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An Under the Radar Biopharma Play

Financial markets have been incredibly volatile in the past months primarily due to the COVID-19 pandemic.

The situation was made even more unpredictable by the GameStop (GME) and bitcoin drama.

So it’s expected that investors are looking for guidance in this time of instability, and a good place to start is the Blackstone Group (BX).

Considering that the basic philosophy of this company is to “buy, fix, and sell,” it’s safe to say that Blackstone only puts its money, time, and effort in promising investments.

Around the time of the pandemic outbreak last year, Blackstone poured in roughly $2 billion investment in a biopharmaceutical company, Alnylam Pharmaceuticals (ALNY).

While Alnylam may be virtually unknown to the public, this is actually a promising company with an impressive backstory.

Founded in 2002, Alnylam is mainly known for its technology, RNAi or RNA interference.

This is a gene-silencing technique, which was discovered by Andrew Fire and Craig Mello back in 1998. The two won the Nobel Prize for it in 2006.

Even before the Nobel, Alnylam has already seen the potential of this technology and started developing it in the early 2000s.

For decades, this work had been underappreciated—up until the COVID-19 pandemic.

This is because the leading vaccine candidates right now, developed by Pfizer (PFE)-BioNTech (BNTX) and Moderna (MRNA), are both mRNA-based drugs.

Although the vaccine developers customized the technology, they still used the same delivery technique that Alnylam developed.

Clearly, there has been a lot of piggybacking on this discovery.

While Moderna, Pfizer, and BioNTech used the technology to create RNA-based drugs for the COVID-19 vaccines, Alnylam decided to utilize it to develop treatments for other diseases.

The first approval was hereditary transthyretin-mediated amyloidosis drug Onpattro, launched in 2018.

As of 2020, sales of this high-priced therapy reached roughly $300 million, ensuring that it was on pace with the company’s target.

Alnylam’s second approved treatment is ultra-rare genetic disease drug Givlaari, which hit the market early last year.

By the third quarter of 2020, sales of this acute hepatic porphyria drug climbed by $67 million despite the effects of the pandemic.

In the next decade, Givlaari is estimated to peak at $550 million annually.

By 2025, yearly sales for Givlaari and Onpattro are projected to hit roughly $1.5 billion in total.

Riding this momentum, Alnylam has been collaborating with Sanofi (SNY) to develop another rare disease drug, Vutrisiran. This could rival the company’s own Onpattro.

Aside from Vutsiriran, Alnylam and Sanofi are also working on a potential novel hemophilia treatment, Fitusiran.

The latest treatment to gain approval is rare kidney disorder drug Oxlumo, which is estimated to net Alnylam roughly $380,000 per patient annually.

While this may be a hefty price tag, it’s expected that insurance companies and governments will be the ones to ultimately shell out the money for these rare disease drugs.

Before 2021 ends, Alnylam is expected to gain FDA approval for another potential blockbuster drug, Inclisiran. This is a cholesterol-fighting treatment, which is a work in progress with Novartis (NVS).

Over the past decade, Blackstone has been quietly stashing multi-billion-dollar stakes in the life sciences.

In 2020 alone, the company poured roughly $16 billion into the industry. This is its largest investment theme for the entire year.

While this business has yet to make a dent on Blackstone’s $600 billion assets, the attention that the companies have been getting is worth noting—and a good place to start is Alnylam.

For a better context of its potential, Blackstone invested $3 billion in a dating app called Bumble (BMBL) back in 2018.

Fast forward to 2021, this company is now worth approximately $14 billion following its recent IPO.

With a market capitalization of roughly $15 billion and for a company that’s not anticipated to generate over $1 billion in annual revenue until 2022, Alnylam’s current price might be considered high by some investors.

Looking at its pipeline though, which is filled with potential blockbusters, and its track record that shows that the company definitely knows how to launch new drugs to the market, I believe Alnylam stock is worth considering right now.

alnylam

February 23, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
February 23, 2021
Fiat Lux

FEATURED TRADE:

(IS THIS THE YEAR OF BIOTECH UPSTARTS?)
(PFE), (GSK), (MRK), (SNY), (MRNA), (BNTX), (NVAX), (AZN)

Is This the Year of Biotech Upstarts?

Biotech Letter

Vaccines have long been shoved to a sleepy little corner of the biopharmaceutical world, ruled over by a handful of companies that cater to billions of dollars’ worth of demand for vaccines every year, undisturbed by newcomers.

However, the COVID-19 pandemic has made this particular corner of the industry a tad more crowded.

While there’s still no clear picture of how the next stage of the efforts to vaccinate the majority of the human population against COVID-19 will work out, what’s evident is that the dominance of the “big four” publicly-traded vaccine developers will be challenged.

That means the battle for supremacy in the vaccine market will no longer be confined within Pfizer (PFE), GlaxoSmithKline (GSK), Merck (MRK), and Sanofi (SNY).

As we’ve witnessed, the COVID-19 pandemic has provided entry points for new names in the industry, such as Moderna (MRNA), BioNTech (BNTX), and Novavax (NVAX).

By the second half of 2021, Novavax and its partners are targeting to supply 150 million doses of their vaccine, while Moderna says it would be distributing at least 600 million doses this year alone—a number that could reach a billion given the right partners in the future.

Those numbers are on par with global-level vaccine production—with Novavax and Moderna quickly gaining steam and catching up with the big players in the industry.

For context, Sanofi made 250 million doses of its own flu vaccine for the 2021 flu season.

Given that Novavax also plans to release its own flu vaccine combined with the smaller company’s momentum, Sanofi is looking at a long-term rival in this sector.

Aside from offering these smaller biotechs opportunities for growth in terms of business, the pandemic has fast-tracked the advent of next-generation technologies in the industry.

Both Pfizer and Moderna have been approved to use the pioneering messenger RNA technology to develop their COVID-19 vaccine candidates.

Apart from mRNA technology, a similarly revolutionary approach is being explored by Johnson & Johnson (JNJ): viral vector technology.

Meanwhile, AstraZeneca (AZN) and its partner Oxford University came up with their own viral vector vaccine, which has been approved in Europe.

As for Novavax, this Maryland-based company has decided to use the more conventional approach utilizing a protein subunit vaccine.

Although the exact size of the COVID-19 market is difficult to predict, it’s safe to say that it will be massive.

In terms of who could eventually get the lion’s share of the market, Pfizer is currently leading at the moment based on the government contracts the company managed to secure.

Pfizer estimates $15 billion in revenue from the COVID-19 vaccine in 2021—a number that’s two and a half times higher than its best-selling drug in 2020.

Moderna projects at least $10 billion in COVID-19 vaccine sales, while Novavax anticipates roughly $3.4 billion this year.

In the future though, there’s strong indication that AstraZeneca and JNJ will be vying for dominance for mass-market contracts. This is primarily because of their one-dose vaccine promise and the convenient storage requirements their candidates offer.

Another massive growth prospect for this vaccine is if the need for yearly boosters sticks around. This market would not only be lucrative for smaller companies like Novavax and Moderna, but even for the bigger vaccine players.

Considering the potential of this market, the current leaders of the COVID-19 vaccine race shouldn’t get too comfortable.

In fact, Sanofi and GlaxoSmithKline have already joined forces to create their own COVID-19 vaccine candidate.

So while Pfizer, Moderna, and AstraZeneca already have their products out the door, other vaccine developers still consider themselves in the running to topple them from their perch.

February 18, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
February 18, 2021
Fiat Lux

FEATURED TRADE:

(WARREN BUFFETT’S BIOPHARMACEUTICAL BETS)
(MRK), (ABBV), (BMY), (PFE), (NKTR), (VZ), (CVX), (AAPL), (BRK.B)

Warren Buffett’s Biopharmaceutical Bets

Biotech Letter

Aside from the recent big moves involving Verizon Communications (VZ), Chevron (CVX), and Apple (AAPL), Warren Buffett has also been busy with biopharmaceutical stocks.

Just before 2020 ended, Berkshire Hathaway (BRK.B) made notable changes in its positions particularly in Merck (MRK), AbbVie (ABBV), Bristol-Myers Squibb (BMY), and Pfizer (PFE).

Berkshire boosted its investment in Merck by 28.1% to reach 28.7 million shares.

Meanwhile, its AbbVie holdings were increased by 20% to hit 25.5 million shares.

It also added 11.2% in its investments in Bristol, totaling to 33.3 million shares.

In contrast, the company cut 3.7 million shares from its Pfizer holdings.

In terms of growth potential, these biopharmaceutical companies hold the most promising prospects in the next decade.

Merck, hailed as a vaccine stalwart, is behind the blockbuster cancer treatment Keytruda.

For context, Keytruda generated $14.4 billion in sales in 2020 alone.

Despite fears over the expiring patent exclusivity of this drug, the company still trades at roughly 11.5 times earnings and is actually projected to achieve 11% long-term EPS growth rate.

Merck also continues to leverage Keytruda in the development of the next generation of treatments in its pipeline.

In fact, the company recently sealed a clinical collaboration with Nektar Therapeutics (NKTR) to assess the effectiveness of Keytruda when combined with Nektar’s own bempegaldesleukin in the treatment of squamous cell carcinoma.

Other than expanding its oncology sector, Merck has been developing its animal health business as well. So far, this particular segment has grown by 7% year over year, reaching $4.7 billion in 2020.

If things work out, then Merck could emerge as a huge competitor against Pfizer’s own animal healthcare spinoff, Zoetis (ZTS), in the future.

To date, Merck has at least 31 candidates in Phase 2 trials and 25 more undergoing Phase 3 studies.

Needless to say, these will be valuable in enriching the company’s lineup especially with the challenges that Keytruda will face in the next years.

As for AbbVie, this company trades at approximately 8.3 times the earnings estimated in the next 12 months. This is well below its five-year average of 10.4 times earnings.

However, the company is projected to show at least 13% EPS growth rate in the long term.

Despite the challenges of 2020, with the company going down 2.6%, the long-term prospects for AbbVie remain positive.

Although AbbVie broke through the dermatology market following its acquisition of Botox-maker Allergan in the past year, it still has to contend with a major problem: arthritis medication Humira.

Humira is not only AbbVie’s top-selling treatment but also the best selling drug in the world today.

In 2020 alone, this anti-inflammatory treatment raked in $19.8 billion in sales. However, AbbVie might soon lose this edge since its exclusive rights to Humira in the US will expire in 2023.

Amidst the anxiety over this issue though, AbbVie continues to defy expectations.

Last year, the company reported a 65.9% growth in its net revenue despite the overall slowdown caused by the pandemic.

As for 2021, AbbVie is anticipating an even better year thanks to its portfolio diversification efforts.

To date, the company’s lineup now spans neuroscience, immunology, eye care, women’s health, and of course, aesthetics.

Meanwhile, Bristol Myers has been pegged to achieve roughly 8% growth rate in the long term. Right now, the stock trade at 7.9 times earnings estimated over the next 12 months.

Like AbbVie and Merck, Bristol has been dealing with patent expiration issues—a problem that pushed its stock down by 4.1% so far this year.

One of the major updates involving Bristol is its massive $74 billion acquisition of Celgene in 2019.

While the deal raised a lot of eyebrows at the time, it brought cancer blockbuster Revlimid into the company’s fold.

Revlimid, which still enjoys protection from a flood of generics for a few more years, has been pumping up sales for Celgene nonstop for over a decade. The drug is expected to generate the same, if not higher, profits for Bristol.

Two more blockbuster drugs in Bristol’s lineup are facing impending patent exclusivity issues, Opdivo, which would expire in 2028, and Eliquis in 2026.

Nonetheless, the positives outweigh the negatives for Bristol. After all, this company invested so much in diversification.

Sales of Opdivo, Revlimid, and Eliquis continued to trend upwards last year.

Opdivo alone managed to generate $7 billion in annual revenue, prompting Bristol to expand the indications for this product.

However, the more promising news lies in the updates that the recently launched products, like multiple sclerosis drug Zeposia and anemia treatment Reblozyl, are gaining traction in the market.

Thanks to the development of its pipeline, the company expects that its new product lineup would account for roughly 27% of its total revenues by 2025.

Overall, Berkshire’s choice of biopharmaceutical companies are offering promising growths in the next several years despite the setbacks they are facing today.

While some investors get alarmed over negative updates, it looks like the Oracle of Omaha is following his own advice: “Whether we're talking about socks or stocks, I like buying quality merchandise, when it is marked down.”

February 16, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
February 16, 2021
Fiat Lux

FEATURED TRADE:

(SHORT-SQUEEZE DRAMA: BIOTECH EDITION)
(SRNE), (NVAX), (AZN), (MRNA), (PFE), (GILD), (GME)

Short-Squeeze Drama: Biotech Edition

Biotech Letter

The fuss over GameStop (GME) has aimed the spotlight on several small- and even mid-cap stocks that hold a high level of short interest.

For quite some time now, retail investors have been identifying others with similar qualities as GME: a short interest standing at more than 20% of the total float, a market capitalization above $1 billion, and a stock price of roughly $20 per share or even less.

Now, these traders have turned their attention to the biotech industry and one stock that caught their attention is Sorrento Therapeutics (SRNE).

In 2020, Sorrento was hailed as one of the hottest COVID-19 stocks as it jumped an impressive 135% since the year started.

However, the hype dissipated quickly, with the stock falling almost 50% by August that same year.

The company’s volatility was expected considering Sorrento’s early entry, but delayed progress in the COVID-19 race.

As 2020 rolled out, investors started ditching the stock in favor of other developers like Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), Novavax (NVAX), and AstraZeneca (AZN).

Come 2021, however, the stock seems to bounce back.

Sorrento’s shares have been climbing since the year started following the company’s encouraging data on COVI-MSC, which is its entry in the race to find a potent COVID-19 treatment.

COVI-MSC works as a stem cell treatment developed for COVID-19 patients suffering from acute respiratory distress.

Based on its report in January, Sorrento disclosed that the first three individuals who went through their COVI-MSC treatment were discharged from the hospital within only a week.

Meanwhile, the fourth patient, the one who needed mechanical ventilation due to deteriorating respiratory condition, experienced rapid improvement of his condition and was discharged from the hospital the night of his third COVI-MSC infusion.

On a more promising note, none of the patients experienced any adverse effect following their COVI-MSC treatment.

Outside its COVID-19 treatment program, this San Diego-based biotechnology company has been working on therapies for cancer, neurodegenerative, autoimmune, and inflammatory conditions.

It has multiple “shots on goal” particularly in the oncology department, with its non-small cell lung cancer treatment Abivertinib as the leading candidate to date.

Sorrento’s pain management pipeline, which is headlined by Ztildo, is ripe for expansion thanks to its strategic collaboration with SCILEX.

The company also has its hands in other high-growth sectors in the biotech world, paying particular attention to non-opioid pain relief and immunotherapy.

These projects indicate that Sorrento is no one-trick pony.

In fact, even if its COVID-19 program falls flat – a very real possibility considering that COVI-MSC still needs to go through multiple trials – Sorrento has several initiatives to fall back on.

With three shots on goal, namely, its COVID-19 program, its oncology platform, and non-opioid pain treatment, Sorrento has ensured that it’s well-positioned for success.

If approved, Sorrento’s current pipeline comprising diagnostic kits and therapies could generate over $2 billion in short-term sales.

At the moment though, Sorrento’s $4.02 billion market capitalization makes it a tiny biotechnology company compared to its competitors.

Given its robust pipeline, it’s evident that Sorrento still needs to boost its capitalization to push through with all the plans.

For context, its most dominant rival in the COVID-19 treatment market is Gilead Sciences (GILD), which has $84.38 billion in market capitalization, rakes in $800 million each quarter from sales of Remdesivir.

Let’s say Sorrento expands to the vaccine market, it still cannot catch up with the leader in that arena, Moderna (MRNA), which has $70.97 billion in market capitalization.

Looking at Sorrento’s performance, this company remains an underappreciated stock loaded with potential.

From a business perspective, Sorrento offers a solid pipeline of candidates that could present promising results to push the stock price up.

At this point, the positive updates on its COVID-19 program can cause the stock price to rise exponentially, putting short sellers looking in an unfortunate position.

Overall, Sorrento has the potential to double in value. However, bear in mind that it still has a long way to go. Hence, this company is best as a long-term investment.

February 9, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
February 9, 2021
Fiat Lux

FEATURED TRADE:

(NEW GENERATION OF BIOTECH PLAYERS)
(OCGN), (PFE), (MRNA)

New Generation of Biotech Players

Biotech Letter

Thanks to COVID-19, a new generation of biotechnology players are gaining more traction in the market these days.

For decades, the biotech industry has been notoriously difficult to break into.

However, the pandemic has served to level the playing field—and the small-cap biotechs are definitely taking advantage of the opening.

The latest to cash in on the opportunity is Ocugen (OCGN).

Founded in 2013, this Pennsylvania-based biotechnology company attracted media attention when it announced its partnership with India’s Bharat Biotech earlier this month.

The agreement between the two companies centered on Bharat’s COVID-19 vaccine candidate, Covaxin, which Ocugen plans to bring to the United States as soon as possible.

Ocugen will hold the US rights to Covaxin and be in charge of the development, regulation, and even commercialization within that market.

Even without any upfront payment, Ocugen will get 45% of the profits from the US markets in return.

While the news only broke this year, the partnership between the two has been months in the making, with Ocugen reaching a tipping point in December 2020 when it recorded a jaw-dropping 800% rise.

When this deal was announced, Ocugen shares were projected to rise from $4.50 to $8, showing off an already impressive increase from its measly 29 cents valuation less than a year ago.

Ocugen blew past those projections though as it’s now trading at $15 per share.

The kicker? The stock still has room to grow.

Realistically speaking, Ocugen shares can reach $20 to $25 after FDA approval this year. If its other candidates in the pipeline work out, then we can even see it hit $50 at some point.

Considering that Ocugen was able to sell 3 million common shares at a price that’s 46% higher than where the stock was when it closed last Friday, it’s clear that there’s a lot of optimism on the company these days.

The next question is this: Will Covaxin even gain approval in the US?

It can.

If it’s any indication, Covaxin has already been granted emergency use authorization in India.

Moreover, Covaxin was developed by Bharat, which is a highly reputable biotechnology company in India with 25 years of experience in the vaccine-making industry.

In fact, Bharat has developed over 16 vaccines and four bio-therapeutics, so it’s safe to say that the company knows its way around the business.

More than that, Bharat is confident that Covaxin can be effective against the new UK and South African variants of the coronavirus, making this vaccine candidate more potent than the other products under development today.

Unlike the vaccines of Pfizer (PFE) and Moderna (MRNA), Covaxin does not need ultra-cold freezers for storage. It can simply be stored at room temperature, making it a convenient option for a lot of distributors.

Prior to its deal with Bharat, Ocugen has been focused on its gene therapy which carries the potential to treat multiple retinal diseases with just one drug.

They call their breakthrough technology “one to many,” meaning the product could be the answer to several eye-related diseases.

Some of the rare conditions Ocugen has been working on are wet age-related macular degeneration, diabetic macular edema, and diabetic retinopathy.

Ocugen’s growth prospects, especially in 2021, heavily relies on the company’s ability to get an emergency use authorization for Covaxin in the US.

This means that investors should brace themselves for volatility in the next months as the vaccine candidate moves forward with the clinical trials.

In terms of long-term prospects, it remains to be seen how Ocugen will take advantage of the momentum it gained from the COVID-19 partnership with Bharat.

ocugen

February 5, 2021

Diary, Newsletter, Summary

Global Market Comments
February 5, 2021
Fiat Lux

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