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Pharma's AI Play: A Masterstroke or Misfire?

Faced with an aging blockbuster pipeline and a competitive landscape where some of its rivals are sprinting ahead, AstraZeneca (AZN) is making a bold move - doubling down on Artificial Intelligence (AI).

This isn't just about keeping up with the Joneses (or in this case, their industry rivals); it's a calculated gamble with the potential to redefine drug discovery. The million-dollar question is: will this tech-savvy move send its shares soaring or just keep it in the running?

Let's address the elephants in the room of drug development. It's a long and winding road, with more dead ends than a maze in a horror movie. The usual grind? Spend ages finding a glimmer of hope in therapy targets and molecules, only for a paltry 21% to get the regulatory thumbs up after clinical trials.

So, you can bet your bottom dollar that if there’s a technology promising to up those odds and speed things up, companies will be jumping on the bandwagon faster than you can say "biotech boom."

And AstraZeneca? They are fully committing to AI, making significant waves in the field.

Case in point: their recent team-up with Absci, an AI drug discovery outfit. They're talking about developing a cancer-fighting antibody, with a potential payout of up to $247 million in milestone payments. If this pans out, it could be the first of many high-fives between the two.

But AstraZeneca's history with AI extends beyond this collaboration. Last September, they put up to $840 million on the line with Verge Genomics, aiming to tackle neurodegenerative diseases.

Add to that their work with Illumina (ILMN) and Nvidia (NVDA) in 2021 for some supercomputing firepower, and you've got a company that's serious about its AI game. They’ve even got a couple of AI-bred candidates in their pipeline, though it’s hush-hush on how those are faring.

And before you think it’s all about the new kids on the block, AstraZeneca has been rubbing elbows with Schrodinger (SDGR) since before 2020, working on making their biological medicine modeling sharper than a tack.

However, AstraZeneca is far from being the lone ranger in this new frontier.

Exscientia (EXAI) and Sanofi (SNY) are pairing up to take on COPD with an AI-driven approach. Meanwhile, BenevolentAI (BAIVF) played matchmaker between baricitinib and its new role as a COVID-19 treatment contender.

Over at Google’s (GOOGL) DeepMind, they’ve cooked up AlphaFold, an AI program adept at unraveling protein structures – a feat that’s akin to finding a map to hidden treasure in drug design.

And let's not forget the big guns. Pfizer (PFE) has teamed up with IBM’s (IBM) AI and supercomputing prowess, a partnership that’s been pivotal in accelerating the development of COVID-19 treatments like Paxlovid.

Novartis (NVS) is another key player, wielding AI to shave years off its drug development timeline, a strategy that could redefine the pace of pharmaceutical innovation.

Not to be outdone, Roche (RHHBY) is utilizing AI for a spectrum of tasks, from target identification to the virtual screening of molecules, illustrating the technology’s versatility in the drug discovery process.

Bayer (BAYRY) is also making a significant bet on AI to uncover new therapies, focusing on areas like immuno-oncology and cardiovascular diseases, areas with immense potential for groundbreaking treatments.

Vertex Pharmaceuticals (VRTX) and Johnson & Johnson (JNJ) are part of this evolving landscape as well, leveraging AI to enhance various stages of drug development. Their involvement underscores the widespread adoption of AI across different phases of the pharmaceutical process, from initial research to clinical trials.

Now, let’s go back to AstraZeneca. Best-case scenario? They cut their R&D budget, which was a cool $9.8 billion in 2022 while keeping the pedal to the metal on their clinical trials.

Worst case? Their AI bets don't pay off big time. But let's be real, with AI tech moving faster than a New York minute, that's looking less and less likely.

So, should you invest in AstraZeneca stocks right now? Not so fast. Jumping on the AI bandwagon isn't a golden ticket on its own.

Remember, everyone and their mother in big pharma is chasing the same AI dream. For now, it’s a case of watch, wait, and see how this fusion of AI and pharmaceuticals reshapes the landscape of drug discovery and development. Keep your ears to the ground – this is one race you don't want to miss.

August 29, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 29, 2023
Fiat Lux

Featured Trade:

(WEIGHTY RETURNS)
(NVO), (LLY), (SNY), (AMGN), (PFE), (AZN)

Weighty Returns

Biotech Letter

These days, the narrative around transformative weight-loss drugs just got a little juicier. Here's the lowdown: Heart-failure patients are now giving a nod to Novo Nordisk’s (NVO) Wegovy. But, why?

The intel shows that the overweight community, grappling with heart woes, noticed a stamina uptick and weight drop when on Wegovy. The buzz was so compelling that it got its spotlight moment at the European Society of Cardiology Congress in Amsterdam. Plus, the New England Journal of Medicine gave it some ink.

Dive into the numbers, and you'll find that out of about 530 individuals with hearts not really pulling their weight (pun intended), the Wegovy brigade shed 13% of their body weight. That’s in stark contrast to the 3% that the placebo group managed.

More walking, less heart huffing-puffing - Wegovy users clocked in 17 times more steps on the treadmill and showcased fewer heart hiccups. Oh, and fewer side effects? Check.

Rewinding the tape, GLP-1 drugs initially stepped into the arena as the remedy for Type-2 diabetes. But then, surprise! Novo’s Ozempic and Eli Lilly’s (LLY) Mounjaro became the talk of the town. Not just because they were treating diabetes, but because those popping them shed an eye-catching 15% to 20% of their body weight. That's blockbuster material right there.

Eventually, Novo bagged the FDA's green light first for weight loss with Wegovy, and its demand skyrocketed so much so that medical maestros started prescribing Ozempic and Mounjaro to folks with weight woes. Now, all eyes are on the FDA's next move concerning Lilly’s weight-loss contender.

Now, here’s the kicker. This isn’t Wegovy’s first rodeo in the spotlight. Earlier this month, eyebrows were raised when it was revealed that these new kids on the block, known as GLP-1 agonists, might be the next superhero squad against a gamut of diseases.

Yet, GLP-1 might not just stop at obesity and heart diseases. It can also combat a spectrum of illnesses, including Alzheimer's. As expected, Novo and Lilly are doubling down on this potential, exploring these drugs' impact on liver and kidney diseases. As the benefits of GLP-1s unfold, insurers will probably be queuing up to offer coverage.

Let’s paint a clearer picture in terms of market potential.

Nearly 42% of U.S. adults grapple with obesity. The World Obesity Atlas dropped a bombshell—by 2035, over 4 billion global citizens might be tipping the scales, adding an astronomical $4 trillion in health costs.

The repercussions? Beyond the obvious heart diseases, strokes, and type 2 diabetes, they are also prone to mental health challenges, like depression and anxiety.

The economic ripples? Staggering. A drug that can be the silver bullet for such a widespread health epidemic could be the next Wall Street darling.

The next 10 years will likely see the GLP-1 agonists market touching an annual $86 billion. Yet, these figures might be leaning heavily on diabetes and off-label prescriptions.

With the World Health Organization cautioning about a billion obese and 2 billion overweight individuals by 2030, it's clear—this market is about to get a whole lot bigger.

With promises like these, it's no shocker that investors are tossing their coins into the ring. Both Novo and Lilly have seen their valuations triple, and Lilly's net worth now towers over its peers at a staggering $500 billion, crowning it the globe's pharmaceutical kingpin.

However, it’s wise to remember that it's one thing to climb the mountain and another to stay on the summit. Even in this early stage, competitors have started to emerge, including Amgen (AMGN), Sanofi (SNY), AstraZeneca (AZN), and Pfizer (PFE).

By 2025, the biopharma giants could potentially unveil their very own GLP-1-based wonder drugs for obesity, chipping away a quarter of Novo and Lilly's market dominance by 2032.

In the ever-evolving theater of biopharma, GLP-1 agonists, led by stalwarts like Wegovy, are emerging as the new front-runners. While the rewards seem tantalizingly vast, savvy investors know the pharmaceutical landscape is punctuated with highs and inevitable lows.

And here's a golden nugget: in the dynamic world of stock trading, every dip is an opportunity disguised as a setback. So, if you're seeking a stock market mantra for this burgeoning sector, remember to buy on the ebb, not the crest. It's in these valleys that fortunes are made, setting the stage for robust returns. Dive in wisely.

August 24, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 24, 2023
Fiat Lux

Featured Trade:

(FUTUREPROOFING BIOTECH)
(REGN), (SNY), (BAYN), (RHHBY)

Futureproofing Biotech

Biotech Letter

The financial landscape of 2023 offers a captivating tableau. While stock market giants, such as the S&P 500 and the Nasdaq Composite, have been garnering attention with their respective 18% and 34% gains, the biotechnology and healthcare domain unfolds a more nuanced story.

When I take a look at this sector, I notice certain ETFs, notably the iShares Biotechnology and the SPDR S&P Biotech, in a decellerative phase. However, the industry's canvas is dotted with companies that are scripting their distinct success stories.

Among these trailblazers is Regeneron Pharmaceuticals (REGN).

Contrary to the broader biotech trend, Regeneron has asserted itself with a commendable 7% growth this year. This is complemented by its sturdy revenue and an impressive EPS trajectory showcased in Q2.

For those not completely familiar with the annals of biotech, the name Regeneron is synonymous with pioneering achievements in therapeutic proteins. Their landmark collaboration with Bayer (BAYN) resulted in the creation of Eylea, a beacon in the anti-VEGF drug realm.

Their story doesn't end there.

Together with Sanofi (SNY), they've masterminded treatments that have potentially revolutionized the way we approach cancer, inflammation, and specific respiratory disorders. A testament to this partnership's prowess is Dupixent, which registered a remarkable $8.68 billion in sales during 2022.

Insider chatter hints at the possibility of these figures ascending to an ambitious $20 billion by the end of this decade.

A retrospective look at Regeneron's journey over the past decade reveals a remarkable story of resilience and growth. Their compound annual growth rate (CAGR) stood at an enviable 24.2% from 2012 to 2022.

When contrasted against the S&P 500's relatively modest 16.3% in the same window, it underscores the vast potential that biologic therapies hold. Moreover, it showcases Regeneron's ability to harness this potential effectively.

Yet, as we look ahead, the landscape is not devoid of challenges.

Enter Roche’s (RHHBY) Vabysmo — a new contender that has begun to question Eylea's unchallenged dominion since its 2022 introduction.

Recognizing this, Regeneron has strategically moved towards bolstering Eylea to ensure it maintains its market presence. These evolving dynamics serve as a reminder that the arena of retinal disease treatments is becoming increasingly competitive.

Anticipating the industry's fluid dynamics, Regeneron has exhibited strategic foresight. Their ventures into the realm of immuno-oncology, notably their stalwart, Libtayo, are significant.

They've not stopped there, however.

Their strategic diversification includes incursions into groundbreaking fields like gene therapy, RNA interference, and more. The company's research pipeline, promising an influx of innovative drugs in the near future, showcases its commitment to remaining at the industry's forefront.

A key partnership that's generating interest is Regeneron's association with Intellia Therapeutics (NTLA) in the sphere of gene editing.

This venture is pivotal. Such therapies have the potential to redefine medicine, offering transformative, perhaps even curative, treatments. Their adoption, however, comes with its fair share of challenges.

The industry's somewhat tentative approach towards gene editing, with a preference for licensing and equity stakes rather than outright acquisitions, underscores the nascent and experimental nature of this domain.

In conclusion, Regeneron Pharmaceuticals stands as an epitome of innovation and adaptability in the biotech sector. It amalgamates a rich history of achievements with an ambitious vision for the future.

As the company maneuvers through the intricate maze of opportunities and challenges that the 2020s present, investors ought to approach with both optimism and prudence. In a domain characterized by rapid advancements and uncertainties, Regeneron's journey offers valuable insights.

The upcoming years promise a blend of innovation, challenges, and milestones, and firms like Regeneron are poised to shape this narrative. I suggest you buy the dip.

April 13, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 13, 2023
Fiat Lux

Featured Trade:

(SMOOTH SAILING THROUGH ROUGH WATERS)
(NVO), (LLY), (SNY)

Smooth Sailing Through Rough Waters

Biotech Letter

Even in the toughest of times, some stalwart companies manage to maintain their footing and keep making strides. Novo Nordisk (NVO) has taken this feat to heart by continuing its success despite facing numerous market speed bumps—making it one resilient company worth considering.

Novo Nordisk, a veteran player in the pharmaceutical industry, has been consistently delivering impressive financial results. In 2022, the company's net sales increased by a remarkable 26% year over year, amounting to approximately $25.5 billion. However, it's worth noting that currency exchange rate fluctuations may have played a role in this growth.

The company continues to showcase impressive financial performance, with net sales surging by 26% to $25.5 billion in 2022. Even after accounting for currency exchange rate fluctuations, the pharmaceutical company's revenue still jumped by a commendable 16%. Additionally, Novo Nordisk's net profit increased by 16% to $8 billion, solidifying its position as a top-performing player in the industry.

Moreover, Novo Nordisk remains a prominent contender in the diabetes drug arena, capturing almost a third of the market share as of November 2022.

Novo Nordisk's market dominance in diabetes drugs owes much to its portfolio of effective and innovative products like Rybelsus, Ozempic, and the recently approved Wegovy. This dynamic trio has been instrumental in driving the company's sales growth and maintaining its edge in the competitive pharmaceutical industry.

Ozempic has been a critical player in Novo Nordisk's revenue stream, bringing in over a third of the company's total revenue at just under $8.9 billion last year.

Novo Nordisk's market exclusivity for Rybelsus and Ozempic remains intact, giving the Danish pharmaceutical company a few more years to maximize its potential.

Both drugs are injected weekly and heavily marketed in the U.S. With patent expirations in China in 2026, followed by Europe and Japan in 2031, and the U.S. in 2032, Novo Nordisk is likely to maintain its strong position for a while yet.

As for Wegovy, the newcomer in the obesity care market contributed just 3% of the company's total revenue, with $930 million in sales for 2022. However, with its recent approval for chronic weight management by the FDA and in the UK, the potential for growth and expansion is promising.

In its 2022 annual report, Novo Nordisk announced that it controls over half the global market for GLP-1 drugs, with a market share of 54.9% in 2022, up from 52.7% in 2021. Its primary competitors include Eli Lilly's (LLY) Trulicity and Sanofi-Aventis's (SNY) Adlyxin, which exited the U.S. market at the end of 2022.

Overall, the international diabetes market seems to favor Novo Nordisk, with its market share rising from 29.3% to 31.9% from 2020 to 2022.

The company is projected to continue its success, with sales and operating profits expected to increase in the 13% to 19% range at CER in 2023, according to its annual report. Analysts' average estimate of $30.1 billion in 2023 revenues aligns with this projection, representing a 16.7% increase at CER.

Leveraging this dominance, the company is further strengthening its position in the diabetes market, a disease affecting over 415 million people worldwide, and the numbers continue to grow. According to the Centers for Disease Control and Prevention, there will be over 500 million patients by 2040.

For instance, its recent announcement of the positive results of its Phase 3b Pioneer Plus clinical trial of Rybelsus is a further testament to its ability to innovate and stay ahead in the diabetes treatment arena. The trial showed a statistically significant reduction in blood sugar levels, indicating the potential for a more intense treatment option for type 2 diabetes patients.

Meanwhile, Obesity, a major risk factor for diabetes and other health problems, also presents a significant market opportunity for Novo Nordisk.

In fact, the company's revenue from these treatments doubled in the previous year, propelling its overall sales to an upward trajectory for the past half-decade.

Needless to say, Novo Nordisk is showing no signs of slowing down, and its strong position in the diabetes and obesity treatment market is poised to fuel its growth for the foreseeable future. I suggest you buy the dip.

March 28, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 28, 2023
Fiat Lux

Featured Trade:

(NOWHERE TO GO BUT UP)
(REGN), (SNY), (RHHBY)

Nowhere To Go But Up

Biotech Letter

For any biotechnology company, one of the critical elements of success is the capability to create and develop new and innovative treatments.

That is one requirement Regeneron (REGN) has no trouble meeting.

The latest update from this biotech involves its blockbuster asthma medication, Dupixent. The top-selling drug delivered promising results from a study that aims to expand its indication, signifying the potential for additional billions of dollars in revenue.

According to Regeneron and its co-developer, Sanofi (SNY), the Dupixent trial on current or previous smokers displayed a 30% reduction in moderate or severe acute exacerbations of chronic obstructive pulmonary disease (COPD).

COPD is a lung condition that makes it difficult for air to move in and out of the lungs due to the narrowing of the airways. It's is caused by long-term exposure to irritants such as cigarettes, coal, and other pollutants. It can be fatal and life-threatening. There is no cure for COPD, but treatments may help improve symptoms and slow down the progression of the disease.

The market for COPD is estimated to grow significantly over the next five years due to the increasing prevalence of COPD and related comorbidities, such as asthma, cardiovascular diseases, and diabetes.

Additionally, factors such as continuous growth in the elderly population and the introduction of novel therapies are likely to drive the growth of this market during the forecast period. The global COPD market was valued at $27 billion in 2018 and is expected to reach $50 billion by 2025 with a compound annual growth rate of 8.5%.

Considering Dupixent’s positioning in the market and the competitors for this segment, Regeneron is projected to rake in an additional $4 billion in sales from this expanded COPD indication. Taking all its indications together, this blockbuster drug is estimated to contribute a whopping $19.2 billion in the company’s sales.

Aside from Dupixent, Regeneron has also aggressively expanded the indications for another blockbuster drug, Eylea.

In February, the company submitted its application to the Food and Drug Administration to allow them to administer Eylea in 8-milligram doses.

Eylea is a medication used to treat wet age-related macular degeneration (AMD), diabetic retinopathy, and diabetic macular edema. This treatment is typically administered via an injection into the patient’s eye once every two or four weeks, depending on their condition.

In terms of revenue, the wet AMD market is expected to grow significantly over the following years. This growth is driven by the climbing number of cases and the prevalence of associated comorbidities like diabetes and hypertension. In 2018, the global wet AMD market was valued at $17 billion. This number is anticipated to reach $28 billion by 2025.
Going back to Regeneron, the company’s move to increase the formulation of Eylea from 2 mg to 8 mg is critical. This will enable patients to undergo fewer injections of the treatment from 8-week intervals to 12- and even 16-week intervals, which would be a key selling point.

Another excellent reason behind this move is that Eylea’s patent expires in 2023, making it a target for biosimilar competitors. Regeneron’s decision to switch to a higher dosage formulation is a strategic way to sidestep this impending concern.

On top of blockbusters Eylea and Dupixent, Regeneron is also charging headlong on efforts to expand its immune-oncology franchise. Its top treatment in this field, Libtayo, is slated for multiple clinical trials to expand its indication. In addition, Regeneron has seven or so candidates queued in this lucrative but crowded space.

While Roche (RHHBY) has more candidates than the biotech in the immuno-oncology field, Regeneron’s speed in capitalizing on opportunities in this fast-advancing sector is nothing short of breathtaking. Given that immuno-oncology is a relatively new segment, the company’s ability to deliver promising results enables it to stand out in the biotech world.

Regeneron is a beacon of stability in an otherwise unpredictable industry, steadily ascending since its inception. But the stock’s continued success isn't just luck. Their past successes with their treatments and medicines have placed them on solid ground to continue advancing, while further wins through the widening use of approved drugs have only reinforced that position - setting up Regeneron for continued growth into the future.

March 2, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 2, 2023
Fiat Lux

Featured Trade:

(AN UNBEATABLE STOCK REFORMING THE SECTOR)
(LLY), (JNJ), (SNY), (NVO)

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