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A Healthcare Enigma to Add to Your Watchlist

The top names in the biopharmaceutical world based on their market capitalization include Johnson & Johnson (JNJ), Pfizer (PFE), AbbVie (ABBV), Eli Lilly (LLY), Merck (MRK), Bristol Myers Squibb (BMY), Amgen (AMGN), and Gilead Sciences (GILD).

Among these names, Gilead is often viewed as an enigma, given its history and the challenge in predicting its share price trajectory.

Over the past months, Gilead has been testing the patience of investors. In fact, the company is projected to experience a fall in revenues this year from $27 billion in 2021 to $24.05 billion in 2022.

The latest news that added to their anxiety was the pause on clinical trials for its cancer therapy, Magrolimab.

This came after its short-lived dominance in the Hepatitis C segment.

At that time, the sales of its leading drug Sovaldi skyrocketed from $140 million in 2013 to a jaw-dropping $10.2 billion by 2014.

Meanwhile, another Hepatitis C treatment, Harvoni, single handedly raked in $13.8 billion in sales in 2015, pushing the entire company’s revenues to an impressive $32.6 billion.

Unfortunately for Gilead, it became the victim of its own staggering success.

Its Hepatitis C treatments, Sovaldi and Harvoni, were incredibly effective and managed to cure the patients within months. The demand for these drugs fell because the patient pool gradually ran dry.

By 2019, the Hepatitis C franchise of the company had declined and managed to scrape $2.9 billion in combined sales.

Since then, though, the company has been struggling to regain investors' faith.

Nevertheless, these recent developments are not enough reasons to panic. If anything, Gilead has simply become even more attractively priced due to the fallout.

In 2020, Gilead managed to report its first year-on-year increase in revenues since its glory days in 2015.

As the COVID-19 pandemic started to take hold of the world, it was Gilead’s Veklury (Remdesivir) that secured the first-ever Emergency Use Authorization from the FDA.

While Veklury was eventually overshadowed by COVID-19 vaccines from Pfizer, Moderna (MRNA), JNJ, and AstraZeneca (AZN), as well as other treatments and antibody cocktails from Eli Lilly, Regeneron (REGN), and Merck, Gilead’s candidate managed a comeback by the fourth quarter of 2021 after experts declared it to be effective against the Omicron strain.

In effect, Veklury had a major impact on the company’s 2021 performance, recording $5.6 billion in annual sales.

Although this is not as illustrious or groundbreaking as its Hepatitis C treatments, the reemergence of Gilead as a frontrunner in the pandemic is proof that the company has not lost its knack for discovering and developing a winning formula for blockbuster treatments.

Another avenue that Gilead has been exploring is actively acquiring assets to expand its portfolio.

One notable move in that direction is its $11.9 billion acquisition of Kite Pharma, a leader in the cell therapy space, in 2017. Thus far, this agreement has yielded two drugs: Yescarta and Tecartus.

Since oncology is one of Gilead’s major areas of concentration, the commercialization of these two treatments conveys a promising future.

While both are yet to become blockbusters, the field of cell therapy has been rapidly expanding and turning into a critical therapeutic option for certain patient categories.

Yescarta is projected to rake in $1.5 billion in revenues if it receives the FDA green light for large B-cell lymphoma

Considering that its last trial data showed off a 60% improvement with Yescarta compared to standard of care in terms of halting the disease’s progression or even death, there’s a huge possibility that Gilead will be delivering good news soon.

As for Tecartus, this treatment received approval for acute lymphoblastic leukemia last year and is aiming to expand to cover mantle cell lymphoma by July 2022.

With its list price of $373,000, this CAR-T therapy is projected to reach blockbuster status in the following months as well.

Another oncology drug anticipated to reach blockbuster status soon is metastatic triple-negative breast cancer treatment Trodelvy, which Gilead gained access to following a $21 billion deal with Immunomedics in 2020.

Given its current approved indications and the queued trials to expand its coverage, Trodelvy is projected to reach $4.7 billion in peak sales.

Going back to the 2022 revenue forecast for Gilead, I think the change is from the company’s anticipated decline in Veklury sales.

Since Pfizer, BioNTech (BNTX), Novavax (NVAX), and Moderna have been actively working on Omicron-focused vaccines and treatments, Gilead expects its Veklury revenues to shrink as well.

Overall, Gilead still presents an excellent opportunity for long-term investors.

Despite its setbacks, the company has proven that it still holds the knack of rolling out remarkable and effective best-in-class treatments.

Moreover, its pipeline is filled with promising candidates poised to deliver in the years to come. So, don’t be too quick to write off Gilead just yet.

gilead

February 8, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 8, 2022
Fiat Lux

Featured Trade:

(A NEW WAVE OF GENE-EDITING EXPERTS)
(NTLA), (REGN), (VRTX), (CRSP), (TMO), (SGMO), (EDIT), (MRK), (BIIB)

A New Wave of Gene-Editing Experts

Biotech Letter

The gene-editing sector quietly achieved historical results in 2021. Last year, human trials of two in vivo CRISPR-centered treatments released promising data.

One study, conducted by Intellia Therapeutics (NTLA) and Regeneron Pharmaceuticals (REGN), worked on targeting the faulty gene responsible for transthyretin amyloidosis.

Using their new CRISPR-based therapy, they were able to record an impressive 96% decline in the transthyretin gene.

This is an impressive accomplishment not only for its high efficacy but also for the mere fact that no other work has managed to record any significant effect on the gene for almost a decade now.

The other study is by Vertex Pharmaceuticals (VRTX) and CRISPR Therapeutics (CRSP). Over the years, the two have been collaborating on coming up with treatments for various rare diseases.

In 2021, they recorded promising results in their clinical trials for sickle cell disease and beta-thalassemia. Aside from the potency of these treatments, there is a possibility that the effects would offer long-lasting improvements in the patients' lives.

While 2021 was clearly a remarkable year for the gene-editing sector, all signs indicate an even better 2022.

If the sector doesn’t deliver, there will be 2023 and the year after. After all, the gene-editing world is the kind of space that gets better with age.

More than that, this sector will keep evolving and attracting new players every year.

Hence, key players like Thermo Fisher Scientific (TMO), Sangamo Therapeutics (SGMO), Editas Medicine (EDIT), Merck (MRK), and Oxford Genetics cannot expect to be the top names in the industry forever.

Recently, some names have been making waves in the gene-editing industry.

One is Excision BioTherapeutics. Founded in 2015, this Philadelphia biotechnology company leverages its CRISPR-based platform to target viral infections.

Basically, they aim to snip the viral DNA out of the host genome.

To date, the company’s most advanced project is its HIV treatment: EBT-101. So far, Excision has managed to functionally cure its test animals of the infection by removing their HIV genomes.

Ultimately, Excision’s goal is to come up with a “one-and-done” therapy for viral diseases.

Apart from working on HIV treatments, the company is also looking into potential cures for herpes simplex, hepatitis B, and a rare brain infection called multifocal leukoencephalopathy.

If these treatments succeed, Excision’s therapies would be available in highly specialized treatment centers.

Another promising biotechnology company is California’s Scribe Therapeutics, which was founded in 2018.

Describing their approach to be guided with an “engineer first” philosophy, Scribe’s plans to use CRISPR-based gene-editing tools to achieve their goals.

Instead of using the conventional CRISPR-Cas9 methods, the company opts for modified versions of the RNA-guided genome editors or CasX enzymes.

Scribe has been developing these CasX enzymes to ensure that they acquire the qualities of the target for enhanced specificity.

That is, the company wants its “editor” to learn as much as possible about the characteristics of the system to deliver intentionally designed solutions.

Simply, Scribe aims to control all elements and eliminate the need to leave anything to chance or even nature.

Since its founding, Scribe has been actively developing solutions for unmet medical needs.

For instance, it has been working with Biogen (BIIB) to develop and eventually market CRISPR-based treatments that target an underlying genetic component of a nervous system disease called amyotrophic lateral sclerosis.

The agreement states that Scribe will get $15 million upfront and receive over $400 million in potential milestone payments.

The company has already started testing its technology in mouse models, focusing on neurological and neurodegenerative conditions.

Given their current trajectory, Scribe expects to release data by the third or fourth quarter of 2022 or early 2023.

All in all, gene-editing tools have evolved so much from the mid-twentieth century. Back in the 1970s and 1980s, the process of gene targeting was only possible in experiments on mice.

Since then, the ever-expanding world of science has pushed the sectors of gene analysis and manipulations to cover all kinds of cells and organisms.

Considering the increasing demand in this sector, it’s no wonder the gene-editing world has been growing at breakneck speed over the past years—a pace that won’t slow down anytime soon.

January 20, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
January 20, 2022
Fiat Lux

Featured Trade:

(A NO-BRAINER DIVIDEND CONTENDER UP FOR GRABS)
(AMGN), (ABBV), (GILD), (REGN), (JNJ)

No-Brainer Dividend Contender Up For Grabs

Biotech Letter

To say that biotechnology stocks haven’t been performing well as of late is an understatement.

Over the past 12 months, the SPDR S&P Biotech Exchange Traded Fund (XBI) has recorded an over 30% loss and is anticipated to reach its 52-week low soon.

Investors have been pulling back from biotechnology stocks for several reasons like threats of drug pricing reforms in the US, the ever-increasing interest rates, and of course, the lure of rapid-growth assets such as cryptocurrencies.

Nevertheless, all is still not lost for the biotechnology sector.

The industry, in its entirety, continues to move forward with unprecedented innovations.

These groundbreaking discoveries, in turn, offer a myriad of untapped, top-value markets that will bode well for long-term investors.

This means that savvy investors would do well to make the most of this broad selloff in a highly promising segment.

One way to determine quality names in this volatile sector is to choose dividend-paying stocks.

After all, dividends are excellent sources of passive income. Apart from that, these can easily boost your portfolio if you plan to reinvest your money.

Basically, regardless of your investment strategy, choosing dividend-paying businesses can be really helpful in reaching your goals.

Among the names in the biotech industry, one that looks promising these days is Amgen (AMGN).

While Amgen’s dividend yield isn’t as high as the likes of AbbVie (ABBV) and Gilead Sciences (GILD), this pioneering biotechnology company is still a promising investment.

Recently, Amgen reported another dividend increase of 10.2%, indicating a rise from $1.76 to reach $1.94 per quarter, with the subsequent dividend expected to be payable by March 2022.

This results in an annual dividend of $7.76 and a respectable dividend yield of 3.41%.

More impressively, Amgen has been paying out dividends since 2011 and boosted its dividend not only annually but with an 11.97% in CAGR over the past 5 years.

Given the company’s history and growth trajectory, Amgen’s earnings growth rate annually in the next 5 years is estimated to be 6%, while its yearly dividend hike rate is projected at 7%.

At first glance, it’s easy to dismiss Amgen’s current standing.

In the third quarter of 2021, the company’s total revenue only reached $6.7 billion, indicating a measly 4% rise year-over-year.

A potential reason for this underwhelming growth is the pending patent cliff for some of its key products and the threat of biosimilars taking over Amgen’s target markets.

For example, cancer medication Neulasta reported a 25% decline in its sales year-over-year to contribute only $415 million in the third quarter.

Needless to say, this kind of disheartening top-line growth is partly responsible for the stock’s sluggish performance in the market lately.

However, other products in the company’s portfolio have reported much better performances than Neulasta.

There’s osteoporosis treatment Prolia, which rose by 15% year-over-year to contribute $803 million in the same period.

Even cholesterol drug Repatha showed off a 33% growth to record $272 million, while arthritis medication Otezla’s sales climbed by 13% to rake in $609 million.

On top of these, Amgen has also succeeded in developing new products that can easily provide additional revenue streams.

One of the most promising recently approved products is advanced non-small-cell lung cancer (NSCLC) treatment Lumakras, which received the US FDA green light last year.

Although there are many approved drugs for this condition, Lumakaras is the first and only treatment that targets specific mutations among non-squamous NSCLC patients.

This translates to 13% of patients suffering from that particular condition.

This is a massive market for Amgen.

Back in 2019, lung cancer was identified as the leading cause of cancer deaths in the United States.

At that time, the total was 139,603 individuals, which made up 23% of all the deaths attributed to the condition. Among the lung cancer deaths, 84% were identified to be of the NSCLC category.

So, if you put everything in perspective, the 13% patient population that Amgen exclusively holds equates to a big opportunity.

In addition, the European Union already approved Lumakras as well. This opens up yet another massive market for the treatment.

In the third quarter of 2021, Lumakras only delivered $36 million in sales. With the recent approvals and broadening of markets, this drug’s revenue is projected to rise quickly.

Aside from these products, Amgen has been working on expanding its pipeline. To date, the company has over 20 ongoing Phase 3 clinical trials.

Moreover, Amgen has decided to take a page out of the books of biosimilar developers.

As the company witnessed its own products get pummeled by biosimilars in the market, Amgen has opted to cannibalize sales of a wide range of treatments that lost their patent exclusivities.

This strategy has already delivered rewards, with the company reporting at least $2 billion in annual sales from its biosimilars in 2021.

For 2022, Amgen has three more biosimilars under development and is looking into poaching the likes of Regeneron’s (REGN) Eylea and Johnson & Johnson’s (JNJ) Stelara as well.

Despite the pandemic, Amgen has managed to extend its dividend growth streak to reach 11 consecutive years. This makes this biotechnology company an impressive Dividend Contender.

Overall, I consider this company a solid buy and an excellent long-term investment. It’s not simply an undervalued pick for value investors but also an outstanding choice for dividend investors.

December 14, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
December 14, 2021
Fiat Lux

Featured Trade:

(FROM AN UNKNOWN mRNA PIONEER TO BIG PHARMA PLAYER)
(BNTX), (PFE), (MRNA), (AZN), (JNJ), (SNY), (CVAC), (REGN), (MRK), (BMY)

From an Unknown mRNA Pioneer to Big Pharma Player

Biotech Letter

Almost everything that could go right has gone right for BioNTech so far.

Its COVID-19 vaccine with Pfizer (PFE), Comirnaty, has been breaking records left and right, and more and more approvals in other countries are piling up.

Needless to say, BioNTech has transformed into one of the most profitable biotechnology companies with a rapidly growing cash stockpile.

Now, the company is up for another challenge: the Omicron variant.

Although BioNTech and even Moderna (MRNA) insist that they offer more than COVID vaccines, the reality is that their pipelines still have not reached the stage where they can generate as much revenue.

Hence, it is no surprise that their share prices have climbed since discovering the Omicron strain.

The emergence of this new mutation sparked another competition among COVID-19 vaccine developers, specifically in the mRNA segment dominated by BioNTech and Moderna.

Since news broke about the Omicron variant, these companies have been racing to come up with the most effective vaccine against it.

BioNTech holds a competitive advantage between the two since the company reportedly has been working with Pfizer on a vaccine candidate for this type of situation months before the discovery.

In comparison, Moderna has yet to determine where their candidate stands in terms of fighting off the new variant.

The same can be said about other vaccine developers like AstraZeneca (AZN) and Johnson & Johnson (JNJ).

What happens to their efforts if the Omicron variant turns out to be less dangerous and possibly closer to the common flu?

In this case, the vaccine developers would most likely boost the prices of their products 10-fold because then they’d end up with fewer orders to private customers instead of sealing agreements with governments.

The flu vaccine market is worth roughly $8 billion annually, while the COVID vaccination market is projected to bring in approximately $25 billion each year in the post-pandemic period.

Either way, this situation could offer speculative investors a solid stream of price catalysts.

The uncertainty will result in a higher valuation for BioNTech in the short term because the company has already proven its ability to deliver an effective vaccine within a short period.

Prior to its COVID work, BioNTech was actually known as one of the “Big 3” and a pioneer in the mRNA world. At that time, it shared this title with Moderna and CureVac (CVAC).

Since then, the segment has grown, and new challengers have joined the mRNA industry.

Some of the promising ones include China’s Abogen Biosciences, which managed to raise over $700 million in funding for its own mRNA COVID vaccine, and of course, Sanofi (SNY), which splurged in a $3.2 billion acquisition of Translate Bio to access the latter’s mRNA pipeline for cystic fibrosis and several genetic conditions.

Meanwhile, BioNTech has retained its focus on cancer, with 16 of the 18 programs targeting oncology in its Phase 1 pipeline.

If BioNTech successfully develops an mRNA treatment for cancer, they’ll be breaking into a massive and lucrative market.

By 2024, the market for cancer treatments is projected to grow and reach over $200 billion.

Apart from its work on oncology therapies, BioNTech is also known for its infectious disease pipeline, including vaccines for HIV, malaria, and tuberculosis. It’s also collaborating with Pfizer on 2 influenza vaccines.

By the end of 2021, BioNTech is anticipated to release 5 updates on its vaccine trials involving solid tumors that target head and neck cancer, melanoma, and colorectal cancer.

Other than Pfizer, the company has been working with Regeneron (REGN), Genentech, Merck (MRK), Bristol Myers Squibb (BMY), and Sanofi.

In terms of performance so far, BioNTech has raked in $15.2 billion in revenues for the first three quarters of 2021, with full-year earnings expected to reach $18.1 to $19.2 billion.

Overall, I view BioNTech as a long-term investment.

While many still see it as a pure COVID play, this German company is increasingly starting to act more and more like the Big Pharma organizations.

It’s realistically expecting that its profit-generating asset, Comirnaty, may not have a very long shelf life. Therefore, it understands the necessity to come up with new products to sustain its current valuation over the longer term.

November 30, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 30, 2021
Fiat Lux

Featured Trade:

(BEYOND THE COVID-19 VACCINE)
(AZN), (PFE), (BNTX), (REGN), (GILD), (INCY), (MRNA)

Beyond the Covid-19 Vaccine

Biotech Letter

Even altruism has its limits.

Adding to the list of things we didn’t expect to happen in 2021, AstraZeneca (AZN) has followed the footsteps of Pfizer (PFE) and BioNTech (BNTX) and decided to begin making money off its COVID-19 vaccine.

The news is an about-face from the Cambridge-based company’s previous pledge to not profit from this while the pandemic is still ongoing.

Given AstraZeneca’s decision, there’s a possibility that it no longer believes that COVID-19 remains a threat of global proportions—or it at least thinks the issue has become more manageable.

It remains to be seen how the company will react to the emergence of the Omicron variant, and if it plans to push through with this decision.

While AstraZeneca’s agreements with different countries won’t allow it to come right out of the gate and just start slapping massive profits all over the place, the company plans to begin “progressively transitioning” to profitability following its third-quarter call.

Moreover, the company assured that its COVID-19 vaccine would remain reasonably priced for low- to middle-income countries. This means that it plans to jack up the price in wealthier nations instead.

However, AstraZeneca isn’t doing this for purely financial reasons.

According to the company, profits from the vaccine will be allocated to another COVID-19-related effort, its antibody therapy called AZD7442—a treatment that’s expected to compete with therapies from Regeneron (REGN) and Gilead Sciences (GILD).

Regardless of how they spin this recent turn of events, the key takeaway is that they’ll start making money off the vaccine.

Although changing their tune about the COVID-19 vaccine might get them some flak, it’s crucial to bear in mind that AstraZeneca is a for-profit company. This is the natural course for them to take vis-a-vis their products.

Besides its work on COVID-19, AstraZeneca has been pouring money on R&D over the past 12 months to fund different clinical trials for its oncology, cardiovascular, and immunology segments. To date, the company’s spending on research and development has climbed by 27.5% year-over-year to reach $3.54 billion in the first 6 months of 2021.

This move to invest heavily in developing new drugs for severe medical conditions is anticipated to secure a solid future revenue and continuous growth in earnings per share for the company.

Given its pipeline and history, AstraZeneca is actually projected to grow by over 20% annually over the course of the next five years.

One result of this effort is the expansion of the company’s top-selling cancer drug, Imfinzi.

At the moment, Imfinzi is approved as a lung cancer treatment. However, it can soon boost its sales to include biliary tract cancer in its indications.

There are roughly 50,000 individuals diagnosed with biliary tract cancer annually in the United States, Japan, and Europe, with the number hitting 210,000 across the globe.

In terms of profitability, we can look at Incyte’s (INCY) Pemazyre, which was approved in 2020. Sales of the drug grew four-fold in the first 9 months to reach $48 million.

Admittedly, Imfinzi’s market share will rely on its efficacy and safety results.

However, the treatment has a track record of delivering a superior standard of care and guaranteeing that it has the same safety profile as chemotherapy.

Hence, it’s reasonable to say that we can conservatively expect Imfinzi to capture at least 15% of the whole biliary tract cancer market. This would be roughly 30,000 patients worldwide.

Currently, Imfinzi’s price tag is at $180,000 in the US, but the drug might be cheaper in other countries.

Based on the market potential of its biliary tract cancer indication, this additional indication could rake in an additional $600 million annually for AstraZeneca once it gains regulatory approval.

Although this is merely less than 2% of the projected $36.1 billion total revenue for AstraZeneca in 2021, adding $600 million would still be a notable tailwind to the $2.5 billion estimated earnings from Imfinzi.

While its COVID-19 vaccine did not deliver the same outstanding efficacy results as the mRNA vaccines of Moderna (MRNA) and Pfizer / BioNTech, it’s still one of the handfuls of major pharmaceutical companies that managed to develop and distribute an effective product.

Overall, vaccine decisions aside, AstraZeneca appears to be in a great place with a robust oncology portfolio. Therefore, this stock looks like a solid buy with several upcoming price catalysts in 2021 and 2022.

November 16, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 16, 2021
Fiat Lux

Featured Trade:

(FORGOTTEN COVID-19 STOCK STILL ALIVE AND KICKING)
(GILD), (REGN), (MRNA), (AZN), (JNJ), (PFE), (BNTX), (MRK)

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