Going for the ‘Trifecta’ With This Biopharma Trade
The AI Bubble started to deflate notably this week. Amazon ($AMZN), Alphabet ($GOOG) and Intel ($INTC) all got whacked in trading after posting their third quarter results.
Equities have had bifurcated market breadth for some time now. There is almost a stealth bear market taking hold as roughly 60% of the components in the S&P 500 are now down at least 20% from their highs. The tech-heavy NASDAQ sold off noticeably on the week and investor anxiety spiked on Friday.
My portfolio was mostly unscathed this week in comparison. My three biggest holdings are cash/short-term treasuries as well as covered-call positions in reasonably priced energy and healthcare stocks. Today, we circle back on a mid-cap biopharma stock that was highlighted as a covered call trade in these pages in mid-March. The shares have done little since then. However, that was enough for the covered call position to expire in the money on October 16. In addition, this same concern was a successful covered call trade that I spotlighted in late 2023.
These are the kind of “rinse, wash and repeat” covered call trades that are well represented throughout my portfolio. The name of the biopharma company is ANI Pharmaceuticals ($ANIP). As a reminder, ANI Pharmaceuticals is focused on the development, manufacture and marketing of branded and generic drugs. Its product portfolio primarily targets the United States via three manufacturing facilities in the country with over 100 branded and generic drugs on the market. The stock currently trades for around $73.00 a share and sports an approximate market capitalization of $1.6 billion.
Roughly half of the company’s revenues by yearend will come from an adrenocorticotropic hormone branded as Cortrophin Gel. This therapy was licensed from Merck ($MRK) in 2016 and FDA approved for acute exacerbations of multiple sclerosis and rheumatoid arthritis in 2021 and has been green lighted for label expansions and additional indications since then. These include acute gouty arthritis flares in 2023.
This hormone has a complex manufacturing process including the harvesting of pig pituitary glands which provides protection from generics. Cortrophin Gel has garnered a half dozen patents that extend into 2043, albeit none are for composition of matter. ANI Pharmaceuticals posted second quarter results in mid-August. The company delivered profits of $2.21 a share, 17 cents north of expectations. Revenues grew nearly 26% on a year-over-year basis to $266 million. Growth was powered by an over 43% rise in Cortrophin Gel sales to $117 million.
The company is modeling 50% to 55% revenue growth in Cortrophin Gel revenues to $520 million to $540 million in FY2026. Overall sales should increase 25% this fiscal year. The current consensus is for EPS of $9.25 a share in FY2026, and over ten bucks a share of profits in FY2027. The stock does not pay a dividend but is priced at roughly eight times forward earnings. I can make the shares even cheaper once again by the following covered call trade.
Option Strategy
This is how one can initiate a holding in ANIP 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 April $70 call strikes, fashion a covered call order with a net debit in the $63.00 to $63.50 a share range (net stock price – option premium).
This strategy provides downside protection of 13% with upside potential of 11% even if the stock falls 4% from here over the option duration.
At the time of publication, Jensen was long ANIP.
