Three Biotech Stocks to Buy After More-Than-Solid Quarters
Revisiting three attractive biotech companies that reported solid Q3 results last week.
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After last week’s post-election rally for the ages, the indexes stand at all-time highs and the S&P 500 crossed over the 6,000 threshold for the first time.
Stocks seem content to continue to move deeper into uncharted territory based on numerous valuation metrics. As I highlighted in my column on Friday, I am moving more of the funds that had been sitting in short-term treasuries into the market within my portfolio. However, I am doing so utilizing more conservative (lower) strike prices within my covered-call orders. This lowers potential returns on these types of trades, but also provides a much greater degree of downside protection as well.
Today, we are going to look at three biotech/biopharma stocks that have been successful "rinse, wash, and repeat" covered-call trades for years for me within my portfolio. All three companies reported more-than-solid third quarter results last week.
Let’s start with Dynavax Technologies DVAX. The company built up a huge cash hoard during the pandemic by supplying adjuvants to several overseas COVID vaccine makers. That allowed its "best of breed" hepatitis-B vaccine to garner considerable market share and push the company to consistent profitability. Dynavax has now garnered 44% of the hepatitis-B vaccine market that should hit $900 million annually in the United States by 2030. The company is also becoming increasingly cash flow positive. Given that, in addition to solid Q3 numbers, leadership announced it was returning some of its cash hoard to its shareholders in the form of a $200 million stock buyback authorization. This amounts to more than 10% of the stock’s float at current trading levels.
Up next is Aurinia Pharmaceuticals AUPH. This biopharma company beat both top- and bottom-line expectations with its Q3 numbers on Thursday. Aurinia has turned the corner to profitability but announced a significant staff reduction to better focus on commercializing its flagship product LUPKYNIS as well as the development of another asset within its pipeline. Aurinia was already sitting on a large cash balance and this restructuring should result in at least $40 million in additional cash flow annually. Given operational cash flow in the first half of this year was a tad over $30 million, this is a significant event. Aurinia has long been rumored as a potential buyout target and it sure looks like management might be focused on making the firm a more attractive acquisition.
Finally, we have ACADIA Pharmaceuticals ACAD, which rewarded the believers in the company last week with a stellar third quarter earnings report. The company handily beat earnings and sales projections. The company’s long-term flagship drug Nuplazid saw 10% year-over-year growth in the quarter and the more recently launched Daybue saw sales rise 36% from the same period a year ago. The company has a couple of intriguing candidates advancing in its pipeline, sales are now running at an approximate $1 billion annual rate, and the firm has become profitable. With a just under $3 billion market cap, and over $550 million in net cash on the balance sheet, ACAD still is attractive here even after last week’s 20% rally following Q3 results.
At the time of publication, Jensen was long ACAD, AUPH and DVAX.
