Mad Hedge Biotech & Healthcare Letter
September 24, 2020
Fiat Lux
(PLAY YOUR CARDS RIGHT WITH MODERNA)
(MRNA), (PFE), (AZN), (BNTX), (JNJ), (MRK), (VRTX), (CRSP)
Posts
The COVID-19 race is entering the home stretch, and it could only be a matter weeks before the world finds out which among the leading vaccine candidates will work.
For months, Moderna (MRNA) has been dubbed as the leader of the pack, with the company’s shares reaping the rewards thanks to this year’s wild growth and promising clinical results.
Now, it looks like Moderna is on the verge of officially claiming the crown as promising reports surfaced from its late-stage clinical trials.
If the Moderna’s COVID-19 vaccine candidate, called mRNA-1273, is proven to be at least 70% effective, the company will immediately ask for an emergency authorization to use it on high-risk patients.
Like Pfizer (PFE), Moderna is also expecting results to come as early as October. With potential delays in the trials, the company thinks the data would be released by November at the latest.
Moderna is also looking into building footprints outside the United States.
Part of its efforts to expand its potential market reach for mRNA-1273, Moderna opened a commercial hub – its first ever – in Switzerland, where it has already been collaborating with Swiss drug manufacturer Lonza (SWX: LONN).
This is a good move for Moderna.
After all, Europe presents a substantial market for the COVID-19 vaccine. For context, the European Union has over 446 million people while the US only has 328 million.
To date, Moderna has agreed to supply 100 million doses of its COVID-19 vaccine to the US government for up to $1.525 billion. The contract also provides for an optional additional 400 million doses, depending on mRNA-1273’s performance in the trials.
Meanwhile, Moderna already secured a deal with the Swiss federal government to deliver 4.5 million of mRNA-1273.
While it has yet to announce a similar deal with the rest of the EU, the company is reported to be in the advanced stages of its negotiations with other member countries, where it is estimated to provide an additional 160 million doses.
Overall, the global manufacturing projection for Moderna falls somewhere between 500 million and 1 billion doses starting in 2021.
Looking at the agreements, we can conservatively say that mRNA-1273 could rake in $12.4 billion in sales for Moderna by 2022.
Despite the current payment plans implying that each dose of Moderna’s vaccine would only cost $15.25, the company already received government funding of roughly $2.5 billion.
Taking those expenses into account, the actual value would be somewhere between $25 and $30 per dose.
In comparison, Pfizer’s vaccine candidate with BioNTech (BNTX) is estimated to cost less than $19.50 per dose while Johnson & Johnson (JNJ) announced that it will offer its vaccine at $10 per dose.
Meanwhile, AstraZeneca’s (AZN) candidate with Oxford University is expected to be even cheaper at $2.96 to $4 per dose.
With its COVID-19 vaccine rivals offering decidedly cheaper options, Moderna will need to leverage its first-mover advantage if it hopes to fight for a decent market share.
Outside COVID-19 vaccine efforts, Moderna has a rich pipeline, with 23 candidates distributed over 22 programs and 6 modalities.
Aside from the urgent need to offer a vaccine to the world, there is another reason why Moderna is focusing on the COVID-19 program right now.
If proven successful, the program can be used to validate another experimental vaccine, called mRNA-1647, which targets congenital cytomegalovirus infection.
Although CMV is identified as one of the leading causes of birth defects in the US, there remains no approved vaccine for it.
However, there is a catch.
Moderna will not be able to reap the full benefits of the CMV vaccine.
In fact, it will only be able to receive 50% of its profits if it becomes successful since mRNA-4157 is being developed alongside Merck (MRK).
The idea is for the drug to boost the oncology sector of Merck, with the goal of finding another blockbuster like the melanoma drug Keytruda.
As impressive as the CMV vaccine is as a product to launch in the market, there is a huge possibility that Moderna would not necessarily benefit from a large windfall because of it.
Aside from Merck, Moderna is also working with another biopharmaceutical giant and competitor in the COVID-19 vaccine race: Vertex (VRTX).
Moderna and the Massachusetts-based giant are collaborating to develop a treatment for cystic fibrosis, a niche that Vertex has dominated for years.
This is actually their second collaboration, but this project seems a tad more ambitious than the earlier one: Moderna and Vertex are working to develop a one-time treatment for cystic fibrosis using mRNA technology.
Basically, the two companies want to use gene-editing techniques to modify a patient’s DNA and correct the cells that cause cystic fibrosis.
The collaboration will span 3 years, with Vertex paying Moderna $75 million upfront. The smaller biotechnology company is also eligible for an additional $380 million in milestone payments plus royalties.
Notably, this is not the first cystic fibrosis treatment collaboration that Vertex formed with gene-editing companies.
Earlier this year, the company also secured a license option with CRISPR Therapeutics (CRSP) to work on practically the same thing.
Clearly, Vertex is hedging its bets on two potential options with this second partnership with Moderna.
Thanks to its trailblazing COVID-19 vaccine candidate, Moderna has become one of the most sought-after stocks of 2020, with its year-to-date growth reaching a stunning 360% last July.
Despite the temptation to bet big on Moderna stocks, bear in mind that early leaders like this biotechnology company will be facing incredible pressure from pharmaceutical titans like Pfizer, Johnson & Johnson, and AstraZeneca – all of which have the capacity to meet the manufacturing and distribution demands across the globe.
At best, a company with Moderna’s size would probably receive a slice of the market in the early days.
At worst, it might struggle to keep a foothold as stronger and larger competitors flood the market with cheaper but equally effective alternatives.
Nonetheless, this is not to say that you should completely avoid smaller biotechnology companies just because they are too small to compete with the larger fish.
Rather, I think it would simply be prudent to invest based on each player’s proven ability and outlined plans to meet the demand at a mass scale.
Doing so would guarantee that you not only limit your risks but also allow you to reap the rewards of successful vaccine deployment. If you play your cards right, then you might even get a handful of different COVID-19 vaccine winners in your back pocket.
Mad Hedge Biotech & Healthcare Letter
September 22, 2020
Fiat Lux
Featured Trade:
(WHY MERCK IS UNDER-APPRECIATED IN THE COVID-19 RACE)
(MRK), (PFE), (MRNA), (RHHBY), (REGN), (BMY), (GILD)
The excitement over the COVID-19 vaccine candidates has boosted the shares of the most widely reported companies like Pfizer (PFE) and Moderna (MRNA). Meanwhile, other developers have not received the same love from investors.
However, it looks like another COVID-19 vaccine player will be joining Pfizer and Moderna under the spotlight: Merck (MRK).
Merck recently announced that it is now ready to test its vaccine on humans. The trials will be conducted in Germany, and the company has been scouring government databases for viable volunteers.
Unlike Pfizer and Moderna, which are utilizing a novel technology that will need two vaccine doses to be fully effective, Merck is working on two different COVID-19 vaccine candidates designed to work with only a single dose.
This could offer Merck a clear advantage over its competitors.
Also, one of Merck’s candidates could be taken in oral form. This is another significant advantage since it would make the vaccine easier and more convenient to administer.
Merck’s vaccine candidates contain a destabilized version of the same virus that causes measles. This virus is then used to deliver the coronavirus’ spike protein to the patient’s immune system, which would trigger an immune response.
The goal is not only to create a vaccine that would offer protection using a single dose, but also utilizing an existing and reliable technology that can be readily scaled up for mass production.
Since we need to immunize roughly 7 billion across the globe, Merck’s plan to manufacture a single-dose vaccine would be more convenient instead of using multiple doses.
Overall, the COVID-19 vaccine market could reach $50 billion in revenue by 2030.
Apart from its vaccine candidate, Merck is also looking into an antiviral treatment for COVID-19 patients
If successful, this product would be competing against Gilead Sciences’ (GILD) Remdesivir. Just like one of its vaccines, Merck is also developing a treatment in oral form instead of a hospital infusion.
Merck’s Remdesivir alternative can reduce the severity of the COVID-19 by interrupting the virus’s capacity to replicate.
Unlike Gilead’s drug, which can only be used in severe cases, Merck’s candidate can be prescribed immediately after a patient is diagnosed with the disease.
This COVID-19 cure is set to begin its Phase 3 trial this September, with Merck is confident that it can manufacture millions of doses before 2020 ends.
Experts dubbed this drug as an “underappreciated COVID-19 treatment,” which is estimated to reach blockbuster status.
Aside from not getting enough credit for its COVID-19 efforts, Merck is also not receiving enough attention for its pipeline.
So far, the company holds the leading drug that boosts the immune system to fight off cancer: Keytruda. It also has one of the leading vaccine franchises in the world.
Keytruda can easily generate $14.5 billion in sales in 2020 alone, which represents a 30% jump from its 2019 performance. More importantly, the drug can reach $22 billion by 2025.
However, investors are worried over Merck’s dependence on the drug, which comprises 30% of its revenue. In fact, Wall Street keeps zeroing in on the 2028 patent expiration of Keytruda.
At the moment, Keytruda faces competitors like Roche Holding (RHHBY), Regeneron Pharmaceuticals (REGN), and Bristol Myers Squibb (BMY).
However, Merck is not the type to put all its eggs in a single basket.
The company is developing new products that can generate an additional $13 billion to $18 billion in sales annually.
Among these treatments is another potential immuno-oncology antibody, which has been sent to clinical trials this year. Merck also has a long-term HIV treatment queued for clinical studies.
One exciting drug candidate is ARQ531, which is a potential cancer therapy. This projected blockbuster was part of Merck’s $2.7 billion acquisition of ArQule in January.
Other than this acquisition, Merck also obtained the rights to several cancer treatments, which are hailed to be more effective than the conventional chemotherapy, thanks to its acquisitions of Astex Pharmaceuticals and Taiho Pharmaceuticals.
In terms of its vaccine franchise, this arm of the business is projected to generate $9 billion in annual sales in 2021, with the revenue steadily rising to $100 billion in the next several years.
In particular, Merck is looking into developing further its cervical cancer vaccine Gardasil. So far, this vaccine is estimated to generate roughly $3.9 billion in sales in 2020 and reach $5.5 in 2023.
The focus on boosting its vaccine franchise is a strategic move considering that vaccines are generally a durable business and are typically immune from any generic competition.
Although it is not one of the leading vaccine developers in the COVID-19 race, Merck has positioned itself as the leader in the cancer drug development sector and its distribution over at least the next decade.
I believe that Merck’s prudent business, strategic acquisitions, and exciting pipeline will gradually push the stock to the top.
In summary, I think that Merck is a good stock to buy. For those searching for a strong biopharmaceutical play at a reasonable price, this company should be on your shortlist.
Mad Hedge Biotech & Healthcare Letter
September 17, 2020
Fiat Lux
Featured Trade:
(SHOULD WE CROWN PFIZER AS COVID-19 VACCINE KING NOW?)
(PFE), (BNTX), (MRNA), (AZN)
Pfizer (PFE) has never been coy about playing up the potential of its COVID-19 vaccine candidate, BNT162b2, which it co-developed with German biotechnology company BioNTech (BNTX).
Now, it looks like the New York-based biopharmaceutical giant is putting its money where its mouth is.
Pfizer recently announced that it would be able to send BNT162b2 for FDA review as early as October.
More impressively, the company claims that if its COVID-19 vaccine gets approved, then it can start distribution in the US by the end of 2020.
In fact, Pfizer has already started manufacturing hundreds of thousands of doses of the vaccine.
Only a handful, if any, of the companies working on a COVID-19 vaccine are as confident as Pfizer. So far, only Moderna (MRNA) and AstraZeneca (AZN) can claim to be close rivals of the company.
Boosting the claims of Pfizer that it can produce results by October is the company’s decision to expand its Phase 3 vaccine trial. From the originally approved 30,000 participants, Pfizer seeks to add more to reach 44,000.
The expanded patient pool will include participants as young as 16 years old. Those with HIV and Hepatitis B and C will also be added to the list. Pfizer will also recruit more African Americans and Latinos. To date, the list includes 60% white and 40% people of color. Meanwhile, older participants comprise 44% of the group.
Like its fellow vaccine developers, Pfizer has also secured deals with different countries.
In July, the company secured a $1.95 billion contract with the US government. This deal will cover 100 million doses of BNT162b2, which is priced at $19.50 per dose. The contract also offers the government the option to add 500 million doses to its initial order.
BNT162b2 requires two doses, the initial shot and the booster shot. This puts the actual price for the two-dose regimen at $39.
In the same month, Pfizer also reached an agreement with the UK government to supply 30 million vaccine doses. Even Japan’s Ministry of Health reached out to the company and forged an agreement for 120 million doses.
Pfizer and BioNTech estimate that it will need to produce 100 million doses by the end of 2020 and 1.3 billion doses to cover the demand worldwide.
Pfizer expects the sales for BNT162b2 to peak this year and throughout 2021. It might even reach the early months of 2020.
After this period, the vaccine will still be able to provide a steady revenue stream thanks to regular and repeat vaccinations over the next years.
So far, Pfizer accounts for roughly 13% share of the vaccine market across the globe. This competitive advantage would make it quite convenient for the company to leverage this status to capture a minimum of 6% of the COVID-19 vaccine market.
A conservative estimate for this market size would put Pfizer’s annual earnings after the peak sales period of the vaccine at roughly $1.52 billion.
However, Pfizer’s dominance in the COVID-19 vaccine race is not confined to its widely publicized work on BNT162b2.
Unlike its competitors that fielded only one candidate each, Pfizer and BioNTech included four potential messenger RNA-based vaccines in their studies. Ultimately, they chose to move forward with BNT162b2.
While everyone is focused on how the candidate will fare in the trials, Pfizer and BioNTech quietly initiated a Phase 1 clinical study for their fifth and virtually unknown candidate: BNT162b3.
This move by Pfizer and BioNTech echoes the strategy its leaders shared in the beginning.
By having “multiple shots-on-goal,” the companies are in a great position for the “long-term catch-up vaccination, revaccination, and/or pandemic stockpiling markets."
After all, the first wave of COVID-19 vaccines that reach the market will not be the endgame.
Similar to most contagious diseases, follow-up vaccines with higher efficacy and proven to be safer than those released earlier would have the chance to attract a substantial market share.
With the fifth vaccine candidate, it is clear that Pfizer and BioNTech do not simply want to be the first to launch a COVID-19 vaccine. Both companies aim to become the most dominant players in the coronavirus vaccine market over the long run.
Overall, Pfizer has once again chosen a diversified approach in dealing with the tight competition in the COVID-19 race.
This strategic decision could be one of the most compelling reasons to bet on this big biotechnology and healthcare stock today.
Mad Hedge Biotech & Healthcare Letter
September 15, 2020
Fiat Lux
Featured Trade:
(ASTRAZENECA’S BUMP IN THE ROAD)
(MRNA), (AZN), (PFE), (MRK), (JNJ), (GSK), (SNY), (CVAC), (BNTX), (INO)
Moderna (MRNA) was the first company to test its COVID-19 vaccine candidate on humans. However, AstraZeneca (AZN) and its partner Oxford University have been setting out the most aggressive timelines.
In fact, AstraZeneca sealed deals with the promise of delivering vaccine results as early as September.
The possibility of that happening, already precariously hanging by a thread, was completely eliminated earlier this month when the company halted its COVID-19 vaccine program after a subject showed severe adverse reactions.
Needless to say, news of AstraZeneca’s suspension of its late-stage 30,000-patient trial rattled the markets.
However, it looks like investors are simply shaking off the panic as other COVID-19 vaccine stocks continue to gain momentum.
In fact, even AstraZeneca only suffered a 2% slide following the announcement.
Shares of its COVID-19 rivals Pfizer (PFE), Merck (MRK), Johnson & Johnson (JNJ) went up 1% each, while GlaxoSmithKline (GSK) and Sanofi (SNY) rose 2%.
Bigger jumps were seen in smaller biotechnology companies with Moderna and CureVac (CVAC) being 4% higher and Novavax (NVAX), Inovio (INO), and BioNTech (BNTX) climbing 6%.
Still, a lot is riding on AstraZeneca’s vaccine candidate. The company has secured more contracts compared to its rivals.
To date, AstraZeneca has disclosed deals to supply roughly 3 billion doses to different nations including the US, Europe, Australia, Japan, Brazil, Latin America, and even China.
Its leading competitors, Moderna and Pfizer, have only managed to commit a small fraction of AstraZeneca’s supply.
Although AstraZeneca’s decision would cause some delay, experts assure the public that this is a normal occurrence in the vaccine development process.
It is actually a good sign especially given the fast-tracked timelines for the COVID-19 programs.
This voluntary pause from AstraZeneca means that the standards for vaccine development are still stringently followed by the developers despite the tight deadlines and competition.
A third-party safety board was already assigned to review AstraZeneca’s case, with the company expecting results in the next weeks.
So, what happens next?
There are few possible outcomes of this scenario. The ideal result would be for the board to find that the adverse effect has no connection to AstraZeneca’s vaccine candidate.
If this is the case, then the company can restart trials as early as next week. Although it obviously suffered a delay, AstraZeneca says it is still on track and can submit efficacy data before 2020 ends.
If everything else falls into place and from a manufacturing standpoint, AstraZeneca can still deliver a vaccine by the end of the year or early 2021.
If the adverse effect is caused by the vaccine though, then it could spell trouble not only for AstraZeneca but also for some of its rivals using the same technology.
The company utilized a neutralized virus for delivery, which is the same method used by other developers like Johnson & Johnson.
In comparison, Moderna and Pfizer’s vaccine candidates used a new technique involving messenger-RNA. This method stimulates a person’s body to produce a protein, which can help build immunity against the coronavirus.
The worst-case scenario is that if the problem turns out to be an immune reaction to the coronavirus fragments.
This would set back all the COVID-19 vaccine developers because it is the common element among them.
Although the COVID-19 vaccine candidate is a high-value product, AstraZeneca remains poised to prosper no matter what happens as a result of the pandemic or even the overall financial market.
The company is consistently generating strong revenue growth. In particular, its cancer lineup of non-small cell lung cancer treatments Tagriss and Imfinzi, and ovarian cancer therapy Lynparza have been showing remarkable momentum amid the crisis.
However, it is AstraZeneca’s pipeline that makes this stock impressive.
So far, the company has 166 programs that are under clinical development. Of those, 24 have already reached late-stage trials.
What’s even more exciting is that 9 of these late-stage studies are for new drugs. Meanwhile, the remaining 15 are additional approvals for expanded indications of existing products.
AstraZeneca offers one of the most promising product portfolios and clinical pipelines in the healthcare and biotechnology industry. It also provides impressive shareholder reward programs.
Most importantly, this single COVID-19 vaccine candidate is definitely not a make-or-break type of development for the company – not by a very long shot.
Therefore, bargain hunters may want to capitalize on AstraZeneca’s shares on any weakness resulting from this trial suspension.
Mark your calendars because the world is about to find out whether the leading candidates of the COVID-19 vaccine race will be effective as early as October.
Other than saving lives in this pandemic, also hinged on the results is over $100 billion in investors’ money – an amount that reflects just how much value the stock market is putting on the COVID-19 vaccine candidates under development today.
One of the leading companies in the race is Johnson & Johnson (JNJ).
With a market capitalization of almost $400 billion, many believe that this biopharmaceutical giant will soon be hailed as the king of the coronavirus stock list.
What we know so far is that JNJ’s subsidiary, called Janssen Vaccines, is set to launch a massive-scale Phase 3 study of its COVID-19 vaccine candidate, A26.COV2-S, this September.
The company’s study, which will be randomized, double-blind, and placebo-controlled, is expected to involve approximately 60,000 participants suffering from moderate to severe cases of COVID-19.
The move to include 60,000 participants is seen as a competitive advantage for JNJ because this is double the usual late-stage volunteer number.
For comparison, Moderna’s (MRNA) mRNA-1273 as well as Pfizer (PFE) and BioNTech’s (BNTX) BNT162b2 will only target a maximum of 30,000 patients each in their trials.
On top of the more expansive trial coverage, JNJ has another advantage that could help it pull ahead of the pack.
During the preclinical testing of Ad26.COV2-S on primates, the vaccine candidate showed that a single dose could be enough to fight off the virus.
In contrast, the candidates from other COVID-19 vaccine developers like AstraZeneca (AZN), Pfizer, and Moderna require two doses to trigger a similar response.
While the well-being of every man, woman, and child hangs on the success of the COVID-19 trials, concerns have been raised that the assessment for these candidates might be compromised because of the upcoming US presidential election.
However, the leading COVID-19 developers assured people that it won’t be the case.
Apart from JNJ, Pfizer, Moderna, AstraZeneca, other vaccine makers like GlaxoSmithKline (GSK), Sanofi (SNY), and Regeneron (REGN) plan to issue statements that no candidate will be submitted without extensive data on its efficacy and safety.
Most investors are focused on the COVID-19 stocks these days, and who can blame them?
Sales of the vaccines in 2021 alone could reach $20 billion per company. This is massive profit even for Big Pharma standards.
In fact, this amount is higher than the projected sales of today’s current top-selling drug, Humira from AbbVie (ABBV), which is expected to clock roughly $19.6 billion in the same period.
However, the COVID-19 vaccines will only be profitable for as long as there is a pandemic. If this disease becomes a non-recurring sickness, then the vaccines will no longer be as profitable in the long run.
This is why it’s crucial to review the core operations of a company and determine its capacity to keep generating revenue and profits while also maintaining a strong balance sheet and returning value to its investors.
JNJ is a great example of this type of business.
Outside its COVID-19 efforts, the company has been diversifying its portfolio. Its latest move is the $6.5 billion acquisition of Momenta Pharmaceuticals (MNTA), marking the biopharmaceutical titan’s expansion into the immunology sector.
One of the most significant assets JNJ acquired from this deal is Nipocalimab, which is an incredibly promising first-in-class autoimmune disease treatment.
This drug could be the answer to rare and life-threatening blood disorders, such as hemolytic disease, which affects newborns and babies. To date, there are roughly 195 million individuals suffering from this condition worldwide.
Throughout its history, JNJ has proven itself to be a stable company even in the most unstable market conditions.
It has a reliable growth record and a healthy cash flow, which would be valuable in acquiring bolt-on companies, creating new drugs, and boosting the dividend every year.
JNJ has managed to increase dividends annually for 58 years now, with its most recent dividend raise reaching 6.3% just last April. Its stock currently yields 2.7%.
More importantly, JNJ offers an impressive biotechnology pipeline. With an incredible history of over 130 years, this stock is definitely one for keeps.
Mad Hedge Biotech & Healthcare Letter
September 1, 2020
Fiat Lux
Featured Trade:
(RACE TO THE FINISH LINE)
(PFE), (BNTX), (MRNA), (AZN), (INO), (ZTS), (MYL)
