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No Rest for This Pandemic Superstar

Amid the pandemic fatigue hounding everyone these days, one name continues to attack the situation with consistent vigor: Pfizer (PFE).

It’s not a stretch to say that its COVID franchise is the most popular line in Pfizer’s portfolio today.

Needless to say, this is highly lucrative from a shareholder’s point of view. The company’s vaccination business has recorded over 3 billion doses to generate roughly $36 billion in sales from Comirnaty alone in 2021.

Riding the momentum of its successful 2021, the company anticipates an even more successful 2022.

So far, Pfizer is targeting an increase in its Comirnaty production to hit at least 4 billion doses this year.

Aside from being one of the first companies to develop a vaccine, the company has also created a highly effective antiviral COVID treatment that can be taken orally: Paxlovid.

While Merck (MRK) has earlier announced its move to come up with a similar oral treatment, Pfizer’s pill proved to be more effective.

Actually, customers are starting to take note of the difference and are switching brands. France already canceled their agreement with Merck and decided to order Pfizer’s Paxlovid instead.

This once again underscored the dominance of Pfizer’s brilliant R&D segment and the company’s capacity to rapidly come up with highly effective solutions for issues involving COVID.

The way Pfizer has been handling the COVID situation can be compared to Roche’s (RHHBY) approach and eventual blockbuster success with Tamiflu over 20 years ago.

Although the flu is obviously not as deadly as the coronavirus, it still caused widespread economic breakdown and health problems.

When Tamiflu eventually entered the market, the world was finally granted a simple medical answer for what was initially thought to be an unsolvable health problem.

Pfizer’s Paxlovid could very well be the Tamiflu for COVID.

Looking at Paxlovid’s effect in terms of revenue, it’s safe to say that this oral treatment can drive medium-term growth for Pfizer.

To date, Pfizer disclosed that Paxlovid would be sold for roughly $700 for each treatment course.

Let’s use the US numbers as an example to help put things in perspective. So far, the country has recorded approximately 170,000 cases per day.

If we assume that this will be the average for 2022, then there will be about 62 million COVID patients this year.

Let’s say that only 40% of these patients qualify for Pfizer’s treatment; then this would reach 24 million people at $700 each to rake in roughly $17 billion in total revenue in the US alone.

The number would definitely be significantly higher considering that Paxlovid will be offered as a global COVID treatment.

It’s evident that Pfizer’s efforts are paying off, as the sheer earnings power of the company’s COVID-19 pandemic franchise could provide a medium-term boon for its investors.

In 2021, Pfizer recorded a 130% growth in its revenue, with the numbers still climbing.

While its pandemic response has become its primary growth driver, Pfizer’s other key segments also posted promising revenues.

To sustain its climb, the company has continued to invest in R&D heavily.

A notable investment it made recently is an $8 million upfront payment to Codex DNA (DNAY) for the smaller biotechnology company to “produce certain materials of interest to Pfizer.”

According to the deal involving the exclusive product, Codex expects $10 million in technical milestone payments, up to $60 million in clinical development milestones, and $180 million in sales milestones.

Codex DNA is a small biotechnology company with a market capitalization of $267 million. It’s a spinoff from a California company called Synthetic Genomics.

While Pfizer and Codex have yet to share their plans publicly, we can hypothesize that it has something to do with the large biopharma using the small biotech’s technology to accelerate its mRNA vaccine development process.

After all, Codex’s distinct value proposition lies in its rare ability to automate various elements of the entire process. Its push-button, end-to-end solutions promise to build functional grade synthetic mRNA and DNA.

In effect, this will save cost and time for its clients.

Aside from Pfizer, this small biotech has been collaborating with other organizations like Duke University and MIT.

It has also been working with large biopharmas, including Johnson & Johnson (JNJ), Eli Lilly (LLY), BioNTech (BNTX), Merck, and even gene therapy expert Editas (EDIT).

For 2022, Pfizer is anticipated to generate at least $96 billion in sales, showing off a jaw-dropping 17.2% jump from its 2021 revenue and a 229% increase from 2020.

As we slowly accept that COVID will become a staple in our lives in the coming years, I think investors would be wise to add proven “experts” in their portfolio to take advantage of the ever-present and increasing demand.

January 11, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
January 11, 2022
Fiat Lux

Featured Trade:

(A GOOD STOCK TAINTED WITH CYNICISM)
(BIIB), (LLY), (RHHBY), (SAVA), (PRTA), (SAGE)

A Good Stock Tainted with Cynicism

Biotech Letter

Last year, talks that Samsung was in the process of making a $42 billion buyout bid for Biogen (BIIB) brought about a mixture of cynicism, hope, intrigue, and excitement over a potential agreement.

It was especially intriguing since the reported offer was roughly 20% more than Biogen’s expected $35 billion projected value.

Eventually, this report was proven to be false.

But the mere fact that it garnered such traction and interest only highlighted Biogen’s seemingly debilitated state following their failure to deliver on a promised unprecedented motherlode following the controversial Alzheimer’s drug approval and lukewarm reception.

If you recall, experts expected Biogen’s Alzheimer’s drug, Aduhelm, to generate double-digit billions in sales considering its list price of approximately $50,000 annually and the roughly 5.8 million individuals diagnosed with the condition in the US alone.

Theoretically, Aduhelm’s addressable market was projected at $325 billion.

At that time, Aduhelm was anticipated to rake in at least $50 billion per annum—a projection that was reflected in the 55% increase in the company’s share price.

However, things didn’t go according to plan. Aduhelm’s accelerated FDA approval caused so much uproar that it eventually affected the drug’s marketability as well.

In an attempt to temper the protests, Biogen cut the cost of Aduhelm to almost half, with the drug priced at $28,000 annually instead of its original $50,000.

Despite this, the projected mega-blockbuster’s sales continued to disappoint, with its third-quarter earnings in 2021 only reaching a measly $300,000.

This January, though, Aduhelm might have a shot at saving redemption courtesy of a potential Medicare reimbursement scheme.

Ultimately, however, the decision to offer any form of reimbursement scheme will not only affect Biogen but all the Alzheimer’s disease treatments in the future.

This is actually one of the critical points that many people missed when Aduhelm gained approval.

In focusing too much on the share price of Biogen, they appeared to have misinterpreted the true purpose of the FDA’s decision.

Granting an accelerated approval for Aduhelm did not mean that the FDA was handing the company a chance to generate double-digit billions in sales.

What the agency intended was to demonstrate support for Biogen’s thesis regarding a potential Alzheimer’s therapy.

That is, you can slow down the patients’ cognitive decline by aiming to reduce the amyloid-beta levels in their brains.

The FDA’s decision has, in effect, opened the floodgates not only for Biogen’s Aduhelm, but for all the other biotechnology companies working on the same idea.

To date, the companies developing their own Alzheimer’s disease treatment include Eli Lilly (LLY) with Donanemab and Roche (RHHBY) with Gantenerumab.

Both are expected to release results within the year or early 2023.

Other names are Anavex Life Sciences (SAVA) and Prothena (PRTA).

Outside its Aduhelm efforts, Biogen has also been developing new treatments, as demonstrated by the $4 billion investment it made on its R&D last year.

One promising candidate that can deliver blockbuster sales is its major depressive disorder treatment Zuranolone, which is a collaboration with Sage Therapeutics (SAGE).

Meanwhile, Biogen is also working with Ionis (IONS) to develop a successor for its spinal muscular atrophy treatment Spinraza.

Since this top-selling drug is expected to lose patent protection in 2023, the company has spent $60 million to come up with a new and more potent version: BIIB115.

For context, Spinraza recorded more than $2 billion in sales in 2021.

At this point, investor sentiment on the company has stooped at an incredibly low level. Unfortunately, the weak rollout of its Alzheimer’s treatment has planted suspicions regarding Biogen’s entire pipeline.

However, I think this kind of pessimism is quite misguided.

While the reality is that Aduhelm may never achieve the mega-blockbuster status it was once believed to reach, the situation shouldn’t necessarily diminish the truth that Biogen is actually performing quite well—and it will continue to do just fine.

December 16, 2021

Biotech Letter

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

Featured Trade:

(TIME TO LOOK AT ONE OF THE LEAST FAVORED BIOTECHS)
(AMGN), (RHHBY), (PFE), (MRK), (GSK), (JNJ), (AZN)

Time to Look At One of the Least Favored Biotech

Biotech Letter

Value investing shouldn’t be an ordeal. It definitely doesn’t have to entail scouring for a needle in a haystack. The truth is, several quality discount stocks are hiding in plain sight. Unfortunately, these have fallen out of favor with investors recently.

While the market has performed quite well in 2021, the technology sector served as the primary driving force behind this positive performance.

In comparison, the healthcare sector has been besieged with negative updates throughout the year. This resulted in a number of excellent biotech healthcare names getting undervalued, and one of them is Amgen (AMGN).

Amgen is widely known as one of the biotechnology and pharmaceutical sector pioneers, alongside Genentech, which has since been acquired by Roche (RHHBY). The company focuses on specialty biologics in the fields of blood disorders, cancer, and immunology.

To date, Amgen has a market capitalization of $119 billion and has generated $25.8 billion in revenue in the past 12 months.

This biotechnology company also holds a relatively solid and steady track record of growth, having grown its revenue by roughly 65% in the past 10 years.

Amgen has also virtually not experienced any significant dip in its sales over the same period—an impressive feat considering the slowly crowding and often tumultuous biotech space.

Looking at its EBITDA margin, or earnings before interest, taxes, depreciation, and amortization, Amgen also emerges as a superior stock compared to others in the industry.

In the past five years, Amgen’s EBITDA margin has consistently been within the 50% range. This is higher than its peers, such as Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), and Johnson & Johnson (JNJ), which only reached 30%, while Sanofi (SNY) recorded roughly 20%.

In addition, Amgen declared a dividend worth $1.76 per share each quarter in October. This represents a 10% jump year over year.

Then, the company opened in December with another dividend increase to reach $1.94 per share by the first quarter of 2022, showing off a 10.2% increase year-over-year.

Since 2011, Amgen has been consistent in increasing its dividend payout annually—a guarantee of the company’s robust and stable business performance.

Moreover, Amgen’s dividend yield is higher than other industry leaders as well. At present, the company offers a 3.5% dividend yield. In comparison, Pfizer gives out 2.9%, while JNJ offers 2.7%.

To sustain its momentum, Amgen has been busy bolstering its pipeline.

Thus far, the company has 58 programs under development. Of these, there are 34 queued in Phase2/3 clinical trials, while there are others submitted for regulatory approval.

One of the promising programs is its collaboration with JNJ, which combines Amgen’s Kyprolis and the latter’s Darzalex Faspro.

Just this December, the US FDA approved this combination treatment for patients suffering from multiple myeloma, a rare type of blood cancer.

In terms of profitability, Kyprolis generated $1.065 billion, and Darzalex Faspro raked in $4.19 billion in sales in 2020.

The high revenues recorded for these drugs last year are indicative of the strong demand from the healthcare industry.

This means that the approval of the combination treatment could lead to a more lucrative payout for both companies moving forward.

Another promising program for Amgen is Tezepelumab, which is a severe asthma therapy it developed with AstraZeneca (AZN).

In July, this treatment was approved for Priority Review by the US FDA. The two companies expect to submit Tezepelumab for approval to the US FDA by the first quarter of 2022.

Meanwhile, Amgen is also working on its first RNA-based treatment, called Olpasiran or AMG 890. This project is for myocardial infarction patients and will work the same way as gene therapies.

Basically, its goal is to target the relevant gene to prevent any damage. Looking at its timeline, Amgen expects Phase 2 results within 6 months.

If this RNA-based project succeeds, Amgen plans to expand its portfolio to include more than 25 first-in-class therapies and three more biosimilars based on this technology.

Doing so will equip the company with a steady revenue runway while also reinforcing its position as one of the top biotechnology companies in the world.

Overall, Amgen looks extremely undervalued these days, making it attractive given how profitable this biotech is and its prospects moving forward.

October 21, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
October 21, 2021
Fiat Lux

Featured Trade:

(A DIVIDEND ARISTOCRAT THAT DELIVERS LIKE CLOCKWORK)
(JNJ), (PFE), (MRNA), (BNTX), (NVS), (RHHBY), (MGTX)

A Dividend Aristocrat That Delivers Like Clockwork

Biotech Letter

There have been two narratives as far as COVID-19 vaccine developers go. One story centers on companies with fortunes essentially built and exploding thanks to their COVID-19 vaccines, like Moderna (MRNA), Novavax (NVAX), and BioNTech (BNTX).

The second story involves larger biopharmaceutical companies, such as Johnson & Johnson (JNJ) and BioNTech’s partner, Pfizer (PFE), which barely felt their shares move in the past 18 months.

While it’s easy to understand the excitement over the achievements of the likes of Moderna, is it reasonable for Pfizer and JNJ investors to feel bad over the lack of movement in their shares?

Not at all, especially in the case of JNJ.

After all, these huge companies have decided to sell their vaccines on a not-for-profit basis until the major wave of the pandemic ends—a move that can be seen as a sound strategy for JNJ to rebuild some goodwill especially following the recent scandals involving the company.

Nevertheless, JNJ might still get a boost (pun intended) from its COVID-19 vaccine booster shots.

Just last week, a prominent advisory committee to the US FDA unanimously voted to recommend the booster shots, which likely means that the 15 million people who got jabbed with JNJ’s candidate will get a second shot as well.

If the FDA agrees with this recommendation, then the boosters could be available within the month. This comes after the agency also approved booster shots from Pfizer-BioNTech and Moderna.

Last month, the US government decided to provide Pfizer booster shots to the older population and high-risk groups, with Moderna following suit almost immediately.

So far, there have been 8 million people who have already received their Pfizer booster doses, while 1.6 million got the third dose for Moderna.

This is another lucrative market for vaccine makers, considering that to date, there are over 104 million people vaccinated with Pfizer, roughly 69 million with Moderna, and approximately 15 million with JNJ.

Amid the talks about the boosters, JNJ stands firm that its vaccine’s potency increases over time and doesn’t wane, unlike Pfizer’s candidate. This means there’s no urgency for a booster shot when it comes to JNJ’s candidate.

Nevertheless, considering that JNJ isn’t exactly attempting to earn from its COVID-19 vaccine aggressively, there’s no point in investors worrying about this issue too much.

The fundamental aspects that will impact the stock price can be found elsewhere.

One of the more exciting projects of JNJ lately is its move to become more active in the gene-editing field.

Following the buzz from the multi-billion dollar acquisitions of companies like Novartis (NVS) and Roche (RHHBY) several years ago, it looks like JNJ might be the next big name to enter the fray.

Since 2018, JNJ has been working closely with a small-cap gene-therapy company called MeiraGTx Holdings (MGTX).

While highly secretive of the details, MeiraGTX, which has a market capitalization of just below $600 million, has been developing a gene-regulation technology—an innovation that could revolutionize gene therapy.

For context, this kind of innovation was applied to Novartis’ Zolgensma, a one-time treatment for spinal muscular atrophy worth a whopping $2.1 million—the most expensive medication in the world.

In terms of MeiraGTX’s work with JNJ, the two companies are focusing on creating therapies for various eye diseases. Looking at their timeline, the first candidate should be ready by 2023.

While there remain questions about its COVID-19 vaccine candidate, their earnings are expected to reach roughly $2.5 billion or merely 2.65% of JNJ’s total revenue. This would barely make a dent in the overall performance of the company.

What comes clear in the performance reports from the company is that its core business remains the primary moneymakers.

In the second quarter of 2021, JNJ recorded $23.3 billion in sales, reporting a notable 27.1% from the $18.3 billion revenue it generated from the same quarter in 2020.

Its gross profit also climbed from $11.7 billion to $15.7 billion, showing a 33.8% improvement. As for its EPS, it skyrocketed by 72.8% year-over-year from $1.36 to $2.35.

Meanwhile, JNJ’s guidance for 2021 has been updated to reflect its expected 13.% to 14.% year-over-year increase between the range of $93.8 billion and $94.6 billion.

Its pipeline and current portfolio also all but guarantee that JNJ will deliver mid to high single-digit earnings in the years to come.

Another indicator of the stock’s quality is its dividend record, with JNJ priding itself on a 59-year streak—making it an undisputed dividend aristocrat.

Overall, I see JNJ as an impressive $433 billion behemoth in the biopharmaceutical sector. The company has been consistent in delivering remarkable top and bottom lines every quarter.

October 12, 2021

Biotech Letter

Mad Hedge Bitcoin Letter
October 12, 2021
Fiat Lux

Featured Trade:

(AN ANTI-BUBBLE HEALTHCARE STOCK TO KEEP YOU SAFE)
(VTRS), (PFE), (SNY), (RHHBY), (REGN)

An Anti-Bubble Healthcare Stock to Keep you Safe

Biotech Letter

Some stocks bring red-hot gains. These companies are thrilling. Most investors flock to these businesses like bees to honey. Then, there are stocks such as Viatris (VTRS).

You won’t hear much buzz about Viatris.

After all, this company develops generic drugs—a fairly boring business. At times, it feels like nobody even talks about this stock at all.

However, Wall Street claims that several stocks have more room to expand soon. Interestingly, the names aren’t your usual list of growth stocks that most investors expect to ascend. The largest expected gainers are boring stocks.

This is where Viatris becomes interesting.

One of the possible reasons that Viatris isn’t generating as much buzz is that it was only established in 2020. The company is the product of a spinoff between Pfizer’s (PFE) Upjohn unit and generic drugmaker Mylan.

The spinoff allowed Pfizer to concentrate more on developing its pipeline candidates, while Viatris focused on off-patent and generic drugs.

However, Viatris has been off to a slow start, with the stock down by over 28% this year. In fact, the company has reported net losses for three quarters in a row.

Needless to say, both resulted in having the stock deeply discounted.

While these can cause other investors to shy away from the stock, I look at it as part of the company’s growing pains.

And it looks like things are about to turn around soon.

By the end of this year, Viatris expects to reach cost synergies of roughly $500 million. Through major restructuring, the company anticipates doubling this to more than $1 billion by 2023.

As an early-stage business, Viatris offers a stable long-term investment.

While it recorded a somewhat flat performance at $4.6 billion in sales in June, the company’s lineup of new products signals growth ahead.

For example, Viatris estimates to generate roughly $690 million in revenue for its new products—a highly achievable projection for the company.

Just last July, Viatris scored approval for a biosimilar product called Semglee. This is an insulin biosimilar to the high-selling Lantus of Sanofi (SNY), which peaked at $6.4 billion in sales in 2015 and lost patent exclusivity in 2014.

Semglee is reported to be fully interchangeable with the reference drug, which means that Viatris’ biosimilar is the exact equal of Sanofi’s previous blockbuster.

Moreover, Semglee is priced at about $148 for five pre-filled insulin pens, offering a whopping 65% reduction from Lantus’ cost.

The significant price difference is clearly difficult to ignore, especially at a time when politics has joined the fray in drug pricing.

The ability of Viatris to undercut the prices offered by Big Pharma definitely signals long-term benefits in terms of the company’s bottom line.

Aside from Semglee, Viatris has seven more approved biosimilars on the market.

The list includes Roche’s (RHHBY) breast cancer treatment Herceptin, which peaked at $6 billion in sales, and Regeneron’s (REGN) AMD drug Eylea, which generates an average of $8 billion annually.

It even has AbbVie’s (ABBV) megablockbuster immunology therapy Humira, which averages $20 billion in sales annually.

While Viatris won’t be the only company marketing a biosimilar for Humira, the company has the advantage since its candidate, Hulio, already gained approval in Canada, Europe, and even Japan.

Meanwhile, Viatris’ near-term pipeline candidates hold the potential to generate $57 billion in sales. Adding the rest of its 31 biosimilar candidates could push the figure to $224 billion.

The expansion of the biologics market is anticipated to outpace traditional pharma in the future. From $300 billion in 2020, the biologics segment is projected to reach $690 billion by 2027.

Aside from its biosimilar programs, Viatris has also been working on its internal development plans.

This would mean developing new high-margin brand names as well as diversifying its portfolio to include novel therapies.

Viatris is projected to reach at least $35 per share in the coming months, showing off a promising 155% jump from its current price.

On top of that, investors have been enjoying a juicy payout of 3.2%—higher than the average 1.3% of the S&P 500.

Considering the risks brought by market correction, Viatris emerges as a prime candidate for a safe haven among investors.

That is, they can easily lock in on this relatively anti-bubble business that’s available at practically a bargain bin price.

viatris

September 28, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
September 28, 2021
Fiat Lux

FEATURED TRADE:

(A RINSE-WASH-REPEAT PLAY FOR OPPORTUNISTIC INVESTORS)
(EXEL), (BMY), (RHHBY), (VRTX), (TDOC)

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