(VRTX) Archives - Mad Hedge Fund Trader

After countless dinners with pharma execs and more investor conferences than I care to remember, there's one thing I've learned about this sector – these stocks are a lot like the experimental drugs themselves: sometimes miraculous, sometimes disappointing, and always requiring patience.

That brings us to Gilead Sciences (GILD), which has recently pulled off the financial equivalent of finding a $100 bill in an old jacket: a 90% gain since May 2024.

If you're an income-focused investor eyeing GILD's promising yield like a prospector spotting gold, I'd suggest taking a breath before you stake your claim.

After diving into this company's financial innards with the ruthless precision of a veteran hedge fund manager, I've uncovered some fascinating contradictions.

First off, GILD has undergone a remarkable transformation, shedding its growth-focused biotech skin to become what I call a "mature dividend machine" – offering 9 consecutive years of dividend increases since 2015.

Its current annual dividend of $3.16 per share yields 2.99%, significantly outpacing the biotechnology sector average of 1.92%. Not too bad for a company that cut its teeth on groundbreaking HIV and COVID treatments.

But here's where things get interesting. Despite GILD's revenue looking as seasonal as a summer blockbuster (with predictably lower earnings in the first half of each year), the company's fundamentals show troubling signs beneath the surface.

While Q1 2025 revenue was expected to land around $6.77 billion, the company's economic profitability has fallen off a cliff since 2024. Blame it on negative net income in early 2024 and a Cash Tax Rate that jumped from 25.4% to 30.6% faster than a trader fleeing a market crash.

The historical performance tells an even more sobering tale. From IPO to 2015, GILD delivered average annual returns of 32.25% in 79% of years – performance that would make even the most jaded investor whistle.

But since 2015? The stock managed profits in only 50% of years with an anemic average return of 0.99%, which translates to a 2.17% loss when adjusted for inflation. Ouch.

You might say that the entire sector's going through a rough patch these days, and I would have agreed with you except there are several biotechs still performing well.

Take Vertex Pharmaceuticals (VRTX). Those guys are up 36.7% over the past 52 weeks.

Or consider Amgen (AMGN), whose dividend is growing at a mouth-watering 8.94% annually over five years – nearly triple what GILD is serving up to its shareholders.

Even BioMarin (BMRN), a company most retail investors couldn't pick out of a lineup, has been quietly crushing it with 27.3% revenue growth while GILD's top line moves sideways like a crab with performance anxiety.

And don't get me started on Bristol Myers Squibb (BMY). Despite facing their own patent cliff dramas, they're maintaining a forward P/E of just 7.2 – practically giving away shares – while offering a dividend yield of 4.7%.

So, let me tell you something the glossy investor presentations won't: GILD's forward P/E ratio of 13.35x looks attractively cheap compared to the healthcare sector's 20.13x and the S&P 500's 18.60x.

After having had drinks with several institutional investment managers last week, though, I can assure you that discount exists for a reason.

The smart money has correctly identified that this company is no longer growing profitably, and certain whispers about their pipeline aren't inspiring confidence.

For dividend investors hoping to beat inflation while preserving capital, GILD presents a mixed bag. The dividend growth continues but remains stubbornly below inflation, creating a slow leak in real returns.

And, look, I know the Trump White House isn't exactly making life easy for companies like Gilead. Over whiskey last month with a former FDA bigwig (who shall remain nameless), I heard some concerning murmurs about potential cuts to HIV prevention programs.

Bad news when you're sitting on 40% of the U.S. PrEP market like GILD is.

Bottom line? I'm sticking with "hold" for now. The smart money moves when the smart money knows, and my Rolodex isn't flashing buy signals yet.

I've watched enough biotech darlings flame out to know that patience outperforms panic every time.

When GILD shows signs of recapturing that pre-2014 magic, you'll hear it from me before the CNBC talking heads catch wind of it.

February 20, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 20, 2025
Fiat Lux

Featured Trade:

(PORTFOLIO MANAGEMENT DURING PAIN MANAGEMENT)

(VRTX), (DSNKY), (AZN), (GILD), (SNY), (GSK), (JNJ), (BMY), (LLY)

February 11, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 11, 2025
Fiat Lux

Featured Trade:

(SPLICING THROUGH SKEPTICISM)

(CSRP), (VRTX), (AMZN), (TSLA)

Splicing Through Skepticism

Biotech Letter

When I pioneered fracking technology in Texas years ago, skeptics said we were crazy. Today's skeptics are saying the same thing about CRISPR Therapeutics (CRSP), and they're just as wrong.

Here's a company sitting on a $1.9 billion cash fortress, burning through a mere $100 million per quarter – giving them enough runway to circle the Earth 19 times – and yet the stock has drifted down to $40, shedding 15% since my last analysis when it was perched at $48.

Talk about the market missing the forest for the trees.

Remember when everyone thought Amazon (AMZN) was just a bookstore? Well, CRISPR Therapeutics isn't just another biotech company – it's the Tesla (TSLA) of gene editing, with Vertex Pharmaceuticals (VRTX) riding shotgun.

And just like Tesla wasn't just about making electric cars, CRISPR isn't just about Casgevy, their FDA-approved treatment for Sickle Cell Disease (SCD) and Transfusion-Dependent Beta Thalassemia (TDT).

Speaking of Casgevy, let's tackle the elephant in the room. Yes, patient enrollment has been slower than a government committee deciding on lunch options. They've collected cells from over 50 patients by year-end, up from 20 in mid-October.

Not exactly setting speed records, but here's what the market is missing: the Centers for Medicare and Medicaid Services just inked a deal with Vertex/CRISPR that could be a game-changer.

Why? Because 50-60% of SCD patients are on Medicaid.

But wait, there's more happening behind the scenes. The company has been quietly building an empire across 5 clinical programs and 10 preclinical programs.

Let's break down what's cooking in their kitchen.

The Casgevy rollout has expanded from 35 treatment centers in October to over 50 by year-end.

Eight jurisdictions have given them the green light, including Saudi Arabia – a market where SCD is about as common as sand.

The UK just signed on for reimbursement, first for TDT in August 2024, and now for SCD.

Their CAR-T program isn't just targeting blood cancers anymore. They've expanded into autoimmune diseases like Systemic sclerosis (SSc) and Idiopathic inflammatory myopathy (IIM).

We're talking about potential treatments for 2.5 million SSc patients globally (125,000 in the US) and 1 million IIM patients (50,000 in the US).

That's not just a market – it's an ocean.

They're even taking shots at liver cancer and cardiovascular diseases. Their latest trial for Heterozygous familial hypercholesterolemia could be a lifeline for patients with this genetic cholesterol disorder.

And speaking of cash runways, their $1.9 billion war chest means they can keep this scientific symphony playing for 19 quarters without passing around the collection plate.

In biotech terms, that's like having enough food to last through three winters.

Institutions are noticing, too. Cathie Wood just backed up the truck, dropping $10 million more into CRISPR, making it her 9th largest holding at $350 million. Her ARK funds now own over 9% of the company.

When smart money moves like this, I pay attention.

Here's the kicker: While most analysts raise their ratings as speculative stocks climb (a strategy that makes as much sense as buying umbrella futures during a drought), I'm doing the opposite.

After all, the fundamentals are stronger than ever, but the price is lower.

Looking ahead to 2025, we've got more potential catalysts than a chemistry textbook. Phase 1/2 trial data for CTX 112 is coming in Q2/Q3, CTX 131 in Q3/Q4, and updates on their Type 1 Diabetes program in the second half of the year.

Remember, this is the same company that has Vertex Pharmaceuticals – the biotech equivalent of having Warren Buffett as your investment advisor – as a partner.

They're not just getting financial support; they're getting a masterclass in how to commercialize breakthrough treatments.

The verdict? Load up on shares while the market gives us this gift wrapped in fear and uncertainty.

Twenty years ago, they called us crazy for thinking we could extract oil from solid rock. Today, they're just as skeptical about editing genes.

History has a funny way of repeating itself.

January 30, 2025

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
January 30, 2025
Fiat Lux

Featured Trade:

(A CRITICAL PAIN POINT)

(VRTX), (AMZN)

A Critical Pain Point

Biotech Letter

Last week, while having dinner with an old friend who's an emergency room physician in San Francisco, I heard a story that stopped me cold. She had just lost another patient to an opioid overdose - the fourth one that month.

"We desperately need alternatives," she said, pushing away her plate. "Something that works without killing people."

She's not wrong. More than 80,000 Americans died from opioid overdoses in 2022 alone - that's about 75% of all drug overdose deaths in the country.

To put that in perspective, that's more than double the number of people who die in car accidents each year. In New York alone, opioid-related deaths have quadrupled between 2010 and 2020.

You can see where this is going. There's a massive market opportunity here for any company that can crack the code of non-addictive pain management.

We're talking about a potential market worth tens of billions of dollars. The holy grail? A drug that works as well as opioids without the devastating addiction potential.

Enter Vertex Pharmaceuticals (VRTX) and their sodium channel inhibitor VX-548, now known as suzetrigine. The company has been quietly plugging away at this problem, and I've been watching them like a hawk.

For those who've been following my previous coverage, you'll remember I wrote about their interesting (though modest) results in post-surgical patients a few months ago.

And here's where it gets fascinating. Vertex has been running multiple trials because - as any doctor will tell you - pain isn't just pain.

It comes in more flavors than Ben & Jerry's ice cream: acute, chronic, neuropathic, cancer-related, post-surgical, and don't even get me started on phantom limb pain.

Just before the holiday break, they dropped their latest results for suzetrigine in sciatica patients.

Now, I have to tell you something that might sting a bit. The drug worked - but so did the placebo. Both groups saw their pain decrease by statistically similar amounts.

Vertex argues the placebo response was unusually high and that a larger Phase III trial should smooth things out.

Maybe they're right - but I've seen enough clinical trials to know that placebo effects in pain studies can be trickier than a Wall Street hedge fund manager.

The FDA is expected to make a decision by the end of this month on suzetrigine for moderate-to-severe acute pain.

Despite the recent speed bump in the sciatica trial, I'm still keeping my eye on the bigger picture here. Vertex isn't a one-trick pony.

Their cystic fibrosis (CF) portfolio is absolutely crushing it. They just got FDA approval for Alyftrek ahead of schedule.

They've expanded Trikafta's approval down to patients as young as two years old, which is huge for their market potential. Plus, they’ve been aggressively pushing into international markets over the past months.

Now, let's talk numbers. Suzetrigine revenue is projected to hit $5 billion by 2035. That's not chump change, even if we hit some bumps along the way.

Trading at a P/S multiple of almost 10, Vertex isn't cheap - but then again, neither was Amazon (AMZN) in 1997.

Still, this biotech’s pipeline goes beyond pain management. We're looking at treatments for diabetic peripheral neuropathy, IgA nephropathy, type 1 diabetes, and even gene editing therapy.

So, here's the bottom line: Yes, the market got spooked by the Phase II data. Yes, there are risks. But remember - the FDA is under enormous pressure to approve non-opioid painkillers.

With 80,000 Americans dying yearly from opioid overdoses, they need solutions more than my trader friends need their morning coffee.

I'll keep watching this one closely. The pain management market is like a sleeping giant, and despite the recent hiccup, Vertex might just have the alarm clock.

or long-term investors, this could be one of those "I wish I bought it back then" moments.

Watch this space. The opioid crisis isn't going anywhere, but neither is Vertex's determination to solve it.

Sometimes the biggest opportunities come disguised as disappointments.