Mad Hedge Biotech and Healthcare Letter
December 21, 2021
Fiat Lux
Featured Trade:
(A BREAKOUT BIOTECH WITH A STRONG STAYING POWER)
(MRNA), (PFE), (BNTX), (MRK), (AZN), (VRTX), (CRSP), (GILD)
Tag Archive for: (VRTX)
The biotechnology and healthcare sector has been ruthlessly hammered in 2021.
In fact, the largest exchange-traded funds that keep track of the biotechnology industry have been in the negative in the past months.
However, the string of bad news doesn’t automatically mean that none of the biotechs can deliver strong returns in the coming days.
An excellent example of a biotech that’s an exception to the general theme of the sector these days is none other than the famous Moderna (MRNA).
Moderna stock has already delivered a 434% gain in 2020. Meanwhile, it has so far recorded a 160% rise this year—a number that’s expected to go higher before 2021 ends.
These gains came after the biotech became one of the market leaders in the COVID-19 vaccine race, alongside Pfizer (PFE) and BioNTech (BNTX).
Considering how COVID-19 catapulted the stock to dizzying heights, some investors fear that Moderna’s performance will decline in a post-pandemic setting.
That’s not necessarily the case.
Viruses present complex problems. Right now, we’re dealing with yet another coronavirus variant, Omicron.
This latest strain appears to be more contagious than the previously discovered Delta variant, which was then reported to be more virulent than the original.
What’s the takeaway here?
COVID-19 isn’t going to disappear anytime soon. Since the vaccines and boosters seem to wane gradually, these are expected to become staples moving forward.
This means everyone will need ongoing protection, which translates to ongoing sales for vaccines and boosters for companies like Moderna.
Moreover, the continuous demand for new and more potent vaccines makes it a no-brainer that Moderna will once again deliver market-crushing performances in the next few years.
For context, the company estimates that Spikevax, its COVID-19 vaccine, will rake in roughly $15 billion to $18 billion in sales in 2021.
Orders for 2022 have been secured as well, with Moderna already locked in for over $22 billion worth of Spikevax doses through advance purchase deals.
This is still expected to rise, considering the vaccines under development for the new variants getting discovered.
But even when the panic and anxiety over the viruses subside, we can still reasonably expect roughly $15 billion in annual sales from Spikevax
After all, the vaccine and boosters are expected to become the norm eventually.
Believe it or not, though, the best reason to buy Moderna isn’t its coronavirus vaccine.
Outside Spikevax, Moderna has a long list of promising pipeline candidates under development—the majority of which are based on the mRNA technology that’s behind its potent COVID vaccine.
While that does not guarantee that all the candidates will gain approval, the fact that the technology has been proven to work on humans presents a bright future for these candidates.
The company has been actively advancing its programs using its cash on hand, with over half a dozen queued in Phase 2 trials.
A potential blockbuster is its cytomegalovirus (CMV) vaccine candidate.
CMV, a virus that can be deadly to unborn babies and individuals with compromised immune systems, currently has no vaccine.
This represents an untapped market with high demand. Conservatively speaking, Moderna can generate roughly $2 billion to $5 billion in peak sales for this vaccine if it gains regulatory approval.
Other impressive programs in the biotech’s pipeline are its HIV vaccine candidate and a personalized cancer vaccine, which Moderna has been developing with Merck (MRK).
Needless to say, both hold the potential to become game-changers not only for Moderna but also for the entire industry.
Aside from its personalized cancer vaccine, another relatively advanced program in its pipeline is its work with AstraZeneca (AZN) on the AZD8601 program.
The AZD8601 program aims to use mRNA therapies to encode for vascular endothelial growth factor-A in people who are supposed to go through a coronary artery bypass grafting.
In layman’s terms, AstraZeneca and Moderna want to develop a treatment that induces the heart blood vessels of heart bypass surgery patients to repair themselves.
However, the most exciting collaboration is Moderna’s work with Vertex (VRTX) to develop a cystic fibrosis (CF) treatment.
Considering that Vertex is practically a monopoly in the CF space, this can turn out to be a lucrative direction for Moderna as well.
In terms of competition, the biotech might go head-to-head against Vertex’s other partner, CRISPR Therapeutics (CRSP).
Until two years ago, Moderna was an obscure biotechnology company with no product out on the market.
Today, it is hailed as one of the biggest biotechs worldwide thanks to its market capitalization of roughly $120 billion, surpassing long-established names in the sectors like Gilead Sciences (GILD) and even Vertex.
Some investors point out that Moderna’s breakneck rise to the top might also mean a steady descent.
While I agree that its climb was faster than the usual biotech, I still believe that Moderna possesses the right tools to sustain its momentum for the years to come.
Mad Hedge Biotech and Healthcare Letter
November 4, 2021
Fiat Lux
Featured Trade:
(A LONG-TERM STOCK FOR MONOPOLY AFICIONADOS)
(VRTX), (ABBV), (GLPG), (CRSP), (MRNA)
Investors have a myriad of biotechnology stocks to choose from. However, most of these options are still in the developmental stage for their first blockbuster product that can hit at least $1 billion in sales annually.
Then, there are biotechnology companies like Vertex Pharmaceuticals (VRTX).
Vertex has a storied history of launching blockbuster names in the market for rare and hard-to-treat diseases.
Among the products in its portfolio, what stands out is Vertex’s work on cystic fibrosis (CF) treatments.
CF is an incurable genetic condition that can damage the lungs and the pancreas. So far, Vertex has four CF treatments available and holds 97% of the market share worldwide, valued at roughly $6.36 billion in 2020.
The company’s latest CF treatment, Trikafta, is already projected to generate roughly $5 billion in sales after only less than 2 years since its release.
Thus far, Vertex has reported an annualized sales run rate of $7.2 billion in its second-quarter earnings report for 2021. This number is expected to climb higher as the company increases its penetration rate in the CF market in the coming years.
Given its history and trajectory, Vertex is projected to generate $10 billion to $10.5 billion in sales for its CF franchise by 2024.
Considering the lucrative CF market’s potential, it no longer comes as a surprise that more and more competitors are entering the space. However, none can even be considered as a close second to Vertex.
AbbVie (ABBV) partnered with Galapagos (GLPG) to come up with a combination CF treatment a few years back, only to get stalled in Phase 2 trials.
It remains to be seen if AbbVie, which eventually acquired the entire CF line from Galapagos, will be able to develop a drug worthy of challenging Vertex’s dominance in the arena.
The driving force behind Vertex’s success is its operating model, which works overtime to exhaust all resources to protect its CF revenue.
Throughout the years, the company has been consistent in its efforts to keep developing innovative CF treatments and expanding its coverage to include more mutations.
In turn, these new drugs all but guarantee that Vertex enjoys a stable and secure cash flow for years.
For example, the IP protection for Trikafta will reach up to the late 2030s. If innovations on the drug are discovered, then this can very well extend into the 2040s.
Despite the overwhelming success of its CF franchise, Vertex knows not to rest all its eggs in one basket.
The company has been working on expanding its expertise. A telltale sign of this decision is its burgeoning partnership with CRISPR Therapeutics (CRSP).
So far, the two have created a promising gene-editing treatment, CTX001, which targets rare blood diseases and sickle cell disease.
Looking at their timeline, the therapy could be ready for regulatory review by 2023.
Other than CTX001, Vertex and CRISPR have been developing several mRNA-based treatments currently under Phase 2 trials.
Among them, the therapies generating the most excitement are the ones targeting pain and rare kidney diseases.
For acute pain treatments alone, the US market is already worth $4 billion. To this day, the non-opioid medication market remains an extremely attractive space.
Needless to say, a product offering an approved safety profile and high efficacy could easily grab the multi-billion sales potential.
Meanwhile, riding on the momentum of its mRNA programs, Vertex also partnered with Moderna (MRNA) to develop more therapies for rare and hard-to-treat diseases.
While its collaboration with Moderna has yet to reveal its prime candidates, there’s a strong possibility that one of them would be a gene therapy for CF.
CTX001’s addressable market is highly lucrative and still exclusive to hyper-specialized companies.
This top-priced orphan gene-editing treatment could rake in annual sales within the range of $3 billion and $4.5 billion. This estimate covers roughly 3,000 to 4,500 patients every year, with average individual spending of $1 million.
Although this price might sound too steep, keep in mind that CTX001 treats lifelong incurable diseases. Typically, patients spend an average of $200, 000 annually.
If successful, this treatment from Vertex and CRISPR could provide a one-and-done answer to the suffering of these patients, justifying the steep price tag.
Overall, I see Vertex as a stock selling a pretty reasonable price.
Considering its relatively young pipeline, though, this should be seen as a long-term investment—one that has been tested and proven to be successful at targeting multi-billion-dollar markets.
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)
No matter the short-term consequences of events in the past months, what remains constant is the stock market’s ability to create wealth over the long term.
Each crash or correction that occurred in history was eventually offset by a strong bull market rally.
That’s why it pays to be prepared for when things start to turn around.
Today, I’d like to take a look at another name in the oncology sector that’s poised to skyrocket in the coming years: Exelixis (EXEL).
Here’s a quick overview of Exelixis.
Exelixis is a California-based biotech that’s focused on developing treatments for hard-to-treat types of cancer. To date, the company has three FDA-approved treatments in the market.
The stock has been trading within the $20 and $22 range and sports a market capitalization of roughly $7 billion.
For most of its existence, Exelixis’ growth story centers around its blockbuster therapy, called Cabometyx.
In the second quarter earnings report, Cabometyx’s sales went up 59% compared to its 2020 performance to contribute $275.6 million.
This comprised the bulk of Exelixis’ total revenue worth $385.2 million, which climbed an impressive 48.4% year over year.
Cabometyx is the leading treatment for first- and second-line treatment for advanced renal cell carcinoma (RCC) and advanced hepatocellular carcinoma.
Together, both indications could generate over $1 in annual sales for Cabometyx in 2021 and 2022.
To put things in perspective, the entire Cabometyx franchise was only worth about $742 million in 2020.
What makes Cabometyx an exciting revenue stream is its label-expansion capacity.
Apart from the two approved indications, Exelixis is also conducting six more clinical trials for this drug either as a monotherapy or a combination treatment.
So far, Cabometyx has proven to be effective as a combination therapy with Bristol-Myers Squibb’s (BMY) Opdivo. This additional approval has allowed Exelixis to seize an even bigger share of the RCC market today.
Considering the label-expansion opportunities for Cabometyx, this treatment is projected to become a multi-billion-dollar drug soon.
Given the solid performance of its products and successful collaborations, Exelixis has also become a cash cow.
The company estimates that it would conclude 2021 with roughly $1.6 billion to $1.7 billion in cash and investments—an amount that comprises over 20% of its market capitalization.
With this money, the company can comfortably pursue acquisitions and even strengthen its internal R&D engine.
However, not everything has been smooth sailing for Exelixis in the past months.
One of the major factors that pulled the stock down by a whopping 20% is the unimpressive results from its liver cancer clinical trial with Roche (RHHBY) last June.
However, I think the market overreacted to this piece of negative news.
If anything, Exelixis has already turned the situation around.
Unfazed by its unexpected flop with Roche, Exelixis is again pursuing a difficult-to-treat condition: prostate cancer.
The difference this time is that the company appears to have more confidence in the efficacy of its famed Cabometyx as a treatment for the condition—so much so that they intend to apply for FDA feedback in the high-risk group and possibly even an accelerated approval.
It also celebrated a recent win with the approval of Cabometyx’s label expansion to cover 12 years and older—an approval granted way ahead of their December 4 schedule.
Now, Cabometyx can also be prescribed to treat DTC, which is the most common kind of thyroid cancer in the United States.
More than that, Exelixis is the first to provide a standard treatment option to these patients, making the company a first mover in this segment.
Looking at the history of first movers, such as Vertex (VRTX) in the cystic fibrosis sector and Teladoc (TDOC) in the telehealth space, Exelixis could very well be on its way into becoming a functioning monopoly.
In terms of its pipeline, Exelixis has more than 100 studies going through different stages. These cover diverse indications including gastrointestinal cancers, neuroendocrine tumors, and lung cancer.
While Exelixis has a balance sheet akin to Fort Knox and a remarkable revenue growth, its shares remain range-bound in the past couple of years.
Nonetheless, it has continued to be an impressive “rinse-wash-repeat” covered call play during the same period and is considered a dividend stock with double-digit yields.
Moreover, Exelixis has been consistently ramping up revenue growth in the past years.
The biotech’s big cash balance along with its proven profitability indicate a minimal possibility of dilution.
Considering its price-to-earnings-growth ratio of almost 1, this company is the picture of an ideal balance of double-digit sales growth complemented with great value.
Simply put, it’s a great opportunity for long-term investors.
More importantly, its recent stock-price meltdown makes it an ideal addition to the portfolio of opportunistic investors.
Mad Hedge Biotech & Healthcare Letter
August 24, 2021
Fiat Lux
FEATURED TRADE:
A GENE EDITING PURE PLAY UP FOR GRABS
(MRNA), (EDIT), (CRSP), (NTLA), (VRTX), (REGN), (BMY),
(BLUE), (NVO), (GRTS), (INBX), (BEAM), (VERV), (SGMO)
Moderna (MRNA) is faced with a dilemma. And it’s a pretty good problem to face at this point.
The biotechnology company has a flourishing cash stockpile courtesy of the increasing demand for its COVID-19 vaccine, and it needs to find something to do with its overflowing cash.
As of the end of the second quarter, the company has already reported a cash position of over $12 billion—a figure that offers Moderna the flexibility to go on a bit of a shopping spree.
So far, Moderna has set its sights on expanding its internal R&D programs on top of the $1 billion share repurchase program approved by its board of directors.
However, the most exciting news is the company’s plans to potentially make acquisitions soon.
This is where Editas Medicine (EDIT) enters the picture.
Moderna has not been shy in declaring that it wants to add gene editing therapies to its growing pipeline along with nucleic acid technologies and mRNA.
While Moderna did not specifically mention Editas in its plans, the smaller biotechnology company looks to be the most promising candidate for acquisition, especially if the COVID-19 vaccine leader plans to jump right into the action in the gene editing space.
After all, there are only three companies in this segment with therapies under clinical testing: CRISPR Therapeutics (CRSP), Intellia Therapeutics (NTLA), and Editas.
CRISPR Therapeutics is practically joined at the hip with Vertex Pharmaceuticals (VRTX). Meanwhile, Intellia has a strong ongoing partnership with Regeneron (REGN).
That leaves Editas, which currently has no partner for its lead program, making it a prime buyout candidate for Moderna.
Editas is also the cheapest by far among all three clinical-stage biotech with $4.12 billion in market capitalization.
In comparison, CRISPR Therapeutics has a market cap of $8.93 billion, while Intellia has a market cap of $10.97 billion.
Moderna could find Editas’ lower market capitalization as an add-on, as it would allow the bigger biotech to not spend all its cash on the acquisition.
Moreover, Editas has another advantage.
While both CRISPR Therapeutics and Intellia only focus on CRISPR-Cas9, which is a way to locate and bind targeted genes, Editas has developed another option platform to do that.
Its alternative option, called Cas12, could boost the company’s capacity to develop gene editing treatments.
Simply put, its rivals only have one weapon in their arsenal, while Editas has come up with a dual-option CRISPR platform to double its chances of succeeding in gene therapy development.
If, for instance, Moderna does not acquire Editas, there are still a lot of options available for the bigger company.
One possibility is with Juno Therapeutics, which is part of Bristol-Myers Squibb (BMY), as the company is already collaborating with Editas on the development of genetically modified T-cells to come up with a powerful cancer therapy.
Meanwhile, if Editas’ pipeline and portfolio do not quite cut it with Moderna, another potential buyout candidate for this biotechnology giant is bluebird bio (BLUE).
While it’s not as advanced as CRISPR Therapeutics, Intellia, and Editas, bluebird bio has ongoing work with the likes of Bristol-Myers Squibb, Regeneron, Novo Nordisk (NVO), Gritstone Oncology (GRTS), and Inhibrx (INBX).
Other candidates that Moderna could take into consideration include Beam Therapeutics (BEAM), Verve Therapeutics (VERV), and Sangamo Therapeutics (SGMO).
Regardless of Moderna’s future decisions, its announcements that it plans to expand on the gene editing space could potentially spur other huge biopharmaceutical companies to explore their own business development agreements with up-and-coming biotechnology firms.
In fact, even if Moderna ends up not calling, there’s a big possibility that Editas could easily find others who will be interested in acquiring this pure play gene editing frontrunner.
Mad Hedge Biotech & Healthcare Letter
August 19, 2021
Fiat Lux
FEATURED TRADE:
A LOW-PROFILE BIOTECH WINNER
(VRTX), (ACAD), (SRPT), (FGEN), (MRK), (MRNA), (NVS), (XLRN), (PTGX), (IONS), (BLUE), (EDIT), (ABBV)
Choosing winners among biotechnology and healthcare stocks these days isn’t easy.
Since the year started, the sector has been marred with several unexpected disappointments like the 50% decline of crowd favorites Acadia Pharmaceuticals (ACAD) and Sarepta Therapeutics as well as the 33% fall of the ever-dependable FibroGen (FGEN).
So, how can investors pick a winner?
One tactic is taking a peek at what Wall Street analysts are doing, noting which among the companies they’re following are trading the farthest below the estimated price points.
Among the names on the list, a particular stock stands out as a strong contender these days: Vertex Pharmaceuticals (VRTX).
Although it’s one of the most widely known biotechnology companies today, Vertex actually started in a garage of a Harvard-trained chemist, Joshua Bogner, who left his cushy job at one of the most illustrious big pharma companies at that time, Merck (MRK), to pursue his vision.
The company’s raison d’être was a major selling point for a lot of talented and idealistic scientists in that era.
That is, Vertex wanted to find cures for the most challenging diseases and do this in an unbureaucratic setting.
Since then, Vertex’s goal has been straightforward: tackle the most complex and toughest diseases and deliver breakthrough treatments that offer tangible benefits to patients.
Over the years, the company has managed to keep this goal at the forefront of its efforts, starting with its work on the devastating genetic disorder called cystic fibrosis (CF).
Vertex’s work on CF took over a decade, but it eventually led to an impressive franchise that helped with the treatment of patients.
In the first quarter of 2021 alone, sales in this segment reached $1.7 billion.
Expanding on its work, Vertex has explored genetic therapies and set up a collaboration with Moderna (MRNA) in 2016.
Using the latter’s well-established expertise in messenger RNA technology, the companies are expected to come up with more aggressive and advanced CF treatments in the coming years.
Given these developments, Vertex reiterated its 2021 sales guidance to be somewhere in the range of $6.7 and $6.9 billion. Meanwhile, sales of its CF franchise are estimated to peak at $9 to $10 billion—if not higher—by 2024.
Aside from its work on CF, Vertex has also been pouring resources on developing treatments for severe sickle cell anemia and beta thalassemia, a rare blood disorder.
In fact, the company has been looking into these developments as the next major revenue stream, as seen in its bolstered collaboration deal with CRISPR Therapeutics (CRSP).
In this deal, Vertex paid the smaller biotechnology company $900 million upfront plus a potential addition of $200 million following the first regulatory approval of their therapy, CTX001.
While this may sound like a hefty deal to some, Vertex actually values CTX001 at roughly $11 billion.
CTX001, which is a one-time therapy, is priced at roughly $1 million per patient. At this point, the market for beta thalassemia is valued at $32 billion.
Needless to say, this would make CTX001 a massive income generator in the next few years.
Considering the lucrative market for beta thalassemia, though, it’s no surprise that several competitors have emerged to grab their share as well.
Some companies, such as Novartis (NVS) and Acceleron (XLRN), offer maintenance drugs for the disease.
Meanwhile, others like Protagonist Therapeutics (PTGX) and Ionis Pharmaceuticals (IONS) are attempting to develop treatments that would become direct competitors of CTX001.
However, the closest rivals of the Vertex-CRISPR candidate are from Bluebird Bio (BLUE) and Editas Medicine (EDIT).
While this has become a crowded space, Vertex and CRISPR remain the leaders in this segment, as most of the other candidates are still in the investigation phase.
Since it was founded in the 1980s, Vertex has remained true to its vision of tackling some of the toughest diseases out there.
While big pharmaceutical companies, such as AbbVie (ABBV), decided to expand their portfolio through acquisitions, Vertex leveraged its talent pool and maximized its funds by establishing strategic collaborations instead.
This tactic provided the company with enough elbow room that eventually led to its dominance in the CF space, where it now enjoys a virtual monopoly until at least the next decade.
Meanwhile, it has forged strong relationships with promising biotechnology companies and can very well be on its way to becoming the most dominant force in the rare blood disorder segment.
Overall, Vertex Pharmaceuticals is an attractive stock with an impressive portfolio and an even more impressive pipeline.
