Mad Hedge Biotech and Healthcare Letter
June 29, 2023
Fiat Lux
Featured Trade:
(THE RISE, FALL, AND IMMINENT RESURGENCE)
(CRSP), (VRTX)
Tag Archive for: (VRTX)
The investing world is a roller coaster where investors' enthusiasm can experience sharp rises and precipitous drops.
One classic case study is CRISPR Therapeutics (CRSP), whose stock is currently hovering around $61 per share, a far cry from its zenith of $220.20 back on January 15, 2021.
But don't write off this biotech player yet; it's poised for a resurgence, and here's why.
The company is in the final stages of commercializing its pioneering gene therapy, exa-cel. This novel treatment, developed in collaboration with Vertex Pharmaceuticals (VRTX), aims to redefine the treatment landscape for patients battling transfusion-dependent beta-thalassemia (TDT) and sickle cell disease (SCD).
With approval requests already lodged with regulatory bodies, the company could be on the cusp of a financial windfall by Q2 2024, sending its stock skyward.
Shining a spotlight on this exa-cel opportunity, it's important to understand that current treatment options for blood disorders are far from ideal, involving blood transfusions and frequent hospital stays. Both physicians and patients are likely ready for a less disruptive alternative.
Exa-cel could be a game-changer for CRISPR, obviating the need for lifelong blood transfusions for certain SCD and TDT patients.
The Institute for Clinical and Economic Review (ICER) recently suggested that the therapy could fetch a staggering $1.9 million per treatment. Meanwhile, the treatment is projected to reach global sales of $1.7 billion by 2028, propelling it into the blockbuster category.
Even with Vertex claiming a majority 60% share of profits, the opportunity remains substantial for CRISPR.
CRISPR and Vertex are primed to address the needs of the most critically ill patients, estimated to be around 32,000 in the U.S. and Europe.
The real charm, however, lies in CRISPR's potential for sustainable long-term growth.
The approval of exa-cel doesn't just promise immediate benefits but also unlocks the potential of the company's pipeline, acting as a proof of concept for CRISPR's gene-editing methodology.
Fast-forward a decade, and the company might boast a portfolio of blockbuster therapies.
Among these potential stars is CTX310, set to enter clinical trials soon. CTX310 is one of the company's few in-vivo therapies, delivering therapeutic genes, gene modulators, and gene-editing tools directly into patient cells.
CTX310 targets angiopoietin-related protein 3 (ANGPTL3) to mitigate the risk of cardiovascular disease, a prevalent concern linked to high rates of coronary artery disease.
In contrast to the relative rarity of SCD and TDT, coronary artery disease is the most common heart disease in the U.S., claiming 375,476 lives in 2021, according to the Centers for Disease Control and Prevention.
Another contender in the pipeline is CTX110, currently under testing for B-cell cancers, including B-cell lymphomas, acute lymphoblastic leukemia (ALL), and chronic lymphocytic leukemia (CLL).
The drug showed promising results in a phase 1 trial to treat large B-cell lymphoma, reporting an objective response rate of 67% and a complete response rate of 41% in patients with significant prior treatment.
The future looks promising for CRISPR's quartet of chimeric T-cell (CAR-T) therapies -- CTX119, CTX130, CTX112, and CTX131 -- being developed as cancer therapies. These therapies target specific proteins to suppress tumors or provoke an immune response.
Contrasting the typical clinical-stage biotech company, CRISPR, thanks to collaborative revenue, is in a healthier financial position.
As of Q1, CRISPR had $1.89 billion in cash reserves, ample to fund operations for the next three years. With potential exa-cel approval, these funds could further fuel research and development.
While it's hard to predict precisely where CRISPR will stand in a decade, its roadmap sets it apart from most clinical-stage biotech firms. The company has already demonstrated its ability to advance its science. Its success, though, will hinge on its capacity to transition into marketing and to manufacture its products.
Given its promising future, I see CRISPR Therapeutics as an excellent investment. Even though I've tempered my expectations about the market opportunity and challenges confronting both Vertex and CRISPR, the potential for exa-cel, which could rake in billions of dollars and serve as a functional cure, lends itself to investor optimism.
In the past, CRISPR shares have breached the $190 mark, translating to a near $20 billion market cap, or over 4x its current valuation. Granted, a fully commercialized pharma typically trades at around 5x sales, but an experimental pharma with a robust pipeline can trade at 50x sales without necessarily appearing overvalued. After all, pharma investing is about betting on future potential, or as we call it, "jam tomorrow."
Taking a long-term perspective and factoring in the cash reserves of over $1 billion, the potential to broaden the SCD/TDT market with Exa-cel 2.0 and 3.0, the technology validation, other pipeline assets, and a solid partner in Vertex, I believe CRISPR's stock is poised to reclaim a price above $100 in due time. There may be some turbulence along the way, but I anticipate exa-cel will one day fuel blockbuster sales exceeding $1 billion annually.
For context, consider Alnylam (ALNY), a drug developer in the field of RNA interference, which generated just over $1 billion in sales last year at a net loss of over $1 billion, yet sports a market cap of $25.1 billion.
With this perspective, the future for CRISPR looks bright indeed.
Global Market Comments
June 29, 2023
Fiat Lux
Featured Trades:
(SATURDAY, AUGUST 5, 2023 ROME, ITALY STRATEGY LUNCHEON)
(MY 2022 LEAPS TRACK RECORD),
(FCX), (PANW), (RIVN), (NVDA), (BRKB), (JPM), (MS), (VRTX), (TLT), (GOLD), (SLV), (TSLA)
CLICK HERE to download today's position sheet.
Recently, I have been touting a 2022 track record of +84.63%.
I have a confession to make.
I lied.
In actual fact, my performance was far higher than that. In reality, I generated a multiple of that +84.63% figure.
That is because my published performance is only for my front-month short-term trade alerts. It does not include the LEAPS recommendations (Long Term Equity Anticipation Securities) issued in 2022, the details of which I include below.
LEAPS have the identical structure as a front month vertical bull call debit spread. The only difference is that while front-month call spreads have expiration dates of less than 30 days, LEAPS go out to 18-30 months.
LEAPS also have strike prices far out of-the-money instead of deep in-the-money, giving you infinitely more upside leverage. LEAPS are actually synthetic futures contracts on the underlying stock.
Of the 12 LEAPS executed in 2022, eight made money and four lost. But the successful trades win big, up to 1,260% in the case of NVDIA (NVDA). With the losers, you only write off the money you put up.
And you still have 18 months until expiration for my four losers, ample time for them to turn around and make money. In the case of my biggest loser for Rivian (RIVN), Tesla launched an unprecedented EV price way shortly after I added this position. Never take on Tesla in a price war. Black swans happen.
Of course, timing is everything in this business. I only add LEAPS during major market selloffs as the leverage is so great, over 20X in some cases, of which there were four in 2022.
If you would like to receive more extensive coverage of my LEAPS service, please sign up for the Mad Hedge Concierge Service where you can excess a separate website devoted entirely to LEAPS. Be aware that the Concierge Service is by application only, has a limited number of places, and there is usually a waiting list.
Given the numbers below, it is easy to understand why most professional full-time traders only invest their personal retirement funds in LEAPS.
To learn more about the Mad Hedge Concierge Service, please contact customer support at support@madhedgefundtrader.com
2022 LEAPS Track Record
Date Position Cost Price Profit
9/27/2022 (FCX) January 2025 $42-$45 Call spread LEAPS $0.65 $1.26 94%
9/28/2022 (PANW) January 2025 $306.67-$313.33 Call spread LEAPS $0.80 $4.42 453%
9/28/2022 (RIVN) January 2025 $75-$80 Call spread LEAPS $0.50 $0.06 -88%
9/29/2022 (NVDA) January 2025 $270-$280 Call spread LEAPS $0.50 $6.80 1,260%
9/30/2022 (BRK/B) January 2025 $420-$430 Call spread LEAPS $1.00 $1.95 95%
10/3/2022 (JPM) January 2025 $175-$180 Call spread LEAPS $0.50 $0.89 78%
10/4/2022 (MS) January 2025 $130-$135 Call spread LEAPS $0.50 $0.24 -52%
10/12/2022 (VRTX) January 2025 $430-$440 Call spread LEAPS $1.50 $2.76 84%
11/9/2022 (TLT) January 2024 $95-$100 Call spread LEAPS $2.30 $3.51 53%
11/10/2022 (GOLD) January 2025 $27-$30 Call spread LEAPS $0.25 $0.18 -28%
11/28/2022 (SLV) January 2025 $25-$26 Call spread LEAPS $0.50 $0.22 -56%
12/19/2022 (TSLA) January 2025 $290-$300 Call spread LEAPS $1.50 $2.94 96%
Good luck and good trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Sweet Taste of LEAPS
Mad Hedge Biotech and Healthcare Letter
June 13, 2023
Fiat Lux
Featured Trade:
(BUCKING THE TREND)
(VRTX), (ABBV), (CRSP)
The notion of "Sell in May and go away" hasn't exactly proven true this year in 2023. Surprisingly, the stock market has been experiencing an impressive upward trend, especially in June, and there may still be further potential for growth.
Allow me to share one of my favorite examples that embody both profitability and consistent expansion, all while enjoying a significant competitive edge.
In the biotechnology and healthcare sector, Vertex Pharmaceuticals (VRTX 1.94%) fits the description perfectly.
This company stands out as the undisputed leader in the market for cystic fibrosis treatments, offering a unique portfolio of drugs that specifically target the underlying cause of this genetic condition.
These groundbreaking medications, known as CFTR modulators, have successfully been introduced to the market, with Vertex Pharmaceuticals spearheading the way by bringing forth four of them.
Vertex has been continuously making remarkable progress in the field of cystic fibrosis (CF) treatment.
A notable achievement is the expanded approval of their drug, Kalydeco, by the U.S. Food and Drug Administration. It can now be used to treat CF patients as young as one-month-old, marking a groundbreaking milestone as the first CFTR modulator ever approved for this age group.
Kalydeco has also been a significant revenue generator for Vertex, ranking as their second highest-earning drug with an impressive $553 million generated over 12 months.
But there's more to Vertex's success.
Their flagship medication, Trikafta, takes the lead as their best-selling drug, raking in a staggering $7.7 billion in revenue in 2022 alone.
Recently, Trikafta received approval to treat children as young as two years old with specific mutations, providing relief to nearly 1,000 more individuals in the cystic fibrosis patient community.
The long-lasting patent protection of Trikafta, with approximately 14 years remaining before expiration, holds great significance for Vertex Pharmaceuticals. With a relatively modest patient population of 88,000, the company has ample opportunities for further growth.
The robust revenue and profits of Vertex's CF franchise speak to their success in this area. Additionally, AbbVie's (ABBV) decision to discontinue its CF program further solidifies Vertex's monopoly in the cystic fibrosis field, strengthening its position for continued success.
While capitalizing on the expanding market for cystic fibrosis treatments, Vertex Pharmaceuticals also targets underserved areas to drive long-term growth.
One promising drug candidate in their pipeline is VX-548, a non-opioid medication designed to address acute pain conditions, which is nearing commercialization.
Moreover, Vertex has a highly promising candidate in its pipeline that goes beyond cystic fibrosis.
Collaborating with CRISPR Therapeutics (CRSP), the company eagerly awaits regulatory approvals for exa-cel, an innovative treatment for sickle cell disease and transfusion-dependent beta-thalassemia, in both the United States and Europe.
Exa-cel represents just the tip of the iceberg when it comes to Vertex's upcoming arsenal of new drugs.
The company holds great optimism for VX-548, a cutting-edge non-opioid therapy targeting acute pain, as well as its triple-drug combination for cystic fibrosis, which features vanzacaftor.
Both treatments are undergoing Phase III trials, with expectations for completion in late 2023 or early 2024.
Additionally, Vertex is conducting a pivotal trial for inaxaplin, a potential treatment for APOL1-mediated kidney disease that impacts a larger patient population than cystic fibrosis.
Needless to say, Vertex has been experiencing an exceptional streak, consistently outperforming the market over the past year. The best part is that its potential to generate significant returns extends well into the next decade.
While Vertex possesses a variety of potential approvals for treating cystic fibrosis, some of which may materialize before 2028, its CF-related revenue is expected to grow substantially even without factoring in those additional approvals.
Analysts anticipate a solid annual increase of 8.2% in the company's overall revenue over the next five years. Although this growth rate is commendable for a biotech industry heavyweight, it falls short of Vertex's impressive 38% annual growth achieved in the previous five years.
From my perspective, the projected 8.2% growth appears rather conservative.
This sentiment is particularly amplified when considering the imminent potential approval of exa-cel, an innovative gene-editing therapy targeting sickle cell disease (SCD) and beta-thalassemia (TDT).
After all, the initial market value of exa-cel could soar to a staggering $64 billion, and given the life-altering impact it offers, a price tag of approximately $2 million per treatment is justifiable.
Honestly, I'm hard-pressed to find anything negative to say about Vertex. This prominent biotech company is constantly delivering positive news and making significant strides on all fronts. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
May 30, 2023
Fiat Lux
Featured Trade:
(A MONSTER STOCK ON THE RISE)
(VRTX), (MRNA), (ABBV), (CRSP)
Biotech companies possess an extraordinary power: the ability to soar to great heights with just a handful of successful drugs.
An excellent example of this phenomenon is the remarkable ascent of Moderna (MRNA), a visionary biotech firm that catapulted from a $4 billion valuation to an astounding $52 billion.
The secret behind its meteoric rise? The resounding triumph of its coronavirus vaccine not only sparked hope in the hearts of millions but also propelled its stock price to a staggering 100% surge over the past three years.
But it's not just about a momentary triumph. Some biotech geniuses focus on concocting life-altering remedies for tricky-to-tackle diseases, which demand regular treatment for the long haul.
This is where Vertex Pharmaceuticals (VRTX) truly shines.
Vertex, the biopharmaceutical juggernaut born in 1989, has orchestrated a stunning 636% surge in annual revenue over the past decade. While maintaining such an astronomical growth trajectory might prove challenging, the company’s formidable pipeline harbors the potential to fuel its rise for yet another decade.
The shining star of Vertex’s portfolio these days is none other than Trikafta, a groundbreaking medicine combatting the relentless foe known as cystic fibrosis (CF).
This blockbuster drug singlehandedly generated $7.6 billion in revenue in 2022, constituting the lion's share of the company's overall product revenue, amounting to $8.9 billion.
In fact, in the first quarter of 2023, Trikafta contributed an astounding $2.1 billion to Vertex's $2.3 billion total product revenue.
At present, Vertex's revenue stream flows exclusively from CF medications, with the company projected to rake in $9.5 billion to $9.7 billion for the entire year from these products alone.
Here's another fun fact that further cement Vertex’s dominance in the CF world: other contenders in the cystic fibrosis domain have stumbled and faltered, leaving the landscape desolate with scarce rivals.
AbbVie (ABBV) has thrown in the towel, abandoning its CF program altogether. It's no wonder Vertex's triumphant creation is now in higher demand, hailed as a proven champion in the ring of battle.
However, Vertex is no stranger to the importance of diversifying its revenue streams.
While the company has a standout product, it recognizes the risks of relying solely on its success. That's why Vertex is boldly venturing into various other programs.
Teaming up with CRISPR Therapeutics (CRISP), it recently wrapped up the regulatory submissions for exa-cel, an innovative gene therapy designed to combat both beta-thalassemia and sickle cell disease.
The potential approval of exa-cel could catapult Vertex into a whole new realm of breakthrough treatments.
But that's not all.
Vertex's pipeline boasts a promising therapy called inaxaplin, currently in pivotal studies, which targets APOL1-mediated kidney disease—a condition affecting more patients globally than CF. Furthermore, the company's early-stage clinical testing program holds the potential to cure type 1 diabetes. Vertex also has its sights set on tackling type 1 diabetes, harnessing the power of CRISPR's cutting-edge gene-editing technology known as CRISPR-Cas9.
Evidently, Vertex has aggressively invested in new ways to expand its portfolio. Its first-quarter report showed that the company allocated a staggering $742 million in research and development.
This substantial investment underscores Vertex’s determination to continue launching groundbreaking therapies worldwide.
Vertex also has significant milestones on the horizon, including the completion of a late-stage study for its vanzacaftor triple-drug therapy targeting cystic fibrosis (CF) by the end of 2023.
Additionally, late-stage testing for VX-548, a potential acute pain treatment, is expected to conclude later this year or early 2024.
Although it may take time for these therapies to reach the market, even with positive results, it’s reasonable to believe that their future regulatory approvals seem to be slam-dunks.
Moreover, both therapies hold tremendous revenue potential for Vertex. The vanzacaftor triple-drug therapy has the potential to become the company's most profitable CF treatment, while VX-548 could serve as a blockbuster non-opioid painkiller.
To add to its strengths, Vertex enjoys a strong balance sheet with a substantial cash stockpile of $11.5 billion as of last March. I fully expect Vertex to leverage this financial strength for strategic business development deals and stock buybacks.
With a strong balance sheet, ongoing drug development efforts, and the potential to become a frontrunner in the biotech industry, I believe that Vertex has the potential to become a monster stock over the next decade.
Mad Hedge Biotech and Healthcare Letter
April 20, 2023
Fiat Lux
Featured Trade:
(ANOTHER WILD RIDE IN BIOTECH)
(CRSP), (VRTX), (BLUE), (MRK), (MRNA),(RXDX)
The biotech industry is a rollercoaster of investment opportunities, where great successes and flops can easily be the difference between riches or ruin.
Companies like Moderna (MRNA) have seen this firsthand - going from a $4 billion valuation to nearly 15-fold that amount in just one successful drug launch resulting from their COVID vaccine development program. To rekindle investor interest in what may seem like an erratic space, giants such as Merck (MRK) are also putting money into promising companies; with its recent acquisition of Prometheus Biosciences (RXDX) evidence enough that even long-established pharmas recognize the potential rewards available within biotechnology markets.
Investors seeking the next big win in biotech should look beyond household names for potential gems.
Take CRISPR Therapeutics (CRSP), whose collaboration with Vertex Pharmaceuticals (VRTX) is taking exa-cel to new heights, and Bluebird Bio's (BLUE) progress on lovo-cel as just two examples of lesser-known science ahead of its time that could pay off handsomely in your portfolio.
Recent news shows that two upcoming treatments for sickle cell disease, exa-cel and lovo-cel, could be cost-effective if priced below $1.9 million - a figure the Institute of Clinical and Economic Review (ICER) concluded after conducting an extensive assessment of their financial aspects. Momentum is building as both companies aim to secure FDA approval soon; investor optimism in CRISPR continues to grow increasingly evident due to this good news.
Here’s a quick recap of the treatment’s market opportunity.
Sickle cell disease and thalassemia patients face a hefty financial burden over their lifetime, with disease-related expenses ranging from $4 million to $6 million.
As a gene-editing therapy, exa-cel is a complex treatment to manufacture and administer, which further justifies its potentially high price tag. With this innovative therapy, Vertex Pharmaceuticals and CRISPR Therapeutics aim to target 32,000 sickle cell disease (SCD) and thalassemia (TDT) patients in the United States and Europe, emphasizing the significant market opportunity for the companies.
The potential market for exa-cel, assuming a price point of $2 million, amounts to a staggering $64 billion opportunity.
While this price tag may seem steep, it is not unprecedented in the industry. Bluebird Bio, for instance, secured approval for its gene-editing medicine Zynteglo last year, pricing it at $2.8 million.
The question remains whether third-party payers will be willing to cover the high costs associated with these treatments. Case in point – Bluebird Bio exited the European market after being unable to secure favorable deals with third-party payers. As such, how exa-cel will fare in this challenging reimbursement environment is yet to be determined.
As CRISPR Therapeutics and Vertex Pharmaceuticals chart their path for the launch of exa-cel, they are keenly aware that pricing gene editing therapies rightly is critical.
Both companies have been in active dialogue with insurance providers and governmental programs like Medicaid to ensure this goal comes to fruition. Even if it means accepting modest prices for its product, there's still immense potential for exa-cel due to the lack of existing treatments meeting SCD and TDT patients' needs.
Given these details, where does CRISPR currently stand?
Investing in clinical-stage biotech stocks can be a tricky, with the potential rewards marred by the risks of what still lies ahead. However, for those brave enough to take on this challenge, there's an astronomical market opportunity at stake—the CRISPR Therapeutics and Vertex Pharmaceuticals tag team are vying against formidable foes like Bluebird’s Zynteglo as well as lovo-cel, one that could transform how SCD gene editing is treated if approved soon by FDA.
With a bigger war chest, however, Vertex may have an edge in the race, but CRISPR is no slouch, with an agreement in place to retain 40% of exa-cel's profits. It remains to be seen who will come out on top remains to be seen, but the potential rewards are undeniably huge.
As investors eagerly await the approval of exa-cel, CRISPR Therapeutics' promising gene-editing therapy for sickle cell disease, the company's market capitalization may not reflect the therapy's massive potential.
Assuming that exa-cel delivers and truly becomes a multi-billion-dollar opportunity, CRISPR Therapeutics and Vertex Pharmaceuticals are poised to capture a significant market share with their forthcoming therapies. With the advantage of a stronger cash position, Vertex could push the scales in its favor, helping with the therapies' launch.
Even conservatively assuming profits of $12 billion, CRISPR Therapeutics' market cap of $3.6 billion does not do justice to the company's potential.
While it's still early days, CRISPR Therapeutics' other promising programs should not be ignored. The company is somewhat fairly valued, but exa-cel's approval could send its shares soaring.
Beyond the financial benefits, the success of exa-cel could also bolster CRISPR Therapeutics' position as a leader in gene editing technology.
The company's pipeline includes promising programs in immuno-oncology and rare diseases, and the sustained revenue generated by exa-cel could fuel further research and development efforts. This bodes well for the stock's prospects, as CRISPR Therapeutics continues to advance the frontiers of innovative medicine.
Meanwhile, another possibility for CRISPR is a buyout.
The gene-editing market may be small, but its rapid growth rate of nearly 30% until 2030 presents an enticing opportunity for healthcare businesses to pursue. The market is estimated to reach less than $15 billion by then. With an approved gene-editing therapy, CRISPR Therapeutics could be a valuable asset for a larger healthcare company seeking growth.
At a market cap of less than $4 billion, CRISPR Therapeutics is an affordable acquisition for a top healthcare company looking to expand its portfolio. The company's favorable balance sheet, with over $1.8 billion in cash and short-term investments and modest debt of just over $244 million, makes it even more appealing as a potential acquisition.
The acquisition of CRISPR's business wouldn't come with a lot of headaches, and it could instantly boost a company's growth prospects.
With the sustained revenue from exa-cel and the potential for more clinical and regulatory wins in its other programs, CRISPR Therapeutics' gene-editing pipeline is worth considering for any healthcare business looking to capitalize on the promising growth opportunities in this market.
Overall, the potential for significant upside in the short and mid-term, combined with the company's pioneering spirit, makes CRISPR Therapeutics an attractive investment opportunity for discerning investors.
