The Sick Economist's Blog, page 8

IS GOOGLE A HEALTHCARE COMPANY?

By Aidan Asbill, Securities Analyst 

 

Google is one of the biggest technology companies in the world but the company has surprisingly struggled when it comes to diversifying its revenue. In 2020, Google made 80% of its $190 Billion Revenue solely from advertising. Now the company is seeking to change that by expanding into the lucrative health care sector. With the outbreak of Covid-19, many services were forced to go online including basic health care services, such as medical checkups that would normally be performed in person. This growing demand for healthcare presented Google with an opportunity to expand into the health care sector and the company did just that with the announcement of their partnership with HCA health care ($HCA). HCA owns 186 hospitals and 2,000 ambulatory sites while boasting a strong $69 Billion market cap. With this partnership, Google is seeking to provide analytics-driven software that will track patient data and help nurses and doctors better serve their patients. Google can use this deal to expand into the healthcare industry and leverage their Google Cloud Healthcare API to gain access to healthcare professionals’ and patients’ data which can prove invaluable for the future of Google Health. 

 

The Rise of Google Health

Over the last 12 months, Google and their parent company Alphabet have rapidly expanded into the health care sector. Google continued to develop healthcare-related products and services this year, many related to the COVID-19 pandemic. In August last year, the company partnered with Harvard Global Health to develop the COVID-19 forecasts, which provided 13-day projections for hospitalizations and death rates across the United States. The forecast was made using Google Cloud which combined a novel time-series machine-learning approach and AI. In September, Google Health also committed $8.5 million to 31 organizations to help further AI and data about the Covid-19 outbreak. One of the biggest investments the company made was a $100 million investment into Amwell, which is a telehealth company. The investment was aimed at helping the company expand its offerings for providers, insurers, and patients. However, more importantly, Amwell will utilize Google’s Cloud API to showcase how effective it can be in the medical field. Google has also been busily expanded their machine learning with technology company Hologic ($HOLX) for use of cervical cancer diagnostic. The company also recently created an AI tool that can classify skin conditions. By uploading three pictures of the skin, the patient can get an evaluation of their condition based on analyzes from the AI tool that looks at over 250 variables in skin conditions. Google has also continued its massive partnership with Ascension, the second biggest healthcare system in the United States. Google began to roll out a new tool, called Care Studio, which allows clinicians to quickly find important data from their patients. The partnership had previously struck controversy when the company announced a massive collection of data from 2,600 hospitals and tens of millions of patients called Project Nightingale. The controversy happened when doctors and patients claimed they had not agreed to sign over their data. The two companies signed a HIPAA agreement and google executive Tariq Shaukat wrote that the project “cannot and will not combine with any Google consumer data.” This partnership is the biggest in the tech space, however, for a company with antitrust concerns, this may be difficult for Google to monetize without breaking privacy laws. Google Health has continued to innovate with its powerful AI-powered analytics. With that being said there are still concerns if the company will be able to properly monetize this technology.

Google’s Failure to Diversify Revenue

Despite Google’s great strides to diversify its revenue by getting into the healthcare sector, the company has failed to do so in the past. Google, unfortunately, hasn’t been able to successfully expand its revenue streams when compared to other big tech companies. Amazon ($AMZN) for example has successfully launched its AWS web services and Prime membership, which has contributed close to 20% of the company’s total revenue. Another competitor, Microsoft ($MSFT), has added companies like LinkedIn, Azure, and expanded its gaming portfolio, which has also more than 20% of its revenue. At the end of the day, Google has been unable to develop a new revenue stream, but they have a long history of trying to expand their revenue. Google has been a company at the forefront of innovation, but they have consistently been unable to get consumers interested in their products. One of these such products was google glasses, a futuristic smart wear product that would provide users with a display type interface, take photos, videos, and more. The product initially garnered a lot of attention but with a steep $1500 price tag and an unflattering design, Google discontinued sales of glasses in 2015 and would completely redesign the product. While newer iterations of Google glasses have shown some interesting use in surgeries and helping children with autism, the dreams of a wide use consumer product seem unlikely. By far Google’s biggest failed opportunity was their innovative service Google Ride Finder, which helped consumers find taxis, limos, and other transportation. While the service was still very simple, they were on to something great, but unfortunately shut down the service in 2009. Later that same year, Uber was founded and would go onto become a nearly $100 billion market cap company in 2021. While Google has not yet found much success diversifying its revenue in the past, the company may be able to change that with the great demand in the health care sector.

How that Can Change

Google’s parent company, Alphabet, has been trying to expand its revenue sources for many years and has recently honed in on the health care sector as a potential revenue growth source. Alphabet has slowly been building up its acquisitions in the healthcare industry by acquiring the health care companies Verily, Calico and DeepMind.Verily has recently partnered with Highmark Health in a deal where Highmark will utilize Verily’s digital care tools for use in its Living Health model for patients and doctors. Verily in large part has worked independently of Google when it comes to developing its digital health care tools some even thinking they are a direct rival to Google Health. However, in July 2020 Verily’s chief executive officer Andrew Conrad reportedly wanted to end the “rivalry” between the two companies and collaborate more closely. Verily has many interesting technologies including surgical robotics machines, spoons that help people with tremors, and even releasing sterile mosquitoes into the wild to reduce populations of ones that carry disease. If Google Health can combine their advance AI and analytic tools to help assist with Verily’s new technologies it may be a match made in heaven.

Google Health will have a lot of competition when it comes to its personal health record services. In the United States, the electronic health records competition is very stiff with Epic and Cerner ($CERN) have an over 85% market share in 2019. With only, a 15% market share left Google will struggle to compete in the personal health record services and should instead focus its effort on developing new AI diagnostic tools. However, the United States health care spending has been consistently growing year after year, reaching $11,582 per person in 2019 for a total of $3.8 trillion. If Google can even get 1% of this revenue that would be $38 Billion a year, increasing Google revenue by a whopping 20%. 

Google Health’s Future

Google Health’s future centers around its core product, Care Studio, which seeks to allow easy access to patients’ files to medical professionals. Google and their partner Ascension have already been working closing to expand the Care Studio health care system across their hospitals. Even with concerns about Google compromising protected health data, the company should still be able to successfully launch the Care Studio across Ascensions health network. However, the company will struggle to expand its Care Studio outside of Ascension and there are also concerns about if Google can ethically monetize this data. Google Health also has a team working on their new Health Care AI that will focus on building software tools that will improve medical procedures and help doctors analyze patients’ conditions with algothorims based screenings for diabetes. Googles Health will also partner with Fitbit and Google Fit in order to manage regulatory, clinical, and equity issues within the company, as well as the Fitbit team.It will be interesting to see if Google and Alphabet can succeed with Google Health after multiple failures in the past to diversify their revenue. While Google was not able to find success in the past, timing is everything, and the need for healthcare is greater than ever. People are not only more health-conscious after the Covid-19 outbreak, but there are also still people who suffer long-term symptoms after getting Covid-19. With the average cost of healthcare increasing and more demand for healthcare-related services, it’s a great time for Google to carve out its own part of the market share. However, there will be questions concerning the safety of patient data and if Google can ethically monetize it.

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MEDICAL ROBOTICS: A PROFIT MACHINE?

By Tammy Tran, Equity Analyst 

 

Although medical robotics has been a field that has been around since the late 1980s to the early 1990s, it has only been recently that the industry has taken off. The very first mechanical robot to be used in surgery was the Puma 560 in 1985 for the precise positioning of cannula for brain biopsies. Ever since then, medical robots have been popping up everywhere and with our new and recent technology, we have the ability to develop even more specialized and precise robots that can aid in even more complex surgeries. As a result, the industry is exponentially growing and expanding with each new innovation.  According to GlobalData, the number of robotic surgical systems is predicted to increase by 6.5-12% from 2020 to 2030. 

 

Johnson & Johnson ($JNJ)

Although Johnson & Johnson ($JNJ) is already a well established company, they are an  excellent example of a company that is expanding upon the medical robotics industry. They recently unveiled their new surgical robotic system, Ottava which will begin verification and validation processes in 2021, then begin clinical trials in the second half 2022. It will compete with Intuitive’s da Vinci and Medtronic’s Hugo.This new system is designed to have six arms to have more control and flexibility in surgery, while the arms will be integrated into the operating table so that the surgeries have a smaller footprint. The smaller footprint will result in increased patient access, increase space in the operating room and improve workflow. Previous surgical robots only had 3 or 4 surgical arms. The greatest advance that Ottava is bringing to the market is the integration of advanced visualization, machine learning and general data capabilities into the system. Johnson and Johnson is committed to growing the robotic surgery market through means other than Ottava. In 2019, they acquired Auris Health and its Monarch system for bronchoscopic procedures. Fred Moll, former CEO of Auris Health and now CDO of Robotics for Johnson and Johnson, says that Ottava has “not only the ability to build a machine that helps clinicians accomplish a procedure, but give information guidance, and sometimes automation to certain parts of a procedure that technology can be smart enough to understand clinically what the clinician is trying to accomplish, and be a smart assistant”. Even with the acquisition, Johnson and Johnson still only provides 1.7% global share of the overall market for robotic surgical systems. Their current stock price is at $163.37 with a market cap of $420.22 billion.

Myomo ($MYO)

Another one of these emerging medical robotics companies is Myomo ($MYO). Myomo is a company founded in 2004 by Paul Gudonis. Their goal is to “improve the lives of individuals with upper extremity paralysis by providing innovative medical devices”. Using patented technology developed at MIT, Harvard Medical School and by the company, they have created the MyoPro, which is a a line of lightweight, non-invasive, powered arm braces that can restore the function of paralyzed or weakened arms, specifically for patients who have suffered from a stroke, and spinal cord or nerve injury. This device is different from any other that is currently on the market because it is able to sense a patient’s own neurological signals through non-invasive sensors on the arm. Patients that use the MyoPro could be able to restore their ability to use both their arms and hands so that they can return to live an independent life and even get back to working. The MyoPro can also rehabilitate the extremities through muscle re-education and increasing the range of motion. The MyoPro arm and hand orthosis device works by reading the faint nerve signals (myoelectric signals) from the surface of the skin (fully non-invasive, with no implants) then activating small motors to move the limb as the user intends to, with no electrical stimulation. Unlike other prosthetic devices, the user is able to completely control their whole upper extremity from their hand, to the wrist, elbow and arm on their own. All the robotic arm does is amplify the weak muscle signals to aid in movement. The patient’s brain is the controller and the non-invasive sensors send EMG signal processing. There is an incredible amount of growth potential for Myomo. Sizing the market opportunity, there are over 800,000 new incidences of strokes per year. The trends in healthcare are fueling Myomo’s growth. The pool of patient candidates is expanding as the number of stroke incidences increases with the aging population and underlying health conditions. In addition, the U.S population is shifting from centralized to decentralized patient care. This means that people are moving from rehab clinics to at home use. Myomo’s revenue growth has grown over 100% for the past few years. In Q1 2021, their revenue growth was 132%. In addition, they are also emphasizing their growing Direct Billing channel, which is when the insurance company bills the insured directly and then the insured pays the insurance company. This resulted in a higher average selling price and higher gross margin per unit, which increased their revenue. In addition, their cash position as of 3/31/21 was $17.4 million. With lower expected cash burn in 2021 as revenues scale, they have sufficient cash without the need to access capital until well into 2022.

Stereotaxis ($STXS)

Stereotaxis ($STXS) is another publicly traded company that is focusing on surgical robotics. In 2020, they installed the first Genesis Robotic Magnetic Navigation (RMN) systems to treat heart rhythm disorders in Helsinki, Finland and Phoenix Arizona. RMN helps the robot be more precise and safe for cardiac ablations, a common minimally invasive procedure to treat arrhythmias. RMN is the process of using robotic technology to direct magnetic fields which control the movement of magnetic tipped endovascular catheters inside the chambers of the heart during cardiac catheterization surgeries. Genesis is a leap forward in the RMN field and represents the future of robotics in electrophysiology, by changing the magnets themselves. They have redesigned the magnets and the way they are manipulated to be smaller, lighter, faster, and more flexible. The Genesis RMN uses smaller magnets that rotate along their center of mass, which allows for extra responsiveness and increases physician control. With these improvements, the Genesis System is 70% to 80% faster than Niobe, another RMN system previously designed by Sterotaxis. The magnets in the Genesis system are held on flexible and rugged robotic arms which greatly increases the range of motion, which will enhance x-ray angulations. The smaller design also provides physicians and nurses with greater access to the patient and increased space in the labs for a more spacious work environment. The current share price for Stereotaxis is $9.69 as of 6/24/2021. The innovation behind this specific industry means that there the room for growth is practically infinite. There are over 5,000 electrophysiology labs performing cardiac ablation right now, which provides a market for robotic system sales. New clinical applications means there are multiple endovascular & endoluminal markets to be addressed that are each over $10 billion. 

 

Society is increasingly moving towards technology to be quicker and more efficient, and not to mention safer. Medical robotics are no exception. If people are willing to pay more for faster internet or a faster car, rest assured that the medical industry will be more than willing to spend a little extra money if it means they would be able to perform surgical procedures quicker. This is because the faster that they are able to perform procedures, the more volume they will accomplish which will quickly become profits. That is why the medical robotic industry will continue to grow and offer secure investment opportunities for the future. 

 

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ROCHE PHARMACEUTICALS: A BEHEMOTH FOR THE 21ST CENTURY?

By Dabin Im, Healthcare Analyst

 

Roche Holding AG ($RHHBY) is a healthcare company that has two divisions: pharmaceuticals and diagnostics. Under its pharmaceuticals division, members of the Roche group include Genentech (an American biotech – wholly owned affiliate) and Chugai Pharmaceuticals (Japanese biotech – subsidiary). Roche acquired Ventana Medical Systems, which provides cancer diagnostics, and controls Foundation Medicine, which provides genomic testing.  In 2020, Roche’s revenue was 64.66 billion USD ($49.37 billion from pharmaceuticals and $15.29 billion from diagnostics). It is the world’s largest biotech company with 39 pipeline medications in phase 3 for 50 indications, 4 medications filed for FDA approval, and 37 pharmaceuticals on the market (17 biopharmaceuticals). With a market cap of $326.31 billion and over 100,000 employees around the world, Roche is a leader in the healthcare industry. 

There are mixed opinions about whether Roche is worth investing in, especially for new investors. In 2019, three of Roche’s blockbuster cancer medications (Avastin, Herceptin, and Tarceva) came off patent. Their total lifetime sales in the US amount to $100 billion, which is a fairly large portion of Roche’s revenues. With these medications losing their patents, pharmaceutical sales in the US decreased by 6% the following year in 2020.  With more medications coming off patent in the near future, investors are worried about its growth potential and when it can develop new blockbuster medications to make up for the ones losing patent. However, by investing around 20% of its revenue back into research and development every year, Roche is always thinking ahead.  

Although oncology made up 52.4% of its pharmaceutical sales in 2020, Roche is continuously striving to diverse its expertise with various disease areas, such as oncology, neuroscience, infectious diseases, immunology, ophthalmology, cardiovascular, and metabolism. IDEA Pharma, a leading pharmaceutical consulting group, ranked Roche #1 in its 2020 pharmaceutical innovation index. Innovation is defined as the return on invention, which was mainly attributed to Roche’s medication, Tecentriq. In 2019, Tecentriq, was the first immuno-oncology medication to get FDA approved for triple-negative breast cancer and extensive-stage small cell lung cancer. These diseases were very hard to treat because triple-negative breast cancer is aggressive, spreads very quickly, and has a high recurrence rate. Small cell lung cancer is when cancer cells (tumors) form in the lung tissue. The late stage has a 5-year survival rate of 2%.  As an immuno-oncology medication, also known as cancer immunotherapy, Tecentriq improves the body’s natural ability to fight cancer by stimulating the immune system. In addition, Roche’s combination of Tecentriq and Avastin increased life expectancy rates for liver cancer patients. It decreased the risk of death by 34%, compared to the current standard of care. Roche’s multiple sclerosis medication, Ocrevus, significantly decreased the chances of wheelchair requirements through early treatment. Therefore, Roche’s medications not only prolong life expectancy but also increase quality of life.

Roche’s pharmaceuticals division goes hand in hand with its diagnostics division. With a quick, accurate diagnosis, patients are able to prevent, diagnose, and monitor the progression of various diseases. Knowing sooner rather than later can save so many future costs, such as CT scans and hospitalizations. For example, Elecsys s100 test is a blood test, which identifies a potential brain injury by testing for a certain protein after a fall. By ruling out a brain injury through a blood test, patients can avoid undergoing a CT scan, which uses radiation and can be harmful for their health. It not only detects potential brain injury but also can be used to help manage patients suffering from a type of skin cancer called malignant melanoma. 

Its diagnostics division rapidly grew over the past year, especially with 15 different solutions for COVID-19 diagnostic tests. Some may think that Roche Diagnostics will not be as lucrative once the pandemic is over. However, its advanced technology can be used to detect many other respiratory viruses and provide a variety of in vitro (test tube) tests in cardiology, hematology, oncology, women’s health and much more. From a simple blood test, healthcare providers will be aware of crucial labs such as blood sugar, cholesterol and other values that give an idea of how their kidney and liver functions are. Roche Diagnostics is also developing blood tests to diagnose cancer. FDA approved FoundationOne Liquid CDx, which is a liquid biopsy test by Foundation Medicine, which Roche has controlling interest in.

The following are the different disease states in which Roche Diagnostics comes into play:

In oncology (cancer), Roche Diagnostics already has about 350 tests, including a first-line diagnostic screening for a sexually transmitted infection called Human papillomavirus (HPV). In cardiovascular and infectious diseases, Roche has 35 diagnostic tests in each disease area including a test that diagnoses a heart attack the quickest. In neurology, Roche has three diagnostic tests and is currently developing blood-based test to measure markers for neurodegenerative diseases such as Alzheimer’s disease. In addition to the 20 tests in women’s health, Roche Diagnostics is developing more that measure markers for polycystic ovary syndrome and endometriosis. 

In addition to the approximate 400 other miscellaneous tests available for various diseases and conditions, Roche Diagnostics continues to innovate. Roche has spent on research and development since 2016, exceeding its total 2020 revenue, which proves that Roche will continue to innovate. 

The recommendation on this stock simply depends on the type of investor you are. If you are looking to make quick returns, this stock will probably not be the best for you. However, if you want a safe long-term stock and a dividend yield of around 3% without having to worry about it every day, then Roche is definitely worth considering. 

 

 Disclosure: The Sick Economist owns shares in Roche. 

 

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3 BIOTECH CATALYSTS FOR A BLAZING HOT SUMMER

By Owen Marino, Biotech Analyst

In the world of biotech, a company’s fortunes can change seemingly at the drop of a hat. The success of these startups, where many are putting all their eggs into the basket of a single revolutionary product, are constantly at the mercy of regulatory authorities such as the FDA. A single event such as the announcement of a product or results of a round of testing can drive stocks up or down exponentially, in the worst case scenario causing some companies’ stocks to lose well over half their value in a single morning. It is essential for any informed investor to understand stock catalysts – these events that have the potential to spur a jump in stock price – and to use them to their advantage in equity investing.

As we move towards the dog days of summer and the worst effects of the COVID-19 pandemic begin to fade into the rear view mirror, a few early-stage biotech companies in particular have upcoming events that investors should be aware of as potential catalysts for a big swing in the price of these stocks. Doing your research can pay off if you buy early and positive news about a company causes its stock to blast off. Buyers should keep their eyes on these three events in between their beach visits and post-COVID get-togethers this summer:

 

1). 4D Pharma ($LBPS)

The first of these stocks to watch is 4D Pharma (NASDAQ: LBPS), which is scheduled to be a lead presenter at the Microbiome Movement Drug Development Summit this upcoming Thursday, July 1. The Leeds, United Kingdom-based startup focuses specifically on the use of Live Biotherapeutic products, or LBPs, to treat different diseases. LBPs contain live microorganisms, commonly referred to as probiotics, that aid the body’s immune system in fighting and preventing a number of conditions. Organisms such as bacteria and yeasts that are naturally found in human beings are essential for things such as gastrointestinal and skin health, and are now being studied more heavily by companies such as 4D for their preventative benefits. The company, regarded as a pioneer in the field of biotherapeutic development, has a number of treatments that have already been approved for clinical testing, and it recently announced a partnership with non-profit organization Parkinson’s UK for the development of treatments related to conditions of the Central Nervous System. Among 4D Pharma’s promising developments, which are all created at its own independent cGMP-certified lab, are a phase I/II studies of MRx0518 for pancreatic tumors, a phase I/II study of MRx-4DP0004 for patients with asthma, and a remedy for IBS that has completed two stages of clinical trials. The company’s treatment for pancreatic cancer, which is being tested in collaboration with immunotherapy medication Keytruda, is currently seen as its most promising for successful approval in the coming months. Using samples of gut bacteria isolated from healthy human donors, the drug has shown effectiveness in late stage cancer patients to reverse failures in the protein PD-L1, which acts as an immune system “brake”, in order to prevent the body from killing off healthy cells in an effort to destroy cancerous ones. “In our initial population of 12 patients with growing tumors, some of whom had received seven or eight different prior treatments, five had durable responses to MRx0518 in combination with Keytruda,” said CEO Duncan Peyton in October 2020 when discussing the treatment’s potential. “That was a fantastic result and we’re excited to conduct later stage trials, with an approval next year potentially on the cards.” The company, to be represented this Thursday by development director Christophe Carite, will have a chance to share its upcoming strategies to expand production and address questions about its pipeline process at a subsequent microbiome manufacturing Q&A panel. Investors should keep an eye on this week’s event as a way to gauge the company’s current capabilities, as well as its products’ potential moving forward.

2) Alector ($ALEC) 

Another stock with major news to follow in the coming months, especially with the recent news of Aducanamab’s FDA approval, is clinical stage company Alector (NASDAQ: ALEC), which focuses specifically on finding cures for neurodegenerative diseases such as Alzheimer’s. In particular, the company focuses on immuno-neurological solutions, which center around dysfunction in a person’s immune system as the main cause of neurological disorders. Alector has multiple treatments currently undergoing clinical trials and is scheduled to present updates at a number of upcoming events, including the Alzheimer’s Association International Conference (AAIC) from July 26-30th. The main focus for Alector at this summer’s conference will be presenting data from its current open-label study on AL001 as the drug continues to move from phase 2 into phase 3. AL001 is a drug intended to treat frontotemporal dementia that is caused by specific mutations in the progranulin gene (GRN), which accounts for nearly 10% of FTD patients. At last year’s conference, Alector announced that preliminary phase 2 trials had resulted in sustained restoration of plasma progranulin levels in all FTD-GRN participants back to normal range, paving the way for potential phase 3 clearance if the results released this July continue to show a positive progression. Similar to the Biogen-Sage collaboration for the production and development of SAGE-217, Alector has been working on their product in tandem with pharmaceutical stalwart Abbvie, for which the former is eligible for milestone payments of up to $986 million if it is successful in exercising options. This factor makes the effects of the results announced this summer that much more magnified as another instance of a major company putting substantial assets into a startup product in its clinical stages. In addition to announcements about AL001 testing and continued patient enrollment in studies on the drugs, the company will also detail plans for upcoming phase 1 as well as results of phase 1b trials for AL002 and AL003, two drugs specifically intended to treat Alzheimer’s, respectively. Like AL001, AL003 has also been developed over the course of the past year in collaboration with Abbvie.

3) Cara Therapeutics ($CARA) 

The final stock investors should keep an eye on as the summer winds down is Stamford, Connecticut-based, clinical-stage business Cara Therapeutics (NASDAQ: CARA), which has a PDUFA date for the approval of Korsuva set for the 23rd of August. Korsuva, the company’s crown jewel, is an injectable medicine used to treat pruritus. This condition, otherwise known as chronic itchiness, can be caused by a number of milder factors such as sunburn, skin rash, and general irritation. Cara’s drug however, is aimed specifically at managing pruritus that accompanies advanced chronic kidney disease, or CKD. Research suggests that this side effect of the disease, known as CKD-aP, affects somewhere between 20-40% of CKD patients, becoming more prevalent as the patient’s disease reaches the end-stage. Pruritus related to CKD is characterized by daily bouts of itching, redness of the skin, and localized irritation of the back, abdomen, and arms. Most patients also report their symptoms to be worse at night than during the day. While the company’s most notable treatment, Korsuva Injection for Pruritus-CKD-HD, is only awaiting New Drug Application approval from the FDA, it also has a number of other iterations of the drug, including oral variations for pruritus caused by Atopic Dermatitis (AD), Notalgia Paresthetica (NP), and various chronic liver conditions. Each of these treatments have passed phase I and III of clinical testing, with the majority currently in the second stage. 

With clinical trials having been highly effective and generally well-tolerated by test patients, Cara is on the cusp of a major breakthrough not only in the novel treatment of a disease, but in the profitability of its company. Commercialization, which could come as a result of a late-August approval, would allow the company to collect revenue from the distribution and sale of its product for the first time. This is the ultimate checkpoint that biotechs, especially companies with one flagship medicinal development, must pass through if they want to survive and advance in the industry. However, investors should keep in mind that, if given the green light, Cara would split profits from the drug’s sale with Vifor Pharma as a result of an October 2020 agreement that netted Cara $100 million in funding upfront, and $50 million in equity investments. The deal gives the former a 40% stake in revenue from Korsuva’s commercial sales, and expands upon an initial research and development agreement signed by the two companies back in 2018. 

 

With so many unknowns in the nascent world of biotech, prospective investors have to be on the lookout for specific catalytic events such as press conferences, read outs, and product development announcements that will play a role in the fate of individual companies. Monitoring these three upcoming events can give interested parties an idea of what to look for so that they can begin to recognize these crucial developments on their own.  

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A CHAMPION OF DRUG DISCOVERY?

By Tammy Tran, Biotech Analyst

 

Champions Oncology ($CSBR) is a technology company that combines innovative pharmacology, biomarkers, and data platforms to transform drug discovery. They were recently founded in 2007 where they began researching solid tumors and launching their TumorGrafts platform using patient-derived xenograft models (PDX Models). PDX models are when pieces of a patient’s cancerous tumor is implanted into an immune deficient or humanized mouse. These are extremely useful in tumor biology, because it allows you to observe the natural progression of the cancer and offers the most research for efficacy information. Champions’ TumorGrafts were created by extrapolating a live sample of the tumor of a cancer patient and implanting it into a mouse, creating a mouse avatar. Once the tumor began to grow, it was propagated into a second generation of mice and tested against various cancer drugs and drug combinations to determine the best treatment plan for a specific patient. These mice avatars help test which drugs would be ineffective or even harmful for the cancer patient, without directly having to test on the patient. 

Then in 2015, Champions Oncology launched their ImmunoGraft Platform. The ImmunoGraft Platform combined their TumorGraft patient-derived xenograft (PDX) models and humanized immune system mice, created by “inoculating human hematopoietic cells into immunodeficient mice”. Although that sounds a little complicated, hematopoietic cells are just cells that come from the blood or bone marrow that can develop into all types of blood cells, including red, white and platelets. Another term for these are called blood stem cells. And then immunodeficiency is a state in which the immune system’s ability to fight infectious diseases and cancer is compromised or absent. Therefore, these humanized immune system mice were created by injecting these blood stem cells into mice with a compromised immune system. Then implanting the TumorGrafts that were discussed earlier into these humanized immune system mice creates a tool that allows the researchers to evaluate and examine the mechanisms of actions of various cancer therapeutics that affect the human immune system. 

Soon after in 2016, Champions Oncology launched both their HemOnc PDX Platform and their Syngeneic & Cell Line Platform. The HemOnc PDX platform models hematology oncology malignancies for both acute lymphocytic leukemia (ALL) and acute myelocytic leukemia (AML). ALL is a form of acute leukemia (acute leukemia means that the disease grows quickly) that begins in cells that become lymphocytes- white blood cells that play a vital role in your immune system. AML is the other form of acute leukemia, which begins in early myeloid cells (important defender cells against infection in the mammal immune system) that become white blood cells, red blood cells, or platelet-making cells. The HemOnc PDX platform collects samples from AML and ALL patients to engraft into the humanized mice. In addition, this platform also models patient populations as their cancer progresses by collecting blasts from patients. Both of these approaches are advantageous because they allow to model large numbers of mice across an established patient sample group. 

It is important to notice the milestones that Champions Oncology has taken as a business. As soon as Ronnie Morris (MD, and a founder of MDVIP- the national leader in personalized healthcare) and Joel Ackerman (successful leader of Warburg Pincus- private equity investment firm) joined the company in 2011, they took the information from their past laboratory data and turned the company in a whole new direction. In 2012, the company made a strategic decision to aggressively grow their biology and computational database. This is a large change from before, since prior to this, they were mainly focused on laboratory work and biological research. By 2015, their data bank was able to reach 1,000 models and launched their immuno-oncology (IO) platform in 2016. The IO platform allows researchers to test their cancer therapeutics in a 3D organoid assay that can mimic the mechanism of action.

By 2018, they were finally able to reach profitability. Ever since then, their company has been using their profits to continue expanding. The oncology market alone continues to soar. According to their investor presentation, the oncology market will double between 2019 and 2024. The oncology contract research organization (CRO) market is expected to reach $44 billion by 2021. A CRO is a company that provides support to the pharmaceutical, biotechnology, and medical industries in the form of research services outsourced on a contract basis, which is one of Champions’ primary goals, is to outsource tests and laboratory services through their large research background. So, if Champions Oncology is to be able to turn even 10% of that market into revenue, they can expect to see over $4 billion in revenue. This is just limiting their market to specifically oncology services. If you continue to expand their market to other groups that are applicable to them, their revenue has the potential to increase even more. For example, the oncology market (not oncology CRO) is expected to be $175 billion and the pharma market is $725 billion. This is a huge growth opportunity for Champions Oncology, if they continue launching additional platforms and expanding their company. If you look at their financial statements, you can see that they are generating a 20% year over year revenue growth. However, their trailing P/E ratio is N/A and profit margin is still in the negatives. This means that all of the money they are making is being put back into the company for continued growth and expansion, and that investors are predicting high forward P/E ratios for the future. Another important thing to note is how they are using data and software to continue their growth, which is a large pivot from strictly laboratory testing. If successful, pushing themselves as a software company means that the stock prices will continue to increase. 

A huge milestone in this direction is that “Champions Oncology and BGI Americas Announce a Strategic Partnership to Provide Mass Spectrometry Proteomics, Metabolomics, and Multi-omic Data Analysis Solutions”. Through this partnership Champions Oncology will leverage BGI’s mass spectrometry services in California to offer additional biomarker discovery and validation solution, and continue expanding their PDX bank with even more data sets. By partnering with each other, both BGI and Champions will be able to provide their customers with an efficient workflow from generating data, to analysis, and then to interpretation to address the needs of drug discovery and development projects. 

Another new innovation that Champions Oncology is working on is the Lumin Bioinformatics. According to their website, “Lumin is a revolutionary data interpretation software capable of analyzing proteomic, genomic and transcriptomic datasets in real time”. This software has the ability to provide scientists with additional understanding and awareness into the drug discovery. Champions Oncology plans for Lumin to continue integrating new data into the platform. Most recently, they integrated data from the Acute Myeloid Leukemia (AML) model along with cell surface and phospho-proteomic datasets. Essentially with Lumin, you will be able to upload your pharmacogenomic data onto this platform. Then, the software will be able to build signaling pathways and analyze the datasets. It can also determine clinical drug responses and PDX model responses. Using Lumin, you can also perform correlative and causative analysis on your data to further aid understanding. This platform has the potential to continue expanding to even more data such as machine learning models, plate maps and protein-protein interaction maps. All of these capabilities should radically accelerate the drug discovery process for clients, saving them time and money over more traditional discovery methods. 

Both the research and development industry and the data analytics/software industry are bright prospects for the future. By combining both of these together, there is so much growth potential for Champions Oncology and one can predict that they will continue growing and expanding in both markets. The innovations that they create will have the ability to transform the oncology market. 

 

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IS ILLUMINA WORTH THE RISK?

By John Kehoe, Equity Analyst 

 

When searching for potentially rewarding investments within the biotech industry, it is helpful to consider companies that are capable of exploiting a window of exclusivity with their products that helps to limit their competition. This desire to limit competition applies in virtually all aspects of American enterprise, but it is especially significant in the biotech and pharmaceutical industries because patents and windows of exclusivity are extremely common with the approval of new drugs and medicine. Some companies strive to limit their competition even further by purchasing the suppliers of their rivals, and seizing control of multiple layers within their market sector. The FTC (Federal Trade Commission) enforces antitrust laws and policies that prohibit companies from manipulating the market through the use of monopolization tactics such as the methods just described, yet corporations still attempt to work around these laws.

A recent bout between the FTC and a U.S life science company, Illumina ($ILMN),  has investors confused about the company’s future. Illumina has announced its intention to complete an $8 billion merger with one of its “suppliers”, Grail, and the FTC is concerned that this potential merger is likely to affect the ability of other companies’ to continue their research and development in blood testing while still using Illumina’s services. If Illumina were permitted to merge with the healthcare company Grail, any other company that manufactures blood tests requiring genetic sequencing from Illumina would be left out of the transaction and Grail would be the only provider of these tests. The approval or dismissal of this merger will greatly impact the future value of Illumina’s stock. 

Illumina

Illumina has found much of its recent success through its involvement in genomic sequencing, more specifically NGS (Next-Generation Sequencing). Sequencing can be used to determine “the order of nucleotides in small targeted genomic regions or entire genomes”, and it is extremely valuable in the research and diagnosis of diseases. In simple terms, DNA is extracted from a patient’s blood and analyzed in a machine in order to determine the differing sequences of nucleotides. This can help identify certain variants that could be important for one’s medical care. This process can be used for cancer research, microbiology research, complex disease research, and in the study of reproductive health. Genome sequencing was even used to help explain the spread of Covid-19 and will likely be used in the development of further treatments. Sequencing is continuing to grow in importance as new cancer cases are expected to reach 24 million by 2030 and NGS has the potential to change the future of oncology and provide patients with personalized medicine.  

Illumina completely dominates the sequencing industry as their “instruments and consumables make up over 75% of the market”. This market dominance allowed Illumina to report $3.239 billion of total revenues during the 2020 fiscal year. As the use of sequencing will likely increase in the future, the world’s leader in DNA sequencing technology will presumably see great returns in the future, but Illumina has their sights set on an even greater goal. 

Grail

Grail is a biotech company that was founded in 2016. Its goal is to develop an early cancer screening test and establish new technologies for cancer detection. It ironically was created by Illumina and other investors in 2016, but in 2017 Ilumina’s ownership in Grail was decreased to under 20% after private investors put forth over $1 billion. Since their partial departure from Illumina, Grail mainly has worked towards the development of their product Galleri. Galleri is a first-of-kind multi-cancer early detection test. Grail has made great strides in the development of this test and, as of June 2021, has begun selling its multi-cancer blood test in the U.S. This test takes advantage of a massive market and has enormous potential to grow its company. This undoubtedly promising future is what led Illumina to offer $8 billion to re-acquire Grail in September of 2020.

Trouble with the FTC and EC

The merger between Illumina and Grail has been halted by the FTC, which has filed an administrative complaint and authorized a federal court lawsuit. The FTC claims that this potential acquisition would diminish innovation and efforts by other cancer-test makers, thus lowering the eventual quality of these tests resulting from the lack of competition. 

A key aspect of any blood-based screening test (MCED) is a sequencing platform that can be used to analyze these tests. If Illumina were to be the sole owners of both the only MCED test and the dominant sequencing platform, no other company would have any incentive to develop an improved test. The FTC describes this in their complaint by stating,” As the only provider of a critical input into MCED tests, Illumina possesses multiple means of foreclosing or disadvantaging rivals to Grail”. 

This lawsuit has turned into a long and convoluted affair. After the FTC’s original complaint and lawsuit, the European Commission also launched an investigation into this acquisition. This spurred a response from Illumina to sue the European Commission to stop their investigation on the grounds that they have no jurisdiction over Grail because Grail has no business activity i Edit Edit date and time n Europe. While both the issues concerning the European Commission and the FTC remain unresolved, investors are uncertain about the future of Illumina and its potential ROI. 

Is there still value?

Illumina’s share price gradually has increased over the past year with slight dips during the times when lawsuits were waged. When considering investing in Illumina, the question at the forefront of one’s mind must be whether the merger between Illumina and Grail will be approved. Sadly, this result will take more time as both the FTC and EC must come to an agreement, and the trial with the FTC is set to begin on August 24, 2021.  It would be very difficult to predict the outcome of this lawsuit with complete accuracy, but it is worth noting that the FTC is unable to wage a monopoly-seeking case and instead has to rely on the complaint that this merger stifles innovation. This will likely be difficult to argue in court due to the fact that all MCEDs are still in a pre-launch phase. That being said, it is still a gamble to assume the court will lean one way or the other.

 

Although the risk of Illumina’s inability to merge with Grail obviously is an important investment consideration, the massive upside that exists if Illumina wins the approval of this merger is quite significant. This merger would increase Illumina’s portfolio and their total addressable market. It would grant them firm control of the NGS oncology industry for the foreseeable future, which is expected to grow at a CAGR (compound annual growth rate) of 27% to $75 billion in 2035. Illumina also has plans to, “leverage its global scale, manufacturing and clinical capabilities to support GRAIL’s commercialization efforts”, which would further increase the total addressable market for these products. 

Also, even if Illumina is unsuccessful in completing its acquisition of Grail, it still should be a relatively low risk investment. The entire reasoning behind the current lawsuits and investigations by the FTC and European Commission is due to Illumina’s utter dominance in the NGS industry. The market size of Next-Generation Sequencing is projected to grow at a CAGR of 19.2% until 2026. Illumina is the clear favorite to dominate this market sector and should see gradual growth regardless of the outcome of its trials.

 

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VERTEX PHARMACEUTICALS: CYSTIC FIBROSIS & BEYOND

By Dabin Im, Pharmaceutical Analyst

 

When you think of Vertex Pharmaceuticals, ($VRTX)  the first thing that probably comes to mind is cystic fibrosis (CF). CF is a rare disease where there is a mutation in a gene called CFTR. This prevents water from flowing in and out of the cells, which is a big problem because our bodies have to secrete fluids, such as sweat and mucus. Because these fluids cannot leave the body, tubes and passages get clogged. CF leads to severe damage in the lungs and other organs, such as the intestines and pancreas. Also, CF patients have stiff and hard mucus in their lungs, which becomes a breeding ground for bacteria and leads to many different lung infections. 

Vertex created four life-changing medications that help fix the true underlying problem of CF. Other treatments do not treat CF and just help ease the symptoms and complications. To discover the medications that were once thought of as impossible, scientists threw little molecules at proteins with the CFTR gene mutation. After persistent trial and error, these small molecules became bound to the defective protein and fixed it. 

The difference between the four CF medications that Vertex has is that they are different molecules that work for different people. These medications are currently Vertex’s only source of revenue. Even though Vertex definitely found its bread and butter, that does not mean that Vertex is a one trick pony. In fact, it currently has 18 pipeline medications, intended to treat eight conditions, in its pre-clinical and clinical development stages. 

 

Future Potential (Pipeline)

 You may think that Vertex already happily reached its highest point, hence the name vertex, with cystic fibrosis. Not so fast. Vertex is continuously trying to grow and expand its triangle, with over 70% of operating expenses spent on research and development of new drugs. 

One of its most promising pipeline medications right now is CTX001, which is in phase 1/2. This medication is intended to treat sickle cell disease and beta thalassemia. These two conditions are very similar in that they are both affect red blood cells and their ability to deliver oxygen throughout the body. The difference between the two is in the ‘hemoglobin’. Hemoglobin is the protein in the red blood cell responsible for carrying oxygen. In sickle cell disease, the gene mutation makes defective hemoglobin, so it changes the cell shape and cannot function correctly. In beta thalassemia, the gene mutation leads to a decreased production of hemoglobin and, therefore, a lack of red blood cells.

Vertex is collaborating with CRISPR Therapeutics ($CRSP), a biotech company that specializes in gene editing. There are two different types of hemoglobin: fetal hemoglobin made in the womb and adult hemoglobin made a few weeks after birth. With this medication, they are trying to trick the body into keep making fetal hemoglobin because these gene mutations are in the adult hemoglobin. There is no functional difference between fetal and adult hemoglobin. In fact, fetal hemoglobin binds to oxygen more firmly than adult hemoglobin does. Through gene editing, this medication is being tested to be used as a one shot cure.  

Five promising medications are currently in phase 2 clinical trials. Although FDA approval will not happen overnight, they are definitely worth the wait because they target specific populations with very high demand.  

Obstacles 

Vertex is not a regular biotech company. With a market cap of $48.76 billion, Vertex is huge for a biotech company. Vertex completely took over treatment for a condition and does not have any competitors that provide the same value. However, this could be a double-edged sword. When companies do not have any streams of revenue (e.g., from an approved medication), the stock price is based on the hypothetical value that the company can bring in the future. However, once they do have streams of income, it is hard to determine how much impact the next milestone will have. Vertex has proven itself, so it is hard to crunch the numbers and predict what it would take for its stock price to double or even triple. Therefore, Vertex is facing a middle age crisis. 

The same achievement will not have the same impact on a large company as a small company. For example, Pfizer (NYSE: PFE) and Moderna (NASDAQ: MRNA) both successfully got their COVID-19 vaccines approved and sold billions of doses. Pfizer is one of the biggest pharmaceutical companies in the world, whereas Moderna was relatively a small biotech company prior to approval. Over the past year, there was much anticipation leading up to their approvals, and after they finally got FDA approved, they reaped the profits. Moderna’s stock surged 320%, from its 52-week low at $54.21 to its 52-week high of $227.71. On the other hand, Pfizer’s stock went up 44%, from its 52-week low at $29.94 to its 52-week high at $43.08. Pfizer collaborated with a relatively small biotech company at the time, BioNTech SE (NASDAQ: BNTX). Although they worked together to launch the same product, BNTX’s stock price surged 407% from its 52-week low at $49.83 to its 52-week high at $252.78. When a new medication is approved, the return on investment will not be as big for companies that are already well established.

Opportunities for growth 

The good news is that Vertex still has plenty of more room to grow. Vertex’s medications has the potential to treat up to 90% of all CF patients. The rest has to be treated with gene therapy, which is also being researched by Vertex. However, only half of CF patients are being treated by Vertex’s medications due to the following reasons, mostly in other countries: lack of reimbursement, awaiting approval and younger ages not being yet approved. In a perfect world, all patients with CF would be treated with Vertex’s medications because they help fix the root of CF. If this were the case, then Vertex’s revenue would nearly double. 

You may think, “Wouldn’t other companies try to sell cheaper generic versions of Vertex’s medications? Then wouldn’t its revenue drop?” While that is true, it is not in the near future. Vertex’s triple threat main medication, Trikafta, has a patent that expires in 2037. The rest of the medications’ patents expire in 2027 (Kalydeco and Symdeko/Symkevi) and in 2030 (Orkambi). Vertex has quite a bit of time until investors should start worrying. 

Addressing the Dips 

Over the past year, the stock price of Vertex Pharmaceuticals (NASDAQ: VRTX) has dropped 39%, reaching its 52 week high at $306.08 on July 20, 2020 and reaching its 52 week low at $185.64 on June 17, 2021. The catalysts for these dips were dropping two pipeline medications. 

However, it’s important to keep in mind that Vertex still has 18 other pipeline medications. On average, only 0.02% of medications go all the way from the lab to the market. In addition, about 10% of drugs that enter clinical trials get approved by the FDA. To expect all of Vertex’s pipeline medications to get FDA approved is on the borderline of wishful thinking and just silly. 

Balance Sheet

At the end of the day, a company has to have strong finances for its medications to be out on the market successfully, regardless of the value it brings to patients. With that being said, Vertex’s balance sheet is amazing. In fact, Vertex could even pay off its debt of $931 million with its $6 billion in cash today if it wanted to. With a five-year average revenue growth of 43.15%, its revenue is expected to increase even more by 10.73% in 2022. Its Price to Earnings (PE) ratio is currently at 17.91. In general, profitable biotech companies have a PE ratio range from 25 to 40. Because Vertex’s PE ratio is below that average, it means that its stock is undervalued in comparison to how much it earns. From its gross profit margin of 88.14% and operating margin of 51.26%, it is safe to say that Vertex is very profitable. Out of the $100 dollars that Vertex makes in revenue, $88.14 is left after subtracting the direct costs (e.g., direct labor and materials) associated with making the product. When the variable operating expenses (e.g., employee salaries, marketing, and facility costs) are also subtracted, then $51.24 is what Vertex gets to keep. 

A Profitable Opportunity? 

Because Vertex Pharmaceuticals focuses on treating rare diseases, it will take time to develop new medications. There is a reason why these markets are unsaturated. It is that much harder to develop treatments. But once it is out on the market, it can save people’s lives. Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Right now, buying Vertex Pharmaceuticals (NASDAQ: VRTX) would be buying a wonderful company at a wonderful price. 

 

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THE ORPHANS IN YOUR PORTFOLIO

John Kehoe, Biotech Analyst

 

The development of drugs and medicine can be a long and an expensive process for the companies and investors involved. This process involves numerous steps and tests in order to ensure that the drug is clinically proven to be effective and safe for the general population. It only makes sense that any company involved with this arduous process would like to sell its product to a large customer base in order to recover some of the funds they have invested into the drugs development. This assumption runs into trouble when a drug is developed for a disease that affects a small population of people. It would make little sense for a company to devote its money and resources towards developing a drug for a rare disease if they are only able to sell it to a select few people. In order to alleviate some of this risk, the U.S passed the Orphan Drug Act in 1983 to stimulate the development of drugs for these rare diseases. This legislation helped provide incentives to develop these kinds of drugs by offering premium prices for these products, decreased marketing costs, tax breaks, and even the potential for reimbursement if the market for the drug were to disappear. There is also an extended period of exclusivity for these drugs for 7 years after FDA approval which is two years longer than the exclusivity window of 5 years for other drugs. Following the approval of the Orphan Drug Act, there has been a rapid increase in the production of these drugs over the past 40 years. 

Orphan drugs now have huge potential for profitability and this portion of the market is being attacked by both smaller biotechs and Big Pharma companies. After developing an orphan drug, the company has the ability to set a high price for their product and develop a strong and loyal reputation among their patients and health care providers during their period of exclusivity. Some of the most expensive drugs in the United States are classified as Orphan Drugs and the companies that are developing these drugs are seeing massive success. While much of the focus surrounding these orphan drugs is centered around the large price, it is necessary to consider the benefits that these drugs present to society as a reason for these high prices. Many orphan diseases, while targeting a small group of victims, are extremely deadly and debilitating. Developing a cure for these diseases gives many people a second chance at life and should be valued greatly. 

Alexion Pharmaceuticals

One of these companies that is seeing massive returns on their investment in orphan drugs is Alexion Pharmaceuticals ($ALXN). The most expensive drug in the United States is an orphan drug. This drug, Soliris, treats paroxysmal nocturnal hemoglobinuria and is developed by Alexion Pharmaceuticals. The drug costs more than $400,000 for a year of treatment per patient. This expensive price may seem unjustified, but prior to the development of treatment, patients with PNH had a life expectancy of 10 years after their diagnosis. Now, these same patients can live without the dramatic daily effects of this disease and live a much longer life. Soliris has accounted for approximately 63% of Alexion’s total 2021 first quarter revenue and it alone is enough to bolster Alexion into a biotech giant. Alexion’s share price has steadily increased over the past year and that is likely due to the developments of another orphan drug called Ultomiris.

Ultomiris treats the same disease, paroxysmal nocturnal hemoglobinuria, but as of June 7, 2021 it is the first and only medicine that is approved to treat children and adolescents with PNH. This is obviously great news for any investors in Alexion as they will have exclusive access to the portion of the market due to the medicine’s orphan drug classification. Alexion is an extremely profitable operation but is looking towards Ultomiris for its future growth. In the past year, the revenue produced by Soliris did not increase and was at 0%. In that same year the revenue that Ultomiris produced increased by 56% (from 223 million to 347 million). This growth will likely increase due to the recent news of Ultomiris’s ability to treat children, making it a catalyst for future growth. 

Both of these orphan drugs that are being produced by Alexion are also benefiting from relatively low development costs and expenses when compared to the hefty price tag for which they are sold. In the first quarter of 2021, Alexion recorded a 39% operating margin (GAAP), leaving them with large amounts of cash for future developments. It seems as if Alexion Pharmaceuticals is set for a luxurious future as they continue to improve their value-creating pipeline through the sale of orphan drugs.

Vertex Pharmaceuticals

Similarly to Alexion Pharmaceuticals, Vertex Pharmaceuticals ($VRTX) has found great success in its treatment of a particular disease through the use of orphan drugs. Vertex is the clear leader when it comes to the treatment of cystic fibrosis. Prior to the development of treatment, cystic fibrosis was an extremely fatal disease. This disease causes severe damage to the lungs and can make life extremely uncomfortable and difficult for those infected. Vertex’s role in the development of drugs that combat CF has completely changed the narrative surrounding this disease. It already has three approved drugs (all of which are orphan drugs), Kalydeco, Orkambi, and Symdeko, which treat this disease and provide the company with massive profits in return for this incredible treatment. These three drugs are all able to reap the rewards of orphan drug status and are therefore generating revenues of more than hundreds of millions of dollars each, but Vertex’s most popular drug is Trikafta, another cystic fibrosis treatment. In the first quarter of 2021, Kalydeco, Orkambi, and Symdek all saw decreases in revenue, while Trikafta’s revenue increased by 33% when compared to last year. This awkward product performance has caused dips in Vertex’s share price but this will likely change after recent news concerning Trikafta.

Vertex’s most popular drug, Trikafta, has just been approved for use in children ages 6-11 after previously being restricted to children and adults ages 12 and older. Eerily similar to Alexion and Ultomiris, this opens up an entirely new target population and will greatly benefit the company as they can provide services to this exclusive market. Unsurprisingly, Vertex has an incredible operating margin of 51% (GAAP) due to their production of orphan drugs and is doing a very good job at capitalizing on this growing market and its product’s high prices. 

Vertex Pharmaceuticals has built its reputation and wealth on the backs of the orphan drugs that it has developed. These drugs may have never been produced if they had not been granted status as orphan drugs and allowed for this company to take a risk on its success. Trikafta is not only used to increase the life expectancy of people with CF, but it changes the way they can live their everyday life. One patient described their experience with Trikafta as giving her, “Deeper breaths to having more time and energy to lay on the floor and play blocks with my daughter”. The relaxed expenses and facilitated development period have increased Vertex’s profits and disposed of much of the potential competition, and their product has saved the lives of many people. This is a company that will likely see increases in their stock value in the near future so long as their developments with Trikafta continue to attack this niche market. 

Provention Bio

Not all orphan drugs are developed by hugely successful biotechs that have a history of success in this lucrative industry. Many of these drugs are in Phase 3 of development and are awaiting their clinical research and trials. It is easy to focus on the monstrous successes and high profit margins within the orphan drug industry, but there is also a tremendous amount of risk that goes along with developing these rare disease drugs.

 A company’s stock can skyrocket or plummet depending on rulings and decisions given by the FDA on one drug. An example of this financial dependence on one drug can be found in Provention Bio Inc. which is a biopharmaceutical company developing novel therapeutics aimed at intercepting and preventing immune-mediated diseases. In 2018, Provention Bio ($PRVB) purchased a drug that had issues achieving FDA approval in an attempt to pick up the pieces and develop it into a functioning medicine. This drug, Teplizumab, is an orphan drug and thus receives all of the market benefits necessary to become a blockbuster medicine. Teplizumab helps treat, prevent, and delay the diagnosis of type 1 diabetes.

Prevention Bio’s journey with this drug has been a rollercoaster. After continuing its development and making improvements in order to get FDA approval, PRVB has seen its price increase for roughly two years while showing occasional dips (most likely due to the uncertainty surrounding the approval of Teplizumab). In April of 2021, Provention Bio suffered a substantial dip in their share price due to the filing of a class action lawsuit against their company. They are being accused of failing to disclose that: “Provention Bio’s teplizumab BLA (Biologics License Application) was deficient in its submitted form and would require additional data to secure FDA approval” and that they “lacked the evidentiary support Provention Bio had led investors to believe it possessed”. This led to a 27% drop in the share price. The sizable repercussions of the filing of this lawsuit demonstrates the effect that one drug can have on a company’s ability to succeed. 

Luckily for Provention Bio, there is some light on the horizon. On May 27th the FDA held an advisory meeting to review Provention Bio’s BLA for Teplizumab for the delay of clinical type 1 diabetes. This meeting went very well as the agency stated that Teplizumab “successfully demonstrated the treatment effect of teplizumab in delaying T1D diagnosis in at-risk relatives of T1D patients for a median time of approximately 2 years”. The treatment, like most orphan drugs, will likely be expensive but it will help people avoid the effects of a life altering disease. This news has investors excited and has caused the stock prices to slowly increase. Given that this drug is able to continue to pass the final stages of approval, Provention Bio will likely see sharp increases in value in the foreseeable future, all due to the success of a single orphan drug. 

Finding a Home for Orphans

The orphan drug market has become one of the more profitable areas of the biotech industry. The amount of orphan drugs approved by the FDA has increased each year during the past two decades. Companies are desperate to find ways to classify their medicine as orphan drugs in order to take advantage of the massive benefits that this classification gives. If a medicine treats a rare disease (defined as those affecting fewer than 200,000 people in the U.S) it is no longer considered an unnecessarily precarious investment. Searching for companies with potential orphan drug catalysts in their future is an intelligent way to identify stocks within the biotech industry. 

 

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BIOGEN’S UNLIKELY COMEBACK IS HERE

By Aidan Asbil

 

Biogen ($BIIB) has been a rollercoaster ride with many ups and downs for the company’s investors. However, things were looking especially grim for Biogen in recent years with multiple sell-offs of the stock. The company’s flagship Sclerosis drugs that were once market dominators, began to lose market share as competition grew and consumers gravitated towards both branded and generic rivals. Biogen hoped Spinraza, their drug for spinal muscular atrophy, would be a growth story, but the drug has so far had disappointing growth in sales. With a disappointing pipeline and overall revenue plummeting things were looking rough for the future of the company. All that was left for Biogen was getting FDA approval for their controversial Alzheimer’s drug aducanumab. It was unclear if the drug would get FDA approval, with a board of FDA advisors heavily suggesting against it. In an unexpected turn of events, the FDA surprisingly approved aducanumab saving Biogen’s financial future. With that being said, Biogen’s road to making the first Alzheimer’s drug was met with many struggles along the way. 

The Road to Biogen’s First Product

Biogen was founded in 1978 by a small group of visionary scientists, making it one of the oldest biotech companies in the world. A group of accomplished scientists and three venture capitalists gathered in Geneva, Switzerland, to make a new pharmaceutical company with an emphasis on breakthroughs in biology. This would become the origin of what we now call biotech companies. As a pioneer in the biotechnology industry, Biogen was destined for great things with two of its founders Walter Gilbert and Phillip Allen Sharp receiving Nobel Prizes in 1980 and later in 1993. With so much promise the company decided to IPO in 1983 becoming one of the first biotech companies to do so. Despite the promising research, the company had no actual products and was burning through cash. In 1985, the company hired James L. Vincent, an accomplished healthcare executive, to become their president and CEO of the company. Vincent sought to change Biogen for the better, but in order to accomplish his vision, the company would have to go through drastic changes. Biogen was burning through cash quickly and with no products, raising more money would prove to be very difficult. Vincent knew the company needed to focus its efforts on making a product and to do so meant getting rid of the majority of their research projects. Biogen cut or sold 85% of its projects and shrank the company from 500 employees to 225. While painful at the time, these crucial changes would set up the company for greatness. With new deals signed with Merck, Smith Kline Beecham, and Abbott for the use of patented Biogen discoveries in hepatitis vaccines, Biogen’s royalty income increased from just $1.7 million a year in 1986 to  $150 million in 1996. Vincents drastic changes paid off, but now it was time for Biogen to change the landscape of Biotech with their first product. 

In 1993, with no other effective treatments for multiple sclerosis available, the FDA approved the controversial drug Betaseron. However, since the drug had many adverse side effects, the creators of the drug did not expect the drug to be approved so quickly. Patients waiting to get Betaseron would have to wait months just to have a chance at getting the drug. With the multitude of side effects and huge manufacturing delays, Biogen jumped on the opportunity to make its own drug to treat MS. The company designed a third clinical trial, for Avonex with the intent to make a drug that actually slowed the progression of the disease rather than just reducing flareups. Biogen was able to accomplish just this, with the data on Avonex showing not only did the drug slow the progress of MS its side effects were much milder compared to its competitor Betaseron. With this news, Vincent would get his wish and the company would get FDA approval for its first product Avonex in 1996. Within months, Avonex dominated the market, getting 60% of all new prescriptions for the treatment of MS. With its first product, Biogen had made its mark on the biotech world. However, in order to reach new heights, the company would have to continue to make big moves to stay ahead of the competition. In 2003, the company did just that, by stunning the biotech world with their merger with Idec. The two companies were working on a licensing agreement for the development of future drugs. As negotiations went on the two companies realized the potential of a union, combining Idec’s prowess in developing cancer treatments and Biogen proven ability with the development of Avonex. The merger was at the time the largest biotechnology merger of two independent companies and propelled the union as the 3rd largest biotechnology company in the world only behind Amgen and Genetech. Biogen Idec was now finally at the top, but it wasn’t long until the company would find itself in controversy. 

Biogen Idec’s Slow Start

In 2004, the FDA approved natalizumab, more popularly known by its brand name Tysabri. Tysabri is a monotherapy for the treatment of patients with relapsing forms of MS. This was praised as a huge win for the company with the stock price increasing 60% in only a few months. However, things took a turn for the worse in 2005, when Biogen Idec and their licensing partner Elan voluntarily removed Tysabri because of the emergence of a case that caused a serious side effect that left the patient with a serious brain infection that could have lead to death or severe disability. With this news, the stock plummeted 50% and it would take the company 3 years to recover the stock to similar prices. Thankfully for the company, in 2006 after a comprehensive reevaluation of the drug and a review by the FDA, the drug was reapproved and reintroduced into the market. Despite its controversy, Tysabri would end up making the company billions when it was later approved for the treatment of Crohn’s disease in 2008. With this success, Biogen Idec began to expand its empire with a series of acquisitions, to grow its product lineup. In 2006, the company acquired, Conforma Therapeutics, a cancer research company for $250 million. Just a year later, Biogen Idec would acquire Snytonix Pharmaceuticals for $120 million which also gave them the rights to Snytonix lead product for hemophilia B and the technologies for inhalable treatments. Later that year they also would acquire the rights to a promising Alzheimer drug called Aducanumab for $200 million. With the acquisition of all these companies, Biogen Idec set itself up to have a very compelling future pipeline. Things were looking up for the company, with yearly revenue increasing from 3.1 billion to 4.1 billion from 2007 to 2008. With revenue increasing and a compelling pipeline the stock price increase 18% during this time. However, the next few years would prove to be difficult for Biotech star. 

Despite, the very compelling pipeline, Biogen Idec was still far away from FDA approval on any of its pipelines. Revenue numbers were increasing slowly, but not at rates that impressed investors. To make matters worse, billionaire Carl Icahn started slowly building a bigger stake in the company. Icahn was a notorious investor known for starting proxy wars and stirring the pot when he doesn’t get his way. In March 2010, Icahn owned about 16 million shares, more than 5 percent of the company, according to a regulatory filing. Biogen Idec shares continued to fall in price, which triggered Icahn and his appointed board members to push for the company to be a buy-out candidate. Biogen Idec would have to make drastic changes, in order to appease investors and save the company from getting bought out.

Biogen’s Return to Stardom

With the pressure on, the company decided to redefine its business strategy by focusing on neurology, immunology, and hemophilia. The company planned to launch five new drugs, in the next 3 years and hire a new head of research to propel their pipeline further. Biogen Idec pipelines began to pay off with Fampyra a drug that helps walking ability in patients with MS was FDA approved in 2010. Shortly after, the company was able to expand upon their blockbuster drug Rituxan, a monoclonal antibody for treating cancer. In 2011, the FDA approved for use in patients with Chronic lymphocytic leukemia. Things got even better for Biogen Idec as a study for their blockbuster pipeline drug Tecfidera, for treatment of MS, showed no safety concerns in clinical trials. In 2011, Biogen Idec’s revenue surpassed $5 billion, with sales increasing and the company’s thriving pipeline, investors began flocking to the stock. With the company’s blockbuster drugs Tecfidera, Tysabri, and Rituxan, revenue began to skyrocket to obscene numbers. In just three years Biogen Idec would nearly double its yearly revenue to $9.7 billion in 2014. Biogen Idec’s stock price skyrocketed 350% over this time going from about $60 a share in 2011 to over $260 in 2014. With Biogen Ideas huge success the company announced it would be going back to its root and change the company’s name back to Biogen in 2015. With investor’s sentiment at all-time highs, the company also announced another bombshell. In early 2014, Biogen entered into an agreement with Eisai to jointly develop and commercialize two of their candidates for Alzheimer’s disease, which showed great signs of potentially improving symptoms and suppressing disease progression. In 2015 Biogen Idec continued to impress the biotech world by providing evidence that its Alzheimer’s drug may be the first to successfully treat the underlying cause of the disease. In the drug’s clinical trial, the drug showed a slowing of the cognitive declines and dementia associated with Alzheimer’s, which when compared to the control group was an 82% improvement in mental symptoms. With this news, the stock price reached price levels as high as $395 as every investor in Biotech swarmed to get into potentially the first treatment for Alzheimer’s disease. In 2016 Biogen pipeline continued to come to fruition, with the first approved therapy for an inherited disorder called spinal muscular atrophy called Spinraza. Despite some corrections of the stock all-time highs, the company continued until Biogen’s revenue-making machine began to falter.

Biogen’s Unlikely Comeback

Starting around 2016, like many Biotech companies, the stock began to become very volatile based off good and bad news. After the huge record highs of nearly $400 in 2015, the stock corrected all the way down to prices as low as $210. This was also due to a clinical setback on their experimental multiple sclerosis drug opicinumab. However, with the release of Spinraza and investors hopeful for updates on the company’s Alzheimer drug, the stock increased 75% to prices as high as $367 over the next 2 years. Investors were hopeful Biogen was looking positioned to continue becoming a revenue-generating machine. This sentiment would quickly change, however after a catastrophic failure in a key phase 3 trial of the company’s promising Alzheimer’s disease drug. In March 2019, the company halted its Phase 3 trial of its Alzheimer disease drug Aducanumab after an outside group determined the trials were unlikely to produce meaningful results. This news tanked the stock 30% practically overnight and investors who were hopeful for an Alzheimer’s disease drug were very displeased with the news. Things were looking very grim for Biogen, until the company reversed the decision in October 2019 and told investors they were planning on continuing the phase 3 trial. This decision was made after the company’s new study involving more patients showed more promising results. While this recovered the stock for some time, 2020 proved to be a very bad year for Biogen. In July 2020, Biogen submitted its request for accelerated review of its Alzheimers drug. The FDA advisory panel voted overwhelming against Biogen’s Alzheimer drug aducanumab, questioning the effectiveness of the drug. The company also suffered revenue loss, making $13.4 Billion in revenue in 2020 down from $14.38 Billion in 2019. This would mark the first time in at least 2 decades that the company posted lower year-to-year sales. To make matters worse, the company had 4 consecutive quarters of revenue lost, which shows a trend of revenue going down for the future. These losses came from sales of the companies MS drugs losing market share and Spinraza posting disappointing revenue growth numbers. Combine this with Biogen losing its patent rights to one of its key drugs Tecfidera and the company was looking to have a serious revenue problem in the future. With FDA approval of Aducanumab looking unlikely, Biogen’s days of being a biotech giant were looking to end soon. However, the company’s unlikely comeback would come on June 7th with the FDA going against their advisory board in an unprecedented approval of Aducanumab. With the aducanumab costing patients 56,000 a year and 6.2 million people suffering from Alzheimer’s in the U.S alone, the drug’s approval made it one of the most lucrative drugs ever created. Overnight the stock increased by 45% and the company was saved from disaster. 

What’s in Store for Biogen’s Future

While this approval doesn’t fix all of Biogen’s problems if the company is able to get even a fraction of the Alzheimer’s therapeutics market that is expected to reach $13.57 billion by 2027 their revenue problems should be completely fixed. The company’s current pipeline continues to look underwhelming, but huge companies like Biogen have continued to stay relevant in the past through acquisitions. With that being said recently Biogen has suffered some big losses from its acquisitions. Biogen had another Alzheimer’s drug with Bristol Myers that cost them $300 million and just missed its primary efficacy endpoint. The company’s $800 million buyout of Nightstar is also looking to take a turn for the worst with a critical phase 3 trial for gene therapy failing. While many of these ultimately fail, the few that get FDA approval can be very lucrative making Biogen billions in revenue.  Biogen has had a rollercoaster ride from start to finish, but now with Biogen’s first FDA-approved Alzheimer’s medication, the company has managed to propel its way back to an unlikely comeback.

 

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NEOGENOMICS, INC: A DIAGNOSIS FOR GROWTH

By Tammy Tran, Healthcare Equity Analyst

 

Although cancer is among the leading causes of death worldwide, there currently are not many good options for cancer treatment. The key is to diagnose the cancer early before the cancer begins to spread or get worse. One of those critical components to controlling cancer is precision medicine, “an emerging approach for disease treatment and prevention that takes into account individual variability in genes, environment, and lifestyle for each person”. Precision medicine will allow healthcare workers to more accurately predict if a certain treatment or prevention strategy for a particular disease would be suitable for specific groups of people. For cancer patients, precision medicine can improve diagnosis and treatment by testing DNA from the patient’s tumor. This helps the physician identify the specific mutations or other changes that caused the cancer. Using this information, the physicians can select a treatment option that matches the patient’s particular needs. Alongside precision medicine, cancer diagnostic technology is equally important. The earlier you are able to diagnose the cancer, the higher the odds you have to stop and prevent the cancer from spreading. There have been many improvements and developments in the cancer diagnostic industry recently. For example, some companies are researching liquid biopsies, using artificial technology and many others. The cancer diagnostics market is so large that it is predicted to reach $280.59 billion by 2028. Neogenomics ($NEO) is a company that utilizes the precision medicine concept for the cancer diagnostics field.

Neogenomics is an emerging diagnostics company that focuses on cancer diagnostics and pharma services. They were founded in 2002 and have since expanded to include cytogenetics, fluorescence in situ hybridization (FISH), flow cytometry, immunohistochemistry, anatomic pathology, and molecular genetics. In 2005, 3 years after they were founded, Neogenomics developed a technical only service model using FISH. FISH is a technique normally used in labs in order to detect and locate a specific DNA sequence on a chromosome. To do this, the researchers expose the chromosomes to a smaller DNA sequence called a probe that is attached to a fluorescent molecule. The probe then binds to its corresponding sequence on the chromosome. In 2005, the President was Mr. Robert Gasparini, who had extensive experience in building genetic and molecular laboratory companies. Their initial targets were oncologists, pathologists and hospitals in southern and central Florida that performed bone marrow samplings. Their total addressable market for oncology testing included the population over 55 years old and the total cancer testing market for Florida alone was $262.7 million. In the Southeast U.S, the total addressable market was $714.7 million and $3.6937 billion for the entire U.S. In 2008, they launched their first molecular division. In 2012, Neogenomics was the first to market multimethod disease specific NeoTYPE Cancer Profiles, and was also the first commercial provider of the 10-color flow cytometry. Then in 2013, the company was listed on the Nasdaq Stock Market with the ticker $NEO. In 2014, the company continued to expand and now offers molecular tests including BTK and CALR mutation analysis. In 2015, the company acquired Clarient, Inc, which was a cancer diagnostics laboratory that focused on immunohistochemistry for solid tumor cancers and in 2017, Neogenomics established their first international location in Rolle, Switzerland and opened another location in Singapore in 2019. 

Recently in 2020, Neogenomics launched the suite of liquid biopsy assays and are currently opening a location in China. There is a significant increase in the number of precision oncology medicines, which is driving the need for biomarker testing. As a result, Neogenomics is expected to grow at twice the market rate.There are three growth areas in the business that are important to growing the volume of the business: next-generation sequencing, pharma division, and the informatics division. The next-generation sequencing is currently over 15% of the clinical revenue, and is increasing to over 25%. The pharma division grew 30% in 2020, and is increasing to over 20% of the company’s revenue. Recently founded, the informatics division was formed in 2021 and is the fastest growing part of Neogenomics. According to the company’s balance sheet, Neogenomics’ total current assets is $1.494 billion, with $444 million in revenue for the fiscal year 2020. In 2020, their revenue grew by 9% with a core clinical test volume of 976,069 tests. Over 435,000 unique patients were tested and 85% of the revenue mix was clinical services. From 2011-2020, the company’s revenue grew annually by 28% and increased in test volume by 33%.

In the future, Neogenomics’ next step is the acquisition of Inivata, a leader in liquid biopsy. In May 2020, Neogenomics made a $25 million minority equity investment for Invita, and was then given the opportunity to purchase the remainder of Inivata for $390 million. Inivata will remain as a separate business and develop alongside Neogenomics. The current CEO of Inivata, Clive Morris, will become the President of Inivata and will report to Mark Mallon, the CEO of Neogenomics. The main focus of this acquisition is around RaDaR, the highly sensitive personalized assay for the detection of residual disease and recurrence (MRD). MRD is a small number of cancer cells left in the body after treatment. It is important to detect the MRD because the cells have potential to come back and cause relapse in the patients. Data showed that RaDaR demonstrated a 100% specificity and sensitivity in detecting MRD in patient cohorts with head and neck cancer and early-stage breast cancer. The real clinical need for MRD across cancer types creates over a $15 billion opportunity. In February 2021, the RaDaR assay was granted the Breakthrough Device Designation by the U.S FDA. Their plan for 2022 is to begin commercialization in the clinical market and explore global commercialization opportunities. And by 2023/2024, Inivata is expected to be a significant component of revenues. 

Neogenomics is well positioned to continue growing in the companion diagnostics market. Companion diagnostics are the part of precision medicine that is behind future successes of oncology, with large growth by 2026. Specifically for precision medicine, the market is valued at approximately $53.450 billion in 2020 and is expected to reach about $98.550 billion by 2026. Precision medicine can be applied in a wide variety of areas, and not just cancer. For example, researchers are even using precision medicine for advancements in COVID-19 diagnostics. Cleveland Clinic has created the genomic medicine project to identify genetic factors that cause some people to be more susceptible to the COVID-19 virus than others. In the past few years alone, the number of new gene therapies, diagnostics and medicines that are being developed and introduced to the market are rising due to the high number of rare and deadly diseases. Specifically for oncology therapies, the number of precision oncology medicines has increased from 17 in 2007 to 70 in 2019. Therefore, it is extremely important to continue watching the diagnostic industry and they’re developments and improvements.

 

As of today, June 15th 2021, the share price of Neogenomics is $43.73. The company is only at the beginning of its growth, increasingly expanding, and about to open additional branches throughout the world. With a blossoming cancer diagnostics market, Neogenomics can expect to see large growth in revenue. For example, the current cancer diagnostics market is valued at approximately $53 billion. Earning only 10% of that would be almost $6 billion in revenue. Ten percent of the projected cancer diagnostics market in 2026 is already close to $10 billion. There is a lot of growth potential in Neogenomics, since they grew by 28% annually from 2011-2020 alone. In addition, the current market size of the diagnostics and research industry is approximately $147.98 billion. Neogenomics holds about $5.13 billion of the market, which represents a market share of approximately 3%. In comparison to other similar companies such as Dexcom ($DXCM) and Emmaus Life Sciences ($EMMA), Neogenomics is rated below average for this market share. This shows how much growth potential there is for Neogenomics. If the company continues to grow as projected, they will soon be able to hold a much larger percentage of the diagnostics and research industry, continuing to increase their revenue. As a result, this seems to be an undervalued stock that could be set to soar.

 

Disclosure: The Sick Economist owns shares in $NEO

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