This Below $10 Biotech Is Lining for an Attractive Trade
Shares are now testing technical support levels where they have held a few times now. Here's a way to play the enticing risk/reward.
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It was a challenging week for investors as equities plunged on Wednesday. This followed the latest cut to the Fed Funds rate, which was as expected, but the "dot plot" was not as accommodative as hoped. Markets did manage to have a decent rally on Friday, though to salvage something out of the week.
Humacyte HUMA, which we discussed as a covered call trade idea in late October, rose by a third on Friday upon an FDA approval. This stock has also been a fave of TheStreet Pro's James Rev Shark DePorre.
We are going back to the biotech space for our latest covered call trade as we line up Iovance Biotherapeutics IOVA. This stock roared out of the gate in 2024 on the FDA approval of Amtagvi for the treatment of advanced melanoma. However, the stock has fallen nearly 60% from those highs and is now testing technical support levels where the shares have held a few times now. Options against this equity are lucrative and have good liquidity. Therefore, IOVA looks to be setting up as a solid covered call trade at current levels.
Amtagvi is currently the first and only one-time, individualized T-cell therapy approved for the treatment of advanced melanoma. It is also known as lifileucel and is Iovance’s first success in developing cell therapies using autologous tumor-infiltrating lymphocytes, or TILs. The company also makes and provides Proleukin, which is used for the Amtagvi treatment regimen.
Iovance has done a solid job rolling out Amtagvi. The therapy had just over $42 million worth of net revenues in the third quarter. Proleukin provided around $16 million worth of net sales in the quarter as well.
Amtagvi is now covered by most insurance programs in the United States. It should be approved in Europe and Canada in 2025. These two products should do about $160 million in sales combined in 2024, while the current analyst firm consensus sees sales soaring to $460 million in 2025 as the marketing rollout achieves further traction.
Lifileucel is also being developed both as a monotherapy and as part of combination therapies for other indications such as endometrial cancer, where it is mid-stage development. Iovance is building out its manufacturing capacity to produce Lifileucel and is well funded with some $400 million in cash and marketable securities thanks largely to a significant capital infusion via a secondary offering in February following FDA approval.
There was a rash of buy reiterations from analyst firms following Iovance's better-than-expected third-quarter revenue numbers that were posted in early November. Most analyst firm price targets are in the low $20s. Thanks to recent weakness, the company's shares now trade just under $7.50 and it sports an approximate market cap of $2.25 billion. As such, we view the stock's risk/reward profile as quite attractive.
Option Strategy
This is how one can initiate a holding in IOVA with a covered call order. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the June $7 call strikes, fashion a covered call order with a net debit in the $5.40 to $5.50 a share range (net stock price - option premium).
This strategy provides downside protection of nearly 25% with upside potential of 28% even if this equity falls some over its six-month option duration
At the time of publication, Jensen was long HUMA and IOVA.
