This Biotech Stock Is a Gift at $10
Here's the 'rinse, wash and repeat' trade strategy that continues to be profitable for me.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Today I am highlighting one of my favorite "rinse, wash, and repeat" trades of the past few years.
Shares of mid-cap biopharma Amicus Therapeutics FOLD, a rare disease-focused concern, have largely been trapped within a trading range of approximately $10 to $15 since the beginning of 2021. The stock is now once again near the bottom of that range. In addition, the options against the equity are sizable and have decent liquidity.
The company’s franchise product is called Galafold, an oral monotherapy that is approved to treat Fabry Disease. Despite being on the market for years now, the product continues to take market share and is seeing sales growth in the high teens. Amicus settled patent litigation with generic drug giant Teva Pharmaceuticals TEVA around Galafold in mid-October, removing a potential overhang to the company’s investment thesis.
The company’s other product on the market is the combination therapy of Pombiliti + Opfolda, which was approved by the FDA in 2023 for adults with late-onset Pompe disease. This is a smaller niche product, but the combination therapy is seeing good initial traction and should do approximately $70 million in revenues in 2024. Together, these two products should deliver revenue growth about 30% this year and analyst firms have just over 20% sales growth penciled in for 2025.
As or more importantly, sales growth is moving the company towards profitability. Amicus is expected to post earnings of 15 to 20 cents a share in 2024, with analyst firms projecting profits to more than double in 2025.
What is interesting about the stock’s recent decline back to its floor of around $10 a share is the equity is off approximately 15% since Amicus beat both top and bottom-line expectations with its third quarter earnings report in November. Management also raised its previous full-year guidance.
While the market was a bit fickle following the company's Q3 numbers, several analyst firms boosted their price targets on the stock. So far, eight firms, including Morgan Stanley, Bank of America, Morgan Stanley and UBS have reissued "Buy" ratings since third-quarter results hit the wires. Price targets range from $15 to $21 a share.
Amicus has also been mentioned occasionally as a potential buyout target, and that event would make strategic sense for a larger rare disease concern looking for a "bolt on" acquisition. Still, my guess is Amicus will remain a stand-alone concern, and the stock will grind higher off the floor it is trading at now.
A covered call strategy has been very profitable for me buying FOLD around these levels over the past few years and I expect it to continue to deliver for my portfolio.
Option Strategy
This is how one can initiate a holding in FOLD 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 July $10 call strikes, fashion a covered call order with a net debit in the $8.60 to $8.70 a share range (net stock price - option premium).
This strategy provides downside protection of approximately 13% with upside potential return of just over 15% even if this stock trades flat into mid-July.
At the time of publication, Jensen was long FOLD.
