatment.
If successful, this drug will be in direct competition against an industry leader, Pfizer’s Ibrance.
In terms of its neurology pipeline, Eli Lilly has also been active in developing its own Alzheimer’s program.
While most of the treatments are still in the early stages, the success of Biogen’s (BIIB) Aducanumab could provide a much-needed boost for Eli Lilly’s own Alzheimer’s candidates.
Eli Lilly offers an extensive product line that goes beyond its COVID-19 programs, underscoring the company’s resilience even during the pandemic.
After dominating in the diabetes sector, the company focused its efforts on becoming one of the top players in the oncology, immunology, and neurology fields.
Consequently, Eli Lilly has been consistent in posting first-rate earnings and revenue growth since 2017.
Eli Lilly markets treatments for life-threatening and chronic conditions, with the company owning the rights to products with consistently growing sales. It also has the ability to continuously boost its revenue stream thanks to its rich pipeline and strategic collaborations.
The COVID-19 pandemic may have negatively affected sectors of Eli Lilly’s business this year, but the company holds the qualities that make it a solid long-term investment.
Mad Hedge Biotech & Healthcare Letter
February 11, 2020
Fiat Lux
Featured Trade:
(NOVO NORDISK IS MINING GOLD WITH DIABETES)
(NVO), (LLY)
Diabetes is one of the fastest-growing and serious health conditions that affect the lives of over 50% of Americans, with 60 million more categorized as pre-diabetics. As expected, the market for diabetes treatments is saturated.
However, this biotechnology company has been hailed as one of the leaders in this sector: Novo Nordisk (NVO).
Novo Nordisk has long established itself as a major player in this lucrative market, with diabetes treatments in its portfolio primarily responsible for the 24% jump of the stock’s performance in 2019 -- an increase that has been sustained up until today.
The company’s lineup includes a number of insulin products such as Tresiba and NovoRapid, with Novo Nordisk supplying roughly 50% of the insulin distributed globally.
Meanwhile, its top-selling Type 2 diabetes drug Ozempic ranked first among all the drugs launched in 2018.
Capitalizing on the success of Ozempic as a blockbuster insulin injectable, Novo Nordisk has gained FDA approval to market this bestselling drug as a treatment to reduce the risk of major adverse cardiovascular (CV) condition among patients of Type 2 diabetes.
This is actually an impressive move since diabetics are more often than not also suffering from other comorbidities like kidney problems, obesity, and CV disease.
With this expanded indication involving CV risk reduction, Novo Nordisk’s cash cow will be on par with heavyweights like Bristol-Myers Squibb (BMY) and AstraZeneca’s (AZN) Farxiga as well as Boehringer Ingelheim Pharmaceuticals, Inc. (BIPI) and Eli Lilly’s (LLY) Jardiance.
Ozempic, which was first approved way back in December 2017 as a diabetes medication and launched in the market by 2018, has long been considered the company’s strongest moneymaker.
In fact, the first nine months of 2019 saw Ozempic bring in roughly $1 billion in sales worldwide.
Still riding the momentum of its diabetes treatments, Novo Nordisk also recently received another label upgrade that classifies its recently approved oral tablet Rybelsus as CV safe as well. Projected sales for this drug now lands somewhere between $2 billion and $5 billion.
In addition to CV diseases, Novo Nordisk has also enjoyed success on other fronts like obesity.
For instance, the company’s prescription weight loss shot Saxenda has been gaining sales momentum since its release in 2014.
The fact that Saxenda can also help improve blood sugar levels for pre-diabetic patients has made it the first of its kind across the globe.
Earning $540 million in 2018, which represented a 50% jump from its 2017 sales, Saxenda is estimated to own a 68% share of the obesity market.
Saxenda’s dominance was once again proven in its third-quarter earnings report in 2019 when the drug gained an impressive 56% increase compared to the same period in the previous year.
Novo Nordisk shares come with a bit of a steep price though, and investors are hesitant over the strong reliance of the company on its diabetes lineup. After all, 84% of its sales in the third quarter of 2019 came from this line of business alone.
However, the recent approval and expanded indication of Rybelsus as another groundbreaking Type 2 diabetes treatment both in the US and abroad makes Novo Nordisk a highly coveted investment.
Keep in mind that over 90% of diabetes cases fall under that type, so the company is poised to dominate not only a lucrative sector but also an addressable target market.
Apart from that, the early and mid-stage pipeline of Novo Nordisk offers a promising lineup.
The company has been consistent with its strategy, and that is focusing on its strengths then building on them. Right now, Novo Nordisk has a lot of up and coming candidates not only for its tried and tested diabetes market but for rare diseases as well.
Thus, Novo Nordisk sales are expected to continue its upward trajectory in 2020. If this trend continues, the company can double its earnings practically every five years.
Mad Hedge Biotech & Healthcare Letter
December 24, 2019
Fiat Lux
Featured Trade:
(TAKING A SECOND LOOK AT SANOFI),
(SNY), (NVO)
Investors on the lookout for a large-cap biotech investment have several options, with Sanofi SA (SNY) being one of the most interesting companies to consider. The French multinational pharma giant has a diverse drug portfolio which has been attracting attention recently thanks to its focus on the lucrative market of diabetes treatments.
Unfortunately, the diabetes project hasn’t been working as well as Sanofi hoped this year. Earlier in 2019, FDA rejected the company’s new diabetes candidate Zynquista. Despite this setback, the company announced more promising Phase 3 results from another diabetes treatment, Toujeo, which is aimed at children and adolescents with Type 1 diabetes.
Regardless of the roadblocks encountered by Sanofi in its bid to dominate this lucrative market, the company has been insistent in this endeavor -- a determination that’s actually pretty understandable given that the diabetes market covers over 425 million people worldwide.
So far, Sanofi has managed to be one of the leaders in this sector, with insulin injection pen Lantus working as a stable revenue driver for the biopharma for years now.
To offer a clearer perspective on the promising diabetes sector, Lantus raked in $3.95 billion in sales for 2018 alone -- an impressive growth that has been attracting competitors left and right.
In fact, this Sanofi diabetes moneymaker has been experiencing steep competition with sales slipping by over $1.17 billion largely due to the emergence of cheaper and stronger rivals in the market.
Nonetheless, Sanofi wants to maintain its stronghold so new deals are expected to crop up soon in an effort to shore up its declining Lantus revenue. Among the drugs in its portfolio, Toujeo has actually been doing quite well, raking in $930 million in sales in 2018. While this doesn’t really cover the $1.17 billion slip from Lantus sales over the same period, the figure is close enough to bring hope to investors and keep competitors at bay.
Sanofi’s strongest competitor, particularly in the diabetes market, is Novo Nordisk (NVO). The latter’s diabetes drug Tresiba has actually accounted for 84.2% of its overall sales.
While this is definitely daunting for Sanofi, the sales performance of Tresiba can also highlight a key differentiator between the two. That is, Sanofi offers a more diversified portfolio especially in terms of revenue sources. Meanwhile, Novo Nordisk is focused on the diabetes market alone.
Although both Toujeo and Lantus have been remarkable in sales thus far, Sanofi has a number of other top-performing drugs in its portfolio. After all, Sanofi isn’t just about diabetes treatments.
In terms of growth, eczema treatment Dupixent has shown a remarkable 142% jump in sales over the past year. Its revenues rose to $628 million for the third quarter in 2019. In comparison, the overall sales for Sanofi’s diabetes treatments declined by 18% since the third quarter of 2018.
While it’s easy to get distracted by the allure of the lucrative diabetes market, these treatments actually comprise a small portion of the French biopharma’s drug portfolio.
To date, Sanofi has 85 up-and-coming drugs, with 51 of these already sent to early clinical tests and the remaining 34 either in Phase 3 trials or sent for approvals. To provide a more direct comparison, reports show that only two drugs in the pipeline are aimed towards the diabetes market. The rest of Sanofi’s portfolio has 28 oncology candidates and 18 immuno-inflammation drug prospects.
Overall, Sanofi has a stable, well-rounded portfolio to offer its investors. However, stiff competition can prove to be a huge obstacle especially in the high-growth diabetes space. Its revenue growth in this sector isn’t also as remarkable as its competitors.
This doesn’t take away from Sanofi’s other products though. What it means is that it would be a better call to buy Sanofi stock once prices fall at a cheaper valuation.
