Mad Hedge Biotech and Healthcare Letter
November 16, 2023
Fiat Lux
Featured Trade:
(A GENE GENIE AGAINST CHOLESTEROL)
(VERV), (CRSP), (BEAM), (NVO), (AMGN), (REGN)
Tag Archive for: (NVO)
CRISPR technology, long heralded as a game-changer in genomics, stands on the brink of a major leap forward. For years, its potential has simmered, but now, it's poised to ignite, promising scientific breakthroughs and significant investment opportunities.
Several pioneering companies employing CRISPR for editing human genomes are at the forefront of this revolution. Their goal? To treat, and potentially cure, a range of genetic diseases. The approaches are twofold: ex vivo, where genes are edited outside the body, and in vivo, with modifications made directly within the body.
Investing in CRISPR gene-editing stocks, however, is not for the faint-hearted. These stocks are characterized by high risk and volatility, demanding a specific investor profile: one that is aggressive and comfortable with risk. For such investors, a company worth considering is Verve Therapeutics (VERV).
Verve stands out, partly due to its relatively modest size with a market capitalization of $732 million. This contrasts sharply with industry peers like CRISPR Therapeutics (CRSP) and Beam Therapeutics (BEAM), valued at $4.47 billion and over $2 billion, respectively. The reason behind Verve's smaller scale is its developmental stage, which lags behind its counterparts.
Established in 2018, Verve has been hailed as a potential leader in next-generation gene therapy, particularly base editing.
You can think of base editing as using a fine-tipped pen to precisely change just one letter in the DNA sequence, without cutting the DNA strand.
In our DNA, there are four "letters" (bases) – A, T, C, and G. Base editing lets scientists directly convert one letter to another (like changing an 'A' to a 'G') without cutting the DNA. This is like fixing a typo in a sentence by carefully erasing one letter and writing in the correct one.
This method is often more precise than CRISPR and less likely to introduce errors because it doesn't involve cutting the DNA strand.
Verve has capitalized on this technology, in-licensed from base-editing pioneer Beam Therapeutics. The company's flagship candidate, VERVE-101, targets heterozygous familial hypercholesterolemia (HeFH), a rare cholesterol disorder.
Needless to say, the stakes are high. The HeFH market is projected to balloon to nearly $60 billion by 2033, positioning VERVE-101 as a potential one-time functional cure and a standard of care in this lucrative market.
Recently, Verve announced that there was a substantial reduction in patients' high cholesterol levels in the first human test of base editing. Despite this, the stock experienced a sharp 41% drop, possibly a misinterpretation of the positive news in an unfriendly biotech market.
The data presented showed Verve's treatment leading to a 40%-55% decrease in harmful LDL cholesterol levels in patients with genetically high cholesterol levels. Verve's approach targets and inactivates the defective gene responsible for high cholesterol levels.
The treatment, however, faced challenges. Two of the Verve-101 trial participants suffered heart attacks, one of which was fatal.
It's crucial to note that the trial specifically included older patients with advanced heart disease, who were already at a heightened risk for cardiac events. The overall safety measures in the study were satisfactory, though, so the FDA has since authorized an expansion of the Phase 1 trial.
Notably, Eli Lilly (LLY) reviewed the trial's results before deciding to buy an option to partner on the Verve treatment. Lilly's decision on teaming up on the cholesterol treatment is expected next year, following the completion of Phase 1 trials.
Additionally, Verve plans to initiate trials for another base-edited therapy, VERVE-102, in the first half of 2024, potentially offering enhanced patient outcomes.
Verve’s trial results match that seen with established medications such as Novartis' Leqvio (NVS), Amgen's Repatha (AMGN), and Regeneron Pharmaceuticals' Praluent (REGN), which are all approved long-term drug therapies.
However, despite the availability of statins and new treatments, a significant portion of these patients fail to maintain healthy cholesterol levels due to cost, treatment adherence issues, or inconsistent healthcare access.
This is where the biotech company’s solution shines. Verve's ultimate goal is to develop a one-and-done treatment to lower cholesterol in the 50 million adults at risk for cardiovascular disease.
While Verve remains a preclinical-stage biotech, its prospects are promising. Its market cap, though modest compared to the commercial opportunity of a functional cure for HeFH, hints at significant growth potential.
With Lilly's track record in developing drugs for underserved conditions, Verve emerges as a compelling investment for those with a high tolerance for risk and an eye on future biotech breakthroughs. I suggest you put this stock on your watchlist.
Mad Hedge Biotech and Healthcare Letter
November 14, 2023
Fiat Lux
Featured Trade:
(REWRITING BIOPHARMA’S TRADITIONAL SCRIPT)
(AZN), (JNJ), (BMY), (NVO)
In the high-stakes game of pharmaceutical innovation, AstraZeneca (AZN) isn't just playing to win; it's rewriting the rulebook.
A century-old company, born in the quiet labs of 1913 Sweden, AstraZeneca has become a linchpin in today’s cutting-edge medical advances. This isn't merely a story of corporate survival; it's a journey of transformation, emblematic of how old-world tenacity meets new-world innovation.
As we navigate the intricate world of biotechnology and healthcare, where even giants like Johnson & Johnson (JNJ) and Bristol Myers Squibb (BMY) wobble despite outperforming estimates, AstraZeneca emerges as a study in strategic agility.
Picture this: a company whose shares have seen a 5.7% dip this year, yet it stands as a beacon of opportunity for the discerning investor.
Trading at 15.6 times expected earnings over the next 12 months, it beckons with a valuation that whispers promise, floating below its five-year average.
Needless to say, these aren’t only financial figures but signposts pointing towards a rare investment opportunity in a volatile marketplace.
Let’s delve into the heart of AstraZeneca’s financial anatomy.
Twelve medicines in its arsenal are each marching towards the $1 billion revenue mark this 2023. Tagrisso, its flagship drug, contributes a mere 13.1% to its first-half revenue, showcasing a diversified portfolio that's resilient and well-balanced.
However, innovation isn't without its hurdles.
AstraZeneca faced a 16% decline in Soliris revenue due to patient transitions to newer treatments.
Here lies a lesson in the pursuit of progress – commitment to innovation and affordability can sometimes be a double-edged sword, affecting short-term gains but setting the stage for long-term sustainability. Still, AstraZeneca isn’t one to dwell on its losses for long.
Now, let's turn the page to AstraZeneca's audacious new chapter: entering the fiercely competitive arena of weight-loss medication.
Through a licensing agreement with China’s Eccogene, it's poised to develop an oral medication in the same class as Novo Nordisk’s (NVO) Wegovy drug.
But, the key factor that distinguishes AstraZeneca’s efforts is the pricing, which the company aims to be roughly half the current cost today.
To put things in perspective, Wegovy is priced at $1,349.02 per package. This figure unfolds into a weekly cost of $269.80. When extended over the span of a year, the drug becomes a more substantial financial commitment at $16,188.24.
Notably, the success of Wegovy has catalyzed Novo Nordisk's shares to soar by almost 50% this year.
Given the demand and AstraZeneca’s plan to adjust the price point, this is more than a simple business move for AstraZeneca; it's a venture that could redefine the accessibility of treatments for conditions like diabetes and obesity, impacting over 1 billion people globally.
In the crucible of the pandemic, AstraZeneca partnered with Oxford University to forge a path in the global health crisis, delivering over 3.5 billion doses of a COVID-19 vaccine worldwide.
Looking ahead, AstraZeneca’s leaders view obesity as another pandemic, signaling a strategic shift that melds business acumen with a commitment to global health.
Meanwhile, the latest earnings report from AstraZeneca is proof of its resilient business model.
Amid a 5.7% dip in its shares, the company's outlook is bullish, with an expectation of a low-teens percentage increase in total revenue excluding COVID-19 drugs.
This projection, backed by a 6% year-over-year revenue growth to $22.3 billion and an adjusted core EPS increase of 13% to $4.07, isn't only impressive; it's a narrative of sustained growth amidst adversity.
In conclusion, AstraZeneca's journey isn’t confined to financial returns; it's about being part of a narrative that’s shaping the future of healthcare innovation. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
November 7, 2023
Fiat Lux
Featured Trade:
(OUTSMARTING OPIOIDS)
(VRTX), (LLY), (NVO), (BIIB)
Amid the stark realities of America's opioid crisis, with a staggering 80,000 annual fatalities due to overdose, the pharmaceutical industry is on the brink of a significant shift.
Vertex Pharmaceuticals (VRTX) stands out with its investigational drug VX-548, which promises a novel approach to pain management without the addiction risks of opioids. As the year winds down, this biotechnology company is poised to reveal findings from four clinical trials that could catapult VX-548 into the market spotlight.
Needless to say, the stakes couldn't be higher for Vertex.
The commercial success of VX-548, particularly in the chronic pain market, could mark a significant turning point. While generic opioids are cost-effective for short-term use, their potential for addiction and other risks make a non-addictive alternative like VX-548 an attractive proposition for insurers and patients alike.
Drawing parallels to the recent rise of GLP-1 obesity drugs by Eli Lilly (LLY) and Novo Nordisk (NVO), VX-548 could potentially mirror their impact.
Successful trials could see VX-548 generating annual revenues of $5.1 billion by 2030 — a substantial addition to Vertex’s current cystic fibrosis portfolio, which pulls in just shy of $10 billion.
Yet, it's essential to temper enthusiasm with a dose of reality. After all, the biotech sector is no stranger to the pitfalls of high expectations.
Past failures in the nonopioid pain sector underscore the importance of cautious optimism. Nerve growth factor inhibitors, once hailed as a breakthrough, faltered due to safety concerns, highlighting the unpredictable nature of drug development.
VX-548 aims to circumvent these issues with its unique mechanism of action that targets pain signaling at the peripheral nervous system—potentially a significant advantage over central nervous system-targeting opioids.
So, investors must weigh the risk-reward ratio of betting on Vertex ahead of these results.
This treatment’s success in acute pain management could result in a significant uptick in Vertex's stock value. Analyst projections suggest a potential increase of $58 per share if VX-548 matches opioid efficacy, with an $88 increase if it surpasses it. Should the chronic pain trials yield positive results, the stock could climb an additional $119 per share.
However, like I said, it's crucial to approach these numbers with caution. The market's response to trial outcomes can be unpredictable, and the memory of recent high-profile disappointments, such as Biogen's (BIIB) Aduhelm, still lingers.
In light of this, the downside should not be understated — a failed trial could see Vertex's stock take a substantial hit, potentially up to 20%.
Nevertheless, the financial health of Vertex remains strong even sans this pain management candidate. In fact, its top-selling TRIKAFTA/KAFTRIO patents are secured through 2037, accounting for a dominant 89.9% of sales.
This foundation provides a buffer against the inherent risks that come with drug development. With operating margins at a solid 45.6% and a GAAP EPS increase of 30.8% quarter over quarter, Vertex displays a financial resilience that may be reassuring to interested investors.
Taking everything into consideration, investors stand at a crossroads, with the potential of VX-548 offering both promise and uncertainty. The decision to invest now hinges on more than just the outcomes of the trials; it requires strategic consideration of the broader market, potential competitors, and the overarching trends in pain management.
As Wall Street watches with a trained eye, the early indications from Vertex’s trials suggest that VX-548 has a fighting chance to succeed where others have faltered.
If its subsequent tests affirm its potential, VX-548 could not only transform the company’s financial landscape but also mark a significant advancement in the fight against the opioid epidemic — a win for both public health and discerning investors. 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
September 28, 2023
Fiat Lux
Featured Trade:
(TIPPING THE SCALES)
(NVO), (LLY), (PODD), (TNDM), (DXCM), (RMD), (INSP), (MDGL), (ISRG), (AKRO), (ETNB)
The pharmaceutical world is buzzing, and it’s all thanks to the groundbreaking obesity drugs from Novo Nordisk (NVO) and Eli Lilly (LLY). In my previous newsletter, I delved into the massive potential of these new treatments, and it sparked a flurry of discussions. So, this time, I want to peel back the layers and explore how these advancements affect other companies within the same market.
After all, their emergence creates a paradoxical narrative, a dance of shadows and lumens. These drugs, renowned as the modern panacea for the obesity crisis, have catapulted the companies behind them into unprecedented valuations, making them luminaries in a market awash with investors hungry for the next big thing.
The enthusiasm surrounding these drugs is not unfounded; they are pivotal in treating type 2 diabetes and are seen as the desperately needed solution to the widespread obesity crisis. The groundbreaking medications introduced by Novo Nordisk and Lilly are enabling individuals to lose approximately 15% to 20% of their body weight, with Wall Street anticipating the combined annual sales of these revolutionary drugs to surpass $40 billion by the close of this decade.
However, the shadows of GLP-1s cast a contrasting pallor on companies that burgeoned in tandem with America’s expanding waistlines.
Firms like Insulet (PODD) and Tandem Diabetes Care (TNDM) are witnessing a decline of 40% and 50% in their values this year, respectively.
Similarly, DexCom (DXCM), the frontrunner in glucose monitoring, has experienced a 16% dip, and ResMed (RMD), the stalwart in CPAP machines treating sleep apnea, has seen its stock plummet by 30%. Inspire Medical Systems (INSP) and Madrigal Pharmaceuticals (MDGL) have also encountered significant drops in their shares.
These companies, once the darlings of the medical stock market due to their escalating sales growth, are now facing the brunt of a shifting investor focus. This is because the investment community is envisioning a future with a reduced prevalence of diabetes and sleep apnea and is consequently retracting their stakes in these stocks, leaving companies and investors navigating through a sea of uncertainties.
By early spring, the potential impact of widespread GLP-1 usage became the focal point of strategic discussions at numerous hedge funds. That led to a shift as some started withdrawing from stocks like DexCom and Madrigal, subsequently opting to short-sell these shares. The broader market tuned in this summer.
A case in point is Intuitive Surgical (ISRG), a leader in surgical robotics, which noted during its earnings call that a preference for trying GLP-1s was leading to a deferment in weight-loss surgeries. Although these procedures constitute a minor segment of robotic surgeries, they have been instrumental in driving Intuitive’s growth.
GLP-1s have also affected the demand for insulin injections. Recently, endocrinologists have suggested that GLP-1s could potentially delay the transition to insulin for a significant portion of Type 2 patients. This revelation triggered a recalibration of sales forecasts and stock price targets, with Insulet experiencing a downgrade in both target price and rating.
Meanwhile, the growth prospects of glucose monitor manufacturer DexCom in the Type 2 market remain positive. The integration of glucose monitors with GLP-1s is anticipated to become a prevalent trend among diabetic patients. Despite a temporary rally in DexCom stock, the lingering question remains whether the expanding use of GLP-1s will eventually reduce the demand for glucose monitoring.
Vendors of sleep apnea devices, such as ResMed and Inspire Medical, are also conveying to investors the minimal impact of GLP-1s on their markets. However, the debate continues on the intrinsic link between obesity and sleep apnea and the potential repercussions of GLP-1s on the entire sleep apnea spectrum. As market dynamics continue to shift and the ripple effects of GLP-1s become the focal point of discussions, more and more questions about the future landscape of obesity-associated medtechs arise.
The positive developments in GLP-1s have also cast a shadow over another sector: liver medications.
In June, revelations about Lilly's investigational drug, retatrutide, sent ripples through the sector. The drug not only facilitated a 24% weight reduction in subjects but also significantly diminished fat levels in their livers. This development impacted the stock values of companies like Madrigal Pharmaceuticals, Akero Therapeutics (AKRO), and 89bio (ETNB), pioneers in crafting remedies for the fatty liver condition known as NASH. While it remains to be seen how much these stocks will fall, it’s evident that their decline has already started.
The market is a tumultuous sea of uncertainties, with companies and investors meticulously navigating the evolving dynamics. For the astute investor, the key is to learn how to strike a balance between the old and the new.
The allure of GLP-1s might lead to a reevaluation of the medtech sector’s prospects, but companies like Insulet, ResMed, and Inspire still hold resilience in a GLP-1-dominated landscape.
Ultimately, it’s about understanding the intricate push and pull of shadows and light. The wise investor doesn’t just follow the light; they also understand the shadows, learning to see the opportunities lurking within.
So, delve deep, recalibrate your strategies, and remember, the paradox is not a roadblock; it’s a guidepost to new horizons in pharmaceutical innovation.
