The Sick Economist's Blog

 

By Grant Bailey & The Sick Economist

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In the pharmaceutical world, cancer has long been a deeply significant and challenging topic, profoundly affecting countless lives. The market for cancer treatments continues to grow, in part because as medical advancements help people live longer, the risk of developing cancer naturally increases (advancing age is one of the greatest risk factors for all kinds of cancer).  Unfortunately, almost everyone is touched by cancer, either personally or through loved ones. As people live longer and overcome other illnesses, their chances of facing cancer will rise, which makes research and treatment all the more important. A rapidly aging America guarantees almost inevitable revenue growth, while also presenting an opportunity for companies to create a tangible human impact behind the numbers. So, with that said, is there any company in particular you should be keeping an eye on? 

 

Exact Sciences Corp (EXAS)

Exact Sciences Corp specializes primarily in developing technology that diagnoses and prevents cancer. Is there a specific product that should impress you? Yes, that product is none other than Cologuard. You’ve probably seen it in commercials all over the country, but in case you haven’t, Cologuard provides a much less intrusive alternative to colonoscopies. What makes this so important? Well, anyone over the age of 45 is recommended to get colonoscopies. Unfortunately, less than 75% of Americans between the ages of 45 and 70 actually get them as of 2021. What primarily discourages people from getting colonoscopies is that colonoscopies are intrusive, uncomfortable, and often complex. 

Cologuard fixes this issue by being a complete alternative to the entire procedure. Colonoscopy does retain some clinical advantages over Cologuard, but considering over 25% of Americans between the ages of 45-70 don’t get colonoscopies, this could be a wide-open market for Cologuard to dominate, without even mentioning the other 75% that could also possibly prefer Cologuard. This means that something like 25,000,000 Americans currently receive no colorectal screening at all, without even discussing other countries that could also be target markets. What’s even more intriguing here is that people are expected to use Cologuard on a triannual basis, which, of course, results in recurring revenue. It’s always a great sign when a company’s best product is also creating an ongoing revenue stream such as this one.

Still not impressed? Don’t worry, there’s more. Exact Sciences is likely about to turn highly profitable very soon, which is typically a good indication that the stock will trend upwards along with the profit. At the tail end of 2024, EXAS lost well over $850 million. However, at the end of June of this year, Exact Sciences had reported that they had broken even for the quarter. To go from an $850 million loss in the fourth quarter of 2024 to breaking even in the second quarter of 2025 is quite something. In fact, the big loss in Q4 of 2024 was just a paper loss caused by an unusual asset writedown….in reality, the company has been slowly crawling towards profitability as revenue has grown and grown, and overhead costs have stayed the same.  The company enjoys a gross margin of about 70%, and double digit revenue growth has become the norm over the last few years. 

To build off the importance of that financial milestone, they actually hadn’t shown any profit at all since 2023. But is there any more important data we should take into account? Well, for starters, EXAS’s free cash flow went from -$49M in Q4 of 2024 to $46M in Q2 of this year, marking a $96M improvement. Additionally, adjusted EBITDA margin improved 130 basis points, and their overall revenue projections now represent over $3.1B in expected annual revenue. Of course, Cologuard is their biggest driver of revenue, and the usage of the product continues to grow. As of right now, well over 20 million Cologuard tests have been completed cumulatively. The product first came out in 2014, and they didn’t even reach 10 million cumulative tests until 2022. EXAS’s growth in its secondary revenue stream, Precision Oncology, has also grown steadily, as the revenue growth has expanded from $165M in Q2 of 2024 to $179M in Q2 of this year.

          

New Products

But Exact Sciences isn’t done. Additionally they are currently developing a blood-based screening method for colorectal cancer, which has a total addressable market (TAM) of over $15B as of 2023. This would be the next logical step forward after the Cologuard test; a simple blood test screen for colorectal cancer would be much easier than invasive colonoscopies, and even easier than the relatively non-invasive Cologuard. 

Additionally, Exact plans on diversifying their growing revenue by going far beyond colorectal cancer. Regarding their more specific testing products, their Oncodect MRD tests are particularly eye-opening here. These tests can detect cancer 2 years earlier than imaging, and they just hit the market in late April of this year.

This is a kind of test that is administered to a cancer survivor. The test lets survivors and physicians know early if the cancer could return. The long-term growth potential of this product is incredible; as mentioned earlier in this analysis, the longer cancer patients live, the more special testing and monitoring is required. As more and more people are surviving cancer, the potential for Minimal Residual Disease testing is huge. 

The global MRD testing market was roughly $1.67B in 2023, but it’s expected to grow to $6.67B in 2033, representing unbelievably large CAGR potential for the total addressable market. What’s even more promising here is that EXAS recognizes the potential of this TAM, and they plan to penetrate it. Exact Sciences will be looking to launch an even more advanced version of Oncodetect in 2026, which would track 5,000 patient-specific variants of genes.

As if this isn’t enough, Exact has recently launched Cancerguard, a general blood test, meant as a screen for a wide range of cancers. If this test takes off in the world of primary care, it could become a standard yearly test that every patient gets at their annual physical. If this test is accepted by the Primary Care community, the total addressable market would be mind boggling. 

 

Now might be an opportune time to get on board for investors looking for a company that balances growth with profitability. Exact is currently enjoying consistent double digit revenue growth, while achieving a level of profitability that makes the growth sustainable. Additionally, they have enough new products and services to make sure that double digit growth becomes the norm for a decade to come. As the total healthcare market is currently depressed, many investors seem to have forgotten Exact. It trades at just 3.5 times revenue, which is on the low side for a healthcare innovation company. It’s absolutely a steal next to the current AI frenzy, where unprofitable companies can be valued at 10 or 20 times revenue. If you are less interested in razzle dazzle, and more interested in a growth company that will be around in twenty years, it’s easy to detect value in Exact. 

 

The post EXACT SCIENCES: PROFITABILITY DETECTED! appeared first on Sick Economics.

 

By Matthew Tuttle, Tuttle Capital Management 

 

A generation of start-ups have failed to live up to the hype. Executives are now betting that more powerful tools will crack the complexities of human biology

From The Financial Times

 

The Big Picture

Jensen Huang (Nvidia) and Marc Andreessen have both said the biggest long-term impact of AI will be in healthcare. The logic is obvious:

Drug discovery costs ~$2B per drug, with >90% clinical failure rates.Aging populations mean medical costs are ballooning globally.The process is data-heavy, slow, and expensive — exactly the kind of problem AI should disrupt.

But the FT article shows the other side: AI hasn’t delivered yet. First-generation AI drug discovery companies like BenevolentAI, Exscientia, and Recursion have struggled to move compounds beyond early trials. Many “AI-discovered” drugs have flopped. A decade in, not a single AI-born drug has been FDA-approved.

Why? Because drug discovery is where “bits meet atoms.” Biology is messier than chess or text prediction — incomplete datasets, noise, and fundamental gaps in knowledge about how the human body works.

 

Why the Next Wave Could Be Different

Two watershed advances reset the clock:

AlphaFold2 (2021): Protein-folding breakthrough from DeepMind that showed algorithms can generalize across biology.Generative AI (post-2022): Tools that can design novel molecules instead of just pattern-matching existing ones.

Pair that with:

Explosion of new biological data (labs like Recursion and Insitro building “AI science factories”).Compute scale from Big Tech (Alphabet’s Isomorphic Labs, Microsoft partnerships).Better capital discipline — companies focusing on hard targets (cancer, immunology) instead of “me too” drugs.

The promise is still intact: once AI produces a single blockbuster approval, the floodgates open.

 

Winners (ratings 1–10)Big Tech with money + computeAlphabet / Isomorphic Labs (GOOGL) — 8.5/10 Backed by DeepMind, aiming to build a generalizable drug discovery engine. Has compute, cash, and patience.Microsoft (MSFT) — 8/10 Aggressive in healthcare AI partnerships (e.g., Nebius deal, Nuance acquisition). Offers Azure compute + enterprise trust.Nvidia (NVDA) — 9/10 Picks-and-shovels winner: every lab and pharma company training models for drug design needs GPU/accelerator clusters.Data-rich next-gen biotechsRecursion (RXRX) — 7.5/10 Building enormous proprietary cell image datasets; early-stage drugs but long road to approvals.Insitro (private) — 7.5/10 “Cell factories” and massive data creation; led by Daphne Koller, but still pre-proof.Relay Therapeutics (RLAY) — 7.5/10 Targeting hard diseases; differentiated vs. “me too” approaches, but binary drug risk remains.Tools & infrastructureThermo Fisher (TMO), Danaher (DHR) — 8/10 Picks-and-shovels in lab automation, data collection, sequencing. If AI labs scale, they sell the gear.ASML (ASML), NVIDIA (NVDA), AMD (AMD) — 8–9/10 Compute & silicon backbone of healthcare AI.Losers / HeadwindsFirst-gen AI drug discovery start-ups: BenevolentAI, Exscientia — overpromised, underdelivered. Many merged, de-listed, or retrenched.Investors chasing “AI-me too” drugs: Compounds without differentiation are value traps.Small AI biotechs without cash or proprietary data: They’ll be squeezed out by Big Tech with compute + balance sheets.Investor TakeawayShort term (1–3 years): Still a hype-to-disappointment cycle. Binary risk (trial failures) + long timelines = landmines for pure-play biotechs.Medium term (5–10 years): Healthcare is likely the biggest eventual AI prize — one real FDA-approved drug from AI will reset the sector.Best trade today: Own the picks-and-shovels (NVDA, TMO, DHR, MSFT, GOOGL). Keep speculative exposure small in data-rich biotechs like RXRX and RLAY.

AI hasn’t yet cracked drug discovery — but the combination of AlphaFold, generative AI, and Big Tech’s compute makes healthcare the biggest eventual prize. The near-term trade is picks-and-shovels (NVDA, TMO, MSFT, GOOGL). The long-term asymmetry comes when the first AI-born blockbuster drug hits the FDA.

 

AI in Healthcare: Scenario Map for InvestorsBase Case (Most Likely – 5–10 Years)

AI accelerates drug discovery efficiency (target ID, molecule design, preclinical work), but timelines remain long and failure rates high. FDA approvals lag.

Winners:

NVDA (9/10): GPU backbone for all healthcare AI training.MSFT, GOOGL (8–8.5/10): Enterprise trust + compute scale + partnerships.Thermo Fisher (TMO), Danaher (DHR) (8/10): Lab automation, sequencing — steady demand from AI-driven research.

Speculative:

RXRX (7.5/10): Largest proprietary cell-image dataset; promising but binary risk.TEM (7/10): Building a “clinical data moat” from oncology and diagnostics. Could monetize as platform for AI models. Still pre-proof.

Losers:

First-gen AI biotechs that overpromised and underdelivered (BenevolentAI, Exscientia).Bull Case (Best Case – 3–5 Years)

Generative AI + AlphaFold-level breakthroughs → first FDA-approved “AI-born” drug by late decade. Investors re-rate healthcare AI as the next gold rush.

Winners:

TEM (8.5/10): If it proves its clinical dataset leads to new oncology diagnostics or drugs, re-rate could be massive.RXRX (8.5/10): Early proof-of-concept + partnerships could make it the category-defining public biotech.GOOGL / Isomorphic Labs (9/10): DeepMind + compute = only player with patience and resources to build a true “drug discovery engine.”

Losers:

Traditional CROs/outsourcers (IQV, CRL) could lose pricing power if AI replaces brute-force trial design.Bear Case (Worst Case – 5+ Years)

Human biology remains too complex; data too noisy. AI helps on the margins (molecule screening) but not at scale. Drug failures continue at ~90%. Funding dries up.

Winners:

Picks-and-shovels still win (NVDA, TMO, DHR): labs still need GPUs and sequencing tools.

Losers:

RXRX (5/10): burns cash without a late-stage pipeline; risk of dilution or consolidation.TEM (5.5/10): clinical data platform doesn’t translate to breakthrough therapies; may pivot to niche diagnostics.Small AI biotechs without data moats or cash → wiped out.

 

Investor TakeawaysCore exposure: NVDA, MSFT, GOOGL, TMO/DHR — structural winners regardless of drug discovery outcomes.Speculative basket: TEM and RXRX for asymmetric upside — but size carefully, binary risk is real.Watch for catalyst: The first FDA-approved AI-designed drug would be the “ChatGPT moment” for healthcare AI, driving an overnight re-rate.

 

The base case is that AI makes drug discovery more efficient but approvals remain elusive for years. The bull case is asymmetric — if TEM or RXRX deliver even one FDA approval, the sector re-rates overnight. Until then, NVDA, GOOGL, MSFT, and the lab picks-and-shovels are the safest way to play AI in healthcare.

 

Taken from today’s Daily HEAT. Gratis subscription: https://theheatformula.beehiiv.com/subscribe

 

 

The post WHY IS AI STRUGGLING TO DISCOVER NEW DRUGS? appeared first on Sick Economics.

 

By Grant Bailey, Equity Analyst 

 

The biotech industry appears to be inexplicably undervalued at the moment; several companies in this industry actually have as much cash available as their market capitalization. At times, this could imply that the company’s intellectual property is essentially valued at zero, which would present a huge buying opportunity. 

While these companies are often losing cash each and every quarter, the products in their pipelines continue to develop, and their cash position will usually remain strong. So, with so many small-cap biotech stocks trading at discounts, which discounts are the most appealing?

 

1. Artiva Biotherapeutics (ARTV)

Artiva Biotherapeutics is an early-stage cell therapy company with a current market value of ~$72 million. The biggest selling point for this company is its huge runway: Artiva has over $140 million in cash and cash equivalents, which, according to its most recent financial report, should last through the second quarter of 2027.

Of course, this is an early-stage company, so the products in their pipeline are quite far from commercialization. Their AlloNK program currently has 2 indications either entering or about to enter phase 2, with the other 2 indications listed in phase 1. Artiva also has a partner program, but that project is even earlier in development compared to their primary program.  However, Artiva is playing in a very hot area of the scientific world….while cell therapy for cancer is well established, it currently relies on highly customized cell therapies that are expensive and time consuming. Artiva is working with “allogenic” stem cells, which would lead to mass produced, highly efficient treatments for cancer and immune related diseases. As these disease states offer a Total Addressable Market (TAM) well into the billions, any company currently valued at just $70 million could offer vast upside potential. 

Yes, this pick is high-risk, but the risk is considerably alleviated by Artiva’s massive cash runway. It is often difficult to justify a company’s market capitalization being worth just half of its cash available.

 

2. Edesa Biotech (EDSA)

Edesa Biotech is a small, clinical-stage Canadian biotech company with a market capitalization of just ~$17 million. Edesa has slightly over $12 million in cash on hand, which suggests the actual intellectual property of Edesa is valued at only around $5 million at the moment. 

Edesa is much further along in the development process compared to Artiva: Edesa has 2 programs in phase 3 and 3 programs in phase 2. Because of their healthy cash position, EDSA has well over a year in cash runway. This should be enough time to get at least something approved and ready to be commercialized. 

With several programs in later developmental stages, Edesa could potentially have multiple diversified revenue streams as a result of positive trials. If the trials turn out successful, the biggest risk becomes not having enough money for marketing. 

Fortunately, there is a solution: buyouts. Edesa would prove to be a great buyout candidate if they could successfully get any of their pipeline products approved, as big pharma is often in search of more diversified revenue streams. For a Big Pharma company like Pfizer or Eli Lilly to pay $100 million for an already proven molecule is a tiny risk for a company with hundreds of billions in assets. But a $100 million buyout price could represent a 500% return for Edesa shareholders. 

This kind of basic arithmetic could be compelling for investors willing to take a little risk…..

 

3. Fortress Biotech (FBIO)

Fortress Biotech is a biopharmaceutical company based primarily in Florida. Its market capitalization lies between ARTV and EDSA, with the company valued at roughly $68 million. While FBIO’s cash on hand is significantly less than that of ARTV, they still have about $75 million available, which is obviously beyond their company market value at the moment.

Surprisingly, FBIO seemed to have lost around ~$30 million in the second quarter of this year, mostly due to the company’s overall increased operations/business activities. This would imply that the company has less than a year of runway remaining, which is significantly less than the other companies mentioned in this article. However, surface appearances can be deceiving….according to the company’s most recent financial report, cash on hand actually increased by $20 million over the last six months. That number should increase once again, this time by a whopping $30 million; as the company is just closing on a successful deal to sell one of it’s subsidiaries. This “buy, build, sell” approach is what sets the Fortress business model apart from most young biotechs. It’s very possible that, right now, the stock market simply doesn’t understand this new way of doing business.

As a mere broker of innovation,  FBIO is further along than anyone else; the company has an extremely diversified and well-developed pipeline. They already have an FDA-approved drug, 2 products past phase 3 awaiting FDA approval, another product in phase 3, a product in phase 2, 5 products in phase 1, and another 5 preclinical products. Fortress is a “wheeler dealer” of innovative molecules, and may represent a unique opportunity in the world of small biotech investment.

 

When all is said and done, each of these three picks is in a uniquely different situation, and each provides considerable upside. If I had to pick one that I like the most, I’d probably side primarily towards Edesa, considering they have such a long runway while already having multiple products in either phase 2 or 3. 

Fortress Biotech’s biggest risk is having less than a year of financial runway, but they should be able to manage it properly, since they have so many different products that could reach the market in the near future. 

Artiva’s biggest risk would probably be its pipeline, with it being so early-stage. However, Artiva also boasts a cash runway that extends all the way into Q2 of 2027, so even if their pipeline fails to materialize properly, they should still have ample time and cash to rebound effectively. 

In a media landscape obsessed with “Magnificent 7” mega tech stocks, there is plenty of room for promising young companies to get lost in the noise.  The best investor always strives to identify the opportunities that others failed to notice…..

The post 3 BARGAIN BIOTECHS THAT THE MARKET FORGOT appeared first on Sick Economics.

The best marriages occur when each party brings something to the table that the other partner lacks. In the tumultuous early days of the Trump Administration, Moderna still boasts exciting intellectual property, but probably doesn’t have the financial strength to weather the storm alone. Merck, established in 1891, has the fiscal resources and the political connections to survive almost anything, but it suffers from an aging new drug pipeline. 

Should these two companies become one? If the two companies merge, would this be beneficial for shareholders? 

 

By The Sick Economist 

Book A Personalized Consultation Directly With The Author

 

Just as a marriage is cemented by the complementary assets that each partner brings to the table, the initial attraction is often sparked by what the two partners have in common. And both Merck and Moderna have one big thing in common: both are victims of their own success. 

Moderna burst on the scene in the panicky days of 2020 when a mysterious new virus was spreading around the world like wildfire, and both the general public and government health authorities desperately looked to science to stem the rising tide of discomfort and death. 

Moderna just happened to be in the right place, at the right time, with the right technology. Founded a decade earlier to explore Messenger RNA technology and its uses against cancer, Moderna’s scientific team realized that mRNA could also be used to rapidly craft a groundbreaking vaccine against Covid. Enjoying government support and a consumer market that was basically desperate for an effective anti-Covid agent, Moderna was able to create a new vaccine in record time. The rest, as they say, is history. Tsunamis of cash poured in for the formerly obscure and unprofitable start up, and the share price rocketed from $66 to over $400 in just one year’s time. Moderna had a future so bright, the C-Suite needed to wear shades. 

Merck has been an American household name for nearly one hundred years, but the early 21st century has been unusually kind to the pharmaceutical behemoth. Through a combination of grit, determination and more than a few happy accidents, Merck was able to launch Keytruda. Much like Moderna’s vaccine, Keytruda represented a technological breakthrough, and a whole new way of doing medicine. Instead of pumping the body full of toxic chemicals and hoping for the best, Keytruda was the very first agent to use a patient’s own body to fight cancer. Keytruda was a pioneer in the new science of anti-cancer immunotherapy, and eventually became the best selling drug in the world. Between 2013, when Keytruda was just about to launch, and the end of 2023, a $1,000 investment in the company tripled, averaging a 13% annual return; truly world beating returns for a stodgy American classic that had been in business since the 1800’s. 

By the early 2020’s, both companies seemed to be on a rocket ride to fame and glory. 

 

What Have You Done for Me…..Lately? 

But nothing lasts forever, and now both companies look like they have seen better days. 

It was obvious to everybody that Moderna’s covid bonanza couldn’t last forever. Yet, in the frenzied days of school closures and stimulus checks, the future was rendered hazy by a fog of war. Moderna generated billions and billions from Covid, and they wisely banked most of it. The stated goal was to return to developing their cancer pipeline, which was the original purpose for the company’s foundation altogether. And they did have a robust pipeline with some promising and novel methods of fighting cancer. They also hoped to score another vaccination hit by targeting new annual shots for RSV, the Flu, and even a Covid/Flu combination shot. The notion was that these more accessible vaccines for pulmonary diseases, which had a lot in common with Covid, would tide the company over until their oncology platform matured. 

But it wasn’t to be. As of May, 2025, the firm has lost money for four out of the five last quarters, as Covid sales have tanked and the promised revenue from new shots has yet to materialize. They have burned almost $8,000,000,000 over the last two years.  While they did a good job of stockpiling cash during the salad days of Covid, they are still a relatively small biotech firm that simply doesn’t have the financial reserves of a Big Pharma stalwart. In their latest quarterly report, they announced that they lost another billion dollars and expect to have just $6 billion in their bank account by the end of 2025.  You don’t have to be a mathematician to realize that Moderna faces the very realistic threat of running out of money before they can reap the rewards of the billions that they have invested into oncology. 

Meanwhile, Merck also faces dubious prospects. While the pharma giant is still robustly profitable, many analysts and investors fear what is to come once Keytruda’s golden patent finally expires. In 2024, almost half of the company’s revenue was derived from Keytruda. That makes 2028 seem like an awfully scary year. 2028 is the year the sun begins to set on the world beating drug’s patent estate (patent protection won’t expire all at once, but rather, in stages between 2028 and 2036). 

The company has an ample pipeline of promising new drugs that it hopes will help plug the gaping hole, but it’s not that easy to just replace Godzilla with the first oversized lizard that comes along. And the firm’s share price reflects these fears. Over the last year, one share of Merck has plummeted from $131 to $83. The company trades at just 11 times price to earnings, one of the lowest multiples in all of Big Pharma. If Merck has a credible plan to overcome Keytruda’s patent loss, the market simply isn’t buying it.

 

Peanut Butter Meets Jelly 

Sometimes the most serious of romances begins with a simple dalliance. That dalliance began several years ago when Merck agreed to test Keytruda in combination with one of Moderna’s novel mRNA vaccines. In this case, the new molecule in question is MRNA-4157, a vaccine to fight the skin cancer Melanoma. The idea is to hit this notoriously deadly cancer with a “1-2 punch,” enhancing the patient’s immune system with Keytruda, and then directly attacking the cancer with a personalized vaccine that would strike each patient’s particular tumor.

An initial flirtation intensified with the realization of powerful phase two data at the end of 2023. It turns out that combining the two agents produced dramatic results, greatly lowering the chance of Melanoma returning or spreading after initial treatment. 

These results were a big deal for both parties because it proved two investment theses at once. For Merck, the blockbuster results proved that good old Keytruda could realistically be repackaged, and repatented, with novel agents to squeeze more financial mileage out of what many believed an exhausted asset. For Moderna, it was the first definitive proof that messenger RNA does, in fact, hold tremendous promise to treat cancer. You will remember, that Moderna was founded 15 years ago as a cancer company. Covid was just a fluke. These data proved that Moderna’s vast oncology potential was still very real. 

At the time, these two companies were merely collaborating on this molecule as a 50/50 joint venture. Meaning they were only working together on this one, discrete project. But the case for integrating the two firms altogether was growing by the day. 

 

The Case for Union 

A quick glance at Moderna’s pipeline is like just peeking at DaVinci’s workshop. Filled with unfinished masterpieces, one can only look at all of the potential and wonder where it could go. Moderna has at least 10 different RNA oriented medicines in phase 2 and phase 3 testing, meaning that they could replicate their grandslam Melanoma results many times over the next three to five years. In fact, in light of the great results of combining Keytruda with MRNA-4157, Merck and Moderna are now testing similar approaches against lung cancer, renal cancer, bladder cancer, and a variety of other solid tumors. Just lately, Moderna has announced promising results for a combined FLU/COVID vaccine. 

Moderna finds itself rich with promising IP, but ever more poor in cash. Even with 10 advanced medicines, the firm would still need many billions to bring these new medicines to market. Not only do they have to finish costly global testing, but they would also need a substantial and skilled distribution and sales operation, and that also costs billions of dollars. Trailblazing approaches to medicine simply do not sell themselves without a lot of time, effort and money invested in educating medical professionals about new ways of doing things. 

Additionally, Moderna faces a much more hostile environment than when they started in the 2010’s. The Trump administration has appointed a range of medical officials who are openly hostile to the concepts of vaccines, and especially critical of anything related to Messenger RNA.  Although many of Moderna’s “vaccines” are really a whole new type of medicine, simply branded as vaccines back when that word had a more positive image, Moderna, in particular, is viewed as the “bad guy” of Covid by the MAGAVERSE. 

Even worse, the new administration’s open hostility to disfavored forms of science has sent a deep chill through the world of biotech fundraising. The whole healthcare sector has been an underperformer on the stock market of late, and, in particular, venture capital and fundraising professionals have had a hard time raising new funds due to the poisonous political environment. This means that it simply may not be realistic for Moderna to raise another multi billion dollar funding round when they run out of cash in the next few years. 

On the other side of the ledger, we have Merck. With a market value of roughly $200,000,000,000 and annual revenue of $64,000,000,000, it’s very likely that Merck would not have trouble funding a robust development program for Moderna’s stranded assets. With a sterling “A+” credit rating by the major rating agencies, it’s very likely that Merck has the financial firepower to push these promising, but nascent, medicines into the endzone.  

Additionally, Merck has credibility and muscle with Federal regulatory agencies, and an army of lobbyists to take on even the most fierce vaccine skeptics in the Trump Administration. Simply put, when you’ve been pumping out widely used medicines for more than a century, the FDA answers the phone when you call. The way it’s been going for Moderna in the Media lately, they would be lucky if anyone at the FDA would even return a voicemail. 

 

What about the Shareholders? 

For a lot of Moderna shareholders a buyout at today’s withered share price might seem like bitter medicine indeed. Afterall, Moderna today is valued at just $9 billion, a mere shadow of its once lofty $100 billion plus valuation.

How you would feel about a buyout probably would depend on two factors: When you became a Moderna shareholder, and how patient you are. 

If you bought Moderna shares during the heady days of Covid, a buyout would only lock in some pretty steep losses. However, if you bought Moderna shares in 2019, when Moderna was an obscure, experimental oncology company, you might be pleased by your tidy profit, and a chance to see those world changing medicines come to fruition, after all. 

Your outlook might also depend on your patience. Any buyout from Merck, or even another Big Pharma rival, is likely to involve at least some payment in the form of shares. So, most Moderna shareholders today will become Merck shareholders. In this case, the optimistic investor would be less concerned about today’s suboptimal buyout price, and more interested in Merck’s future prospects. 

Today, Merck is the most beaten down Big Pharma, trading at just 11 times annual earnings. But if they absorb the Moderna assets, and if they are able to get the public excited about the accompanying extension of their Keytruda patents and dramatically better patient outcomes across a wide range of cancers, then Merck’s stock could easily double or triple. (Some of the hottest Big Pharmas currently trade for 30 times annual profits, or more.) 

In that case you would see dramatic appreciation of your Merck stock, along with a hardy annual dividend (a form of steady cash flow you never would have enjoyed if Moderna had remained an independent biotechnology firm). 

Like any business deal, this corporate marriage would come with risks. Merck might fumble product launches. Mature data might not come out as sparkly as promised.  Competitors might come up with something even better. 

But Moderna shareholders would have little to lose through a buyout. The current political realities have crushed hopes of a vigorous, independent fundraising, and Moderna is simply running out of cash. Merck shareholders also have little to lose, as the current corporate pipeline is doing nothing to excite Wall Street, and many healthcare investors have eschewed the shares like the plague. It would seem that the downside risk is limited for both, and the upside is brighter together. 

Despite all of the trials and travails of the modern world, sometimes a marriage can still produce profound and lasting joy (for shareholders, that is). 

          

 

The post MERCK + MODERNA: A GOOD MARRIAGE FOR BAD TIMES? appeared first on Sick Economics.

For centuries Alzheimer’s has been a disease almost too cruel to fathom. Killing its victims slowly, and often tearing families apart little by little as well, the dread scourge seemed incurable. Not only did families slowly lose loved ones in an excruciating fashion, but the field also yielded nothing but pain for researchers and investors brave enough to risk their blood sweat and tears in search of an effective treatment. The business world was littered with expensive, failed research projects.  

But that all started to change over the last few years with the approvals of Leqembi (by Biogen&Eisai) and Kisunla (by Eli Lilly). These are the first two drugs proven to meaningfully slow the memory robbing progression of the disease. Although these two drugs leave much to be desired, the approvals have inspired and motivated researchers, executives and investors to keep trying with Alzheimer’s. These approvals still leave patients and their families groping in the dark, but they do represent a pinprick of light at the end of the tunnel. 

There is nothing like just a taste of success to unleash the creativity of the scientific community; below we review five different avenues of attack that are being pursued in the battle against Alzheimer’s.

 

By The Sick Economist

Book A Personalized Consultation Directly With The Author

 

 

1. Remove the Amyloid

The Amyloid plaque hypothesis of Alzheimer’s has long dominated research in the field. The general idea is that these dysfunctional, misfolded proteins build up in the brain, which then causes the cascade of deadly symptoms that lead to Alzheimer’s signature memory loss. 

Today this is a controversial theory that is heavily debated in neurology circles. Are the Amyloid plaques really the cause of the problem, or merely the symptom?  Amongst a long list of anatomic brain disturbances that can be observed in the Alzheimer’s brain, how important is Amyloid, anyhow? 

These matters are up for debate, but what is now beyond debate is that removal of the plaques themselves has provided some measurable cognitive benefit. This is the technique that led to the approval of Lequembi and Kisunla.

Researchers who adhere to this theory believe that the reason why these two new approved medicines only provide modest cognitive benefit is because they don’t do a good enough job of clearing the Amyloid plaques. In other words, they see these first two drugs as “version 1.0,”  mere practice runs to arrive at something much better. 

To this end, both Roche and Eli Lilly are well advanced in researching drugs that work in a similar method, but more powerfully. Both have drugs in phase II or phase III testing that have been demonstrated to remove plaques more swiftly, and more completely than the current approved drugs. There is no doubt that Roche and Lilly can do a better job at removing Amyloid plaques in the brain. But what is still not known, is if improved plaque removal will lead to better cognitive results. The two currently approved drugs slow cognitive decline by around 30%. If plaques are removed more completely and more quickly, can we slow cognitive decline by 50%? 70%? Even 90%? 

We just don’t know yet. But we will soon. Roche’s Trontinemab is currently in phase II testing, and Lilly’s Remternetug is in phase III testing. Definitive results of the trials are expected as early as Spring, 2026. 

 

2) Tearing out the Tao 

Another “protein gone wrong,” in the Alzheimer’s brain is called Tau. What is very clear to the broad research community is that dysfunctional Tau proteins are a big part of this disease process. But that may be the only thing that is clear. Are these Tau defects the cause, or the symptom, of the disease? How do Tau dysfunctions interact with the Amyloid plaques? How important is all of this to human cognition and memory? 

There are still so many unknowns. But that isn’t stopping biotech swashbucklers from taking a shot at this aspect of the disease. They are basically throwing Tau related therapies at the wall and praying that something sticks. While there are many companies working on these kinds of therapies, two that stand out are Voyager Therapeutics (VYGR) and AC Immune (ACIU). Voyager has four different research molecules related to Tau, with three being pre-clinical, and one already in phase I testing. Voyager is particularly excited about their TRACER platform, which allows them to quickly create AAV Capsids which can very precisely deliver medicine across the blood brain barrier. 

Meanwhile, rival AC Immune is hardly waiting to be left behind. They actually have five different Tau therapies in their pipeline. One is in phase I testing, while another is in phase II testing. The other three molecules are still pre-clinical, which means not quite ready for human trials. 

Thomas Edison is famous for saying, “There is no such thing as a failed experiment.”  So these kinds of small, daring biotechs are trying a lot of different experiments, to just see if anything works. With each failure, they will learn more and more, and inch closer to eventual success. Sooner or later, we will reach the real prize: a complete and thorough understanding of how exactly the Tau  protein works in the brain, and what we need to do to make it work correctly for sick patients. 

 

3) Sooth Raging Inflammation  

Yet another well known aspect of the Alzheimer’s brain is inflammation. For reasons that are still not fully understood, Alzheimer’s brains suffer redness, rawness and swelling in their brains more than people with clear minds. As usual, nobody quite knows if this is a cause or a symptom of Alzheimer’s; or if this inflammation is the cause of cognitive decline. 

Novo Nordisk (NVO), the famous creator of Ozempic, knows a thing or two about inflammation. In addition to its well known weight loss properties, Ozempic is proven to reduce inflammation across the body. More and more benefits are being discovered every day … .researchers have now proven that Ozempic provides tangible benefits for the heart, kidneys and liver…research is ongoing regarding osteoarthritis and a range of other maladies linked to inflammation.

Novo also has meaningful reason to believe that Ozempic can reduce brain inflammation as well, perhaps with exciting results. A number of small, preliminary studies have linked Ozempic use to lower rates of Alzheimer’s, and slower progression of the disease.  

But the most critical study is due to produce data this year. While other studies are suggestive of cognition saving benefit, they don’t yet meet the clinical “gold standard” of scientific proof: the double blind, placebo controlled trial. 

As we speak, Novo is working to remedy that problem. The EVOKE trial is designed to provide definitive evidence of Ozempic’s benefit against Alzheimer’s disease. No one knows quite yet how much Ozempic will reduce inflammation in the brain, or how much cognitive benefit that might provide, but we are slated to find out later this year. 

Novo is so confident of this approach, that they actually own a sister company that is formulating GLP-1 molecules, JUST for neurological treatments. You may remember, Ozempic was primarily designed for weight loss; only now are we understanding the wide range of benefits the medicine can trigger. But Novo’s sister company Kariya Therapeutics is custom making molecules just for specific diseases like Parkinson’s disease and Alzheimer’s. 

Novo Nordisk is not the only scientific team that believes that reducing inflammation may reduce the damage caused by Alzheimer’s. InMed Pharmaceuticals (INM) is utilizing a totally different method of action than Novo, but the target is the same: reduce inflammation in the brain. This company’s research is at a much earlier stage than Novo, but the fact that multiple companies are working on neuroinflammation lends some credibility to the approach. 

 

4) Fixing the Immune System 

Another theory of Alzheimer’s pathology that has become popular of late is the idea that Alzheimer’s is actually an auto-immune disease, like Lupus or Rheumatoid Arthritis. This hypothesis posits that all of the above-mentioned problems, the dysfunctional Beta Amyloid proteins, the pathogenic Tao proteins, and the apparent inflammation of the brain, are all symptoms of an underlying problem with the patient’s immune system. 

To that end, there are many young biotechs that are now pursuing this line of investigation. Two of the most promising are Coya Therapeutics (COYA) and Prothena, Inc. (PRTA)

Coya Therapeutics is working on a novel approach that focuses on TREGS, which are a form of lymphocyte that modulates the workings of the immune system.  So far they have one clinical stage agent that is in phase II testing against ALS disease. But they also have four pre-clinical agents in the early stage of testing vrs. different kinds of dementia. One of the four preclinical Alzheimer’s agents is currently at the IND enabling stage, which means it should enter the clinic in the near future. 

Prothena has a variety of anti-Alzheimer’s medicines in its pipeline, including one that is currently in stage II testing and partnered with Bristol Myers Squibb. Regarding the immune system, Prothena is just about to enter the clinic with a molecule named PRX123, which will be a vaccine that aims to train the body to remove unhealthy Beta Amyloid and Tau proteins. The hope would be that Prothena can train a patient’s body to seek and destroy unhealthy proteins that it is somehow missing on its own. 

These are very early stage biotechs, and represent great risks for investors. However, the rewards may very well be commensurate with the risk to capital. 

 

5) The Grab Bag

Lastly, there are many companies that don’t neatly fit into any of these therapeutic categories. They are boldly attempting to trailblaze a path forward based on half a dozen novel hypotheses regarding the poorly understood disease. 

One such company is Anavex (AVXL). This company claims to activate Sigma receptors in the brain, which then help the brain to clear away damaged or misfolded proteins. Of any of the companies listed here, Anavex may actually be the farthest along. In January 2025, they released shocking results of a stage III trial where they claim to demonstrate that their new agent slows Alzheimer’s progression by 36%, without any of the nasty side effects that have hampered the uptake of the new drugs Lequembi and Kinsula. 

While these are certainly some promising results, the investment and scientific community has met the claims with some scepticism. The stock has barely budged since the announcement. At this point, all we can say is that extraordinary claims require extraordinary evidence, so it would be wise to look for more and better data coming out of Anavex. 

Another company looking for a “silver bullet” that doesn’t conform to any one particular theory of Alzheimer’s is Vigil Neuro (VIGL). Vigil is focused on restoring the function of the microglia, which they describe as, “the sentinel immune cells of the brain that play a critical role in maintaining CNS health and responding to damage caused by disease.” To this end, they currently have a novel molecule in phase I testing. 

With a quick internet search, you can find many of these small, start up biotechs with fresh ideas about Alzheimer’s and big dreams. But you should be aware, these are risky bets, only appropriate for the most intrepid investors. 

 

All in all, the world of Alzheimer’s research is now racing along at warp speed. Even to use the phrase, “world of Alzheimer’s research” might have been too much just ten years ago, when the field was demoralized and stunted by a legacy of failure. There is no guarantee that it won’t all end the same way this time. But the breadth and depth of the clinical candidates being tested really bodes well. To overtake a powerful enemy, you must attack from all sides. And it certainly does seem like the biotech community is attacking with all her might in 2025.

 

The post 5 WAYS THAT BIOTECH CAN ATTACK ALZHEIMER’S appeared first on Sick Economics.

 

In part one of this series, we learned all about the importance of the annual proxy statement as a “no spin zone” where you can find raw facts, uncompromised by hype or clutter. In later parts, we learned about the kinds of questions that an investor should be asking when reviewing proxy materials. But theory is one thing, and the real world is another. Now let’s take a look at two companies in the wild: Tesla and Rivian. On the surface, the two companies seem very similar, but our proxy analysis will reveal that the two founders chose very different ways to build their similar car companies.

Read part I here.

Read part II here.

Read part III here.

Read part IV here.

By The Sick Economist

Book A Personalized Consultation Directly With The Author

 

It’s plain to see: there is not much at all about Elon Musk that one could call “standard.” Between his eleven children by five different women, his stated desire to “die on Mars,” and, yes, his pioneering electric vehicles, God only made one Elon Musk. But would you be surprised to find out that the ownership structure of his company, Tesla, is actually very conventional? 

Well, for starters, despite the media’s obsession with Musk and his critical role as Salesman in Chief, Tesla is actually not his company. He has outsized influence for a number of reasons, but his control over the company is not ironclad, and there are conceivable scenarios where he could be fired and/or replaced. All of this information is plainly available in the proxy statement. As of 2023, he owned only 20% of the company, and there was only one class of shares. So on a one share, one vote principle, it would not be impossible for Elon to be outvoted on critical corporate matters, including his own continued employment as CEO. He owns a whole lot of Tesla shares, but there is nothing intrinsically special about his shares that give him an entrenched advantage over somebody else. 

As a practical matter, it would be tough to overrule or get rid of Elon at Tesla. It’s a similar situation with Jeff Bezos, who only owns 12.7% of Amazon. There are a few reasons for this 

First, although Elon does not own an absolute majority of the votes, he does own much, much more than anybody else. If you check the proxy chart listed above, you will see that Elon alone owns almost triple the percentage of shares of the next largest shareholder, which is the Vanguard Group (6.9%). Elon, alone owns much more than the rest of the board and management combined. So, in a voting situation, Elon’s 20% stake could be overruled, but almost all of the other shareholders would have to vote against him (keeping in mind that millions of shareholders don’t even participate in the voting at all). Elon could be overruled mathematically, but he would really, really have to be wrong on a topic. His 20% ownership, when almost no one else even owns 1%, gives him effective mathematical control, even if not full legal control. 

The other reasons why it would be exceedingly hard to overrule Elon would be because he packed the board of directors long ago with his hand picked flunkies. This can also easily be discovered by reviewing the Proxy Statement. Notoriously, of the nine person Board of Directors, there are TWO Musks (Elon and his brother Kimball) and a bunch of big name executives who don’t know much of anything about electric cars or engineering (James Murdoch, the Fox News Scion, one of the co-founders of Airbnb etc). Elon has used his outsized influence over the years to fill the board with his cronies who typically rubber stamp all of his whims. Elon is supervised by his own brother! 

(Should be noted that, over the years, Tesla shareholders have enjoyed legendary financial returns, so many are quite content with Elon’s total domination of management). 

Lastly, Elon would have a hard time getting fired because….well….he is Elon. His personal brand is very, very closely associated with Tesla. Even the least competent board of directors would have to unearth some pretty disturbing facts before attempting to part ways with one of the world’s most famous executives. So, a Tesla without Elon is pretty unlikely. (However, NOT impossible, as should be noted for later comparison). 

 

RJ Scaringe, AKA  “Elon 2.0” 

Sometimes it’s not even best to be the first guy who charges into battle. Sometimes it’s better to let somebody else charge into battle, observe their successes and failures, and then charge in after them, having learned from the first sucker’s mistakes. That may well be a good description of Rivian founder RJ Scarvinge. 

Watching Elon make history with his first generation electric sedans, RJ learned two lessons. First, while Tesla dominated the burgeoning market for high end electric sedans, they left the market for SUVs wide open. Second, being a standard common stock holder sucks, even if you own a lot of it. 

RJ took both lessons to heart. Today, his company Rivian, builds some stunning, premium luxury electrified Sports Utilities Vehicles. And secondly, Rivian really is RJ’s company, even if he has been very sneaky about achieving this goal. 

First, RJ fools 95% of all investors by simply making Rivian look like a regular publicly traded company. He has other C-Suite Executives, he has vice presidents, he has a board of directors. The company’s common shares even trade freely on the Nasdaq exchange, and anyone can buy them. He owns 1.4% of the company through these common shares. All very standard stuff. 

But what really matters is what you cannot buy on the open market. These are the second, tightly controlled special class of shares, called Class B Shares. Where would an investor find out about the existence of these “secret” shares?  You guessed it….Proxy Statement!

RJ may seem a lot like Elon, but when you check out his proxy statement and compare it to Tesla, you see a world of difference. Tesla’s ownership structure is simple and plain. Rivian is all over the place. You will immediately see a variety of different tables, all necessary to explain a complicated ownership structure designed to leave RJ with exclusive control of a company that is mostly owned by the public. CNBC Explains:

 

Rivian, which is based in Irvine, California, has two classes of stock. Scaringe owns just 1% of Class A shares, or those held by the broader investor base and available for trading. But he owns 100% of Class B shares, and each one has 10 times the amount of voting control as a Class A share.

Add it all up, and Scaringe, who is also chairman of the board, has 9.5% voting control. His veto power is even greater. That’s because in order to make any major changes at the board level or in the company’s bylaws, the holders of at least 80% of Class B shares would have to go along with the move.

 

So, RJ commands with an iron fist, at a company where he only holds 1.5% overall ownership! Quite a trick. Many investors would not go along with this arrangement if they knew. But it’s all legal, because the ownership structure is all disclosed clearly on the proxy statement. 95% of investors never bother to look, and even if they do look, they certainly don’t read the fineprint next to the chart that explains the magical abilities of RJ’s 100% ownership of the class B shares. Many would say that RJ purposely designed a baroque, complex ownership structure designed to fool your average investor into thinking that RJ is just an average guy. But then again, is it RJ’s fault if most investors don’t bother to read what is plainly printed on the page? 

 

In the last part of this post, we will see how different incentives have lead directly to a different suite of actions by these two leaders. An experienced investor could have seen it all coming just by reviewing the proxy statements and asking the right questions.

 

The post MASTERING THE PROXY STATEMENT, PART V (THE ELECTRIC BOOGALOO) appeared first on Sick Economics.

 

An astute analyst might call 2024 a year of both promise and peril for the biotech business. XBI, the exchange traded index fund that best represents the overall fortunes of the industry’s most cutting edge companies, finally shrugged off the depressed prices of 2023, rising as much as 23% during some points of the year. However, a new threat emerged in the form of Robert F. Kennedy Jr, the controversial anti-vaccine crusader who President Elect Trump has chosen to lead the Department of Health and Human Services. No doubt Kennedy is expected to shake up healthcare in America. But what, exactly, that means for each individual biotech company, remains to be seen. 

In the larger picture, we will now have a president that will be turning 80 while in office…which will make America’s second consecutive octogenarian president. In short, the more grey America gets, the larger the demand for biotech’s health preserving products. Come rain, or come shine, an aging American society simply needs biotech.  

But not all companies are created equal. Some are tougher than others, more able to withstand the inevitable ups and downs of a risky business. Some offer better science than others, breakthroughs that better address unmet needs. And for some, 2025 promises to be a breakout year, while for others, 2025 will just be one more stop on a marathon journey towards innovation. 

Below, find three biotech firms that are particularly well suited to deliver powerful results in the year 2025. 

By: The Sick Economist 

Book A Personalized Consultation Directly With The Author

 

1) Mesoblast limited 

2024 is ending on an exciting note for Mesoblast, and 2025 could be even more fruitful. The company describes itself as a business that creates “allogeneic cellular medicines for inflammatory diseases.”  This means that they utilize standardized industrial processes to manufacture cell based therapies that DO NOT come from the patient’s own body. (As opposed to more widely used Car-T therapies, which are not standardized, but rather custom made each time from the patient’s own body). 

After years of struggle and rejection, Mesoblast finally earned FDA approval for Ryoncil, a treatment for very ill children experiencing graft v host disease. This is a specialty medicine that would treat less than 10,000 children a year, but there is currently no other approved therapy for these desperately sick kids, so Mesoblast has a high probability of earning substantial payments for this ground breaking product. Additionally, the company hopes to earn adult approval in the near future, which would further broaden the total addressable market. 

The company is well funded to launch this novel treatment into the market. As of September 30th, 2024, the company had $50 million in cash on hand, with the potential to unlock another $110 million in funding upon approval of the drug. Now that Ryoncil has been approved, that means that the company will have a war chest of $160 million. (The firm burned $10.5 million in cash for the quarter ending Sept 30th). 

It’s always exciting when a company successfully pioneers a totally new method of action to treat any disease, no matter how obscure. But the real promise for Mesoblast investors is the other indications that may be just around the corner. In 2025, the company is launching a phase III confirmatory trial testing its anti-inflammatory cells against lower back pain, a condition that affects more than 7 million Americans. Separately, the company is angling to file for accelerated approval in the realm of heart failure, a disease state that affects 6 million Americans.  

Mesoblast’s late breaking FDA approval was a sweet way to end 2024, but it may just be the first of many. The firm has battled for years to advance its novel pipeline of anti-inflammatory stem cells, and 2025 may really be the year that all of that hard work and risk finally pays off for shareholders. 

 

2) Summit Therapeutics

If you are looking for a way to double your money in 2025, Summit Therapeutics could be the answer.  

This small, formerly obscure firm rocked the oncology community in September, 2024, when it disclosed data suggesting that it’s new cancer agent could beat Keytruda, currently the largest selling drug in the world. This trial, dubbed Harmoni II, was conducted in China; Ivonescimab almost doubled patient survival times vrs. Keytruda and reduced the overall risk of death by 49% compared with Keytruda. These results set the oncology community abuzz; its not every day that an upstart emerges from obscurity and handily bests the established gold standard in cancer therapy. 

2025 is critical because the company is currently running phase III trials (dubbed, “Harmoni III”) in the USA. If these American trials can reproduce similar data to the Chinese trials, then Summit could have a new blockbuster on it’s hands. In 2023, Keytruda did $23,000,000,000 in sales world wide. If Ivonescimab could capture just 20% of that market share over a period of years, that would equate to about $5 billion in annual revenue. According to the NYU Stern School of Business, biotech firms often trade at a multiple of six times revenue. This would mean that Summit could be worth $30 billion, as opposed to the current stock market valuation of approximately $13 billion. 

The results of the Harmoni III trial are slated to be released in the middle of 2025. If the results are positive, Summit could be sold to a larger Big Pharma conglomerate soon after.  The controlling shareholder of Summit, Bob Duggan, has built and sold an oncology company before. At 80 years of age, its unlikely that he plans to grow the company indefinitely. Duggan most likely aims to exit the business for two or three times the current shareprice. If you don’t mind taking the risk of investing in a company with only one product, you may just want to buy shares and take a ride right along with him. 

 

3) Voyager Therapeutics 

The Years 2023 and 2024 were revolutionary in the world of neurology, and 2025 could represent the next step in a tantalizing direction. In those two past years, the FDA approved the first drugs proven to slow down the deadly progression of Alzheimer’s disease (Leqembi approved in ‘23, and Kisunla in ‘24). Although these drugs only slow progression of the disease be 30-40%, they still represent a milestone in the world of neurology: for decades prior to 2024, pharmaceutical companies big and small invested billions of dollars in Alzheimer’s research only to be met with unrelenting failure. These two approvals were like the firing of a starting gun at an Olympic sprint event: now that the corporate world sees that big profits are possible in the Alzheimer’s field, the race for innovation has begun. 

One noteworthy competitor in that space is Voyager Therapeutics. They bring a fresh approach that could result in novel treatments. Instead of focusing on the dreaded amyloid plaques, Voyager possesses a suite of intellectual property focused on the brain protein TAU, which is another protein that, when dysfunctional, is thought to worsen the cognition of Alzheimer’s patients. 

2025 is the first year that Voyager really has an opportunity to bring these new agents into human trials. They anticipate beginning a number of TAU related clinical trials with a few different approaches. Additionally, they are beginning human research programs to treat ALS and Parkinson’s, two additional excruciating neurological diseases with few effective treatments available.

Voyager is an example of an early stage company that the patient biotech investor may find appealing. Although 2025 is likely to yield critical clinical milestones, the company won’t be offering a viable commercial product for years to come. But the firm is currently priced that way on the stock market. Voyager is currently valued at about $350 million on the stock market. This figure is even less than the quantity of money in the company’s bank account. So currently, the market is valuing the start up’s intellectual property at $0.  If you think that several potential novel approaches to Alzheimer’s or ALS disease must be worth more than $0, then Voyager Therapeutics might be a good bet for you.

The post 3 PROMISING BIOTECHS FOR THE YEAR 2025 appeared first on Sick Economics.

 

A common refrain is “math is the language of nature.”  Did you know that math is also the language of the investment world? But don’t worry, not advanced calculus, complicated trigonometry, not really even Algebra. If you graduated from an 8th grade math class in America, you can score big as an equity investor. 

Iovance Biotherapeutics is an example of a startup company where simple arithmetic makes a big difference to the investment thesis. The young and growing oncology startup benefits from three mathematical facts that are easy to understand, but often missed by less assiduous investors. Let’s take a look. 

 

The Number 6.4 (Average Price to Sales Ratio) 

According to the NYU Stern School of business, businesses in the biotech sector often trade at an average of 6.4 times their annual revenue.  This is not annual profit, because many of the immature growth companies in this sector are still not profitable. Here, the number 6.4 merely represents the price to sales ratio. 

In the company’s recent 3rd quarter report, management estimated that the company could do about $450 million in sales in the year 2025. This would represent rapid sales growth for the company’s new melanoma drug, Amtgavi. It would also mean that the company’s current market valuation of $3.2 billion is just about fair (Maybe even on the high side). But this valuation totally discounts the realistic growth potential of the company. 

Just this one drug for melanoma could easily quadruple sales over time. Right now, doctors are just experimenting with the drug, and only using it for patients that have failed other, more established therapies. Additionally, the occurrence and recurrence of melanoma skin cancer is expected to explode as the Baby Boomers gets older and older, and their skin becomes ever more worn (Anybody remember what Senator John McCain looked like before he finally passed away?). In fact, respected researchers believe the current total melanoma market could be as high as $6.5 billion today, which could easily double within the next ten years.  This being the case, if Amtgavi could just capture 20% of this market over time, that could easily equal $2,000,000,000 in annual sales. If we apply NYU’s standard multiple, that would make the company worth roughly $ 12 billion, instead of today’s $3 billion.  

Seems like promising math, right? Well, Melanoma is just the beginning for Iovance. 

 

The Number 17 (Cornucopia of Clinical Trials)

Right now, Iovance is a skin cancer company. But the firm aspires to much more. In fact, the company has at least 17 different ongoing clinical trials for different types of cancer. Some types, such as lung cancer, offer massive multi billion dollar markets where current treatment modalities are sub-optimal, to say the least. 

Iovance is pioneering a new type of cancer immunotherapy called TIL.  Immunotherapy is when elements of your own body are modified and improved to fight cancer. Right now, all of Iovance’s treatments are made specifically just for you, and your cancer. This means that, not only is the company cranking out some exciting new data, but the treatments are far more gentle than the traditional “scorched earth” approach of chemotherapy. It’s just your own cells that came from your own body, so the days of nearly killing the patient, just to save the patient, are coming to an end. 

If just ONE of Iovance’s dozens of clinical trials really works out, we could easily add another $10 billion in sales over the coming years. So, then, combining that theoretical ten billion with the very likely growth of Iovance’s already approved melanoma therapy, the shareholders could easily own a company doing $20,000,000,000 in revenue a year. Remember, if we apply NYU’s metrics, that would mean the company could eventually be valued at $90 billion, as opposed to today’s $3 billion. 

It may seem hard to imagine a small biotech growing a cancer empire as opposed to today’s limited sales with the firm’s limited approved offerings. But, as Wayne Gretzky was quoted as saying, “We don’t skate to the puck. We skate to where the puck is going.” 

 

The Number 10.6%  (The Rothbaum Factor) 

One man who definitely sees the vision of where Iovance could go, is Wayne Rothbaum. Rothbaum is a well known biotech tycoon, featured in the book “For Blood or Money.”  He is currently the largest single shareholder in Iovance, and a member of the Board of Directors. Owning somewhat more than 10% of the company, he has outsize control over corporate decisions.  He has done nothing but buy shares in the company for a long time. 

While Mr. Rothbaum is certainly a well known, experienced, biotech investor, he is still just one man. But his presence means that Iovance doesn’t have to worry about running out of money, or worry about a lack of capital for expansion. Rothbaum is a billionaire several times over, and additionally, has rock solid connections all over Wall Street. Even though the company currently has enough cash on hand to fund operations until at least the middle of 2026, Rothbaum’s presence de-risks the situation for other investors. As long as Rothbaum is on board, the chance of this young biotech going broke is almost nil. 

 

When we add up the numbers, an alluring bottom line emerges. A company valued in such a way as to ignore the firm’s very real growth prospects. A research pipeline stocked with exciting innovations for some of the world’s most widespread diseases. And a powerhouse lead shareholder who brings a lot of investment capital to the table. 

 

Featuring an awful lot of pluses, and few minuses, Iovance could be a powerful way for a biotech investor to multiply her money. 

 

 

The post IOVANCE BIOTHERAPEUTICS & GOOD MATH appeared first on Sick Economics.

 

In life, it is rare for lightning to strike a person. According to the National Weather Service, your odds of getting hit by lightning are 1 in 15,300. Pretty darn rare. But there is actually one phenomenon that is even more rare: to get hit by two separate lightning bolts. The odds are so long, in fact, that it is hard to find any reliable data on people who are this unlucky. 

When Bob Duggan and his team managed to sell Pharmacyclics, a previously obscure biotech firm, for $21,000,000,000 in 2015, that was the equivalent of getting hit by lightning. Duggan’s team had achieved this shocking success against long odds. Now it looks like the Duggan team is on the verge of doing it all over again with Summit Therapeutics. It’s improbable enough to beat the odds once, but could Summit investors possibly reap outsize rewards all over again?

 

By the Sick Economist 

Book A Personalized Consultation Directly With The Author

 

Everything about Bob Duggan and his business career is an anomaly. In an industry stocked with MD’s and Phd’s, Duggan doesn’t even hold a bachelor’s degree. In an industry filled with lifers who have been playing with test tubes since they were fifteen years old, Duggan has a broad and varied business background that includes time spent as a cookie mogul. In an industry where founders are lucky to hold on to 2% of the companies they found, Duggan is always the controlling shareholder, owning well more than 50% of his publicly listed firms. Duggan is a rare man who has achieved rare results. 

Duggan gained fame with the publication of the book, “For Blood or Money: Billionaires, Biotech and the Quest for a Blockbuster Drug.”  This book weaves a compelling yarn detailing Duggan’s first big win; the transformation of Pharmacyclics Inc from a marginal biotech penny stock into a preeminent pioneer in the battle against blood cancer. 

This surprise transformation certainly seemed like a “once in a lifetime” score. But now it seems like he may be on the verge of repeating his last impressive feat. 

 

Summit v. The King 

For millions upon millions of cancer patients around the world, the current standard of care is treatment with Keytruda. The introduction of Keytruda more than a decade ago changed the game in oncology. Instead of highly destructive chemotherapy, which was the chemical equivalent of carpet bombing cancer into remission, Keytruda helps the body’s own immune system to identify cancer as a foreign body that should be attacked. Keytruda was the first viable immunotherapy to gain widespread acceptance in the world of oncology. This has led to the widespread use of Keytruda for dozens of different indications and a whopping $25 billion in sales in 2023.  That being said, the medication still leaves a lot to be desired. Depending on the indication and the setting, the medication still works for less than 50% of patients, and many patients develop resistance to the medication over time. Keytruda represents a huge step forward in oncology, but it’s far from a “cure for cancer.” 

Against this backdrop, Duggan’s new company, Summit Therapeutics, made a huge splash with data released in September of this year. Summit’s agent DOUBLED the progression free survival time versus Keytruda, and generally reduced the progression of patients’ cancer by 49% versus Keytruda. If confirmed, this is a big deal, and would mean that Keytruda could be replaced as the standard of care for lung cancer, and perhaps beyond. 

 

IF

“IF” however, is still a big word. Although these data certainly look appealing, a potential Summit investor still faces risks. 

The first risk would be the unusual nature of the data. Summit only holds the license for the new agent, but did not conduct this initial research. Rather the molecule was created by Akeso, which is a Chinese company, and this exciting data were produced by research done only in China. 

This carries two risks. The first risk is that, China is a black box. As a communist country with strict controls on the media, there is little to no transparency about what goes on in the country. Nothing happens without the approval and involvement of the Chinese Communist Party, and this adds an element of unpredictability and opacity to any business dealings. Just ask former super tycoon Jack Ma. 

The second risk is that, even if the data are legitimate and fully above board, all studies were conducted on Chinese people. The Chinese are extremely genetically homogeneous, so we may not be able to duplicate exactly the same results on the heterogeneous populations of America and Europe. 

These questions will soon be resolved. Summit currently has two different phase III trials underway in America. It is expected that these results will be announced in June of 2025. If Duggan and Co are able to repeat anything close to the Chinese results in America, Summit shareholders will have a bonanza on their hands. 

 

Valuation

Immediately after the news broke, Summit’s market capitalization sky rocketed to a breathtaking $25 billion dollars. After the media hype crested, the valuation has coasted down to a more comfortable $15 billion. 

Even $15 billion may seem like a mighty lofty valuation for a biotech company with zero revenue and no American data on hand, but given the context, the number may seem very reasonable to the seasoned biotech investor. Remember, Keytruda, the competitor that was just beaten in the Chinese trials, sold $25 billion in product last year, and has racked up sales well in excess of $100,000,000,000 over its lifetime. According to the NYU Stern School of Business, biotech companies are often valued at 6 times their annual sales on the stock market. Of course, Summit currently has $0 in annual sales. But if we assume that one day Summit’s new molecule at least matches Keytruda, a valuation of even $30 billion might seem like a steal for Summit. In other words, investors could easily double their money in just a few years, or even a few months, if Summit is able to duplicate that Chinese data in June of ‘25. 

 

The Duggan Difference

Before buying in, one thing that investors should consider is that Summit is just different from other biotech companies. The difference comes down to Bob Duggan himself; his particular tactics and his overall situation. 

First of all, unlike most speculative biotech companies, Summit is totally controlled by Bob Duggan and Bob Duggan alone. He owns more than 70% of the shares. Another large chunk is controlled by Duggan’s management team. In other words, the general public is invited to go along for the ride, but Summit is firmly controlled by team Duggan. 

Many people would see this as a big “plus,” for a few reasons. First, Duggan and his team are really putting their money where their mouths are. After the big announcement, Summit announced a capital raise. Not only did Duggan put MORE of his own money into the company, but ALL of his 16 top executives also chose to use their own funds to double down on the biggest career bet of their lives.  This might help assuage fears about the veracity of the Chinese data. We still can’t say definitively whether or not the Chinese data is legitimate, but it certainly appears that Duggan and his whole team are believers. 

The other important fact about Duggan is his advancing age. Despite a shockingly youthful appearance, super entrepreneur Bob Duggan is now an octogenarian. This means that his end goal is very likely to sell the company for boku bucks, just like he did for his last company, Pharmacyclics. It took years to fully develop the Keytruda platform, and it would be reasonable to assume the same would be true for Keytruda’s replacement. Bob has a lot of very positive assets on his side, but years is not one of them. Investors purchasing shares of Summit today are aiming to be bought out at a profit at some time over the next few years. 

 

If Bob Duggan manages to pull this off, the feat really will be one for the biotech history books. It’s hard enough to pull one blockbuster drug from obscurity but to do it twice, would be the stuff of legend. The business equivalent of getting hit by lightning twice. 

 

This play would not be without risk for investors, but who wants to miss an electrifying opportunity? 

 

        

 

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By the Sick Economist

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This wasn’t supposed to happen. It really shouldn’t be. Yet, somehow, it is. Eli Lilly, a formerly lumbering drug giant, founded in 1876 and still based in very uncool Indianapolis, Indiana, has skyrocketed in value as if it were some sexy Silicon Valley tech stock. In the last five years, the stock has catapulted from $110 per share to a lofty $837 per share. The shares are valued at a P/E ratio of 127, which is simply unheard of in the world of Big Pharma. As exciting as this development is, in reality, most investors have already missed this boat. If you weren’t smart enough, or lucky enough, to buy a few years ago, the company looks awfully expensive today. But you may get another chance. Johnson and Johnson, a company almost as stodgy and ancient (founded, 1887) displays many of the same ingredients that caused Lilly to explode in value. 

Could humble J&J be the next Eli Lilly? 

 

To find the next Eli Lilly, first we must understand the factors that transformed this staid, stale household name into the stock market beast of the 2020’s. It may feel like magic, but it isn’t. There are a few obvious factors to the company’s meteoric rise. 

The first factor that made Lilly’s run possible was it’s modest valuation before the surge of the last few years. Lilly performed just like most other Big Pharma companies, which is to say, well, but not sensational. In the year 2000, the shares were priced at $62.75, and in the year 2020, the shares had climbed to $110.89. If we included the dividends, investors received a total return of 208% over twenty years, turning a $10,000 investment into $35,000. Certainly nothing to sniff at, but quite modest compared to legends like Apple, which enjoyed a mind numbing 11,000% return over those same years, turning a $10,000 investment into $110,000. It seemed like the “slow but steady” world of Big Pharma simply couldn’t compete with names like Apple, Google and Nvidia, which enjoyed “life in the fast lane.” 

But that modest valuation made a big difference when Lilly started to roll out the hits. It means that the valuation had room to run. If you unleash a drug, or drugs, that are smash hits, it’s easier for a company to jump from a valuation of 20 times earnings to 90 times earnings, than it is for an already richly valued company to jump from 90 times earnings to 180 times earnings. If you were to buy into Lilly at today’s stratospheric P/E of 127, you would basically be hoping that the company can keep pumping out the same level of growth when your grandchildren reach retirement age. It’s a lot easier to reap gains when the company starts off lower. 

Secondly, Lilly brought to market at least two mega blockbusters with a very broad TAM, or “Total Addressable Market.”  Despite the many well documented shortcomings of the American Healthcare System, our biotechnology sector is thriving. American society has pumped out more treatments and cures in the last ten years than in the previous millennium combined. No one wants to be sick, but if you had to be sick, now would be the best time in human history to battle a disease. 

While this armada of new drugs is great for patients, it makes the pharmaceutical business an extra tough racket. If you were diagnosed with cancer, it’s likely that you would be offered multiple different treatment modalities. Faced with an acute healthcare crisis, not only did the biotech world craft one Covid vaccine on short notice, but several different options. This means that, for many disease states, the competition is fierce. 

Lilly captured the imagination of the investment community by pioneering not one, but TWO different drugs that have massive TAMS and few competitors. The first disease state is diabetes and obesity. For decades prior to the launch of Mounjaro, barely anything worked. Treatment regimens for diabetes were bad, and for obesity, much worse. Mounjaro (branded as Zepbound for obesity) works shockingly well. This is one of those few drugs that comes around once in a generation that will visually, obviously change America. 

Currently, Mounjaro’s only real competition is Wegovy by Novo Nordisk. There are other competitors rushing to push competing drugs onto the market, but these would-be contenders are years away from commercializing their offerings. Additionally, both Eli Lilly and Novo have a fusillade of “next generation” weight loss products ready to build on their current success. Lilly and Novo have effectively created a duopoly around diabetes and weight management, splitting countless millions of patients amongst just two companies. 

But Lilly didn’t stop there. The company is also weeks away from approval for yet another novel medication aimed at a massive patient population with few options. Much like obesity, millions and millions of Americans have suffered from Alzheimer’s Disease with few treatment options. This may all change in the next few weeks with the approval of Donanembub. This would be the second drug approved to treat Alzheimer’s disease. Much like the situation with obesity, Lilly would be establishing a duopoly in soft competition with Biogen. The two would be offering similar drugs to a desperate patient population with few options. Both companies have improvements and “2.0” formulations in the works, and competitors are years behind. With 10,000 Baby Boomers per day getting Medicare cards, Donanembub could be just as big as Mounjaro. And that is how you transform a once forgotten pharmaceutical concern into a raging Wall Street monster with the same characteristics as the titans of Silicon Valley. 

 

Johnson & Johnson: The Sleeper Candidate? 

Thus, we can see that Lilly did not go supernova by accident. Although the company has achieved an unprecedented level of success, there was a very specific set of circumstances that allowed this to happen. They caught lightning in a bottle, which is difficult to copy. Difficult, but not impossible. 

Today, Johnson and Johnson displays many of the same characteristics that Lilly did five years ago. 

First, J&J sports a modest valuation of just 22 times earnings. While many would consider this to be richly valued, in today’s super pumped up stock market, J&J’s price tag is quite reasonable considering the firm has handed in 150 years of solid performance. Put another way, even if Johnson and Johnson were to double in price over the next few years, and arrive at a P/E of 40, that would still look modest next to Lilly’s extreme valuation. So, in a way, Lilly has cleared the way for other titans to rise, as well. 

Second, J&J is also working on novel treatments for patient groups with colossal TAMs. One of J&J’s most exciting new candidates is Posdenimab, which targets Alzheimer’s disease. The reason why this drug is extra exciting, despite pre-existing competition from Lilly and Biogen, is that it targets the disease from an all new angle. While Lilly and Biogen’s agents target Amyloid plaques, J&J is targeting TAU, another toxic brain protein closely associated with the devastating cognitive decline of Alzheimer’s. Although Lilly and Biogen have blazed a path by offering the first effective Alzheimer’s treatments, their overall results are still suboptimal, and leave much room for improvement. Posdenimab may just be that improvement. The drug is currently in phase II trials with data readout expected sometime over the next 12 months. Additionally, J&J has other, more experimental Alzheimer’s treatments in its pipeline. It’s worth noting that Lilly’s stock price started to take off just after the world started to learn about promising results in phase II trials. With some luck, J&J could be just the same. 

Much like Lilly, J&J is far from a one trick pony. Another realm of deeply unmet needs is MDD, or Major Depressive Disorder. Although there are already many medicines on the market, this disease remains notoriously difficult to treat. Many treatments fail to deliver relief for specific subsets of patients, and most “new” drug launches over the previous decades have just been small tweaks to existing science. J&J is bringing three different, novel agents to this market (Seltorexant, Aticaprant and the recently approved Spravato) the company could easily see Lilly-like revenue gains in the coming years. There are still millions of clinically depressed patients out there, and J&J is ready to offer much needed help. 

 

Downside Risk

Legendary investor Warren Buffet is famous for quipping, “The first rule of an investment is: don’t lose money. And the second rule of an investment is: don’t forget the first rule. And that’s all the rules there are.”   So, we would be remiss if we didn’t consider the risks of an investment in Johnson&Johnson. 

Most of the medicines discussed in J&J’s pipeline are in stage II or stage III testing. This means that some, or all, of the medicines could still generate disappointing results. The further along in testing, the less risky an asset is considered. However, the jewel in the crown, Donanemub for Alzheimer’s, is still in phase II. Efficacy is not guaranteed, and many yet fail in the quest to treat this dread disease. 

That being said, J&J is substantially less risky than most high octane biotech stocks. Since 2014, the firm has grown operating income from $17 billion per year to $20 billion. During that same time, the company has grown it’s annual dividend from $1.99 to $4.75. Currently it sports $171 billion in assets versus just $100 billion in liabilities. This is not a fly-by-night, entrepreneurial venture that could disappear tomorrow. Given the company’s reasonable current P/E of 22, it would be hard for an investor to lose too much money on this bet. 

J&J has been the target of a host of lawsuits regarding it’s sale of talcum powder, a product that allegedly caused cancer. While this litigation created a cloud over the company for the years, the fireworks are now winding down. J&J has implemented several strategies to limit risk to the company while still meeting all of it’s legal obligations.  The market has had a long time to digest all of the news about these legal wranglings, so any litigation risk is likely baked into today’s J&J share price. 

Limited downside, while offering potentially unlimited upside potential. This is what the sophisticated investor calls an “asymmetric bet.”  In other words, the chances of reward are much greater than the risk of failure. For most people, this is probably a much safer investment than chasing Eli Lilly at today’s rich valuation. Everybody wishes they had a time machine, where they could go back to 2020 and buy today’s wonder biz. If you find a time machine somewhere, you know what to do. If not, you might just invest in J&J: it could be the next best thing.

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