(RHHBY) Archives - Page 8 of 18 - Mad Hedge Fund Trader

A Crown Jewel Scores A Goal

A stock with high margins offers a better buffer to face adversity and increased expenses.

Suppose a business’s revenue cost is substantial and leaves minimal room for the top line to maneuver and cover overhead and other operating fees. In that case, it can be challenging to stay in the black.

A recent example is Amazon (AMZN), which reports that its cost of sales typically comprises 80% or more of its revenue. When it struggled with the rising expenses in the past quarter, this e-commerce giant posted its first-ever loss in years.

Only a handful of companies manage to stick with this principle. In the biotechnology and healthcare sector, one business that doesn’t have this issue and enjoys gross profit margins of at least 80% or better is Regeneron Pharmaceuticals (REGN).

Regeneron was recently spotlighted following a significant 19.2% jump in its price, translating to a more than $12 billion rise in market capitalization.

The catalyst for this double-digit climb is none other than Regeneron’s crown jewel: Eylea.

The anti-blindness treatment, jointly developed with Bayer (BAYRY), delivered excellent results in two late-stage trials.

This is a huge deal because it supports the application of Eylea at higher doses and longer-lasting intervals.

Previously, Eylea was only permitted to be administered in 2 mg every 8 weeks. The recent trial results proved that the medication can be given at a higher concentration of 8 mg in a more extended period of 16 weeks and can still be effective at battling the disease. Plus, it shows a similar safety profile as the currently approved dosage.

This is a timely development for Eylea, which is set to lose its patent exclusivity soon, bringing anxiety to shareholders.

For context, Eylea accounts for $3.13 billion of Regeneron’s sales in the first 6 months of 2022. In the year's second quarter alone, it generated $2.49 billion in sales, recording a 9% year-over-year increase in its global profits.

In 2021, this eye medication reported $9.4 billion in sales worldwide.

These recent developments are eyed as potential solutions to Eylea’s impending franchise exclusivity loss as it attempts to eliminate a key overhang.

This move could slam the door shut on any talks or fears of potential copycats for at least a few years. It could also make it more competitive against rising competitors in the same space like Roche’s (RHHBY) Vabysmo.

The new data is expected to be used to defend the franchise from biosimilars, generic, and branded competitors. This is because patients are now offered an option for a treatment that needs fewer injections.

Most importantly, this could establish a firmer competitive moat for Regeneron and Bayer. After all, Eylea is projected to rake in more than $6 billion in sales in the US annually in 2023 and 2024.

Looking at their timeline and progress, the new Eylea dosage should be submitted for approval by the end of 2022 and launched by early 2023.

Other than Eylea, Regeneron has also been active in the oncology space.

Leveraging its roughly $6.2 billion sales from its COVID-19 treatment, Regeneron acquired several assets to expand its oncology segment.

Recently reported deals are its $900 million payment to Sanofi (SNY) to acquire non-small lung cancer drug Libtayo and the purchase of Checkmate Pharmaceuticals, which granted it access to promising melanoma candidates.

While these deals may not be as massive as other acquisitions in the industry, adding Libtayo and Checkmate Pharmaceuticals represent critical steps toward the right direction.

On top of these, Regeneron has existing partnerships and collaborations that would last for years. One is with Alnylam (ALNY), which involves treating liver cancer, ocular conditions, and diseases targeting the central nervous system.

Meanwhile, Regeneron expanded its deal with Intellia Therapeutics (NTLA) to give more rights to their in vivo therapeutic candidate developed via CRISPR/Cas9 gene-editing technology and additional targets, particularly for hemophilia A and B.

Overall, Regeneron has been proving to be a noteworthy investment in biotechnology and healthcare. At this point, though, the recent clinical trial results have been added to its share price.

While it isn’t exactly cheap, it’s not an outlandish valuation either. In short, I suggest that you wait and buy the dip.

eylea

September 1, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
September 1, 2022
Fiat Lux

Featured Trade:

(A QUALITY HEALTHCARE STOCK IN A JAM)
(BMY), (JNJ), (RHHBY)

A Quality Healthcare Stock in a Jam

Biotech Letter

Sometimes the market overreacts, and it presents a buying opportunity for savvy investors. This is what happened with Bristol Myers Squibb (BMY).

Investors pulled back on BMY shares following mixed results from the Phase 2 trials of Milvexian, a stroke therapy the biopharmaceutical giant is developing with Johnson & Johnson (JNJ).

This treatment works as an anticoagulant formulated to prevent secondary strokes that usually occur after an ischemic stroke.

Ischemic strokes are the most common kind of strokes, triggered when a blood clot blocks an artery heading to the brain.

In its trial, Milvexian showed that it was able to lower the recurrence of ischemic strokes by 30% among patients who exhibited symptoms.

Unfortunately, it wasn’t able to show any effect on the smaller lesions typically detected only via MRIs. This is where the problem lies since the latter was part of the predefined endpoints when the trials started.

So, in terms of reducing symptomatic stroke, Milvexian’s results were “very positive.” But if you consider all the factors, then you get mixed data.

The underwhelming results of Milvexian’s Phase 2 trials led to a 5.5% fall in BMY’s shares, clearly demonstrating the erosion of investor confidence going into Phase 3.

What does this mean?

Milvexian was designed to become the successor of BMY’s mega-blockbuster Eliquis. BMY’s shares are declining because of the fear over the effectiveness of the company’s strategy to power through upcoming patent losses.

Despite the setback, BMY and JNJ aren’t giving up on the treatment. Apart from the 30% risk reduction it offers patients, Milvexian has an impressive safety profile. Based on these results alone, the companies still consider the candidate a good product.

Moreover, the results do not appear to be affecting the overall performance and strategy of the company. Minor adjustments simply need to be made.

The pharma giant’s recent quarter report disclosed revenue of $11.9 billion, which climbed 2% year over year. Within its US market, BMY’s revenue grew by 12%.

The company is also continuously innovating. In early 2022, the FDA approved a new cancer treatment it developed, estimated to rake in $4 billion in peak sales.

It’s also consistent in terms of delivering results. BMY has been generating over $11 billion in revenue quarterly, with profits reaching 14% of sales during those periods.

These sound financials place BMY in a great position to expand and pay out its dividend, which is at 2.9% to date.

Year to date, BMY has been consistently and soundly beating the general markets. It has been up 19% compared to the 10% fall of the S&P 500 as of late.

Aside from developing potential successors, BMY has also been active in acquiring assets. Recently, it shelled out $13 billion to buy MyoKardia.

The deal enabled BMY to gain access to Camzyos, a prescription medicine used to treat adults with a heart condition called symptomatic obstructive hypertrophic cardiomyopathy.

Camzyos recently gained approval and is estimated to reach $4 billion in peak sales annually.

BMY also recently acquired Turning Point Therapeutics for $4.1 billion to gain access to Repotrectinib, which is pegged as the next-generation oral treatment for lung cancer.

Given the drug’s data, it has the potential to competitively go head-to-head against Roche’s (RHHBY) Rozlytrek and rake in $1.5 billion in peak sales.

So, should investors start buying BMY shares following the clinical setback with Milvexian?

While Milvexian isn’t shaping up as the heir apparent for Eliquis, BMY still has a broad pipeline and portfolio of high-value treatments in the market and is under development.

In other words, BMY could easily shake off this setback. That means savvy investors may want to look into the stock and take advantage of this momentary weakness in the Big Pharma’s stock price.

After all, BMY is an excellent drugmaker that investors can rely on for long-term growth and dividend income.

July 14, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 14, 2022
Fiat Lux

Featured Trade:

(GOODBYE BIG PHARMA, HELLO BIG BIOTECH)
(GSK), (PFE), (BMY), (VTRS), (LLY), (JNJ), (AMGN), (GILD),
(MRK), (RHHBY), (AZN), (NVO), (ABBV), (SNY), (ABT)

Goodbye Big Pharma, Hello Big Biotech

Biotech Letter

The moment GlaxoSmithKline (GSK) completes the spinoff of its massive segments marketing drugstore staples, such as Tums and Advil, it will become the latest name to join the list of Big Pharmas shuffling their assets and rebranding itself into a pure-play biopharma stock.

The reorganization of this UK-based company is the culmination of years-long process that has transformed practically all the biggest pharmaceutical companies globally into biotechnology companies on steroids.

This type of transformation, which gets rid of sideline businesses, has been going on for years. Pfizer (PFE) dumped its chewing-gum segment back in 2002 and established another spinoff unit, Viatris (VTRS), with Mylan in 2020.

Bristol Myers Squibb (BMY) decided to spinoff its infant-formula division in 2009. In 2018, a new animal health company came to be from Eli Lilly (LLY).

By 2023, Johnson & Johnson (JNJ) expects to complete the creation of a spinoff company and unload its consumer health segment, which offers Tylenol and Band-Aids.

Essentially, they’re turning into Amgen (AMGN) and Gilead Sciences (GILD) but with more money and resources to churn out high-priced, complex treatments for rare diseases.

However, not all Big Pharma names plan to become pure-plays. For example, Merck (MRK) still intends to retain its animal health sector while Roche (RHHBY) wants to keep its diagnostics segment.

As for the rest, including AstraZeneca (AZN), Novo Nordisk (NVO), and AbbVie (ABBV), their plan is to focus on creating new drugs and marketing these treatments—nothing more, nothing less.

The idea of Big Pharma transforming into “Big Biotech” dates back to 1992, when Henri Termeer, the CEO of Genzyme—now owned by Sanofi (SNY)—was summoned to a Senate hearing in Washington to argue and justify one of the most expensive medicines ever put to market.

The medication in question was for a rare genetic condition called Gaucher disease. A year-long treatment for one person needed tens of thousands of human placentas, and the price tag? A jaw-dropping $380,000 annually.

Amid the demand to make the treatment cheaper, Genzyme stood by its decision and the price barely budged after two years.

The company’s tenacity and insistence on standing by its pricing altered the biopharma landscape. That is, drug developers realized that rather than marketing cheaper drugs to combat common diseases, they can focus on biotech-style treatments to target rare conditions.

At that time, Big Pharma companies were battling over pieces of massive markets. They allocated considerable funds to their commercial teams, hoping to outrank one another in crowded spaces.

Meanwhile, biotechs like Genzyme decided on a different strategy.

They concentrated on more innovative approaches. Actually, the biotech focused on biologics at that point. Then, the company simply ignored the pricing rules and set its own prices, which were considerably higher.

A more recent go-to proof of concept for this strategy is Abbott Laboratories (ABT), which was initially a diversified company that offered an extensive range of products like medical devices and even infant formula.

In 2013, the company spun off its branded pharmaceutical sector into AbbVie, which became a pure-play biopharma that focused on developing and marketing the arthritis drug Humira. Since then, Humira has transformed into one of the top-selling drugs in history.

More than that, AbbVie pays substantial dividends while its shares have delivered 500% returns since the spinoff. In comparison, the S&P 500 has returned roughly 220% within the same timeframe.

While this is a shift that investors have clamored to see in the healthcare sector, it also means that the transformations could turn companies with solid revenue streams that have become reliable despite the ups and downs of the drug discovery process into riskier bets.

Although treatments for rare diseases admittedly come with very high price tags, focusing on smaller markets brings with it the inherent risk that these buy-and-stuff-under-the-mattress blue chips could no longer deliver returns as consistently.

These days, though, the advancements have made faster and safer scientific breakthroughs much more plausible.

Companies have gained a better understanding of the human genome, oncology treatments, genetic diseases, and groundbreaking modalities like gene therapies.

The science has now caught up with the demand. More importantly, Big Pharma has finally woken up and started to leverage its resources to take advantage of the opportunities.

This gradual change can be seen in the surge of new treatments in the past years. From 2016 to 2020, the FDA approved an average of 46 new therapies annually.

This is more than half the number between 2006 and 2010 when the organization only approved an average of 22 new treatments every year.

Needless to say, these changes are also partly in response to the overall dissatisfaction of investors with the diversification strategies of Big Pharma.

Basically, the general message here is that Big Pharma should let the investors worry about diversifying their own portfolios and focus on developing safe and effective drugs.

pharma

July 12, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 12, 2022
Fiat Lux

Featured Trade:

(THE LEADERSHIP BATON IS IN BIOTECH’S HANDS NOW)
(MRK), (SGEN), (CRSP), (VRTX), (BLUE), (BIIB), (LLY), (RHHBY)

The Leadership Baton is in Biotech's Hands Now

Biotech Letter

Biotechnology companies have taken the reins and are expected to outperform the general market in the near future.

To date, the Nasdaq Biotech Index (NBI) has been up by 2.41% while the iShares Biotechnology (IBB) exchange-traded fund has climbed by 2.47%.

Numerous crucial factors place this industry in an advantageous position for growth. Alongside other segments of the pharmaceutical and healthcare industries, the biotechnology sector is essentially recession-proof.

With a roughly 40% fall in the biotech sector from 2021’s high, it’s highly likely for us to witness a boost in takeover activity in this space.

This is evident in recent reports of Merck (MRK) attempting to acquire cancer biotech Seagen (SGEN), as discussed in the June 30 issue of this biotech and healthcare letter.

The talks have progressed, and it appears that Merck is nearing the end of the process. The goal is to have the details worked out by the time the quarterly earnings report is released on July 28.

While no specifics have been made public, it is estimated that the larger healthcare company will pay a staggering $40 billion for this Seagen acquisition.

If this goes through, Merck will pay more than $200 per share for Seagen.

The news of this acquisition bolstered Seagen’s business as the stock rose by 4.6% at the time of the announcement.

This is welcome news given the perceived slowdown in biotech M&A activity since 2020. As a result, the idea fueled pessimism among investors who failed to see the big picture during this time period.

Analysis of 101 contracts signed by small, medium, and large biotechnology companies between January 2015 and June 2022 reveals that this year's contract volume and size are comparable to those of previous years.

In fact, there have been $17.7 billion in transactions so far in 2022. This translates to more than $13.9 billion in 2020 and $7.2 billion in 2021.

Some investors may be concerned about the quality of these acquisitions.

Even though the companies involved paid good premiums, the last 12 months' acquisitions were done at a big discount to the highest share prices of the businesses being bought.

To put it simply, there has been a problem with pricing in the sector as of late.

This is admittedly a "bittersweet" reality of recent biotech M&A transactions. As a result, market perceptions are clouded and investors are misled into believing that a much larger problem is brewing in the sector.

Executing megadeals is an obvious solution. This is why the Merck-Seagen merger is such good news for the industry.

The impact of this report suggests that large-scale M&A could be part of the path to the biotech sector's recovery.

The mere possibility of this transaction has already increased the SPDR S&P Biotech exchange-traded fund by approximately 20%.

In addition to Merck and Seagen, other biotechnology companies have been widely discussed as potential acquisition targets.

CRISPR Therapeutics (CRSP), which has a long-term partnership with Vertex Pharmaceuticals (VRTX), is a fan favorite. By the fourth quarter of 2022, the two intend to submit their sickle cell and beta-thalassemia treatment for approval.

Bluebird Bio (BLUE) is another company that has been on the radar whenever acquisition discussions begin.

This gene therapy and cancer biotech has been unnerving investors for months, even before the pandemic triggered an economic crisis, due to its lackluster performance. Despite this, its gene-editing program has enormous potential.

With a market capitalization of $368 million, it is an ideal candidate for Merck and even Moderna (MRNA). After all, both have been considering expanding its oncology program, and a dirt-cheap acquisition target appears to be an appealing option.

Biogen is another name associated with multiple interested parties (BIIB). Since its Alzheimer's treatment failed to materialize and deliver despite the biotechnology company exhausting virtually all available options to salvage the situation, the stock has yet to exhibit any signs of recovery.

After betting the farm on this candidate, Biogen has struggled to maintain its financial stability. In an effort to improve its cash flow and pay off its debts, the company has also been working overtime to advance the other programs in its pipeline.

Eli Lilly (LLY) and Roche (RHHBY), which have been working on their own Alzheimer's treatment, have recently been linked to Biogen.

With a market capitalization of $32 billion and a money-losing program, however, any transaction involving this biotech would require significantly more time.

Overall, it appears that biotechs are gradually regaining their footing. It is only a matter of time before all the pieces fall into place and the sector begins to move forward with full force.

June 16, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
June 16, 2022
Fiat Lux

Featured Trade:

(AN UNDERRATED LONG-TERM BIOPHARMA STOCK)
(OGN), (MRK), (PFE), (VTRS), (ABBV), (JNJ), (AMGN), (RHHBY), (BMY)

An Underrated Long-Term Biopharma Stock

Biotech Letter

Six months into 2022, the markets are still in turmoil while highly valued stocks rapidly fall.

A way to cope with these is to search for safety and security among value-focused investments that are less at risk of sudden declines.

One business that remains profitable and is trading at a relatively affordable price, especially considering its future earnings multiples, is Organon (OGN).

Organon is a spinoff from Merck (MRK). It focuses on women’s health products, existing treatments, and biosimilars. It was launched roughly the same time Pfizer (PFE) launched its spinoff, Viatris (VTRS), in 2021.

While Organon has yet to become a superstar growth stock at the moment, it’s an excellent business to consider for a stable long-term investment.

So far, the company has managed to generate promising gross margins north of 60% and consistently proved to be profitable.

To date, Organon has over 60 treatments in its pipeline.

Thanks to strategic partnerships, Organon has become the biggest pharmaceutical company centered on women’s health.

Not only that, it has an extensive portfolio of biosimilars or biosimulators focusing on cardiovascular, dermatological, and respiratory conditions.

Meanwhile, Organon has one of the highest dividend yields among biopharma companies at 3.47%, with consistent dividend payments of $0.28 per share every quarter.

Organon’s biosimilar growth received a jumpstart from its agreement with Samsung Boepsis in 2013. The deal enables both companies to develop and market a number of biosimilar treatments focused on cancer and immunology.

Under this partnership, Organon has been granted exclusive license to manufacture, test clinically, and market inflammatory treatments like AbbVie’s (ABBV) top-selling Humira, Johnson & Johnson’s (JNJ) blockbuster Remicade, and Amgen’s (AMGN) moneymaking treatment Enbrel, as well as oncology therapies such as Roche’s (RHHBY) promising growth drivers Avastin and Herceptin.

These catapulted Organon as the leader in the fast-expanding healthcare field, where several lucrative drugs will lose their patent exclusivity before 2030.

Riding this momentum, Organon plans to expand its portfolio of biosimilars to cover more therapeutic fields like neuroscience, diabetes, and even ophthalmology.

To boost its portfolio, Organon has been collaborating with Shanghai’s Henlius Biotech to work on more biosimilars.

The Merck spinoff has agreed to pay $73 million upfront in addition to $30 million in milestone payments for the development of Pertuzumab, a biosimilar for Roche’s breast cancer treatment Perjeta, and Denosumab, a biosimilar of Amgen’s osteoporosis drug Prolia. Another Amgen drug, bone cancer treatment Xgeva, is included in the collaboration agreement.

For context, Amgen reported $873 million in sales for Prolia and $545 million for Xgeva in 2021, while Roche raked in $4 billion from Perjeta.

If this partnership works out, Organon and Henlius plan to move forward with a biosimilar to Bristol Myers Squibb’s (BMY) cancer drug Yervoy and its best-selling Opdivo.

While these are all exciting, it may still take some time for the biosimilars to be released to the market. Among them, the Prolia biosimilar has the most apparent timeline, potentially launching the product by 2024.

Although Organon has yet to make a splash in the biopharmaceutical market, the company holds impressive potential. So far this year, the stock has been up 15%—a performance that’s better than the S&P 500 that recorded 4% in losses over the same period.

More than that, its price is heavily discounted these days, offering investors an extra incentive to seize the opportunity to buy shares of this relatively new company in the healthcare sector.

It also has consistent revenue growth and a promising pipeline of diverse candidates with the potential to expand the company’s portfolio.

Taking all these into consideration makes Organon an underrated buy at the moment and a great candidate for long-term investors.

organon