The Sick Economist's Blog, page 11
December 28, 2020
3 COMPANIES THAT WILL BENEFIT FROM THE COVID-19 VACCINE IN 2021
Covid-19 has affected all businesses in all sectors of the stock market. This crazy year has allowed many biotech investors to capitalize on myriad opportunities. As we enter the new year with two vaccines from Moderna and Pfizer, even more opportunities may be provided. As I write this article, a massive effort to manufacture and distribute these vaccines is underway, and with this gargantuan effort comes opportunities for these three companies.
By John Coughlin, Biotech Analyst
West Pharmaceutical Services
With a massive effort towards manufacturing the two current Covid-19 vaccines, syringes, injectors, and many other components are needed to supply the new demand. West Pharmaceutical, a “leading manufacturer of packaging components and delivery systems for injectable drugs and healthcare products,” could benefit from this need for vaccine components. Founded in 1923, West has been dedicated to providing medical materials in North and South America, Europe, Asia, and Australia. The company currently manufactures auto-injectors, pen injectors, pulmonary delivery devices, and many other pharmaceutical components necessary to inject the vaccine’s ingredients. In 2021, both Moderna and Pfizer expect to manufacture over 2 billion vaccines, which does not include the over 70 million manufactured in Q4 2020. This new manufacturing will allow the syringe manufacturing industry to see unprecedented and new growth. According to IBIS World, the industry for “Syringes & Injection Needle Manufacturing in the U.S. industry trends” has seen an average yearly increase of .2% for the past five years. With 2020 and 2021 expected to bring growth to the industry, companies like West can capitalize on the new demand and bring in future revenue.
Stock Outlook:
Over the past year, West Pharmaceutical has seen large stock returns. YTD, the stock is up over 80% and is continuing to make new all-time highs.
Quick Look at Financials
From a financial standpoint, West Pharmaceutical Services is very attractive. In their most recent quarterly report, net income was up 46% ($82.3 million compared to $56.3 million), while net sales were up over 20%. When looking at their “percentage of net sales by geographic location,” the case for West becomes even better. For Q3 2020, the Americas represented 49% of their sales. By having established markets in the United States, West will tailor their manufacturing towards the new Covid-19 vaccines.
CVS Pharmacy
To no surprise, pharmacies that administer flu and other vaccines will benefit from the new Covid-19 vaccines. That’s why CVS, a retail pharmacy corporation in the United States, is on this list.
In a recent New York Times article, it was reported that “at least 614,000 People in the U.S. have received the Covid-19 vaccine,” a tiny number compared to the overall U.S. population. Currently, most locations that administer the vaccines are in hospitals, where healthcare workers are being vaccinated. When the vaccine becomes widely available to the general public, retailers, such as CVS will become places where they can be administered. Even before Covid-19, CVS has distributed millions of vaccines over the company’s lifetime. In 2020, the CVS “administered nearly 20 million non-COVID-19 vaccinations.” In their most recent quarter (Q3), CVS administered 13 million flu vaccines, up 78% YoY, a showcase of their large-scale vaccination capabilities. In a recent article, CVS anticipated that in early 2021, the company would be able to administer the vaccine in “nearly 10,000 CVS Pharmacy locations nationwide” and administer “as many as 20-25 million shots per month.” Although the Covid-19 vaccine will be at no charge to the general public, CVS will likely benefit financially from this mass administration. With billions of vaccines being manufactured in 2021, the only way they can be administered on a larger scale is through the retail sector. Although the vaccine’s retail distribution will be competitive, CVS will likely be the leading non-government provider of the vaccine in the retail pharmacy sector, further solidifying its rank in pharmacies across the United States.
Although Covid-19 has been most present throughout this year and likely 2021, the timeline for administering the vaccine is still unknown. If Covid-19 is like the flu in a manner of timing, the vaccine will have to be taken yearly, lengthening CVS’s administration timeline.
Stock Outlook:
CVS stock (NYSE: CVS) has underperformed the market throughout recent years, down nearly 40% from its all-time high of $110. Administration of millions of Covid-19 vaccines will bring in new revenue: it might shift sentiment in the market for CVS stock.
Thermo Fisher
The product of a 2006 mega merger, Thermo Fisher is one of the American lead providers of scientific instruments, reagents, and other healthcare software. Throughout 2020, the company has tailored some of its products to Covid-19 by creating testing kits for the virus. With the introductions of two Covid-19 vaccines into the market, Thermo Fisher’s current products could tailor these two vaccines. According to both companies, Moderna’s vaccine needs to be stored at -20°C (-4°F), while Pfizer’s vaccine needs to be stored between -60°C and -80°C. Currently, Thermo Fisher provides multiple freezers to the market, including the TSX Series High-Performance Plasma Freezers, Revco
High-Performance Lab Freezers, and other generic freezers. Their coldest freezer can store samples at -80°C, which accommodates both the Moderna and Pfizer vaccine. With a large variety of freezers that have storing temperatures ranging from -20°C to -80°C, Thermo Fisher can capitalize on the new demand for cold freezers.
Financials:
Thermo Fisher has seen unprecedented growth due to Covid-19. In their most recent quarterly report (Q3), the company noted it had “generated $2.0 billion of COVID-19 related revenue in the quarter and returned the base business to growth.” Thanks to this new revenue, the company also reported a “Third quarter revenue increase of 36% to $8.52 billion” and an EPS increase of 91% to $5.63. With the new possible demand for freezers, even more revenue related to Covid-19 can be realized.
Stock Outlook:
Thanks to their new revenue, Thermo Fisher’s stock has seen tremendous stock growth in 2020. Year-to-date, the stock is up 40%, pushing the company to a $140+ billion valuation.
Concluding Remarks
Covid-19 has and will continue to provide excellent opportunities for these three companies. Thermo Fisher and West Pharmaceutical could be considered speculative bets; but the risk may well be worth the considerable upside. With new revenue and an influx of cash entering these companies, the future looks bright for West Pharmaceuticals, Thermo Fisher and CVS.
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The post 3 COMPANIES THAT WILL BENEFIT FROM THE COVID-19 VACCINE IN 2021 appeared first on Sick Economics.
December 7, 2020
WHAT THE NEW CORONAVIRUS VACCINE DATA MEANS FOR THE STOCK MARKET
By now, most people have heard the exciting news regarding three of the leading COVID-19 vaccines in Operation Warp Speed. Pfizer and BioNTech — 95% effective. Oxford and AstraZeneca — 70% effective. Moderna — 94.5% effective. So… time to start inoculating, right? Not quite. Even though these vaccines are extremely successful in producing the required antibodies to fight the novel coronavirus, each company must show that their vaccine is safe (i.e. no adverse effects after vaccination) before mass distribution. Therefore, it will still be several months before we achieve the necessary herd immunity to safely reintegrate into society without masks, social distancing, etc. Regardless, this new vaccine data shows that we are moving in the right direction. In the meantime, how exactly will this new information affect the stock market? Keep reading to find out.
By: Matthew Rojas, Biotech Financial Analyst
The Efficient Market Hypothesis
One of the most highly contested theories in behavioral finance is the efficient market hypothesis (EMH). The EMH states that “share prices reflect all information and consistent alpha generation is impossible.” Alpha is defined as “the excess return of an investment relative to the return of a benchmark index.” In other words, the EMH says that stocks almost always trade at their appropriate value on various exchanges; therefore, investors cannot consistently buy undervalued stocks and sell them for inflated prices to create an arbitrage opportunity.
There are three forms of the EMH: the weak form, the semi-strong form, and the strong form. The weak form suggests that the current stock prices reflect all the data of past prices; additionally, no type of technical analysis can help investors. The semi-strong form assumes that investors know all information available to the general public; therefore, stock prices only display significant movement with positive or negative media signals. However, with the semi-strong form, private information can provide investors with a potential arbitrage opportunity. An important note is that if the semi-strong form holds, so does the weak form. Lastly, the strong form implies that investors know all information, both public and private, so no type of information can give an investor an advantage over the market. Just as with the semi-strong form, if the strong form holds, so do all of the other forms.
There are several criticisms of the EMH; a popular criticism is that investors may overreact or underreact to certain media signals. If investors behave in either of these ways, then a particular stock would not trade at its fair value, and there is a potential for abnormal returns. It is important to remember that investors do not always behave rationally, and oftentimes they are driven purely (or at least partially) by emotion. There is another argument that certain financial ratios such as the price-to-earnings ratio can be used to value stocks using a multiples approach. People also attack the EMH from different angles, but these are two of the simplest and most common arguments. In summary, the EMH is not perfect; however, it is a general guideline when evaluating the prices of various stocks and deciding whether or not to invest.
The EMH and New Vaccine Data
Out of the three forms of the EMH, Pfizer, AstraZeneca, and Moderna’s stocks all display the semi-strong form. Still don’t see it? Let me explain. On Friday, November 6, Pfizer’s stock (NASDAQ: PFE) closed at $34.48. On Monday, November 9, Pfizer released the excellent results for its phase III trial; as a result, the stock price instantly shot up nearly eight percent to $37.14. On the other hand, AstraZeneca’s stock (NASDAQ: AZN) closed at $55.30 on Friday, November 20. When the company released its phase III trial results, the stock price decreased by approximately one percent to $54.70. As more information became available over the following days that the average efficacy of both vaccine doses was 70%, the stock price decreased by about another four percent to $52.60. Although an average of 70% is still respectable, AstraZeneca’s findings were dwarfed by Pfizer and Moderna’s superior results. Lastly, On Friday, November 13, Moderna’s stock (NASDAQ: MRNA) closed at $89.39. On Monday, November 16, Moderna released the results for its Phase III trial, and the stock price increased by about 10% to $97.95. As you can now see, each of these stocks increased or decreased immediately upon the emergence of new public information — the textbook definition of the semi-strong form.
Applying the Semi-Strong Form to Investing
Now that we have established that each of these COVID-19 vaccine stocks displays the semi-strong form of the EMH, what are the key takeaways? For starters, the average person typically invests in a particular stock based on positive or negative media signals. For example, there were probably several people that invested in Pfizer on Monday, November 9, hoping to reap the benefits of the successful phase III clinical trial. However, in the days following November 9, Pfizer’s stock decreased, and it closed on Friday, November 27 at $37.23 (only a few cents higher than the closing price on November 9). By the time an investor reads a positive headline, it is already too late to reap the immediate benefits of the good news. Nevertheless, just because an investor is too late does not mean that he/she should not invest in the company, it just means that there is not a guarantee that the stock will continue to increase or decrease based on the positive or negative media signal. The main point here is that investors should only invest in particular stocks if they truly believe in the company. Positive media signals are important, but investors should look for a trend of several positive media signals over an extended period. If a company is constantly in the headlines for the right reasons, then it is time to invest.
Conversely, investors should not immediately sell a stock based on a negative media signal. Investors should evaluate the negative media signal and then determine if the company can overcome a particular obstacle. However, if a company is consistently in the headlines for the wrong reasons, then it may be time to sell.
Concluding Remarks
COVID-19 is still at the forefront of people’s minds because it is affecting almost everything we do on a daily basis. Therefore, new vaccine information, positive or negative, is likely to affect the overall stock market. Just as Pfizer, AstraZeneca, and Moderna’s stocks exhibit the semi-strong form of the EMH, so do benchmark indexes such as the S&P 500. When the next positive or negative media signal emerges about the coronavirus, do not be one of the investors that reacts immediately to the headlines. Remember, by the time you read a headline, the stock has likely already adjusted to the appropriate price. Evaluate the positive or negative media signal with this information in mind, and make a decision to buy or sell based on long-term trends.
The post WHAT THE NEW CORONAVIRUS VACCINE DATA MEANS FOR THE STOCK MARKET appeared first on Sick Economics.
December 1, 2020
3 BLAZING HOT BIOTECH STOCKS FOR 2021
Everyone will be happy to put the year 2020 in the rearview mirror. The Coronavirus Pandemic has not been fun for anybody; for many the pandemic has led to tragedy.
However, with new vaccines and treatments rapidly emerging, it looks like we will have the virus cornered in 2021. 2021 will be time for America’s big comeback, and biotech is ready to play a star role. In fact, biotech stocks have already been sizzling in anticipation of a much healthier 2021. $XBI, an exchange traded fund which represents a broad basket of biotech stocks, is already up a whopping 33.4% for the year 2020, beating the overall stock market by 18%.
Many analysts believe that the good times will continue to roll into 2021. In fact, for many biotech investors today, the biggest challenge may be the search for value. How to find promising biotech names that have not already become wildly overvalued in the current bull market?
Below we explore three biotech stocks with solid fundamentals and likely long term growth ahead. 2021 could just be the year for the “terrific trio” presented below.
$MESO: To Covid and Beyond!
Mesoblast Limited is an Australian firm, listed on the Nasdaq stock exchange under the ticker symbol $MESO, that is a great example of a “Covid +” stock. They have been in the news due to a promising novel treatment for Covid, but they have a broad pipeline loaded with other therapeutic possibilities even if the Covid treatment doesn’t work out. They are heading into 2021 with some serious momentum, having just signed a potentially lucrative partnership with a Big Pharma firm that can deliver the goods. Literally.
For the C-Suite of Mesoblast, “Inflammation” is the name of the game. The company has pioneered and patented a way to produce cell based therapies that help reduce inflammation. This inflammation is thought to be a key element of many common pathologies across a range of diverse disease states.
One such disease state is Covid-19. As Covid burst upon the scene, many intensive care physicians noted that inflammation was related to the most sick, most endangered Covid patients. Mesoblast immediately began to test their engineered cells on very ill victims of the pandemic. The scientific world suddenly noticed the formerly obscure company when 9 of 12 ventilated patients improved dramatically after being given Mesoblast’s treatment on a compassionate use basis. $MESO immediately moved to confirm these results with a much larger, phase III trial. Results are pending.
But $MESO’s 2020 setbacks have been just as dramatic as their victories. Within weeks of the hopeful Covid announcement, the company faced a frustrating setback with it’s lead product, Remestemcel-L. Even though an FDA advisory committee had voted 9 to 1 to approve the new agent for pediatric graft versus host disease, the FDA demanded that $MESO conduct at least one more study prior to approval. As these studies are time consuming and expensive, the share price dropped sharply.
While some shareholders’ faith may have wavered on this setback, $MESO did succeed at finding one big believer: Novartis ($NVS). The Swiss pharmaceutical giant has just signed a broad and deep partnership with Mesoblast to develop and market it’s cell based anti-inflammation technologies.
This partnership is a big deal for a few reasons. First, it’s a huge vote of confidence from one of the most experienced Big Pharma operations in the world. Second, it will help Mesoblast roll out any Covid treatment quickly if the current, ongoing phase III trial is a success. Novartis has a specialization in cell based treatments; manufacturing and distribution of human cell based treatments is not simple; having a big partner with established infrastructure will greatly amplify the reach of Meso’s innovations.
In addition to treatments for Covid and graft vs host disease, Mesoblast has a pipeline stocked with potential new treatments for common, hard to treat ailments. Treatments for back pain, heart failure, and Crohn’s Disease are all in phase II or III testing. If even one of these treatments scores, it could mean $1 billion annually in revenue for $MESO. With a current market capitalization of just $1.8 billion, the risk of ownership seems well worth the reward.
$EXAS: Growing Faster than Cancer
Exact Sciences Corporation is famous for being the company that turned poop into gold. The company’s flagship product, the Cologuard Colorectal Screening Test has been used more than two million times by Americans who were reluctant to invest the time or discomfort to get a colonoscopy. Anyone who is a fan of the Black Panther character from Marvel Comics is keenly aware of the need for early colon cancer screening in America. Beloved actor Chadwick Boseman (“The Black Panther”) became a victim of colon cancer, passing away at the age of just 43.
It would have been easy for $EXAS management to rest on their laurels and enjoy the continuing growth of the Cologuard test. As many as 20 million Americans still ignore CDC recommendations and get no colon cancer screening, meaning that the Cologuard still offers robust growth potential. However, Exact’s management has decided to take a more aggressive route; through acquisitions, the company is rapidly becoming an all round cancer testing powerhouse.
In 2019 Exact bought Genomic Health, acquiring a suite of cancer based genetic tests. Included in the purchase was the OncoType Dx test. This is the only test that has been proven to predict which breast cancer patients will benefit from chemotherapy, and which patients need not go through the ordeal of such aggressive treatment.
Less than a year later, Exact has whipped out the credit card again, and purchased Thrive Diagnostics, a company developing a “pan-cancer” blood test for cancer. The idea is that a simple blood test, given at your yearly physical, will be able to detect early stage cancers long before any symptoms appear. Rafts of academic data demonstrate that early detection should lead to better treatment outcomes.
Exact was motivated to pay $2 billion for the new test based on some exciting data that was recently published. The DETECT-A study used the new CancerSeek test on 10,000 women, revealing an astonishing 10 different kinds of cancer in the women, many of whom seemed perfectly healthy. Most important, 7 of the 10 cancer types detected currently have no screening guidelines, meaning they would not have been uncovered until the patients were symptomatic, which is often too late. One example of this kind of cancer is pancreatic cancer. Because the pancreas is buried so deep in the body, pancreatic cancer is almost always a death sentence upon diagnosis. Up until now there has just been no way to screen for earlier detection. Exact Sciences aims to change that gruesome prognosis.
The union of Thrive and Exact could be a marriage made in heaven. Exact already has a robust sales force with a firm grasp on primary care practices throughout the United States. Exact already has a strong commercialization team that knows how to negotiate with insurers in the cancer screening market. The integration potential of the two could be dynamite.
But can $EXAS afford the purchase? This is the firm’s second large purchase in just two years. $2,000,000,000 is a lot of money to pay, given that Exact has never turned a profit and had negative cash flow of $115 million in 2019. Additionally, the initial purchase price may be just the first investment in the CancerSeek test. Errors with such a high stakes test cost lives. Exact may well have to invest in more studies before the new test can be sold. Empire building in the cancer sector is not cheap or easy.
Is it worth it? A little basic arithmetic clears the mind quickly. The CancerSeek test is envisioned as a routine screening test that would become part of every physical for Americans over a certain age. The United States currently has 108 million citizens over 50 years of age. If 20% of those got a physical every year, and Exact could charge an insurance company $250 for the test, that would equal $5 Billion in revenue every year. Exact’s revenue for 2019, without CancerSeek, was less than $1 Billion. So this one acquisition could easily quintuple Exact’s revenue if they can turn the vision into reality.
Investors who choose to buy into Exact Sciences have decided that a big risk is well worth an even bigger reward.
$CSBR: A Champion of Big Data?
Another company growing a cancer empire is Champions Oncology Inc. This is a small company with big goals. Champions does not sell cancer drugs, but rather sells services that help other biotech companies pioneer novel cancer treatments. Rather than mining for gold, Champions sells all of the equipment that miners would need to search for gold in the 21st century “biotech goldrush.”
$CSBR offers a wide range of tools to oncology companies looking for cancer cures. But there are two services, in particular, that could make a huge difference in 2021.
First, champions is a leader in the utilization of “humanized mice” in the study of cancer. Sounds a bit creepy? It is. Humanized mice are rodents who have had their DNA altered in specific ways to make them more like human beings. This allows cancer companies to try out new agents in a biological environment very close to the human body, without going through the extreme expense and effort of mounting a study in actual humans. Champions offers dozens of different kinds of mice, humanized to represent very specific disease states.
In general, this technology represents a big advance for cancer research, because it can shave valuable time and money off of the arduous oncology development process. Additionally, this whole approach has just received a huge PR boost in the scientific community. Regeneron, yes, THAT Regeneron, the company that seems to have cured President Trump of Covid, pioneered their anti-Covid medicine using humanized mice. This has taken a scientific revolution that was quietly happening in unremarkable labs around America and placed it front and center in the public imagination. The results can only be favorable for Champions.
You may have noticed that many of the biggest, most lucrative names in business today don’t sell physical products at all. Names like Facebook, Google and Microsoft sell services that can be scaled at a mind boggling pace. This means that Google only has to create a software program one time; the investment is mostly a fixed one time cost. They can then sell that service millions and millions of times, bringing in almost unlimited revenue, all off the same fixed cost base. That is how you become one of the most profitable and highly valued stocks in the world.
The management of Champions got the memo. They have just launched their own oncology oriented software program based on the thousands and thousands of tests that have already come out of their lab. After all, humanized mice may mimic humans, but are not humans; the mice don’t have HIPPA privacy rights. Simply put, Champions is just now monetizing the vast quantities of data that has already been collected from years of hosting a broad range of cancer research. This software has been dubbed Lumin.
If Lumin takes off, it could be a game changer for shareholders. The S&P 500, a broad range of different kinds of stocks representing the breadth of the American economy, trades at an average price to earnings ratio of about 26. Software stocks like Nvidia actually trade at stratospheric valuations like 86 times earnings. Simply put, Wall Street has fallen deeply in love with the “scale” phenomena that tech companies can offer. If Champions can rapidly grow revenue from the new Lumin software platform, they just might convince Wall Street that they, too, are a tech company. Huge valuations could follow.
Champions Oncology is a microstock with jumbo potential. If management plays the game just right, 2021 could be their year.
After enduring a dark and stormy 2020, it’s hard not to feel optimistic about 2021. With luck, the three companies above should fulfill that optimism. Leaders in healthcare should continue to deliver healthy profits for investors.
DISCLOSURE: The Sick Economist owns shares in each of the three companies profiled in this post.
The post 3 BLAZING HOT BIOTECH STOCKS FOR 2021 appeared first on Sick Economics.
3 HOT BIOTECH STOCKS FOR 2021
Everyone will be happy to put the year 2020 in the rearview mirror. The Coronavirus Pandemic has not been fun for anybody; for many the pandemic has led to tragedy.
However, with new vaccines and treatments rapidly emerging, it looks like we will have the virus cornered in 2021. 2021 will be time for America’s big comeback, and biotech is ready to play a star role. In fact, biotech stocks have already been sizzling in anticipation of a much healthier 2021. $XBI, an exchange traded fund which represents a broad basket of biotech stocks, is already up a whopping 33.4% for the year 2020, beating the overall stock market by 18%.
Many analysts believe that the good times will continue to roll into 2021. In fact, for many biotech investors today, the biggest challenge may be the search for value. How to find promising biotech names that have not already become wildly overvalued in the current bull market?
Below we explore three biotech stocks with solid fundamentals and likely long term growth ahead. 2021 could just be the year for the “terrific trio” presented below.
$MESO: To Covid and Beyond!
Mesoblast Limited is an Australian firm, listed on the Nasdaq stock exchange under the ticker symbol $MESO, that is a great example of a “Covid +” stock. They have been in the news due to a promising novel treatment for Covid, but they have a broad pipeline loaded with other therapeutic possibilities even if the Covid treatment doesn’t work out. They are heading into 2021 with some serious momentum, having just signed a potentially lucrative partnership with a Big Pharma firm that can deliver the goods. Literally.
For the C-Suite of Mesoblast, “Inflammation” is the name of the game. The company has pioneered and patented a way to produce cell based therapies that help reduce inflammation. This inflammation is thought to be a key element of many common pathologies across a range of diverse disease states.
One such disease state is Covid-19. As Covid burst upon the scene, many intensive care physicians noted that inflammation was related to the most sick, most endangered Covid patients. Mesoblast immediately began to test their engineered cells on very ill victims of the pandemic. The scientific world suddenly noticed the formerly obscure company when 9 of 12 ventilated patients improved dramatically after being given Mesoblast’s treatment on a compassionate use basis. $MESO immediately moved to confirm these results with a much larger, phase III trial. Results are pending.
But $MESO’s 2020 setbacks have been just as dramatic as their victories. Within weeks of the hopeful Covid announcement, the company faced a frustrating setback with it’s lead product, Remestemcel-L. Even though an FDA advisory committee had voted 9 to 1 to approve the new agent for pediatric graft versus host disease, the FDA demanded that $MESO conduct at least one more study prior to approval. As these studies are time consuming and expensive, the share price dropped sharply.
While some shareholders’ faith may have wavered on this setback, $MESO did succeed at finding one big believer: Novartis ($NVS). The Swiss pharmaceutical giant has just signed a broad and deep partnership with Mesoblast to develop and market it’s cell based anti-inflammation technologies.
This partnership is a big deal for a few reasons. First, it’s a huge vote of confidence from one of the most experienced Big Pharma operations in the world. Second, it will help Mesoblast roll out any Covid treatment quickly if the current, ongoing phase III trial is a success. Novartis has a specialization in cell based treatments; manufacturing and distribution of human cell based treatments is not simple; having a big partner with established infrastructure will greatly amplify the reach of Meso’s innovations.
In addition to treatments for Covid and graft vs host disease, Mesoblast has a pipeline stocked with potential new treatments for common, hard to treat ailments. Treatments for back pain, heart failure, and Crohn’s Disease are all in phase II or III testing. If even one of these treatments scores, it could mean $1 billion annually in revenue for $MESO. With a current market capitalization of just $1.8 billion, the risk of ownership seems well worth the reward.
$EXAS: Growing Faster than Cancer
Exact Sciences Corporation is famous for being the company that turned poop into gold. The company’s flagship product, the Cologuard Colorectal Screening Test has been used more than two million times by Americans who were reluctant to invest the time or discomfort to get a colonoscopy. Anyone who is a fan of the Black Panther character from Marvel Comics is keenly aware of the need for early colon cancer screening in America. Beloved actor Chadwick Boseman (“The Black Panther”) became a victim of colon cancer, passing away at the age of just 43.
It would have been easy for $EXAS management to rest on their laurels and enjoy the continuing growth of the Cologuard test. As many as 20 million Americans still ignore CDC recommendations and get no colon cancer screening, meaning that the Cologuard still offers robust growth potential. However, Exact’s management has decided to take a more aggressive route; through acquisitions, the company is rapidly becoming an all round cancer testing powerhouse.
In 2019 Exact bought Genomic Health, acquiring a suite of cancer based genetic tests. Included in the purchase was the OncoType Dx test. This is the only test that has been proven to predict which breast cancer patients will benefit from chemotherapy, and which patients need not go through the ordeal of such aggressive treatment.
Less than a year later, Exact has whipped out the credit card again, and purchased Thrive Diagnostics, a company developing a “pan-cancer” blood test for cancer. The idea is that a simple blood test, given at your yearly physical, will be able to detect early stage cancers long before any symptoms appear. Rafts of academic data demonstrate that early detection should lead to better treatment outcomes.
Exact was motivated to pay $2 billion for the new test based on some exciting data that was recently published. The DETECT-A study used the new CancerSeek test on 10,000 women, revealing an astonishing 10 different kinds of cancer in the women, many of whom seemed perfectly healthy. Most important, 7 of the 10 cancer types detected currently have no screening guidelines, meaning they would not have been uncovered until the patients were symptomatic, which is often too late. One example of this kind of cancer is pancreatic cancer. Because the pancreas is buried so deep in the body, pancreatic cancer is almost always a death sentence upon diagnosis. Up until now there has just been no way to screen for earlier detection. Exact Sciences aims to change that gruesome prognosis.
The union of Thrive and Exact could be a marriage made in heaven. Exact already has a robust sales force with a firm grasp on primary care practices throughout the United States. Exact already has a strong commercialization team that knows how to negotiate with insurers in the cancer screening market. The integration potential of the two could be dynamite.
But can $EXAS afford the purchase? This is the firm’s second large purchase in just two years. $2,000,000,000 is a lot of money to pay, given that Exact has never turned a profit and had negative cash flow of $115 million in 2019. Additionally, the initial purchase price may be just the first investment in the CancerSeek test. Errors with such a high stakes test cost lives. Exact may well have to invest in more studies before the new test can be sold. Empire building in the cancer sector is not cheap or easy.
Is it worth it? A little basic arithmetic clears the mind quickly. The CancerSeek test is envisioned as a routine screening test that would become part of every physical for Americans over a certain age. The United States currently has 108 million citizens over 50 years of age. If 20% of those got a physical every year, and Exact could charge an insurance company $250 for the test, that would equal $5 Billion in revenue every year. Exact’s revenue for 2019, without CancerSeek, was less than $1 Billion. So this one acquisition could easily quintuple Exact’s revenue if they can turn the vision into reality.
Investors who choose to buy into Exact Sciences have decided that a big risk is well worth an even bigger reward.
$CSBR: A Champion of Big Data?
Another company growing a cancer empire is Champions Oncology Inc. This is a small company with big goals. Champions does not sell cancer drugs, but rather sells services that help other biotech companies pioneer novel cancer treatments. Rather than mining for gold, Champions sells all of the equipment that miners would need to search for gold in the 21st century “biotech goldrush.”
$CSBR offers a wide range of tools to oncology companies looking for cancer cures. But there are two services, in particular, that could make a huge difference in 2021.
First, champions is a leader in the utilization of “humanized mice” in the study of cancer. Sounds a bit creepy? It is. Humanized mice are rodents who have had their DNA altered in specific ways to make them more like human beings. This allows cancer companies to try out new agents in a biological environment very close to the human body, without going through the extreme expense and effort of mounting a study in actual humans. Champions offers dozens of different kinds of mice, humanized to represent very specific disease states.
In general, this technology represents a big advance for cancer research, because it can shave valuable time and money off of the arduous oncology development process. Additionally, this whole approach has just received a huge PR boost in the scientific community. Regeneron, yes, THAT Regeneron, the company that seems to have cured President Trump of Covid, pioneered their anti-Covid medicine using humanized mice. This has taken a scientific revolution that was quietly happening in unremarkable labs around America and placed it front and center in the public imagination. The results can only be favorable for Champions.
You may have noticed that many of the biggest, most lucrative names in business today don’t sell physical products at all. Names like Facebook, Google and Microsoft sell services that can be scaled at a mind boggling pace. This means that Google only has to create a software program one time; the investment is mostly a fixed one time cost. They can then sell that service millions and millions of times, bringing in almost unlimited revenue, all off the same fixed cost base. That is how you become one of the most profitable and highly valued stocks in the world.
The management of Champions got the memo. They have just launched their own oncology oriented software program based on the thousands and thousands of tests that have already come out of their lab. After all, humanized mice may mimic humans, but are not humans; the mice don’t have HIPPA privacy rights. Simply put, Champions is just now monetizing the vast quantities of data that has already been collected from years of hosting a broad range of cancer research. This software has been dubbed Lumin.
If Lumin takes off, it could be a game changer for shareholders. The S&P 500, a broad range of different kinds of stocks representing the breadth of the American economy, trades at an average price to earnings ratio of about 26. Software stocks like Nvidia actually trade at stratospheric valuations like 86 times earnings. Simply put, Wall Street has fallen deeply in love with the “scale” phenomena that tech companies can offer. If Champions can rapidly grow revenue from the new Lumin software platform, they just might convince Wall Street that they, too, are a tech company. Huge valuations could follow.
Champions Oncology is a microstock with jumbo potential. If management plays the game just right, 2021 could be their year.
After enduring a dark and stormy 2020, it’s hard not to feel optimistic about 2021. With luck, the three companies above should fulfill that optimism. Leaders in healthcare should continue to deliver healthy profits for investors.
DISCLOSURE: The Sick Economist owns shares in each of the three companies profiled in this post.
The post 3 HOT BIOTECH STOCKS FOR 2021 appeared first on Sick Economics.
November 25, 2020
COMPASS PATHWAYS PLC: A PSYCHEDELIC TRIP WORTH TAKING?
Amongst the results of our recent national elections, one unusual result stands out. The voters of the State or Oregon have voted to legalize Psychedelic Mushrooms.
The voters responded to a growing body of scientific evidence that the mushrooms’ key ingredient, psilocybin, could be useful in treating a wide range of psychiatric conditions, including Major Depression Disorder, a common disease that has stubbornly resisted many other therapies on the market.
Compass Pathways, PLC, is a British company that just celebrated its debut listing on the NASDAQ stock exchange in America. Compass is challenging old stereotypes and outmoded societal prejudices by studying psilocybin with scientific rigour and discipline.
Would a purchase of Compass shares be good medicine for your portfolio?
By the Sick Economist
If you have ever known anybody with TRD (treatment resistant depression) then you know how badly psychiatry needs new tools to address this recalcitrant disease state. Up to 1/3 of patients cannot achieve relief from traditional antidepressants, leaving millions of Americans to grapple with the disease unaided by modern science.
Compass Pathways, PLC, a British firm, is among a cohort of daring new companies that are trying to bring non-traditional therapies to market. Compass is currently testing a proprietary formulation of psilocybin, the very same active ingredient that some of you may remember from late night college parties or Grateful Dead Concerts. While Compass is pioneering some of the first large scale research on the topic, the idea is not without historical precedent.
A Little Bit of History Repeating
The exact origins of “magic mushrooms” are murky; some evidence exists that the compound has been used in shamanistic rituals for untold thousands of years. The first modern encounter with the mushrooms came from 1950’s Mexico, where biologists such as Dr. Gordon Wassan witnessed the fungus being used by indigenous priests. By 1959, a swiss chemist named Albert Hoffman had isolated and synthesized the active compound in the mushrooms (psilocybin) and Sandoz, a major global pharmaceutical company, began producing the compound specifically for use by psychiatrists.
A number of major universities and established researchers did begin to conduct controlled, fully legal studies on the drug for maladies including depression and alcoholism. One study, conducted by Harvard, even gave the drug to convicts with the aim of reducing recidivism. In the early 1960’s psilocybin was not a party drug that you had to buy from a shady guy on the corner….it was a legitimate and promising psychiatric compound being investigated by Ivy League professors.
But somewhere in the extreme turbulence of the 1960’s, psilocybin lost it’s way and got tossed into the same category as cocaine, heroin and PCP. This may have been because the drug became too associated with the Hippies to retain its “Establishment” bonafides, or it could have something to do with the deep roots of Puritan culture in America. But either way, by 1971 psilocybin was considered to be a “schedule 1” drug, meaning casual cultivators or users could face jail time. In fact, some schedule one drugs can still be used for research under the right conditions, but the stigma surrounding the designation chased away most legitimate researchers.
With changing attitudes and an evolving culture, more and more researchers have slowly been reevaluating the compound over the last ten years. Now the voters of Oregon have removed the chains of stigma, and psychedelic research is back in vogue.
Compass Blazes the Trail
Compass PLC has already taken several important steps towards returning psilocybin to its clinical roots. The company has already conducted a traditional, double blind placebo phase I trial with 89 healthy patients, proving that the drug is safe to use in a controlled environment under the supervision of a licensed professional. Although a phase I study is very preliminary and typically nothing to get excited about, it is important for Compass to rigorously prove the safety of the pharmaceutical, given the convoluted and controversial history surrounding it.
Next Compass conducted a successful Initial Public Offering of stock, listing it’s stock on the Nasdaq stock exchange, right along established, respected names such as Apple and Tesla. Not only does this raise funds for the company, but it brings psilocybin “out of the shadows.” Public companies must be transparent by law. This listing on a reputable public stock exchange means that the company’s research will be open to the scrutiny of all government officials and the “Establishment” scientific community.
Now Compass is taking a critical next step. The company is currently running a phase II trial with 216 patients across 21 international sites. This is a randomized, controlled trial, the “gold standard” of the global scientific community. If this study can help TRD patients to improve, Compass could well be on it’s way to revolutionizing psychiatry.
Is Compass a “Buy?”
The company’s groundbreaking research has received loads of Media attention. Media Savvy Business luminaries such as Peter Thiel and Kevin O’Leary have publicly backed the budding psychedelics industry. Compass’s IPO was a resounding success; the company is now well funded and well positioned to carry its research to it’s fruition. Should you be buying this stock?
No. A great therapeutic leap forward does not always make a great business. There are still too many unknowns that would make this a risky long term investment.
First of all, we just don’t know enough about Compass’s compound, which is closely related to the same psilocybin that shamans have been administering for thousands of years. The company simply calls the formulation “proprietary.” At a minimum, we know that Sandoz was producing something very similar fifty years ago. Therefore it just isn’t hard to make. Compass runs the very real risk of proving that psilocybin works, but NOT proving that their “proprietary” compound is any different from generic pills that can be churned out for pennies.
A bold investor may accept the following premise; psilocybin is easy to make, but not that easy to get approved. So, even though Compass’s “proprietary” agent might not be much different from the generic, if people want access to psychedelics in a medical setting, they will have to pay Compass’s price. This is an awfully risky proposition.
The research required to get other psilocybin copycats approved is not that hard for a major pharma organization. Unfortunately, TRD patients are not rare at all, and the research simply consists of administering the drug to patients in a controlled environment. Easy drug to make, easy patients to find; if Compass shows clinical success, competitors will grow more quickly then a mushroom patch.
Additionally, compounds that are easy to make will have a limited market. Yes, American laws around intellectual property and FDA approval might force the medical community in America to pay a high price. But in most international markets local chemists will just copy the formulation and sell it for pennies. Typically when we recommend an investment, we look for robust international markets outside of North America.
There are other risks. One notorious element of current psychiatric treatments is that anti-depression pills are typically taken….forever. While some patients only take antidepressants to get through acute episodes in their lives, the reality is that most depression patients need that clinical support indefinitely. This is a gold mine for an investor. Compass doesn’t envision future psilocybin patients needing prolonged therapy, or a daily pill. This is great for patients, but, frankly, not so great for investors.
There is still legal risk. Even though we have currently entered a more permissive phase of American culture, one never knows when the winds may shift. Whether psilocybin is an effective treatment for depression remains to be seen, but it’s potency as a party drug is well known. If Compass puts in all the hard work to prove the drug’s value as a medicine, and the general American populace decides instead to abuse the drug merely for pleasure, it’s always possible that our old puritan values could flair up.
Finally, we still don’t know if the stuff works. You can find tantalizing clues from small, early studies. But there is very little of the same scope and rigor of the current, ongoing research. The phase II trial might show dramatic results, might show minor results, or it might flop. No matter how much the media wants Magic Mushrooms to regain their footing in the medical community, ultimately the science will judge. And the science is still out.
All of these factors add up to a major helping of risk that is far from groovy if you are a long term investor. The stock could see a major upward trend if the Media grabs hold of the narrative. This might be a good name to buy in pure speculation if you are looking for a short term thrill. However, we believe that the long term fundamentals don’t make sense for most biotech investors.
If you buy into Compass Pathways, PLC, get ready for a “long strange trip” indeed.
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October 21, 2020
CAN REGENERON PHARMACEUTICALS GENERATE STRONG PROFIT FOR YOU?
Analyst John Coughlin investigates….
The President and Covid-19
On October 2nd, roughly two weeks ago, the President of the United States, Donald Trump, tested positive for Covid-19. The news sent the stock market tumbling over 3% and left many unanswered questions for the future of the United States’ politics. The following day, President Trump was flown to the Walter Reed Medical Center for precautionary measures, where he was under his doctors’ surveillance. Seemingly, in two days, President Trump tweeted, “I will be leaving the great Walter Reed Medical Center,” and I feel better than I did 20 years ago!” On October 12th, CNN reported the “White House physician Sean Conley said Monday President Donald Trump has tested negative for Covid-19 on consecutive days.” So how can the President of the United States, nine days after being flown to a hospital for Covid-19, test negative and “feel better than he did twenty years ago.” The answer to this question may lie in the Covid-19 antibody treatments President Trump was given, including Regneron’s monoclonal antibody therapy.
Treatments, including REGN-COV2
During his stay at the Walter Reed Medical Center, CNN reported that President Trump was given “several different treatments — including investigational drugs — in the hope of relieving his Covid-19 symptoms and possibly shorten his course of illness.” Along with treatments like supplemental oxygen, Dexamethasone, and Remdesivir, President Trump was also given an “investigational cocktail, known by its investigational name REGN-COV2, manufactured by the well-known biotechnology company, Regeneron (CNN).
Overview of Regeneron and REGN-COV2
Founded in 1988, Regeneron is “a leading biotechnology company that invents life-transforming medicines for people with serious diseases.” The company is best known for its antibody treatments, which has allowed them to grow into one of the largest biotech companies in just thirty years. One of their technologies, VelociGene®, “enables rapid, automated, and high-scale manipulation of mouse DNA, with almost no limitations on the size and sophistication of modifications.” This technology and similar technology enables Regeneron with “speed and capacity” to test their antibody cocktails.
For those unfamiliar with Regneron’s antibody cocktail, REGN-COV2 is targeted to “both to treat people with COVID-19 and to prevent SARS-CoV-2 infection.” According to Regeneron, the antibody cocktail is made up of two separate antibodies, REGN10933 and REGN10987, “that form REGN-COV2 antibody therapy into cell production lines for large-scale manufacturing purposes and begun clinical trials” In recent weeks, REGN-COV2 has seen promising results from trials that test the cocktail’s effectiveness. In a report published on September 29th, 2020, Regeneron reported that the “…antibody cocktail reduced viral levels and improved symptoms in non-hospitalized Covid-19 patients.” Within the trial, patients who “were less likely to clear the virus on their own, and were at greater risk for prolonged symptoms,” also called seronegative, saw the greatest improvement from REGN-COV2. In the conclusion of their data, Regeneron reported that there were only four infusion reactions, three serious “adverse events,” and no deaths. This data, both from a treatment and safety perspective, solidify the success of REGN-COV2.
Highlighted in their quarter-two 2020 Financial Results, Regeneron highlighted the success REGN-COV2 has achieved. Among these achievements stands “a $450 million contract to manufacture and supply filled and finished REGN-COV2 to the U.S. Government. This contract shows potential confidence in the antibody cocktail, as seen in this contract, and its use on the President of the United States.
How REGN-COV2 is Administered
According to PrecissionVaccinations.com, Regeneron’s REGN-COV2 is administered through injections and “must be re-administered to remain effective over time.” Although injections may be the most effective way of treating a patient, since the cocktails enter the bloodstream immediately, the scalability of this method may be difficult. In the hospital setting, REGN-COV2 can easily be administered, as seen with President Trump and his stay at the Walter Reed Medical Center. Although, to the regular citizen of the United States, it would be impractical. Along with the step of injection, REGN-COV2 “must be re-administered to remain effective over time.”
What is an antibody, and how does REGN-COV2 Work?
According to ScienceAlert.com, “An antibody is a class of protein called an immunoglobulin, which is made by specialized white blood cells to identify and neutralize material foreign to an immune system. In this case, the “material foreign to an immune system” is the COVID-19 virus. The shape of an antibody, according to ScienceAlert, is a Y, “which allows the immune system to tailor its response to a countless range of threats.” Although antibodies are effective against foreign bodies, such as COVID-19, there is a limit to their capability, along with their presence. In the case of REGN-COV2, Regeneron is basically taking a modified antibody and injecting it into the patient who has the virus. This “modified antibody,” also known as a monoclonal antibody, can “serve as substitute antibodies that can restore, enhance, or mimic the immune system’s attack on cancer cells” (MayoClinic). Monoclonal antibodies are widely popular in the cancer treatment field.
Highlighted by PrecissionVaccinations.com, the two antibodies within REGN-COV2, REGN10933, and REGN10987, “…bind non-competitively to the critical receptor binding domain of the virus’s spike protein.” This method “diminishes the ability of mutant viruses to escape treatment and protects against spike variants.”
The Future of Regeneron and its REGN-COV2
Equipped with their technology like VelociGene®, Regeneron is well on their way to create more successful cocktails like REGN-COV2. After thirty years, the company has evolved into a multi-billion dollar company and continues to grow.
Although REGN-COV2 is still in trials, due to its effectiveness, overall safety, and being used on the President of the United States, the treatment has gained legitimacy. If the cocktail can supposedly make Trump feel “feel better than he did twenty years ago,” then REGN-COV2 may be an answer to treating COVID-19. Although, the main problem that REGN-COV2 faces is its practicality and distribution to the overall public. Individuals like the President will be able to access the cocktail, but under extreme demand, REGN-COV2 may be an alternative to just extreme cases. If the cocktail can be administered to the masses, REGN-COV2 can become a practical way of treating COVID-19.
Stock Overview
Currently, Regeneron sits at a price per share of $600. YTD, the stock is up 60% and continues to make all-time highs. The company has been solidly profitable for years, and carries little debt. $REGN has no less than 8 products in phase three trials for a wide variety of stubborn disease states. By many measures, the company is a future Big Pharma powerhouse just coming into it’s prime.
For a short-term investor, Regeneron may lack the exciting volatility that a mid-cap biotech would provide. However, for a long-term investor, Regeneron is a strong buy and a long hold.
To follow Analyst John Coughlin, go to:
TikTok: Street Signs
Instagram: Stockmarketsigns
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October 5, 2020
HOW TO NAVIGATE BIOTECH INVESTING DURING THE 2020 ELECTION
Like it or not, election season is rapidly approaching. With the novel coronavirus and increased mail-in voting, it’s safe to say that is anything but a normal election. While you may have an opinion on the candidates, the stock market doesn’t — it has historically experienced increased volatility right before, during, and after national election day, regardless of which party wins. The biotechnology industry, in particular, already experiences higher average volatility than other, more stable industries such as the fast-moving consumer goods industry . Coupled with the election, biotech investors may be in for a bumpy ride. What actions should you, a hard-working, diligent, and patient biotech investor, take to prepare for the storm ahead? Keep reading to find out.
By: Matthew Rojas, Biotech Financial Analyst
Invest in Stocks with Low Volatility
In financial lingo, low volatility stocks are those stocks that have a beta value of less than 1.0. According to Investopedia, “Beta is a concept that measures the expected move in stock relative to movements in the overall market.” If a particular stock has a beta of 1.0, then one can consider it a gauge, in terms of volatility, of how the overall stock market is performing. Furthermore, stocks with a beta above 1.0 are considered more volatile than the overall market, and stocks with a beta below 1.0 are considered less volatile than the overall market. Logically, risk-averse investors would prefer the latter, especially during election season when the market volatility is likely to increase.
With a simple search in the Yahoo Finance database, you can easily find the beta value of any stock. There are several low-beta biotech stocks; however, they tend to be the more popular names within the biotech sector that have historically performed well in times of economic downturn. Some excellent examples include Biogen Inc. (NASDAQ: BIIB) and Enanta Pharmaceuticals (NASDAQ: ENTA), with beta values of 0.52 and 0.40, respectively. Low-beta stocks are excellent choices for people who are uncomfortable with market volatility.
Leave Your Money IN the Market
For biotech investors that invest in low-beta stocks, they are less likely to cash out during election season because their stocks will remain more stable than the overall market. However, for biotech investors who hold more volatile stocks (i.e. stocks with beta values greater than 1.0), their portfolios are more likely to experience the inevitable ups and downs that traditionally come with election season. The key for people with portfolios that are subject to more volatility is to remain calm and remember that how stocks perform during the election season is not representative of their overall, long-run trend. In fact, according to the 2019 Dimensional Funds report, “The market has been positive overall in 19 of the last 23 election years from 1928-2016.” Events like the election cause investors to become irrational; they buy and sell their stocks solely based on the stock price and not based on the proper media signals — this is the number one mistake biotech investors make.
Instead of focusing on the short-term volatility, biotech investors need to keep their eyes focused on the long-term trends of particular companies. If a stock loses five percent of its value in a single day, and a quick Google search does not yield a definitive answer as to why this is the case, you should not sell your shares of the company. If, on the other hand, a stock loses five percent of its value in a single day, and a quick Google search reveals that the company experienced a hurdle in one of its clinical trials, then you should consider selling. The bottom line is… only sell stocks in your portfolio based on extensive research.
When to Sell?
The key to knowing when to sell your biotech stocks is identifying the proper media signals. On most publicly-traded company websites, there are typically sections called “Investors” and “Newsroom”. These tabs are usually the best way to find out the most current information about a company, ranging from its most recent SEC filings to clinical trial updates. Some other popular biotech news websites include the Wall Street Journal, Endpoints News, and FierceBiotech. Some of these websites are subscription-based; however, they are each invaluable because they provide you with the most recent biotech company updates.
When a biotech company encounters a particular hurdle, let’s say a clinical trial hiccup, it is critical to assess whether you think the particular company can recover from the hurdle. Some questions you should ask yourself are… Is the clinical trial delayed or canceled? If delayed, for how long? Is this delay significant enough for competitors to surpass the company in question? If the clinical trial is delayed for a few short weeks because one patient had a severe reaction to the drug, do not sell the stock but do keep a close eye on if other people experience similar symptoms. If the phase III clinical trial is canceled and the biotech company has no other product candidates in the later stages of clinical trials, then you should sell.
Take Advantage of the Volatility
As a biotech investor, the election represents a perfect opportunity to take advantage of market volatility. If a particular stock decreases in price and there are no negative media signals on the company website or supplementary databases, this represents a perfect time to buy-in. Remember, election season usually produces artificial volatility; it does not represent a long-term trend. Keep a close eye on the stocks that have made you say to yourself, “If this one goes down in price a little bit, I’ll buy-in.”
The Bottom Line
Because the circumstances surrounding the 2020 election are so unusual, many are predicting a higher degree of market volatility than in previous election years. Investing in low-beta stocks is a great way to avoid some of the market volatility stress. However, if you do own more volatile stocks in your portfolio, be sure not to cash out based on short-term, artificial price decreases. On the other hand, do not invest in a particular stock solely because the price increases by five percent on a given day. Whenever you invest in stocks, research is the most important part. Look for positive and negative media signals, and then sell or buy-in based on that information. Lastly, if you can, try and take advantage of some of the volatility and buy traditionally more expensive stocks if they decrease in price with no negative media signals. Biotech investors are certainly in for a roller coaster in the coming months — keeping these key tips in mind will help you maximize your returns this election season.
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September 21, 2020
3 BIOTECH STOCKS THAT WOULD BENEFIT FROM A BLUE WAVE
As a citizen, you may well have strong preferences for either political party. But as an investor, all that matters is the potential for change. Whether a political rotation is for better or for worse, there is always opportunity hidden in change.
If our Federal Government does change in November, what opportunities might exist for you? Below are three biotech stocks that would benefit from a Democratic Administration.
1. Coherus Bioscience, Inc ($CHRS)
Coherus is a firm that focuses exclusively on the discovery, manufacturing and sale of generic “biosimilar” medications. A biosimilar medication is the contemporary equivalent of the generic metformin that you buy from Walmart for pennies. Except, those generic drugs are copies of “small molecule” drugs. One reason those are so cheap is because “small molecule” drugs are very easy to copy.
Over the last twenty years, many of the most important drugs to hit the market are not “small molecule” but rather, “biologic” drugs. These are drugs that are actually manufactured by special, genetically programmed bacteria. Does this sound complicated? It is.
Some of the most widely utilized drugs in the world today are biologics. Examples would be Lantus Insulin, or Humira for arthritis. One reason why these drugs are some of the biggest blockbusters the Pharma Industry has ever seen is because they are very expensive. What’s the secret? Unlike the small molecule drugs, it’s impossible to exactly copy biologics. The best that capitalism has managed is to develop a nascent “biosimilar” industry, in which blockbuster biologics are mimicked. They are almost the same, but not quite. This means that biosimilars must go through rigorous trials and FDA evaluation, just like novel agents.
Biosimilars are more complicated to make, and Coherus Bioscience was launched to take advantage of this opportunity. After years of investment and painstaking research, they recently launched Udenyca, a copy of the cancer mainstay Neulasta. When Udenyca launched in January of 2019, the drug sold for 33% less than Neulasta. Since that time several Big Pharma competitors have jumped in with competing biosimilars, creating competitive pressures that will drive down prices and further benefit patients.
The company sailed to profitability immediately; in 2018 CHRS had $0 in revenue, in 2019 they had $356,000,000, with over $100,000,000 in profit. Emboldened by the raging success of Udenyca, CHR is just getting started. They have at least five more biosimilar drug candidates in the pipeline.
Why would a more left leaning Federal Government be good for Coherus?
Many commentators believe that the Democrats would immediately pick up where they left off with Obamacare. With Obamacare, basic access to medicine was established for a wide swath of downwardly mobile Americans. However, infamously, Obamacare did not solve the “cost problem” that most middle class Americans face. Medical costs are still outrageously high across the board. So high, in fact, that medical bills are still the leading cause of bankruptcy in the United States.
In particular, Big Pharma is often targeted, by both political parties, as being “too greedy.” Drugs like Neulasta, which can easily cost $50,000 per year, don’t help this image. If a new Democratic Administration decides to declare “war” on high medical prices, Coherus could directly benefit; afterall, saving patients money is their core business proposition.
In fact, many healthcare commentators have bemoaned the unfulfilled promise of biosimilar drugs in America. Even as our science has rendered biosimilars easier to make, the American Healthcare market has been stubbornly slow in realizing the potential savings that biosimilars offer. Many investigators and experts in the field believe that some of the blockages slowing the uptake of cheaper biosimilars could be alleviated by a more aggressive Federal Government.
Big Pharma is the industry that America loves to hate. If Democrats choose to make outrageous healthcare costs a key priority, Coherus Biosciences could wind up a big winner.
2. Novo Nordisk ($NVO)
If the Democrats chose to resume building up Obamacare, Novo Nordisk could be a
prime beneficiary. The Danish company is the leader in treatments for “metabolic disorder” a toxic stew of ailments including diabetes, heart problems and obesity.
It might seem counterintuitive that Novo Nordisk would benefit from a left leaning Federal Government. After all, Novo is the leader in the insulin market, and high insulin prices have become the poster child for ruinous pricing of common medicines. America literally can’t live without Novo’s medicines, and Novo has been highly criticized for extracting astronomical prices from regular folks.
But the winds of Capitalism are changing, and perhaps actually changing in Novo’s favor. While Novo may need to adjust pricing to please a populist left leaning Government, that same government is very likely to continue focusing on expanding access to basic medical care for financially struggling Americans. Since Diabetes and Obesity disproportionately affects economically disadvantaged Americans, increased access, even at lower prices, could be a bonanza for Novo Nordisk.
While Novo has dominated the insulin market for years, executives currently have their eyes on an even bigger prize: obesity itself. Through rigorous study and years of trial and error, $NVO is coming closer and closer to launching a range of options to treat obesity directly. But clinical efficacy is only half the battle with obesity; if poor patients don’t have good access to these novel medications, sales will stagnate.
The case of Saxenda is instructional. This is a drug that has been proven to reduce weight 5-7% in obese patients, sometimes delivering up to 10% weight loss. So, a 250LB man could potentially lose 25lbs on Saxenda. Given all of the pills and potions that are sold on the darker corners of the internet, you would think that this medication, with proven efficacy, would fly off the shelves, right?
Wrong.
Saxenda was launched with much fanfare in 2015, but sales greatly disappointed. Novo struggled to get insurance companies to pay the high price that execs had believed they could get. The drug, priced at $1,000 per month or more, was way too expensive for the average Joe to purchase in cash, so sales languished. Today, five years later, Novo has made some progress with the drug, reporting $891M in sales in 2019. For reference, in the same year, Novo sold about $9 Billion in insulin that same year. Even though the number of obese people in America greatly outweighs the number of diabetic patients, Novo sold ten times more insulin. Most of the progress that Novo made in Saxenda sales was related to discounts and more modest pricing expectations. It turns out, no one wants to pay for you to look good in a swimsuit.
But, as the saying goes, “you ain’t seen nothing yet.” Saxenda was just the beginning. Novo has a whole pipeline of obesity drugs, most of which have already demonstrated some dramatic results. Some of Novo’s novel agents have demonstrated sustained weight loss of 16% or more!
This time, Novo is taking no chances. In addition to weight loss, the C-Suite has decided to cautiously and methodically collect data about the tangible health benefits of weight loss. If Novo can help you lose 16% of your body mass, will that reduction result in less heart attacks? Less Diabetes? Novo is taking it’s time to “do it right.” Rather than experience another disappointing loss, they intend to bring an irrefutable collection of data demonstrating why insurance companies must cover their novel obesity agents.
Given this background, $NVO may greatly benefit from a resurgent Obamacare program. Why? Patients with no insurance cannot pay for expensive medications. Patients with insurance of almost any kind are much better clients of Novo. With Novo currently gathering more and more convincing data about the health benefits of their emerging obesity pipeline, insurers will have a hard time denying coverage.
The formula is simple.
More insurance coverage+better data+focus on “underserved” communities = Fat Profits.
A Democratic administration could be sweet indeed for Novo Nordisk.
3. Exact Sciences ($EXAS)
Exact sciences would benefit from a “Blue Wave” for a lot of the same reasons that Novo
Nordisk would. Exact’s diagnostic screening offerings are deeply woven into the fabric of primary care medicine. More patients with more access to primary care medicine will mean more revenue for Exact Sciences.
Exact’s claim to fame is the Cologuard test. Cologuard is a non-invasive method of screening for colon cancer that is only available with a prescription from a doctor. In the last few years, this method of screening, which can be done at home, has come to compete with colonoscopies. According to the American Cancer Society, Americans should have a Cologuard test every three years, starting at age 45.
Cologuard is now a well established part of routine preventative care. But currently, millions of Americans still go without any kind of care due to gaps that still exist in our healthcare system. If the Democrats choose to nurture or even grow Obamacare, that could equate to millions of more tests per year.
Exact is not stopping with Cologuard. They have a number of other screening and diagnostic offerings related to cancer; they also have an active investigational pipeline that will deliver new screening and diagnosis tools for years to come.
But nothing happens if people don’t have basic medical access. Imagine being a healthcare executive, and finding out that the total addressable market for your product has grown by 50% overnight! That is exactly what could happen for Exact if Obamacare grows under a new Democratic Administration.
The next ninety days promise to be a passionate time in our nation’s history. You may very well not like the outcome of the upcoming elections. But investing is like surfing. The best surfers realize that they cannot control the waves coming their way. They can only use their skills to surf on whatever may come. Get your surfboard ready, and you’ll be ready to ride this new political wave to profit.
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September 7, 2020
THE WINTER OF OUR DISCONTENT: HOW TO PREPARE YOUR PORTFOLIO FOR A MARKET CORRECTION
While everyone likes flying high, many commentators have feared a correction that almost seems inevitable. On September 3rd and 4th, many felt the first cold gusts of fall air as the Nasdaq market dipped as much as 7%.
What are some upcoming threats you could face as the leaves change and the temperature drops? How should you prepare for these potential threats? Read below to learn about four potential adverse scenarios, and how you can prepare for each of those scenarios.
Scenario #1: Reality Bites
Under this scenario, no one shock causes the Market to crash. Picture a giant, swollen balloon, inflated at three times it’s safe capacity. Just the slightest pinprick causes the balloon to deflate, and fast. Was it the pinprick that caused the disaster? No, it was the underlying, unsustainable situation.
The flash crash that occurred in March and the equally swift resurrection of our Bull Market has been a widely debated mystery. How can the stock market soar 50, 60, or 70% in just months while unemployment is at its highest level since the 1930’s? How can stocks party like it’s 1999 when millions of mortgages are in “forbearance” and many renters are clinging to the roof over their head by the narrowest of margins?
There are a host of different suggested reasons for this bizarre phenomenon. The Fed has printed trillions of dollars, which has created a positive shock that may well have offset the negative shock of the Covid lockdown. The stock market looks forward, not backwards, and the financial pros see a bright future once we extract ourselves from our current imbroglio. Our steady progress on a vaccine demonstrates the ultimate prowess of 21st century technology, and that bodes very well for innovation stocks in the long term. Pick your theory. Your guess is as good as anyone else’s.
The big risk is that eventually the euphoria wears off and we wake up from a summer of partying with the mother of all hangovers. Nothing to bring sobering reality crashing home like a throbbing headache that won’t go away. In this case, America looks headed for years of headaches related to the Coronavirus.
Right now, millions upon millions or renters haven’t paid their landlords for months. As of September 2nd, the Federal Government, through the Center for Disease Control, unilaterally decided that a nation wide moratorium on evictions should take effect until at least December, 2020. While this is a very controversial decree, and probably subject to court challenges, this edict has only temporarily stopped the bleeding. In fact, investors may soon wake up to the cold hard reality: this has to end badly for someone. Either millions of renters who eventually will be evicted when the moratorium is up, or millions of landlords, big and small, who are about to be stiffed out of billions worth of rental payments. Neither scenario could be good for stocks.
In general, millions upon millions of Americans are now unable to pay their debts, whether it be “good” debt such as a routine mortgage, or pre-existing credit card debts. Much like the CDC’s rental moratorium, a lot of this bad debt has been magically wished away by corporations placing struggling borrowers into “forbearance” programs. By some magical thinking that borders on outright fraud, the loan holders get to tell investors that the loans are NOT in default due to the forbearance fantasy program they have invented. The reality is that, for most of these forbearance programs, billions upon billions of dollars will end up in default eventually. This can’t be good for stocks.
In general, “Extend and Pretend” has been the chosen modus operandi for a Corporate America that is facing mass defaults. In addition, the Fed has printed trillions of dollars and claims that inflation is still below 2%, despite many consumers noticing that food prices have risen dramatically over the last six months. So, it’s great that money printing has not caused inflation, as long as you don’t need to feed your family.
There are a wide variety of convenient fantasies that have been propagated to keep this Bull Market going. Lost weekends filled with cocaine and whisky feel great, right up until they don’t. The magic could wear off at any moment.
How To Prepare
If you suspect that eventually someone will demand that all these overdue bills get paid, then make sure that your portfolio is filled with products that people need. Despite all of the criticism and stress about the failings of our current healthcare system, most patients still tend to get basic needs fulfilled. So make sure you own the companies that provide these basic needs.
One example would be insulin. Sky high insulin prices have been very controversial, due to some suspicious anti-competitive practices on the part of the Big Three companies who dominate the market (Novo Nordisk, Eli Lilly, and Sanofi-Aventis…$NVO, $LLY, $SNY). However, when push comes to shove, most diabetic patients are getting their insulin and other blood sugar medicines. Thus, these companies’ earnings will hold up in a crisis.
Another move you want to make is to ensure that any smaller, riskier biotech stocks that you hold are already well funded. Many “innovation stage” biotech companies burn cash for years before they see a profit (if they ever do). So what determines their staying power in a crisis is the ratio of cash on hand to current burn rate. Over the last six months, the biotech shares have been in such a frenzy that everybody and their mother has been able to raise millions by floating shares with barely a thought. However, this kind of “anything goes” environment can come to a sudden, violent, end if Nasdaq crashes. Make sure the smaller biotech companies in your portfolio already have plenty of “gas in the tank” in case access to new capital suddenly tightens up.
One example of a small biotech in the “innovation stage” (i.e, little revenue) is Morphic Holdings, Inc ($MORF). This company is focusing on developing a whole new field of medicine related to proteins called integrins. Morphic burned about $30 million in cash for the first half of 2020. At the end of that period, they still had roughly $190 million in cash left. MORF could easily survive a few years without external funding if someone were to take the Nasdaq punchbowl away.
The gist of the “reality bites” scenario is that Wall Street and Main Street cannot exist in two separate realities forever. If Wall Street finally starts to feel Main Street’s pain, you’ll want to have your portfolio stocked with hearty companies that can take a licking, and keep on ticking.
Scenario #2: Vaccine Flop
One prevailing theory for the Market’s stellar performance over the last few months is that our Biotech/Industrial complex will soon deliver a functional vaccine against Coronavirus. This would be akin to waving a magic wand; with a simple flick of the wrist, many of our Corona problems would vanish overnight.
This optimism is not purely magical thinking. In fact, there are several pieces of evidence that support optimism on this front. Dozens of vaccine makers around the world, both large and small, have produced promising candidates against the scourge. Many of these companies employ totally different scientific methods to attack the same problem; this diversity of science gives us multiple “shots on goal,” something is bound to score. Lastly, and most importantly, early phase I and phase II tests have proven safety, and some level of efficacy. Several different companies have reported that, in phase II testing, their vaccine candidates have produced high levels of anti-Covid antibodies in test subjects. In theory, all of these factors should mean that a powerful Coronavirus vaccine is just around the corner.
But anyone who has been involved in science, or biotech investing, for long enough will tell you that history is replete with cures that should have worked, but didn’t. Just because a vaccine candidate produces immune antibodies, it doesn’t necessarily mean that the vaccine provides a shield against the virus. It may only work partially, or not at all. We don’t know for sure until phase III testing has been completed on very large groups of people. Mounting effective, large scale, phase III trials is onerous and risky. Something can still go wrong.
Another possibility is that the results of the ongoing phase III trials are not as binary as the casual observer would imagine. Even Dr Anthony Fauci has pointed out that some vaccine candidates may provide 50% protection, for six months, rather than the kind of lifetime protection we have come to expect from our standard vaccines.
Yet another possibility is that, even with positive phase III data in hand, some kind of logistical or media blunder means that the vaccine gets to people slowly, or is rejected outright by large swaths of the population. Manufacturing and distributing several billion doses of anything is a Herculean feat for the History Books; a lot can go wrong. Additionally, the slightest miscue can spark wild conspiracy theories that shocking numbers of people believe. A vaccine has no beneficial effect on people who refuse to take it.
Lastly, there is no guarantee at all that the manufacture and sale of a vaccine will even be a money maker for whoever gets to the “finish line” first. The American Public, already highly suspicious of vaccines and Big Pharma in general, will be very sensitive to pricing issues and “equality” around any Coronavirus vaccine. This distrust could open up a Pandora’s Box of world class headaches for a Coronavirus provider. Imagine losing money on each one of billions of vials. This nightmare scenario could be the reward waiting for unwise first movers in the Coronavirus race.
How To Prepare
Simply put, do not “bet the farm” on companies reaching for the Holy Grail. Many of the leading competitors for the Coronavirus vaccine are actually very established, accomplished Big Pharma outfits with decades of steady profits ahead of them, whether this particular venture works out or not. Names that jump to mind are Johnson&Johnson ($JNJ), Pfizer, ($PFE) and GlaxoSmithKline ($GSK). These companies will be fine no matter what the outcome with Covid-19.
If you want to take a risk on smaller, more nimble competitors, by all means, do it. CureVac ($CVAC), Novavax ($NVAX) and Moderna ($MRNA) are all companies you could gamble on. But be aware of the pitfalls listed above. Innovation in the time of Covid is not for the faint of heart.
Scenario #3: The Corona Comeback
As I write this, a number of the geographies that were hit hardest early in the epidemic look like success stories. In early April, New York City alone was getting hit with as many as 6,000 new Covid cases per day; today, in early September, that number is just 253 cases. Major European cities are showing a similar pattern of a formerly raging epidemic that has been mostly brought under control.
The conventional wisdom is that cities like New York and Berlin saw a dramatic reduction in sickness and death because they developed strict protocols around masks and distancing that have made all the difference. But no one really knows. It’s also possible that cases simply dropped as Spring turned to Summer.
It’s a lot easier to open up your windows, meet your friends for an outdoor picnic, and keep a safe distance from others when the weather outside is a balmy 75 degrees, as opposed to 7.5 degrees. Winter in Northern cities such as Chicago and New York is long, and bitter cold. Outside dining? Forget it. In fact, even opening the window is out of the question for months on end. We can’t rule out the idea the the Coronavirus is merely waiting, dormant, to torture us yet again as the temperature drops.
Another factor is a return to school. Of course this has been a massive polemic throughout the United States and beyond, but now many students are returning to the classroom in one form or another. The economic pressure to “normalize” the lives of working parents is excruciating. How will this big experiment go? Only time will tell.
One theory for our ebullient stock market has been that Summer has been good to major cities in cold weather climates. We know that the top 10% of earners now own 80% of publicly traded shares; those top 10% of earners are disproportionately centered in cold cities like New York, Seattle and Boston. What happens to shares prices if the virus makes a comeback during the six long months of freezing weather coming our way?
How To Prepare
Be very cautious about businesses that offer services that are optional. We found the hard way in March and April that a lot of highly recommended medical services are still, when push comes to shove, optional. Medical Device companies, and the hospitals that make huge money implanting the medical devices, saw revenues plummet by as much as 50%. The exact same thing could happen all over again if Covid numbers suddenly start going the wrong way. Many of these “optional” medical providers survived the first time by loading up on debt to tide them through three bad months. How many have a strong enough balance sheets to endure greatly reduced revenue all over again? Avoid names such as Intuitive ($ISRG), Medtronic ($MDT) and Tenet Health ($THC).
Scenario #4: Political Unrest around the Election
This is perhaps the most dangerous scenario, and the “Black Swan Event” that could cause the Market to crash hard, and crash fast.
Whether you are Republican, Democrat, or Independent, many Americans feel that we have never been so polarized as a nation. The stress and strain has become so acute, that both sides doubt the basic fundamentals of Democracy.
Many feel that law and order is falling apart before our very eyes. This fear manifests itself both in allegations of underhanded political and financial behavior, and in visible disturbances such as riots and violence in the streets.
The number one thing that the Market loathes is uncertainty and disorder. We have a lot of both going into the November election. Democrats insist that America is at real risk of a 3rd world style Coup D’Etat, while Republicans swear that the White House will be overrun by Cuban Communist Revolutionaries days after the Democrats move in. Footage of burning buildings and heavily armed citizens seem to flood our social media daily. This tension around the building blocks of our Society is very bad for stocks.
Remember, 90% of investors buy or sell stocks based on feelings; objective reality has little control over the panicked mind. Therefore, we don’t really need widespread violence to cause a panic in the stock market. All we need is the perception of violence and chaos, and many investors will sell everything.
Most investors are willing to risk their hard earned capital when they feel that the game has certain rules. Certain basic, fundamental rules that are agreed on by all of Society’s stakeholders. When the basic rules become fuzzy, and order seems like it could break down, financial markets become exposed to a fear driven crash.
How To Prepare
If you fear a “chaos” scenario around the time of our November Presidential Elections, stick with the fundamentals. Companies like Pfizer and Johnson&Johnson have been pumping out reliable profits and dividends for more than a century. This means they have survived TWO world wars, the Red Scare, the Hippies, The Tech Boom&Bust, and the Housing Crash. It’s very, very likely that Big Pharma will also weather whatever storm hits us in November.
Nobody has a crystal ball. It’s entirely possible that none of the four above scenarios will ever come to pass. Perhaps by this Winter we will have a proven, accepted vaccine. Perhaps New York City’s stringent mask and isolation protocols will beat the Corona beast back for good. Maybe the upcoming November election will be executed with all of the transparency and efficiency that a Great Democracy deserves.
But if not, you’ll be ready.
The post THE WINTER OF OUR DISCONTENT: HOW TO PREPARE YOUR PORTFOLIO FOR A MARKET CORRECTION appeared first on Sick Economics.
August 14, 2020
PATENT INFRINGEMENT AND MRNA: MODERNA CONFRONTS AN UNEXPECTED HURDLE
By: Matthew Rojas, Biotech Financial Analyst
Patent Requirements:
In 2011, Moderna needed mRNA technology and wanted to outsource instead of developing in-house. The company became interested in Arbutus’ technology but turned to a smaller company, Acuitas Therapeutics, to access it via a sublicense. Later, Arbutus terminated its licensing agreement with Acuitas to use its technology and stated that the licensing agreement did not extend to Moderna. In January of 2019, Moderna went to court, claiming Arbutus’ mRNA technology was unpatentable. On the other hand, Arbutus firmly stated that they were within their rights and demanded reparations from Moderna on the grounds of patent infringement. Some of you may be asking, “what does it take to earn a patent”? Well, there are three basic requirements an invention must meet to receive a patent in the United States: it needs to be novel, useful, and non-obvious. To satisfy the novelty requirement, the invention must be unknown to the public at the time of filing for the patent. Next, to pass the usefulness test, the invention needs to be, you guessed it, useful! This requirement is often harder to meet when attempting to patent a pharmaceutical or chemical compound because a practical use must be established. Lastly, the non-obvious requirement states that an invention has to go beyond something that “a person having ordinary skill” could create; in other words, an invention must have a degree of creativity and complexity. Now, we are going to examine the mRNA technology that Arbutus patented and see if it meets these three requirements.
Does Arbutus Pass the Test?
Arbutus’ patent covers lipid formulations for the delivery of nucleic acids; specifically, the technology in question is their lipid nanoparticle (LNP) technology. According to Precision Nanosystems, “Lipid nanoparticles (LNPs) are the most clinically advanced non-viral gene delivery system. Lipid nanoparticles safely and effectively deliver nucleic acids, overcoming a major barrier preventing the development and use of genetic medicines”. Furthermore, LNP technology takes advantage of the body’s natural processes to silence disease-causing genes. It just so happens that Moderna’s COVID-19 vaccine uses Arbutus’ LNP technology to carry mRNA that codes for coronavirus spike protein, SARS-coV-2, antigens to be produced in the human body. Once the antigens are produced, the body fights off the infection and then develops neutralizing antibodies that will protect against future COVID-19 exposure.
Beginning with the novelty test, Arbutus easily passed because its LNP technology was completely unknown to the public at the time of filing for the patent. Next, the company passed the usefulness test with flying colors; the LNP technology is broadly applicable in therapeutic areas because it can incorporate a variety of RNA triggers, such as siRNA, miRNA, and mRNA. Now, onto the non-obvious test — this is the area that prompted Moderna to challenge Arbutus’ patent. Although Arbutus claimed that their technology was “a surprising discovery”, Moderna countered that it would have been “obvious at the time of invention”. The court ultimately ruled in favor of Arbutus, stating that Moderna failed to produce adequate evidence that the technology was obvious. Moderna appealed the decision; however, the appeal board sided with Arbutus. Moderna’s efforts need to be fully focused on COVID-19 — this patent infringement issue may hold them back and, as a result, stain their track-record of steady progress.
What Does This Mean for Moderna?
Immediately following the press release of Moderna’s failure to win the appeal of the patent court’s original decision, its shares (NASDAQ: MRNA) tumbled by over 8% from over $75.00 to around $69.00. However, the company’s shares have since regained some ground and are trading at around $78.00, still considerably off from its 52-week high of $95.00. Conversely, Arbutus’ shares (NASDAQ: ABUS) increased by nearly 180% from around $3.00 to $8.00 after the news. The small biotech’s shares have since declined by over 50% to around $3.80. The fact that Moderna’s shares recovered quickly is a good sign that investors still have faith in the company; nevertheless, I am unsure of what the future holds because Moderna and Arbutus are now in an arranged marriage, and the two do not seem to fancy each other.
The likely scenario is that Arbutus will be entitled to a royalty, a designated sum of money paid to a patentee for the use of a patent, in exchange for Moderna to use its LNP technology for the COVID-19 vaccine and any other product candidates in its clinical pipeline. However, recently, new information has come to light: Arbutus signed away most of the rights to the LNP technology patent to Genevant in 2018. Now, the small biotech has a minority (40%) interest in the patent in question; therefore, the royalty will be split among the two companies, with Genevant receiving the majority of the compensation. This royalty payment is unlikely to hinder the progress of Moderna’s vaccine candidate, but Mani Foroohar, the analyst at SVB Leerink, wrote, “Any meaningful royalty burden could hamper Moderna’s pricing flexibility and margin profile versus other players in the SARS-CoV-2 vaccine market.” The royalty could potentially hurt investors in the long-run; nevertheless, the Biomedical Advanced Research and Development Authority (BARDA) of the U.S. government recently pledged an additional $472 million for Moderna’s vaccine. Therefore, Moderna should still have adequate funding to persevere through this patent dispute.
On one hand, Arbutus and Genevant are within their rights to hold Moderna accountable for its actions; on the other hand, the companies must be careful not to present any obstacles in the development of the COVID-19 vaccine. If they do slow down the process with this legal dispute, they will undoubtedly face public scrutiny for interfering with a vaccine with the potential to mitigate the devastating pandemic, permanently damaging their financials and professional reputations.
Is Moderna Still a Buy?
Although Moderna is in the middle of a patent dispute with Arbutus, this duel will not likely not pose a threat to the development of its COVID-19 vaccine. The company is one of the leaders in the COVID-19 vaccine race, with competitors Oxford/AstraZeneca and Pfizer/BioNtech in close proximity, and I expect it to stay that way. There is a slight chance that a royalty payment to Arbutus and Genevant will damper its vaccine pricing flexibility; however, the additional funding from BARDA should help if it comes to that. At this point, I would say that Moderna is still a buy, and this brings us to a valuable learning opportunity. Investing in biotech is a roller coaster; when a company comes to a hurdle, it is important to not immediately sell. People need to access whether the company in question can overcome the obstacle — If not, then sell. In the case of Moderna, I have full confidence that it can prevail in this situation.
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