Mad Hedge Biotech and Healthcare Letter
April 18, 2023
Fiat Lux
Featured Trade:
(A BEAR MARKET BARGAIN)
(VRTX), (CRSP), (BLUE)
Tag Archive for: (VRTX)
When the Nasdaq Composite fell by 33%, it created the ideal excuse for savvy investors to pounce on high-quality discounted stocks.
While it can be one of the most uncomfortable learning experiences, Wall Street reminded investors last year that even the most promising stocks can and will plunge into unimaginable depths as quickly as they can skyrocket.
However, here’s a fascinating thing about the slipping prices courtesy of the bear market: These present a rare red-carpet chance for long-term investors. Although the Nasdaq Composite has been experiencing back-to-back double-digit corrections, a bull market almost always recoups its losses eventually.
Vertex Pharmaceuticals (VRTX) stands out as one of the most exciting growth stocks that investors should consider in the biotechnology and healthcare sector.
For the uninitiated, Vertex has become synonymous with cystic fibrosis (CF) treatments.
CF is a genetic disorder that affects the respiratory, digestive, and reproductive systems. It causes the production of thick and sticky mucus in these organs, leading to serious health problems. The global market for cystic fibrosis treatments is projected to reach $18.9 billion by 2027.
Vertex currently holds six approved CF treatments. Among these, the combination therapy Trikafta, also known as Kaftrio in the EU, stands out as their top-selling product. In 2022, Trikafta's sales surged to $7.6 billion from $3.8 billion in 2020, driving revenue growth.
Given its dominance in the market, it’s clear that no other drugmaker comes even close to challenging Vertex when it comes to CF. To boot, this biotech leader has several new areas of focus that hold the potential of not only delivering fresh revenue streams but also turning into blockbusters soon.
Actually, Vertex is a step closer to launching a new blockbuster in the form of a new type of treatment called exa-cel, which uses gene-editing technology to fix the genetic defect that leads to rare and often untreatable diseases.
The biotech and its co-developer, CRISPR Therapeutics (CRSP), recently submitted their application to the FDA to approve their sickle cell disease and beta-thalassemia treatments. The two companies are also waiting for approvals from the EU.
Based on the prevalence of these genetic blood disorders, the lack of effective treatments, and the potential of Vertex and CRISPR’s candidates to provide a one-time cure, the market size for exa-cel treatments for beta-thalassemia and sickle cell disease is estimated to be worth a total of $3.5 billion annually.
But, Vertex appears to have more plans for exa-cel.
For context, here is how exa-cel is applied to treatments for sickle cell disease and beta-thalassemia: the patient's own stem cells are collected and edited using CRISPR/Cas9 technology, creating exa-cel cells. These cells are then infused back into the patient after a conditioning process, which is currently done through chemotherapy with the drug Busulfan.
However, this approach is risky and has caused adverse effects in clinical trials. As a result, some patients with these conditions may not be able to benefit from exa-cel.
This concern prompted Vertex to explore new conditioning agents for exa-cel treatments that may be less aggressive on the body. They have licensed ImmunoGen's (IMGN) antibody-drug conjugate (ADC) technology, which is commonly used in cancer treatments to deliver cancer-killing agents directly to cancer cells without harming other cells.
ADCs are often used in cancer treatments to target cancer cells, specifically, sparing healthy cells from damage. This technology can potentially make the exa-cel treatment safer and more accessible for patients.
Regarding competitors, the frontrunner would be Bluebird Bio (BLUE). This was the first biotech to submit a sickle cell disease treatment candidate to the FDA. Unfortunately, its approval has faced delays. Still, Bluebird remains the only biotech that could be considered a direct rival of Vertex and CRISPR.
Apart from these, Vertex has two additional pipeline programs queued for launch by 2024.
The biotech expects to finalize its late-stage clinical trials for VX-548, a non-opioid pain treatment, by the first quarter of 2024. Vertex is also assessing a triple-drug combo targeting CF. Both candidates hold the promise of delivering over $2 billion in sales annually.
In addition, Vertex has been aggressive in acquiring companies to expand its portfolio.
Just last year, the biotech signified its plan to become an active player in the diabetes space when it bought ViaCyte and Catalyst Bioscience. Based on the portfolio of the acquired companies, Vertex appears to be making headway in developing stem cell treatments for Type 1 diabetes.
What do these developments mean? Well, it’s critical to review the whole picture.
Vertex already rakes in billions of dollars from its CF treatment franchise, and it’s highly plausible that the biotech will sustain its monopoly of the market for years to come.
At the same time, the company is also aggressively widening its reach and expanding into more lucrative segments. In short, the company is clearly on a roll. Given its track record and steady progress, it is an excellent long-term stock. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
March 9, 2023
Fiat Lux
Featured Trade:
(TRUE GAME-CHANGERS OF BIOTECH)
(SPRT), (CRSP), (VRTX)
These days, the stock market is so scrutinized that there are only a handful of sectors where an investor can find undervalued stocks capable of outperforming an index fund.
The biotechnology world is one of these industries, and now is a great time to invest in it.
The potential for the majority of biotechnology companies is not really their current earnings or even their valuations. It’s actually hinged on whether these businesses could deliver positive clinical results for potential blockbuster treatments and whether the FDA approves the candidates. No matter how hard you look, you can’t easily find these types of information in companies' income statements and balance sheets.
Actually, the widely diversified SPDR S&P Biotech (XBI) has declined by over 50% since its peak of $174 per share in February 2021. One of the critical reasons biotech dropped in the past two years is the rise of dodgy IPOs, which inevitably collapsed and notably lowered investors’ confidence in the sector. Another reason is the rising interest rates, particularly in 2022, which forced many biotech companies to borrow money just to sustain their research operations.
These past weeks, though, valuations have become attractive. Rates have also been noticeably rising, and opportunities are starting to present themselves. Since 2022 was the year that focused on multiple clinical trials, 2023 is anticipated to be the year for new product launches.
Currently, the FDA has at least 75 new biotech candidates awaiting regulatory approval. This means 2023 could easily surpass 2018, when 56 drugs were approved, as the year with the most approvals.
All these will only benefit you if you find the right biotechs, especially with the word “game-changing,” which seems to get tossed around too casually in the biotech world. The truth is, many things are described as “game-changing” and “groundbreaking” when they are not. Still, there are exceptions.
One of the exceptions is Sarepta Therapeutics (SRPT). This biotech has a gene therapy treatment targeting muscular dystrophy, which is anticipated to receive FDA approval by May 2023.
Duchenne muscular dystrophy (DMD) is a genetic disorder that primarily affects boys, although in rare cases, it can also affect girls. It is caused by a mutation in the gene that provides instructions for making a protein called dystrophin, which is essential for muscle function and stability.
Without enough functional dystrophin, muscles become weak and damaged over time, leading to progressive muscle weakness and wasting. There is currently no cure for DMD, but there are treatments available that can help manage symptoms and improve quality of life.
Aside from Sarepta, other companies working on treatments for this condition include Pfizer (PFE) and Solid Biosciences (SLDB). However, Sarepta leads the rest in terms of clinical progress.
The global market for Duchenne muscular dystrophy treatment was valued at USD 2.4 billion in 2020 and is projected to increase at a compound annual growth rate (CAGR) of 40.5% between 2021 and 2028.
Another exception is CRISPR Therapeutics (CRSP), which is poised to play a significant role in the gene editing movement in the biotech world.
The company has been working with Vertex Pharmaceuticals (VRTX) on an exciting gene-editing treatment, named exa-cel, which targets rare blood diseases, sickle cell disease and beta-thalassemia.
Exa-cel uses CRISPR/Cas9 gene-editing technology to modify a patient's own blood-forming stem cells outside the body, with the goal of correcting the genetic mutation that causes these blood disorders. Aside from being a game-changer for patients with these conditions, this therapy could alter the financial landscape of CRISPR Therapeutics as it would rake in billions in revenue for the company.
If the FDA gives the green light for exa-cel, CRISPR and Vertex become red hot stocks to own. Meanwhile, having an approved rare disease gene-editing therapy in its lineup, plus its modest valuation of $3.8 billion, would make CRISPR an extremely attractive acquisition candidate.
The biotechnology sector has experienced significant growth in recent years, driven by advances in technologies such as genomics, gene editing, and synthetic biology. These technological advancements have enabled biotech companies to develop more precise and targeted therapies, potentially revolutionizing the healthcare industry.
While the biotechnology sector offers many promising opportunities, it is also a highly competitive and risky industry. Biotech companies often face significant regulatory hurdles and long development timelines, and many of their products fail in clinical trials. Additionally, biotech companies require substantial capital investments, which can be challenging to secure.
Investors looking into adding game-changing companies to their portfolio should consider Sarepta, CRISPR, and Vertex. I recommend you buy the dip.
Mad Hedge Biotech and Healthcare Letter
February 23, 2023
Fiat Lux
Featured Trade:
(BATTLE FOR GENE THERAPY SUPREMACY)
(CRSP), (NVS), (BIIB), (BLUE), (VYGR), (GBIO), (SIOX), (NTLA), (EDIT), (VRTX), (PRIME), (BEAM)
Gene therapy is arguably one of the most fascinating and revolutionary fields in the healthcare and biotechnology industry.
A significant reason for the excitement behind gene therapy is that it provides the possibility of “functional cures,” such as “one-and-done treatments,” for patients. It’s also why these therapies are some of the most costly on the market.
For example, Zolgensma from Novartis (NVS), which focuses on treating spinal muscular atrophy in infants, has a whopping $2 million-plus price tag. Despite that, it’s considered the best option.
For context, its counterpart, Spinraza from Biogen (BIIB), costs roughly $750,000 in the first year of treatment. Unlike Zolgensma, Spinraza needs to be administered four times each year. After the first treatment, patients would need to pay $350,000 per annum. By the fifth year, Spinraza has surpassed the treatment cost of Zolgensma.
Despite its incredible potential, gene therapy is one of the riskiest bets.
Take Bluebird Bio (BLUE) into consideration. This biotech has won not only one but two regulatory approvals for its innovative gene therapies. One is for Skysona, which targets a rare cerebral condition called adrenoleukodystrophy; the other, Zynteglo, is for the blood disorder beta-thalassemia. Unfortunately, this biotech’s price has slid by more than 90% in the past five years.
Working on gene therapies is filled with complicated and challenging obstacles. Most companies in this segment ended up burning through their cash without successfully launching a marketable product. Some examples of these are Voyager Therapeutics (VYGR), Generation Bio (GBIO), and Sio Gene Therapies (SIOX).
However, there is a field in the gene therapy world that has substantially rewarded investors: CRISPR gene editing.
CRISPR means Clustered, Regularly Interspaced Short Palindromic Repeats, which was discovered by Jenifer Doudna and Emannualle Charpentier. Their discovery won the Nobel Prize for Chemistry in 2020.
Basically, CRISPR is utilized by bacteria to recognize genetic sequences that belong to dangerous or harmful viruses and cleave them via specialized enzymes like CAS-9. Eventually, Doudna and Charpentier discovered that the system could be modified to target and remove, destroy, or even edit damaging genetic sequences in human beings.
This discovery gave birth to many biotech companies. Intellia Therapeutics (NTLA) was the brainchild of Doudna, while Charpentier co-founded CRISPR Therapeutics (CRSP).
Over the past five years, NTLA's share price has risen by 146% while CRISPR skyrocketed by 210%. In comparison, the S&P 500 recorded a 53% gain within the same timeframe.
Given the volatility of the field and market volatility, other CRISPR-centered companies failed to replicate this success.
The share price of Editas Medicine (EDIT) fell by 55% over the past five years. Caribou Biosciences (CRBU) also failed to ride the momentum and slid by 44%.
Still, there are positive updates amid the struggles of the sector.
The latest news is from CRISPR Therapeutics, which expects several catalysts in 2023 thanks to its promising pipeline of candidates and clinical trials. So far, one of the most anticipated catalysts is its biologics license application for its sickle cell disease candidate, which the company aims to file by March 2023.
CRISPR Therapeutics developed this candidate, called exa-cel, alongside Vertex Pharmaceuticals (VRTX). It would be the first-ever Crispr-based therapy to edit or rewrite faulty genes if approved. Based on the company’s data, patients who underwent this one-time treatment have continued to be free of sickle cell disease symptoms.
Every year, 100,000 patients in the US are reported to suffer from sickle cell disease. Many companies have offered treatments for this condition for years but no cure. Hence, CRISPR and Vertex’s one-and-done therapy has received a fast-tracked designation. Consequently, this would give the developers sought-after market exclusivity.
As anticipated, CRISPR Therapeutics’ competitors are hot on its heels with sickle cell disease treatments of their own. To date, Prime Medicine (PRME), Beam Therapeutics (BEAM), Editas, and Intellia have candidates queued for clinical trials.
Overall, the gene editing sector continues to be an exciting and interesting field. Investors looking to take part of the action in this segment should consider buying and holding CRISPR Therapeutics stock for at least five years because the company has a reasonable chance of becoming the most dominant name in the business soon.
Mad Hedge Biotech and Healthcare Letter
February 16, 2023
Fiat Lux
Featured Trade:
(AN INFALLIBLE GROWTH STOCK IN BIOTECH)
(VRTX), (CRSP), (MRNA)
A buzzer-beater that you have no doubt would win your team the championship trophy. A job interview where you unequivocally know you impressed the recruiter. A stock exhibiting incredible growth prospects. There are just some things you simply know will succeed no matter what.
One surefire growth stock comes to mind in the biotechnology and healthcare sector: Vertex Pharmaceuticals (VRTX).
Although several biotechnology stocks took it on the chin in 2022, Vertex has been spared. In fact, this biotech crushed the market in the trailing-12-month timeframe, amplified by solid revenue, promising earnings growth, and remarkable long-term catalysts. On top of these, Vertex continues to dazzle with its financial reports.
Last year, the company’s revenue jumped by 18% year over year to reach $8.9 billion. Meanwhile, Vertex’s net income soared by 42% compared to 2021 and hit $3.3 billion.
The main business of Vertex is focused on a lineup of treatments targeting the underlying causes linked to cystic fibrosis (CF), which continue to be significant moneymakers. However, the drugmaker also has its sights on gaining new approvals.
No other company has gotten close to challenging Vertex in the CF treatment market. The company holds the only approved medications targeting the underlying causes of this rare genetic disease. Its closest rival remains several years away from even having a chance at gaining regulatory approvals.
Nonetheless, Vertex isn’t satisfied to simply rest on the blockbuster success of its CF therapies. The company remains aggressive in developing its pipeline of new candidates, mainly targeting different segments of the rare disease treatment market.
Some of the most promising candidates in its pipeline are its work with CRISPR Therapeutics (CRSP) on a rare blood disease treatment, an mRNA-centered CF treatment with Moderna (MRNA), and a non-opioid medication targeting acute pain.
Its candidate with CRISPR is expected to gain approval in the second half of 2023, while its Moderna candidate is slated for the next phase around the same period.
Its non-opioid treatment, dubbed VX-548, is hailed as a potential new class of drug that can help manage acute pain by blocking the patient’s pain signal in the peripheral nerves. This drug could offer effective pain relief sans the risk of addiction.
To date, VX-548 has demonstrated strong efficacy in Phase 2 trials, with an excellent benefit-risk profile and absolutely no abuse potential. The Food and Drug Administration has granted it the fast track and breakthrough therapy designations—an acknowledgment of the rising unmet demand and the drug’s compelling clinical profile.
Currently, the standard of care for acute pain management continues to sorely lack a treatment that is both effective and not prone to abuse. VX-548 has the potential to fill the void and target a market size worth $4 billion in the United States alone.
Vertex also recently disclosed its move to send applications for regulatory approvals for two blood-related disorders, exa-cel and sickle cell disease, in the United Kingdom and Europe. With only a handful of available treatment options for these conditions, Vertex would be addressing a severely underserved demographic while opening new and lucrative revenue streams.
Another noteworthy move that indicated Vertex’s plans to go beyond its CF pipeline is its $320 million acquisition of ViaCyte last year.
ViaCyte gained popularity for its initiative to utilize novel stem cell-derived cell replacement therapies as a functional cure for Type 1 diabetes.
These decisions are in line company’s “five-in-five goal,” wherein the plan is to release new treatments targeting five conditions within a five-year window. If Vertex succeeds, then these could open multi-billion-dollar revenue streams for the company.
Looking at its trajectory and track record, Vertex is expected to earn major regulatory approvals soon and diversify its portfolio of treatments over the next couple of years. This would translate to sustained growth in its revenue and earnings, which would push its stock price higher. Overall, these comprise an excellent recipe for long-term growth.
Mad Hedge Biotech and Healthcare Letter
January 17, 2023
Fiat Lux
Featured Trade:
(COMPROMISE IS THE BEST STRATEGY)
(JNJ), (AMGN), (TAK), (VRTX), (CRSP), (EDIT), (PFE), (CRBU), (SGMO), (LLY), (AXSM)
An optimist looks at bubbles and visualizes champagne, while a pessimist’s mind goes to Alka-Seltzer. The same thing happens with investors.
Some believe that the steep losses suffered by stocks and bonds in 2022 are a much-needed “cleansing,” which would set the stage for renewed partnerships and collaborations along with high returns. Others simply view it as the first chapter in a protracted bear market.
Meanwhile, a handful believes that it’s a combination of both perspectives—especially for the biotechnology industry.
Roughly two years following the decline of biotechnology stocks, several executives from small and midsize organizations finally concede that their share prices might no longer be able to bounce back anytime soon. In fact, some have been fielding panicked calls from execs of fledgling biotech firms, offering to sell their companies at a discount.
The alteration in the medical device and biotechnology landscape only started a few months before the previous year ended.
This is because, before the change in perspective, when the SPDR S&P Biotech exchange-traded fund (XBI) had slid by about 40% from its 2021 peak, many leaders in the biotech sector still believed that their companies could regain momentum.
The primary concern for smaller biotech and medical devices companies, which allocate years to developing and testing products without any commercially approved treatment, is that the continuous decline in their valuations has made it practically impossible to generate new money to fund any of their projects.
Given this scenario, many small and midsize biotechs would go under soon, particularly those with no data strong enough to provide near-term growth catalysts.
This is where Big Pharma names are expected to come in. After all, these large-cap companies offer an alternative option with their non-dilutive sources of funding and ever-growing war chests.
Big companies, though, have been more cautious in cutting big checks for acquisitions. Despite the high expectations last year, we only saw a few massive deals, including Abiomed’s sale to Johnson & Johnson’s (JNJ) for $19 billion and Amgen’s (AMGN) $30 billion agreement with Horizon Therapeutics.
Instead, these Big Pharma companies appear to prefer partnerships and collaborations. In these deals, they give out smaller payments to biotechnology firms to work with them on specific early-stage programs.
This type of investment seems to be a safer bet for big companies because it allows them to make several deals without spending too much. They can even collaborate with competing biotechs to determine which could develop the most effective and cost-efficient solution.
Smaller biotechs benefit from this type of deal as well.
In the pre-pandemic era, the valuations of these companies quickly soared based on the potential of their pipeline candidates. Some share prices would skyrocket with just a hint of positive data. This is no longer the case these days, not only because investors have become more discerning but also more anxious over experimental programs.
So instead of getting acquired, smaller biotechs can choose to strike partnerships with large-cap companies. This is an excellent way to inject some funding into their programs and, hopefully, provide them with revenue streams, especially since Big Pharma companies know how to market new products.
It sounds challenging, but a genuinely promising program could fetch a large sum.
Perhaps the most significant indicator that not all hope is lost comes from Takeda (TAK) when it purchased an experimental treatment undergoing tests as a potential psoriasis medication.
This candidate, developed by a privately held biotechnology firm called Nimbus Therapeutics, was sold for a whopping $4 billion upfront, plus roughly $2 billion more for future milestone payments. And here’s the clincher: Takeda got the experimental drug by a razor-thin margin.
In terms of acquisitions, some larger companies have been open to that route. For instance, AstraZeneca (AZN) shelled out $1.3 billion for CiniCor Pharma, while Ipsen (IPSEY) purchased Albireo Pharma (ALBO) for $1 billion.
While the future for smaller biotechs remains uncertain, several names continue to be in conversations whenever acquisitions are discussed.
There’s Vertex Pharmaceuticals (VRTX), which has long been reported to take interest in acquiring CRISPR Therapeutics (CRSP) and Editas Medicine (EDIT), with the latter looking more attractive thanks to its cheaper price tag.
Meanwhile, Pfizer (PFE) has been shopping around for a biotech to bolster its gene-editing programs, and so far, Caribou Biosciences (CRBU) and Sangamo Therapeutics (SGMO) are under serious consideration.
With its continuing interest in central nervous system diseases, such as Alzheimer’s and Parkinson’s, Eli Lilly (LLY) has been aggressive in its search for a company to acquire. Among the strongest candidates is Axsome Therapeutics (AXSM).
With this daunting reality setting in, one thing has become absolutely sure: the biotechnology sector has become a buyer’s market for big companies with cash to spare for acquisitions and collaborations.
