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A Revived Biotech Gaining Momentum

Biotechnology stocks have been rallying since mid-June, and it looks like the sector doesn’t have plans of stopping anytime soon.

The SPDR S&P Biotech ETF (XBI), which keeps track of the segment, has been up by 32.5% since the second half of 2022—a period that saw the S&P 500 rise by only 11.4%.

Nonetheless, doubts still linger in terms of how long this sector’s bull run will last. There are also questions on whether the recent shift in market sentiment indicates a substantive change or merely a momentary blip.

News about the biotech industry has been leaning towards the positive in the past months, and hopes for its recovery were bolstered by the much-discussed potential acquisition of Seagen (SEGN) by Merck (MRK).

The strong earnings reports of Regeneron (REGN) and Gilead Sciences (GILD) also added to the overall positivity of the sector.

Meanwhile, another big mover in the biotechnology world appears to be gearing up for a major move soon.

Amgen (AMGN) recently announced its plans to acquire ChemoCentryx (CCXI) for $3.7 billion.

This all-cash acquisition works out to roughly $52 per share and a whopping 115% premium to ChemoCentryx’s price.

ChemoCentryx is mostly known for its autoimmune disorder pipeline. In 2021, the company received FDA approval for Tavneos, which targets a relatively rare autoimmune condition called ANCA-associated vasculitis.

In the first quarter of 2022, Tavneos delivered $5.4 million in sales.

The announcement boosted ChemoCentryx’s shares to skyrocket by 108.4% while Amgen shares remained flat. However, this jump isn’t all too surprising.

The company getting acquired records a jump in stock price after the announcement because the acquirer typically pays a premium for the deal. It’s a strategic move since the higher the premium, the better the chances that the shareholders will approve the acquisition.

If all goes well, this acquisition is expected to be completed by the fourth quarter of 2022.

This move is a good indicator of Amgen’s response to its problem of stagnation. Over the years, this biotech giant has been seemingly left behind in churning out innovative treatments.

Pursuing a promising company like ChemoCentryx is an excellent way to diversify its pipeline and reignite growth.

The deal is especially promising in light of the company’s major setback in 2020 when the Phase 3 clinical trial for its heart failure drug fell short of delivering the promised results.

While issues with new products aren’t exactly new, particularly in the biotechnology sector, Amgen’s failure made investors skittish and led to selloffs.

However, Amgen was not deterred. After all, the setback came following decade-long progress leading up to 2020 when the company’s revenues steadily rose from $15 billion to $23 billion.

In the end, Amgen was still able to surpass its projected revenue to hit the $25 billion mark in 2020 thanks to its strategic move to acquire Otezla from Bristol Myers Squibb (BMY).

By 2021, Amgen shared that its 2020 results were up 9%. Last year, the company ignited some momentum and managed to raise its earnings from the year before to $26.2 billion.

Despite these efforts, the company still struggled with organic growth. This is perhaps why it has been aggressive in pursuing multiple revenue streams via M&A to find more ways for multiple expansions.

Part of this plan is the 2021 acquisition of Five Prime Therapeutics for $1.9 billion and Teneobio for $900 million.

Given the deals last year, investors didn’t truly expect Amgen to deliver more growth in 2022. This is possibly why the company’s shareholders were a bit surprised by the new acquisition.

However, this deal with ChemoCentryx will grant Amgen access to a slew of orally administered treatments not only for autoimmune diseases and inflammatory conditions but also for cancer.

Realistically, Amgen’s near-term outlook is not that groundbreaking. However, the overall valuation and potential of its M&A dealmaking are compelling enough to encourage investors patient enough to wait for the rewards in the long run.

July 21, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 21, 2022
Fiat Lux

Featured Trade:

(A BAD NEWS BUY HYPE)
(BIIB), (SAGE), (REGN)

A Bad News Buy Hype

Biotech Letter

Even when they’re on the dip, there are some stocks you should avoid. In a bear market, it’s always challenging to determine which stocks are good buys and which ones you should steer clear of at the moment.

Shares of biotechnology giant Biogen (BIIB) have plummeted by 40% in the past 12 months, clearly underperforming the broader market over the same period. While there are a lot of factors to consider, the drugmaker’s decline could be attributed to the controversial Alzheimer’s treatment Aduhelm.

Although Biogen’s shares are currently on sale, it doesn’t necessarily follow that the stock is a buy. So far, the company’s future still looks quite grim.

Admittedly, Aduhelm’s approval was an incredible milestone for the biotechnology industry. It was the first-ever FDA-approved Alzheimer’s disease therapy since 2003.

Unfortunately, it failed to live up to its potential. Actually, it didn’t even get close to fulfilling its promise.

Recapping the whole Aduhelm saga would take up more space than necessary, so here’s a quick rundown of the key events involving the controversial drug.

In June 2021, the FDA approved Biogen’s Aduhelm as an Alzheimer’s treatment.

The green light was a shock, especially since the FDA’s committee of experts adamantly voted against the drug, and the agency typically adheres to the group’s recommendations.

To appease the public, FDA required the biotech company to perform a post-approval study to re-confirm Aduhelm’s efficacy and safety. If the treatment fails, it must be taken off the market.

While Aduhelm became available commercially across the US by the second quarter of 2021, the drug failed to deliver on sales expectations. It only racked up a disappointing $3 million in revenue then.

By April 2022, the US Centers for Medicare and Medicaid Services (CMS) disclosed its coverage plan involving Aduhelm. It was limited to Alzheimer’s patients with mild cognitive impairment enrolled in clinical trials approved by CMS.

Biogen announced in May 2022 that it would drastically reduce its spending on commercial infrastructure focused on Aduhelm, owing in part to the CMS' limited coverage and possibly as a cost-cutting strategy. This move, which saved the biotech approximately $1 billion, reflects the company's loss of faith in Aduhelm and potential plans to abandon the project entirely.

Despite the Aduhelm fiasco, Biogen is still looking for Alzheimer's treatments.

The biotech completed a rolling submission to the for lecanemab in the same month it announced its decision to cut costs on Aduhelm infrastructures.

Lecanemab, which Biogen is developing alongside Esai (ESALY), is another Alzheimer’s therapy.

Lecanemab also works by getting rid of the beta-amyloid plaques in the brain. Understandably, it’s difficult to be too optimistic since it essentially has the same concept as Aduhelm.

Hence, Biogen needs a strong candidate to pull the company from this slump. Its revenue fell 6% year-over-year to $2.5 billion in the first quarter of 2022.

Biogen’s net income for the same period was $303.8 million, down from the $410.2 million it raked in the first quarter of 2021.

Most of Biogen’s revenue comes from its multiple sclerosis (MS) treatments. However, Tecfidera’s loss of exclusivity has allowed generic competition to chip away at their market share.

For context, the company’s total revenue from this segment in 2021 was $6.1 billion, which is 29% lower from 2020.

Meanwhile, Spinraza, another MS drug, hasn't experienced much growth either. In 2021, Spinraza recorded $1.9 billion in sales, falling by 9% from the $2.1 billion it reported in 2020.

Aside from its efforts in the Alzheimer’s and MS segments, Biogen also has other programs. It currently has 9 treatments queued for Phase 3 trials and several candidates for early-stage studies.

One promising prospect is its collaboration with Sage Therapeutics (SAGE). The two are working on zuranolone, which is a major depressive disorder treatment. The goal is to file for an NDA before 2022 ends and another NDA for postpartum depression by 2023.

Another prospect is its work on a biosimilar for Regeneron’s (REGN) top-selling macular degeneration therapy Eylea. This could lead to a lucrative market for Biogen since Eylea rakes in an average of $2.5 billion in revenues.

Needless to say, Biogen has so much riding on its pipeline programs. After all, it could no longer afford another spectacle like the Aduhelm episode. This is a critical reason that the stock is not looking attractively valued, particularly given the headwinds it’s facing.

Therefore, investors would be better off looking elsewhere right now. Declining revenues and earnings, exclusivity losses, growing competition, and no feasible catalyst on top of a struggling new product do not make any company—no matter how tumultuous the market—very attractive. Biogen may look cheap compared to other biotech and healthcare stocks, but it appears to have all the makings of a value trap.

June 7, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
June 7, 2022
Fiat Lux

Featured Trade:

(A LOW-KEY BIOTECH SET FOR A BULL RUN)
(REGN), (BAYG), (NVS), (RHHBY), (SNY), (ABBV), (PFE), (INCY), (MRK)

A Low-Key Biotech Set for a Bull Run

Biotech Letter

Biotechnology stocks have been sliding for months now, but scientific advancements are not slowing down.

The public’s focus on messenger RNA and gene editing may have dwindled, but the fact remains that more and more patients are benefiting from the discoveries.

More importantly, new treatments are well on their way to clinical trials.

That’s why I think Regeneron (REGN) could easily be one of the big winners in the coming years.

Despite the economic slowdown, Regeneron shares are doing okay. They have actually practically doubled since the start of 2020, when the biotech was thrust under the spotlight for its anti-COVID antibody cocktail, REGEN-COV.

Its popularity heightened when then-president Donald Trump used its treatment.

While the demand for REGEN-COV has since declined, the drug still raked in $7.5 billion in sales in 2021.

However, that would most likely not be the trend since it was proven to be not as effective against the newer strains. In addition, the FDA significantly limited the situations in which the antibody cocktail can be used.

For the foreseeable future, Regeneron shareholders’ earnings are primarily dependent on macular degeneration treatment Eylea and asthma and dermatitis drug Dupixent.

For Eylea, which Regeneron shares with Bayer (BAYG) outside the US, sales grew by 19% in 2021 to record $9.4 billion.

A vital issue Eylea faces is its expiring US patent by mid-2023, which will probably lead to more aggressive biosimilar competition as early as 2024.

Aside from that, more and more rivals are emerging, such as Beovu from Novartis (NVS) and Vabysmo from Roche (RHHBY).

Luckily for Regeneron, Beovu hasn’t gained traction due to safety issues, while Vabysmo is still struggling to establish itself as a viable alternative.

Thanks to its entrenched position as an undisputed market leader, Eylea sales will continue to be a top-selling treatment.

While things are still going well for Eylea, Regeneron has been proactive in establishing Dupixent as another key growth driver.

Dupixent, which was co-developed with Sanofi (SNY), showed off an impressive 51% jump in sales last year to rake in $6.2 billion—and this isn’t the peak yet.

Dupixent is estimated to reach over $14 billion in sales in the following years due to expanded markets.

Sales of this newer drug have caught up with Eylea’s in the past years.

In fact, Dupixent is projected to overtake Eylea sales by 2024, with the figure almost doubling by 2025 compared to the 2021 revenue.

In terms of competition in the atopic dermatitis sector, Dupixent is challenged by Rinvoq from AbbVie (ABBV), Cibinqo from Pfizer (PFE), and Opzelura from Incyte (INCY).

Nonetheless, Dupixent still looks well-positioned to expand into current and new indications in the following years and be able to fight off competitors.

It is critical for any biotechnology and healthcare business to maintain a solid pipeline to respond to upcoming patent losses and the rise of generic competition.

In this aspect, Regeneron has been performing excellently.

It has several treatments queued that complement the existing blockbusters, Eylea and Dupixent, and bolster the long-term growth prospects.

A good example is the company’s experimental treatment Aflibercept, which is slated to release Phase 3 results in the third or fourth quarter of 2022.

If this succeeds, it can enhance and strengthen Eylea’s efficacy, allowing Regeneron to retain its dominant position in the retinal market.

The company is also working on getting the green light for seven new indications on Dupixent-related treatments, which would be out by late 2022 and early 2023.

Another area under Regeneron’s radar is oncology.

While it’s cancer portfolio isn’t likely to become a significant growth driver anytime soon, there’s definitely potential here—and the potential comes in the form of in-house combos with Libtayo.

Libtayo, a cancer checkpoint inhibitor, is the most significant drug candidate in Regeneron’s oncology pipeline today.

Although it’s a latecomer to the field, Regeneron has become one of the frontrunners in the skin cancer segment with the approval of its cutaneous squamous cell carcinoma indication and the addition of the basal cell carcinoma label.

However, those are relatively minor markets. In terms of infiltrating a major market, Libtayo’s first venture is into the lung cancer sector.

But, this could be challenging since Merck’s (MRK) Keytruda has a firm hold of this market.

Still, Libtayo has the potential to achieve blockbuster status—a goal that Regeneron looks to be aggressively pursuing.

Aside from skin and lung cancer treatments, Regeneron has been developing Libtayo-based candidates for prostate cancer treatment REGN5678 and ovarian cancer therapy REGN4018. It is also working on another lung cancer treatment, REGN5093, to hopefully bolster its foothold in this lucrative market.

Needless to say, approval of these cancer treatments would be an incredible game-changer not only for cancer patients but also for Regeneron.

Overall, Regeneron is an outstanding biotechnology company and investment option. The success of its blockbuster treatments will offer a strong foundation for the company’s future growth.

If you add the more than 30 pipeline candidates of Regeneron in the mix, then it’s easy to see that a bull run might just be on the horizon for this stock.

While regulatory hurdles and emerging competitors would present challenges, it’s clear that Regeneron has these issues under control.

Moreover, the company’s pipeline has clearly shown that it’s ready to meet the challenges head-on. Hence, it would be advisable to buy the dip.

May 26, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 26, 2022
Fiat Lux

Featured Trade:

(WAITING FOR THIS BIOTECH TO STOP MONKEYING AROUND)
(INO), (BVNKF), (EBS), (JNJ), (PFE), (MRNA), (BNTX), (AZN), (NVAX), (REGN), (QGEN)

Waiting for This Biotech to Stop Monkeying Around

Biotech Letter

Almost immediately after US President Joe Biden advised that “everybody” should be concerned over the new worldwide outbreak of the monkeypox virus, the shares of biotechnology and healthcare companies working on monkeypox treatments and vaccines started to rise.

Shares of Danish company Bavarian Nordic (BVNKF), the only monkeypox vaccine developer approved in the US, were up 5.8% in premarket following the announcement.

Bavarian Nordic’s vaccine, called Jynneos, uses a live version of the smallpox virus, which has been altered so that it no longer can replicate in the recipient’s body or cause any infection.

Instead, it has been engineered to activate the immune system and prepare the body’s defenses to fight off smallpox and monkeypox viruses.

Based on data from Africa, two shots of Jynneos, administered 28 days apart, recorded up to 85% in terms of efficacy against monkeypox.

In 2019, Jynneos received regulatory approval from the US FDA for both smallpox and monkeypox.

Aside from Bavarian Nordic, shares of Emergent BioSolutions (EBS) also rose by 11.8% following Biden’s announcement.

While Emergent has no vaccine specifically for monkeypox, it has a smallpox vaccine that can be used to prevent monkeypox.

It can be recalled that Emergent BioSolutions has been an exiled ticker after the US Congress launched an investigation on the manufacturing issues in its Bayview Facility in 2021.

Although the company has managed to clean up that mess and is back to working with Johnson & Johnson (JNJ) to produce COVID-19 vaccines, EBS has yet to return to investors’ good graces.

While the scale of the threat has yet to be determined, the US has secured contracts for Jynneos and Emergent BioSolutions’ vaccine and is already stockpiling in case of an outbreak.

What’s curious, though, is that another company has benefited from this announcement despite not having any monkeypox or even smallpox vaccine candidates.

Inovio Pharmaceuticals (INO) shares rose by 12.2% following the announcement—a surge that couldn’t be adequately explained since the company has no relevant product and does not seem to have any program even remotely linked to this potential outbreak.

As far as I can tell, the last time Inovio even mentioned monkeypox was in 2010 when it discussed a potential experiment on a vaccine that could protect nonhuman primates against the virus. However, nothing came out of that plan either.

If Inovio sounds familiar to you, it’s probably because it was one of the frontrunners in the early days of the COVID-19 vaccine race.

However, it eventually lagged behind the likes of Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), and AstraZeneca (AZN).

One primary reason for this is the FDA’s decision to suspend Inovio’s Phase 3 trial in late 2020, with the study only resuming sometime in 2021.

As if that’s not enough, Inovio also faced some internal battles following the resignation of its CEO.

Now, the company has shifted gears and plans to offer its COVID-19 candidate as a booster shot instead of a primary vaccine.

The change of plans regarding the COVID-19 vaccine might be disappointing for some, but it’s essential to be realistic about expectations.

At the moment, the vaccine landscape has been dominated by Pfizer and Moderna, with AstraZeneca and Johnson & Johnson gaining ground as well.

Just recently, another challenger joined the fray: Novavax (NVAX).

Needless to say, the COVID-19 vaccine market is becoming crowded, and the competition is getting more intense.

Considering that Inovio has yet to catch up with the development of its candidate, it would be unwise to challenge the already established developers dominating the market today.

Hence, offering its COVID-19 candidate as a booster would provide it with higher marketability since health experts encourage people to mix and match their vaccines.

Outside these efforts, Inovio is a leader in developing DNA plasma-based vaccines. Before the pandemic, the company had been working on an extensive pipeline using this technology.

One of the most promising DNA-based vaccines from Inovio is VGX-3100, which targets an HPV-triggered disease called cervical dysplasia. Simply, this is a pre-cancer condition.

Inovio’s candidate is the first-ever DNA-based treatment that reached Phase 3 trials and reaped positive results.

This is an exciting development, especially in light of Inovio’s partnership with Qiagen (QGEN), as the two can leverage their work to determine which patients are at risk.

Basically, Inovio and Qiagen might just be on the verge of coming out with a preventive vaccine for cancer.

If things go according to plan, the data should be released by the second half of 2022. In terms of price, VGX-3100 is expected to cost roughly $10,000.

Aside from these, Inovio is also collaborating with Regeneron (REGN) to develop a cure for glioblastoma, an incredibly aggressive type of brain cancer. So far, Phase 2 trial results look promising, and the partners are on their way to progressing to Phase 3.

Inovio’s pipeline covers many DNA vaccines targeting infectious diseases and cancers. Most are still in the early phases of development.

While the programs in Phase 2 and 3 trials are promising, I think it’s still too early to predict whether Inovio is truly capable of delivering on its promises.

I know that Inovio shares look like such a bargain these days, especially if the company ends up receiving regulatory approvals in the coming months, but I’m not yet fully convinced.

Overall, Inovio is worth considering right now. It’s definitely on my list.

But before I commit, I’d like to see at least whether the company’s COVID-19 and HPV pipelines can move past the latest headwinds and advance to the next levels.

April 21, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 21, 2022
Fiat Lux

Featured Trade:

LET’S GET READY TO RUMBLE)
(MRNA), (PFE), (BNTX), (AZN), (ABBV), (MRK), (BMY), (TAK), (GILD),
(SNY), (ALNY), (NVS), (REGN), (IONS), (GSK), (BIIB), (CRSP)

Let's Get Ready to Rumble

Biotech Letter

As we gradually reach the pinnacle of biotechnology formation, a war is brewing in the life sciences world.

This can be one of the most exciting times for medical innovations for patients. Meanwhile, investors can be picky when picking where to put their money.

Even up-and-coming scientists can seize the opportunities to lay the groundwork for their own dream organizations.

At the same time, those aspiring to climb the corporate ladder have better chances at becoming CEO without the need to slog through the biopharma sector and scramble for whatever opening is available.

However, as more and more companies launch practically every day, claiming to offer groundbreaking and revolutionary breakthroughs, it’s critical to keep in mind that not all biotechs will succeed.

Actually, the number of biotech companies has been steadily rising since 2015.

In that year, 177 firms were formed, with biotech birth rates breaching the 200-per-annum mark by 2017 and 2018.

Seeing as many more have emerged even during the pandemic, it looks like the biotech world won’t be slowing down anytime soon.

Even funding hasn’t been deterred by economic downturns.

From 2015 to 2018, the total funding for biotech companies averaged between $68.6 million to roughly $90.2 million.

After a bustling, record-breaking 2020, the bar leading to 2021 was expectedly high.

Surprisingly, 2021 blew those figures out of the water as private investors opted to raise the bar even higher.

It’s the type of climb that’s truly hard to believe.

Biotechs raised over $22 billion in private funds in 2020 following a sluggish 2019. In 2021, that figure rose to $28.5 billion.

The top earner in these funding rounds last year was China’s Abogen, which took $1 billion in private investors’ money across two rounds.

Abogen is an mRNA-centered firm that’s currently working on a COVID-19 vaccine.

What makes its product different and possibly better than Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), and AstraZeneca (AZN) is that it would be thermostable. That is, it could be used in areas without access to refrigeration.

Another big winner in 2021 is Massachusetts-based biotech ElevateBio, which aims to be a one-stop shop for cell and gene therapies.

The idea is to develop a technology that fuses its gene-editing platform, cell engineering structure, and manufacturing warehouse into one system to ease and accelerate the drug development process.

Although not entirely the same, this plan has similarities with the strategies of Big Pharma names like AbbVie (ABBV) and Merck (MRK).

Amid the growing number of biotechs, a key challenge is how to stand out among companies that target the same disease areas. This kind of competition could hamper innovation.

The clearest indicator of success would be receiving approval and being able to launch the products commercially.

Ultimately, the goals are to offer safe and effective treatments and provide value to their shareholders.

Unfortunately, the reality is only a handful of startups do make it all the way to the top.

The more feasible scenario is that bigger businesses would acquire these companies—and that seems to be the case these days.

Alongside the booming biotech formation rate are the increasingly aggressive biotech buyout deals.

We’ve seen this before.

It started in 2019, with Bristol Myers Squibb (BMY) buying Celgene, followed by AbbVie splurging on Allergan and Takeda (TAK) merging with Shire.

In 2020, AstraZeneca bought biotech superstar Alexion Pharmaceuticals while Gilead Sciences (GILD) snapped up Immunomedics.

Meanwhile, Sanofi (SNY) stacked its deck with the $3.2 billion acquisition of Translate Bio. As for Merck, this biopharma sneaked in a massive win with an $11.5 billion buyout of Acceleron.

For this year, several names have already been eyed by Big Pharmas.

There’s Alynlam Pharmaceuticals (ALNY), an RNA-centered company, which seems to be the target of both Novartis (NVS) and Regeneron (REGN).

Another RNA-focused company, Ionis Pharmaceuticals (IONS), appears to be a key target as well, with the likes of GlaxoSmithKline (GSK), Bayer, and even Biogen (BIIB) waiting for an opportunity to pounce.

After all, acquisitions form an integral lifeline of the biotech world. Huge businesses with the resources swoop up promising buyout candidates to bolster their own pipelines.

However, M&A isn’t the only option for biotechs. There’s also the path where they can seek companies with similar focus and consolidate to become larger and more competitive entities.

This has been the expected plan for CRISPR Therapeutics (CRSP) for a long time. Hence, it is no surprise if other biotechs with their own groundbreaking technologies decide to follow the same route.

Overall, the biotech industry is booming amid its recent struggles with the market.

The faster growth rate of companies can be attributed to more investors seeing the industry's potential and, of course, better access to technology and scientific advancement.

Moreover, the world has become more interested in the biotech world and what the industry can offer due to the pandemic.

COVID-19 has shone a light on this sector following the quick and effective results of the vaccines and treatments.

That is, people have finally caught on to the idea that there is an incredible opportunity in biotech.

While a correction is to be expected at some point, the critical thing to bear in mind is that great ideas will always generate funding no matter what.

February 10, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 10, 2022
Fiat Lux

Featured Trade:

(A HEALTHCARE ENIGMA TO ADD TO YOUR WATCHLIST)
(GILD), (JNJ), (PFE), (ABBV), (LLY), (MRK), (BMY),
(AMGN), (MRNA), (AZN), (REGN), (BNTX), (NVAX)

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