This fall promises to be a very interesting time in American History. A hotly contested national election, a vacant seat on the Supreme Court, the potential return of a dreadful virus. Although the hallmark of our current national situation is unpredictability, many polls show Joe Biden and the Democrats being swept into office in November.
As a citizen, you may well have strong preferences for either political party. But as an investor, all that matters is the potential for change. Whether a political rotation is for better or for worse, there is always opportunity hidden in change.
If our Federal Government does change in November, what opportunities might exist for you? Below are three biotech stocks that would benefit from a Democratic Administration.
1. Coherus Bioscience, Inc ($CHRS)
Coherus is a firm that focuses exclusively on the discovery, manufacturing and sale of generic “biosimilar” medications. A biosimilar medication is the contemporary equivalent of the generic metformin that you buy from Walmart for pennies. Except, those generic drugs are copies of “small molecule” drugs. One reason those are so cheap is because “small molecule” drugs are very easy to copy.
Over the last twenty years, many of the most important drugs to hit the market are not “small molecule” but rather, “biologic” drugs. These are drugs that are actually manufactured by special, genetically programmed bacteria. Does this sound complicated? It is.
Some of the most widely utilized drugs in the world today are biologics. Examples would be Lantus Insulin, or Humira for arthritis. One reason why these drugs are some of the biggest blockbusters the Pharma Industry has ever seen is because they are very expensive. What’s the secret? Unlike the small molecule drugs, it’s impossible to exactly copy biologics. The best that capitalism has managed is to develop a nascent “biosimilar” industry, in which blockbuster biologics are mimicked. They are almost the same, but not quite. This means that biosimilars must go through rigorous trials and FDA evaluation, just like novel agents.
Biosimilars are more complicated to make, and Coherus Bioscience was launched to take advantage of this opportunity. After years of investment and painstaking research, they recently launched Udenyca, a copy of the cancer mainstay Neulasta. When Udenyca launched in January of 2019, the drug sold for 33% less than Neulasta. Since that time several Big Pharma competitors have jumped in with competing biosimilars, creating competitive pressures that will drive down prices and further benefit patients.
The company sailed to profitability immediately; in 2018 CHRS had $0 in revenue, in 2019 they had $356,000,000, with over $100,000,000 in profit. Emboldened by the raging success of Udenyca, CHR is just getting started. They have at least five more biosimilar drug candidates in the pipeline.
Why would a more left leaning Federal Government be good for Coherus?
Many commentators believe that the Democrats would immediately pick up where they left off with Obamacare. With Obamacare, basic access to medicine was established for a wide swath of downwardly mobile Americans. However, infamously, Obamacare did not solve the “cost problem” that most middle class Americans face. Medical costs are still outrageously high across the board. So high, in fact, that medical bills are still the leading cause of bankruptcy in the United States.
In particular, Big Pharma is often targeted, by both political parties, as being “too greedy.” Drugs like Neulasta, which can easily cost $50,000 per year, don’t help this image. If a new Democratic Administration decides to declare “war” on high medical prices, Coherus could directly benefit; afterall, saving patients money is their core business proposition.
In fact, many healthcare commentators have bemoaned the unfulfilled promise of biosimilar drugs in America. Even as our science has rendered biosimilars easier to make, the American Healthcare market has been stubbornly slow in realizing the potential savings that biosimilars offer. Many investigators and experts in the field believe that some of the blockages slowing the uptake of cheaper biosimilars could be alleviated by a more aggressive Federal Government.
Big Pharma is the industry that America loves to hate. If Democrats choose to make outrageous healthcare costs a key priority, Coherus Biosciences could wind up a big winner.
2. Novo Nordisk ($NVO)
If the Democrats chose to resume building up Obamacare, Novo Nordisk could be a
prime beneficiary. The Danish company is the leader in treatments for “metabolic disorder” a toxic stew of ailments including diabetes, heart problems and obesity.
It might seem counterintuitive that Novo Nordisk would benefit from a left leaning Federal Government. After all, Novo is the leader in the insulin market, and high insulin prices have become the poster child for ruinous pricing of common medicines. America literally can’t live without Novo’s medicines, and Novo has been highly criticized for extracting astronomical prices from regular folks.
But the winds of Capitalism are changing, and perhaps actually changing in Novo’s favor. While Novo may need to adjust pricing to please a populist left leaning Government, that same government is very likely to continue focusing on expanding access to basic medical care for financially struggling Americans. Since Diabetes and Obesity disproportionately affects economically disadvantaged Americans, increased access, even at lower prices, could be a bonanza for Novo Nordisk.
While Novo has dominated the insulin market for years, executives currently have their eyes on an even bigger prize: obesity itself. Through rigorous study and years of trial and error, $NVO is coming closer and closer to launching a range of options to treat obesity directly. But clinical efficacy is only half the battle with obesity; if poor patients don’t have good access to these novel medications, sales will stagnate.
The case of Saxenda is instructional. This is a drug that has been proven to reduce weight 5-7% in obese patients, sometimes delivering up to 10% weight loss. So, a 250LB man could potentially lose 25lbs on Saxenda. Given all of the pills and potions that are sold on the darker corners of the internet, you would think that this medication, with proven efficacy, would fly off the shelves, right?
Saxenda was launched with much fanfare in 2015, but sales greatly disappointed. Novo struggled to get insurance companies to pay the high price that execs had believed they could get. The drug, priced at $1,000 per month or more, was way too expensive for the average Joe to purchase in cash, so sales languished. Today, five years later, Novo has made some progress with the drug, reporting $891M in sales in 2019. For reference, in the same year, Novo sold about $9 Billion in insulin that same year. Even though the number of obese people in America greatly outweighs the number of diabetic patients, Novo sold ten times more insulin. Most of the progress that Novo made in Saxenda sales was related to discounts and more modest pricing expectations. It turns out, no one wants to pay for you to look good in a swimsuit.
But, as the saying goes, “you ain’t seen nothing yet.” Saxenda was just the beginning. Novo has a whole pipeline of obesity drugs, most of which have already demonstrated some dramatic results. Some of Novo’s novel agents have demonstrated sustained weight loss of 16% or more!
This time, Novo is taking no chances. In addition to weight loss, the C-Suite has decided to cautiously and methodically collect data about the tangible health benefits of weight loss. If Novo can help you lose 16% of your body mass, will that reduction result in less heart attacks? Less Diabetes? Novo is taking it’s time to “do it right.” Rather than experience another disappointing loss, they intend to bring an irrefutable collection of data demonstrating why insurance companies must cover their novel obesity agents.
Given this background, $NVO may greatly benefit from a resurgent Obamacare program. Why? Patients with no insurance cannot pay for expensive medications. Patients with insurance of almost any kind are much better clients of Novo. With Novo currently gathering more and more convincing data about the health benefits of their emerging obesity pipeline, insurers will have a hard time denying coverage.
The formula is simple.
More insurance coverage+better data+focus on “underserved” communities = Fat Profits.
A Democratic administration could be sweet indeed for Novo Nordisk.
3. Exact Sciences ($EXAS)
Exact sciences would benefit from a “Blue Wave” for a lot of the same reasons that Novo
Nordisk would. Exact’s diagnostic screening offerings are deeply woven into the fabric of primary care medicine. More patients with more access to primary care medicine will mean more revenue for Exact Sciences.
Exact’s claim to fame is the Cologuard test. Cologuard is a non-invasive method of screening for colon cancer that is only available with a prescription from a doctor. In the last few years, this method of screening, which can be done at home, has come to compete with colonoscopies. According to the American Cancer Society, Americans should have a Cologuard test every three years, starting at age 45.
Cologuard is now a well established part of routine preventative care. But currently, millions of Americans still go without any kind of care due to gaps that still exist in our healthcare system. If the Democrats choose to nurture or even grow Obamacare, that could equate to millions of more tests per year.
Exact is not stopping with Cologuard. They have a number of other screening and diagnostic offerings related to cancer; they also have an active investigational pipeline that will deliver new screening and diagnosis tools for years to come.
But nothing happens if people don’t have basic medical access. Imagine being a healthcare executive, and finding out that the total addressable market for your product has grown by 50% overnight! That is exactly what could happen for Exact if Obamacare grows under a new Democratic Administration.
The next ninety days promise to be a passionate time in our nation’s history. You may very well not like the outcome of the upcoming elections. But investing is like surfing. The best surfers realize that they cannot control the waves coming their way. They can only use their skills to surf on whatever may come. Get your surfboard ready, and you’ll be ready to ride this new political wave to profit.