In today's episode of Industry Focus: Wild Card Wednesday, Jason Moser and Shannon Jones give their take on the coronavirus. Later, they do a deep dive into three biotech companies.
Learn about Vertex (VRTX -0.20%), Biogen (BIIB 1.87%), and Novartis (NVS 0.08%) -- what these companies do, how they've performed for investors, where they can grow from here, what kinds of treatments they offer consumers. Finally, find out which company our guest chooses as her pick to pay attention to.
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This video was recorded on Feb. 5, 2020.
Jason Moser: It's Wednesday, February 5th. I'm your host, Jason Moser. And on today's Wild Card Wednesday, I'll tell you what, I'm really thrilled to be able to announce this, folks. I've got someone that you have been waiting for. I mean, you maybe haven't been waiting all that long, but you've been waiting for. I know, because you've been saying it on Twitter, and she's here now. It's Shannon Jones. Shannon, how is it going?
Shannon Jones: [laughs] Thank you, Jason. It's going well. I'm super excited to be back in the studio on a Wednesday to talk Healthcare. I have missed -- I can't say it enough, I have missed being on the show, missed connecting with our listeners. And thank you to everyone who's been sending such nice messages. Trust me, I miss you too. But super glad to be back in the studio today.
Moser: [laughs] Well, I must admit, when we came up with this Wild Card Wednesday idea and found that you were moving on to other jobs here, I thought, you know what, I need to make sure I get this in my head to get Shannon back in here quickly. Because it was just such an easy idea, it's just a no-brainer. And it's perfect timing, right, we're knee-deep in earnings season, there is a lot to talk about in regard to healthcare earnings. We're not going to spend all day on the coronavirus, I promise, but we will touch on that. I want to get your take on the state of affairs there. But we've also got big earnings reports with Vertex and Biogen and Novartis. So let's just go ahead and dive in.
And first and foremost, to me, the big headline, it seemed like the past couple of weeks, it's either Tesla or the coronavirus. Now, I can promise you, we're not going to talk about Tesla today. This is Healthcare. But we are going to talk about the coronavirus briefly, because it is something I feel like it's developing into a bigger problem than probably all of us foresaw even just a few weeks ago. I mean, I feel like we have a grip on how to take care of this, and obviously we'll deal with it. But there are some implications here that, it's just becoming a bigger problem than I think we all thought initially. What's your take there?
Jones: Yeah, I'd have to agree. I think, you know, the first few rumblings of it out of China, it was kind of like, OK, this sounds a lot like other viruses that we've heard about -- SARS, MERS, things like that. But I think what's a little bit different with this one is the fact that there's just a lot more unknowns about this virus, and it appears to be spreading pretty rapidly, probably a little bit faster than what we've seen in times past. I mean, just looking this morning, right now, I think they've got over 24,000 that are confirmed infections across the globe and the death toll now is almost near 500. Here in the U.S., we've got 11 confirmed cases.
And so, with that being said, seeing just the sharp spike in infection rates and also seeing a slightly higher mortality rate than we've seen in times past too. I think all of that comes together to just create kind of this sense of fear and uncertainty that I don't think we've quite seen with some of the other viruses, like the SARS, in times past.
Moser: Yeah. And I think you're right, the fear is there, we're seeing it in the headlines every day, yet the market seems to just brush it right off. I mean, we've got companies out there guiding and saying, "Hey, listen, this is going to have a material impact on our business." I mean, I told you we weren't going to talk about Tesla, but I lied, OK, I'll throw this in. Tesla did say, they were going to be suspending production in China because of this. And Nike, Starbucks, we're seeing companies, hardware companies, Apple; car companies, Tesla. I mean, those are just delayed sales, right, they'll eventually happen. The food and beverage industry, it's going to be difficult to make up for those lost sales. But even then, the market does seem to be very resilient in the face of this news.
Jones: It really is. And I think that having gone through, it seems like almost every year, some sort of instance with some sort of virus. Was it last year, was it Ebola?
Moser: Yeah. [laughs]
Jones: I mean, I think what you're seeing, the market as a whole is recognizing, these are going to be short-term headwinds. Yes, all the companies that you mentioned and more are going to experience some pain. But I do think there's a greater resilience this time. But with that being said, I mean, there is still quite a bit of fear. And I think a lot of that just comes down to a lot of the unknown pieces. So like, just how contagious is this? What populations are more susceptible? Where did it come from? Can we really even trust the data that's coming out of China about infection rates? Is it higher? And is there a treatment?
I think right now we've got about nine clinical programs being spun up to create some sort of treatment. Gilead Sciences was actually just noted by the World Health Organization as potentially having the most promising one. But there's still just a lot of unknowns.
But I will say, from a healthcare perspective, one thing that has been consistent -- whether it be SARS, whether it be Ebola, swine flu, bird flu, whatever -- there's a lot of misinformation. And I think that's key for a lot of investors right now to recognize. For those that are fearful, now is not the time to make any sort of life-altering investment decisions. And really even more so even just changing your long-term strategy. Of course, here at The Motley Fool, we are still long-term investors, that does not mean we lose sight of what could very well be a massive public health crisis. But at the end of the day, we need to recognize that things like this will happen, and they will probably happen at a greater frequency just as commerce continues to become more and more global, we continue to be more and more mobile, like, this is going to happen, and we should just get used to it.
Moser: At the end of the day, that is it, it's going to happen, get used to it, we can't time it. But I feel like we are living in a day and age where we're able to handle these, looks like. Great companies out there, you mentioned Gilead, I know Johnson & Johnson is out there as well. To your point, we got a lot of companies hard at work trying to figure out the answer to this. And I am confident, it's a matter of when they figure out the answer, not if.
Jones: Exactly. And we have the tools now that we didn't have before, even a decade, 20 years ago. We now can map the genome of a lot of these viruses a lot faster than we could back then too. So we can find out information and data a lot faster. So I'm less concerned about this being a massive, long-term issue and just more focused on, what can we do just to make sure that the spread on a public health basis is at least contained?
Moser: Go science!
Jones: Go science!
Moser: All right, let's jump into some earnings here. First up, we wanted to take a look at Vertex's most recent quarter. Now, for our listeners, remind our listeners what Vertex actually does?
Jones: Yeah. So Vertex -- and that's ticker symbol VRTX for all of our listeners out there -- Vertex is a biotech company, really one of the fastest growing biotechs that's focused on cystic fibrosis. It is a disease that really impacts lung function and even life expectancy for patients that have cystic fibrosis. But Vertex really has a monopoly in the CF space, and honestly, they're likely to hold that title for at least the latter half of the next decade and cornering what could be $10 billion-a-year market by 2026. Really, Vertex is -- and I've talked about it on prior shows, I talked about it, I think, in our roundtable that we did -- this is one of my favorite biotech companies. Just because not only are they going after what I think are high unmet-need areas, but they're executing on it, and it's a mission that I can get behind. And I love their management team too.
Moser: That's a big company, I mean, it's $60 billion-plus market cap. They've obviously been doing something right.
Moser: And to your point, in regard to the cystic fibrosis market, any time you see these companies out there that really come up with treatments that just develop these nice track records of working, it becomes very difficult for a newcomer to the space or even an incumbent to develop something even better. It's what we like to say, "top it" here. I mean, oftentimes it's difficult to top these treatments. And so that certainly has established a very nice competitive position for Vertex. But going forward, what are some of the things you're watching with this company in the coming quarters and years? Is there something beyond cystic fibrosis you feel like they are on the cusp of bringing to market, or what are you watching?
Jones: Oh, absolutely. Yeah, so there's a lot to watch with Vertex. And I do like the fact that they're expanding outside of cystic fibrosis. So right now, they're actually moving into about six new indications. And that includes everything from diabetes -- which, they actually made an acquisition, I believe it was last year, for a potential stem cell-based cure for diabetes. So they're going after really lofty targets here. And even kidney disease. They also have a collaboration with CRISPR Therapeutics, a company we've talked about a lot. And that's all about gene editing. And they unveiled some data in November, some really early data, but very promising data in blood disorders. So this is a company that I think is really pushing the needle just in terms of science, but also going after high unmet-need areas. And really kind of being unafraid to go after it. And they've got a track record to prove that they can actually execute.
Moser: How do you feel about CRISPR? That's a name that's been talked about a lot here recently. And what really got CRISPR on my radar -- I'm not going to lie, is when I started hearing Ron Gross talk about it. A diehard value investor, Ron Gross. And really, I mean, Ron, smart guy, great investor. I see him opening his mind and expanding his circle there talking a lot about CRISPR and the potential for gene editing. What's your take on -- is that the real deal?
Jones: It is the real deal. I will say, it's still very early. So they just started human trials. And so it'll be at least the next few years until we really get a solid readout in large patient groups. But what I like about CRISPR and this technology is that it's not just limited to patients, this is technology that can be applied to agriculture, bioscience --
Moser: Oh, wow! Okay, so that is a far bigger market opportunity.
Jones: Yes. A much, much bigger market opportunity than I think we even really imagine right now. So the technology is there. This is a platform company for me. When I'm looking at healthcare investments, I'm looking at platforms. I'm looking at something that -- you know, a company that's not going to be a one-hit wonder, but a company that can spin up multiple therapeutic agents and then can continue to partner and license and just continue to generate streams and streams of cash. This is a company that has that potential. But again, it's still very early, there's a lot of unknowns even with CRISPR just in terms of what are the long-term side effects as you start to pass along some of these gene-edited mutations, if you will, down a germline. So there's still a lot to watch here, a lot on the safety. But all in all, I'm really excited about the prospects with CRISPR.
Moser: Yeah. You said the word "mutation." I think that while that's the right word, I think that most people just think of sci-fi TV and immediately they go to a bad, bad place. But it's not always a bad thing though. I look at CRISPR, I think it's a small company, $3 billion market cap. You know, healthcare is a space where consolidation is always happening. It wouldn't shock me at all to see CRISPR acquired by someone. Another company that comes to mind is Illumina. Illumina, they are in the gene-editing space as well, right?
Jones: Yeah. So they're more in the sequencing --
Moser: Sequencing, got you.
Jones: Yes, exactly. So that could definitely be an opportunity for them. It makes sense, if you're going to be sequencing the genome, why not also have the tools made by CRISPR? Granted, that's still a long shot, but yeah, very complimentary. This is something even on the discovery side -- where I've been focusing much of my time, really diving into just genomics, gene editing, gene therapy. This is a massive space, and we're really so early on in the potential for this space. So yeah, a lot to like here.
Moser: That's cool. All right. Well, let's move on over to Biogen, another company that just announced earnings here recently. Talk a little bit about Biogen; remind our listeners again what Biogen does.
Jones: Yeah, so Biogen, one of the largest biotech companies; also, where I used to work, so I've got some heartstrings over there, but --
Moser: Aha! That's like when I talk about Travelers Insurance on this show. I'm like, you know I used to work there.
Jones: But, yeah, they're really a company focused on neurology products. And have really kind of been getting back to the heart of that over the past few years. So as they have undergone some management changes. But really for Biogen, they had a pretty solid quarter. Revenue $14.3 billion, it was a 7% increase year over year. But really, though, I think big, big takeaways coming off of full-year earnings, plus also fourth quarter is this drug called Spinraza. So Spinraza is a drug for a rare disease known as SMA or spinal muscular atrophy. It's a genetic disease that impacts infants; most of them don't live. I believe it's about 82% of infants actually don't make it to their fourth birthday. And so they went after this with partner Ionis to create this drug called Spinraza. Sales were up 16% to $547 million. That's up 22% for the year. But the reason why I bring this up is because it's actually decelerating. And that's because of competition joining the scene, and that's really Novartis -- which we'll talk about in a minute -- but they have a gene therapy that is really starting to take some market share away.
And so, for Biogen, the big, big question mark is, OK, you've got a multiple sclerosis franchise that has really seen declines over the years. This is an extremely competitive space. You've got companies like Novartis, Roche, Sanofi really doing everything from injections to infusions, to pills. And so, because the MS franchise has had so much competitive threats, it's like where's the big growth driver? And really Spinraza came out of the gate, guns ablazing, but now they're starting to see competition. So the big question is, what's next? And really, what's next or at least what Biogen is hoping is what's next is their Alzheimer's treatment, something called Aducanumab.
Moser: I was going to ask you about that, and I knew I was going to screw the name up. So I'm glad you said it first. I want to talk about that for a minute though because, to me, Alzheimer's is one of those diseases that, given everything we've achieved in the healthcare space, what technology has done, I mean the progress in science, Alzheimer's is one of those -- it's just a tough nut to crack it seems like. And it affects so many people. You know, I'm getting up there in years, Shannon, you know what I mean, stuff starts to scare me even a little bit. Tell us a little bit about this drug and the implications it could have on the Alzheimer's market?
Jones: Yeah. So and you said it well, in the Alzheimer's space, 99% of drugs actually fail in Phase III -- and that's really the big confirmatory trial. So it's almost kind of known as a Phase III graveyard, most drugs just don't make it. And I think it really comes down to, we don't understand the underlying science. Yes, there's some plaques in the brain, but do we go after the plaques, or is it something else that maybe the plaques are a result that we really need to target. And so, long story short, Biogen has been going after this hypothesis that I think up until last March was kind of debunked. We saw the data that came out for this drug, and it was not good. As a matter of fact, Biogen said, you know what, we're going to discontinue.
Stock fell, I think, 33% just off of that in March. However, they came back -- I think it was later on in the year -- and said, wait a minute, we actually went back, combed through some data, and we actually saw that there were a group of patients who were earlier on in the disease who did respond and we actually started to see their cognitive decline was not worsening as fast.
Moser: So slowing it down.
Jones: So slowing it down. So encouraging, yes. But I always get a little hesitant when I see these retrospective ad-hoc studies, because a lot of biotech companies will go and kind of mine for data just because they put so much money into this; which certainly Biogen has. But for a drug like this, just to put some numbers behind it. It truly is high-risk high-reward. This could be $10 billion in peak sales opportunity for Biogen if it gets approved. So they resurrected the drug. They're hoping to file this year and hoping to get approval. I can already tell you, there's going to be an FDA advisory committee, it's going to be really contentious. A lot of analysts are saying, this is the number one thing to watch this year. If the FDA -- which has leaned more lenient recently, especially with high unmet need areas like Alzheimer's -- if this happens, this could be a true game changer, not just for Biogen but biotech in general.
Moser: I was going to say, the FDA, when it comes to things like Alzheimer's, and we're having challenges and trying to really solve some of these big problems, you feel like the FDA skews more lenient in cases like these. I mean, they have a job, obviously, and we want them to do their job in scrutinizing these drugs. But do you feel like they give a little wiggle room when it comes to big problems that we haven't quite solved yet?
Moser: There are some judgment there maybe.
Jones: Absolutely. And even with the new administration, I think you've seen them kind of step back to really allow some of these companies to at least get something on the market and then requiring the company to do, like, a post-marketing study to really confirm what they saw or what they submitted in their initial clinical documents. But Sarepta Therapeutics is a prime example of this where really the FDA came out and said, "Well, the data has some question marks, but there's nothing else available for these children, let's go ahead and approve this." Now this drug is on the market. There are still question marks about it, honestly. But I think what you're seeing is just an FDA that's willing to take chances on areas where there really is nothing else for these patients.
Moser: Yeah, I think I'd rather see them willing to take some more chances, that to me is, you're not going to get anywhere just thinking small in some cases.
Jones: Exactly. Within reason.
Moser: Yeah, absolutely. Within reason. I'm not giving them just carte blanche.
Before we continue, I want to remind listeners that, if you're looking for more stock ideas -- like a lot of these great stock ideas Shannon is throwing your way today -- make sure to check out our Stock Advisor service. You'll get stock recommendations from David and Tom Gardner every month, Best Buys Now, and a whole lot more. Just go to if.fool.com. And we've got a special 50% discount for our listeners, check it out at if.fool.com.
Okay, Shannon, let's move over to another company that you mentioned earlier in the show, Novartis. Another big earnings season for another big company in the healthcare space. And with Novartis, let's remind our listeners what Novartis does exactly.
Jones: Yeah. So Novartis, really one of the largest biopharmaceutical companies in the world. But they've captured my attention over the past few years just because they've been acting more and more like a biotech. And they've got new leadership at the helm as well. But really, they've been going after rare diseases, gene therapy, oncology, while still continuing to support just a broader portfolio for indications, like psoriasis and multiple sclerosis, as I mentioned earlier. And really, for Novartis, their big growth driver is in their division that they call their Innovative Medicines. And this is really where we saw the growth come from for Novartis.
For full year, net sales were up $47.4 billion, that was up 9% year over year on a constant currency basis. Core operating income $14.1 billion, that was up 17%. But really what was driving a lot of that was a drug called Zolgensma. And that is the first-ever gene therapy for SMA, the disease I mentioned earlier. That brought in $186 million in sales, up from $160 million. And while that may sound not like much, there's a whole process by which Novartis has laid out for these patients to get on the drug. And really for these sales, they were able to get actually pretty favorable insurance coverage. Insurance policies now cover 97% of commercial patients in the U.S. So I do expect that number to tick up, although it was a little bit lower than what they were hoping to see, at least on the analysts' end. But thankfully they've got their other drugs in this division, like Cosentyx and Entresto, that are also helping to kind of prop things up for right now.
I will say, one of the bigger questions for me with Novartis right now, though. I mentioned they have newer leadership. If you remember, Jason, last year, there were some snafus -- and even the year before that -- one of which was the debacle with President Trump's former personal attorney, Michael Cohen, who they had actually paid -- I think it was $1.2 million -- to basically get favorable health policy.
Moser: Oh, I do remember that.
Jones: You remember that?
Moser: Yes, I do. Well, I was wondering. Yeah, I saw the reputation risk there, I was trying to put that together, but I see where you're going, yeah.
Jones: Yes. So that's one thing that they're trying to turn around. In addition, in relation to that drug that I was talking about, Zolgensma, there was a data-manipulation snafu when they actually submitted to the FDA. And they acquired a company called AveXis. And really it came down to the leadership with AveXis, who had manipulated the data to get approved. FDA, thankfully, continued to keep it on the market. But really, Novartis has been trying to kind of turn its reputation around. They just hosted their first ever ESG investor day.
Moser: Oh, wow! That's encouraging.
Jones: [laughs] Yes. So they are certainly trying to head in the right direction. But all in all, I think this is a company that is certainly worth watching. They've got the potential for many more drug launches this year. They did five drug launches last year, which is pretty unheard of. Even for smaller biotechs, that's a lot. But they're really going after some big targets and really trying to remake a name for themselves too.
Moser: Well, and as you mentioned, I mean this is a huge company, right, at $250 billion market cap or something like that. I saw the guidance; they're still calling to grow sales in the mid- to high-single-digit range. And it's just when companies get that big, that's really impressive. You have to look at that and think. I mean, the neat thing about these big healthcare companies is they do have a tremendous amount of resources at their disposal, and they can make these big investments in these long, extensive pipelines. And they know that not everything is going to work out, because you strike gold a few times, and that really does take care of the economics.
Jones: Exactly. I will say, Jason, as I look across these three companies -- Vertex, Biogen, Novartis -- if I had to choose a winner -
Moser: Well, that was going to be my next question. You saw it around that corner, I was going to throw you under the bus. Hey, listen, I don't know if you're prepared for this, it's not Mac Greer's desert island question, but if you had to choose one of these three companies, what's the one that has your attention?
Jones: Yeah. Hands down, this has to go to Vertex Pharmaceuticals. I mean, revenue $4.1 billion, up 37%. Net income was $1.17 billion, which was down year over year, but I mean they've been ramping up on the commercial, and really for that triplet combo, the Trikafta drug. This is a company that I think had just absolutely blew expectations out of the water when it came to full year and Q4. They brought in, just for Trikafta alone, $420 million. The drug was approved in October. So that's nine weeks of sales. Analysts were only expecting $70 million to $80 million. That's a huge, huge beat.
Moser: That's like those Disney+ subscriber numbers.
Jones: Exactly. It's to that level now, it's Disney+ level. But they're guiding, I think, in the range -- let me see here -- yeah, they're guiding $5.1 billion to $5.3 billion for 2020; quite a jump up from the $4.1 billion of 2019. But I have to say, Jason, I think that might be a little conservative, especially if sales continue to trend as well for this drug and really continue to offset some of the decline that they're seeing in some of their legacy products. I think this is a company that's really just getting started.
Moser: I love it when companies underpromise and overdeliver.
Jones: Love it.
Moser: All right. Well, Shannon, listen, I know our listeners got a real kick out of hearing you this week, and I had a great time talking with you this week. So thank you so much for coming in and joining us, and don't be a stranger.
Jones: Hey, thank you, Jason, and I promise I will not be.
Moser: Okay. Well, as always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
Thanks to Austin Morgan for his hard work behind the glass this week. For Shannon Jones, I'm Jason Moser. Thanks for listening, and we'll see you next week.