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Pharmboy’s Review

Courtesy of Pharmboy

Good day to all! The corn is ready for harvest, and the fall season is upon our Pharm.  It is time for a quick review to see how we have done, and add a few more goodies to our Plots.

From our 15-Aug-09 list:

Novartis – Buying the $40 Jan10 C @ 6.40 ($1 premium), selling $45 Sept09 for 1.35 (also $1 premium).  The $40s Jan10 are now 9.10, and rolled 2X to the $50 Oct, now at $0.45 (small loss on the roll).  Net ~$2.1 up for the trade.

Bristol-Myers – Buy outright for the dividend, or buying the $20 Jan10 C @ 2.80 ($0.5 premium), selling $22.5 Sept09 C @ $0.55 and $22.5 P@ $0.7.  I think this company has room to run.  Bought outright and the stock closed on OPEX at 22.47…..can’t get better than that……Only stock on this position, but looking to sell the Nov09 24/22 P/C for 0.44/0.75.

SNY – Not as confident on the SNY story as of yet.  I would sell the $32.5 Sept09 P, being prepared to roll down to the $30 Dec09s.  These expired worthless….nice gain.

JNJ Buying the $55 Jan10 C @ 6.50 ($0.5 premium), selling $60s Sept09 C/P for 2.20.  $55 Jan10s currently $6.10, and the Sept P expired worthless.  Sept09 C rolled to the $60 Oct09 C for a 0.50 credit.  Puts not sold as of yet.

Genzyme – Buying the $50 Oct09C @ 4.2 ($1.5 premium), letting it run for the next few days, and then selling $55 Sept09 for 1.25 or better (all premium).  $50 Oct09 are currently $6.80 and the $55 Sept09s were rolled up to the $57.5s almost even.  These will need cashed out for a $2.5 gain, or to be adjusted to the 50 Apr10 C for 9.8.  To help offset the costs, I would sell the $55 Oct09 P for $1 or better.  For a net $1 out of pocket and this can be collected by selling 0.50 per month over the next few months.  Not too difficult.

Our plays from 14-Sept-09.

I like Shire as a growth story as well as a takeover candidate.  The stock just created a gap from $49-51, and they have been swinging wildly, so being conservative on the jump is the way to go.  Buying $47.5 Apr10s C for $7.5 as well as selling ½ 50 Oct09 C for $3.5 or better.  $47.5 Apr10 calls currently $6.8, and the $50 Oct09s are currently $2.4 (they hit $4 on 9/22).  On target here.

I noted on Wednesday to buy the $41 Feb10 for $6.6 when I mentioned them a few weeks ago (now $7.3), and selling ½ $47s Oct09 for $1.5 or better. $41 Feb10 calls currently $6.8, and the $47 Oct09s are currently $0.8 (they hit $1.25 on 9/21) if they were sold against as they did not hit the target.

I exert a bit more caution on ABT due to Humaria and the drug business being more or less the cash machine, and thus recommend $42 Feb10 @ $6.1, and waiting to see if ABT can make it through the $48 price range, then selling ½ $48 Oct09 for $1 or better, otherwise ½ the $47s can be sold and rolled to $49 Nov09. $42 Feb10 calls currently $5.8, and the $47 Oct09s are currently $1.00 (they hit $.85 on 9/22 and sold against).  Plenty of room here and most likely going to have to roll these, but we will be vigilant.

Now, on to a few more investigations into our fields of Pharma.

Medivation (MDVN) – Medivation, Inc. is a biopharmaceutical company with small molecule drugs in clinical development to treat three large, unmet medical needs—Alzheimer’s disease, Huntington’s disease and castration-resistant prostate cancer. They were bought up in the weekly discussion, and they have several Phase III clinical trials initiated.  That is good for a company with a market cap of $900M, albeit the targets are a bit difficult.  First, on 7/30/09, MDVN and Pfizer (PFE) announced the initiation of a Phase 3 trial of the investigational drug dimebon (latrepirdine is the proposed generic name for dimebon) in patients with Huntington disease. The international safety and efficacy trial, known as HORIZON, is designed to evaluate the potential benefits of dimebon on cognition (thinking and memory) in patients with Huntington disease (the FDA has granted Orphan Drug status for this indication).  Now if that is a winner, then watch out. 

cancer researchSecond, the company announced treatment of the first patient in a Phase 3 clinical trial of the investigational drug MDV3100 in advanced prostate cancer. Known as AFFIRM, the trial will evaluate the novel androgen receptor antagonist MDV3100 in men with castration-resistant prostate cancer who were previously treated with docetaxel-based chemotherapy. The randomized, placebo-controlled, double-blind, multi-national AFFIRM trial is expected to enroll approximately 1,200 patients at sites in the United States, Canada, Europe, South America, Australia and South Africa. The primary endpoint of the trial is overall survival; secondary endpoints include progression-free survival, safety and tolerability. This trial will evaluate MDV3100 at a dose of 160 mg taken orally once daily versus placebo. There are many companies in the prostate area, so I am not as excited about this indication.

On Sept 11, the CEO and CFO sold some shares (25K) and another round of some 200K were also sold by various officers and directors.  I am not a fan of those high ups selling their shares, but I cannot blame them for taking some money off the table.  I would be aggressive in covering this company if you sold the stock.  The trials have either started or are in progress, so I would assume that they will wander a bit before the stock price starts its ascension upward as the trial dates get closer.  Trading is light, the option pricing is wide, and the current direction is down, so I am a bit hesitant to buy in here (although the overall direction on the 3mo and 1yr daily chart is up).  I would wait until they start a reversal and then go after a Dec 20/25 bull call spread for $3 debit.  Making $5 if they continue their rise.

inVentiv Health Inc. (VTIV) – VTIV is a provider of value-added services to the pharmaceutical, life sciences and healthcare industries. The Company supports a range of clinical development, communications and commercialization activities that are critical to its customers' ability to complete the development of drug products and medical devices and commercialize them. In addition, the Company provides medical cost containment services to payors in its patient outcomes business. inVentiv provides services to over 350 client organizations, including all top 20 global pharmaceutical companies, numerous emerging and specialty biotechnology companies, and payors. The Company’s service offerings reflect the changing needs of its clients as their products move through the late-stage development and regulatory approval processes and into product launch, and then throughout the product lifecycle. It operates in four business segments: inVentiv Clinical, inVentiv Communications, inVentiv Commercial and inVentiv Patient Outcomes. In December 2008, the Company completed the acquisition of Promotech Logistics Solutions LLC (PLS). In August 2008, the Company completed the acquisition of Patient Marketing Group, LLC (PMG).  The Company competes with IMS Health, TargetRx, ZS Associates and Trinity Pharma Solutions.

Insiders (directors) were buying some shares recently (August), but mutual funds and institutions were unloading shares (not a good sign for its run to continue).  My biggest concern is that Pharma is merging, and laying off people across the board – so either they are going to outsource their work or increase efficiencies within the merged company.  So, one could look at this in two ways, VTIV is going to make some good money on the outsourcing part, or they are gonna get smacked down.  My vote is for the latter, because if I am a CEO, I want the internal control of my company and increased efficiencies.  That means the opposite will happen, as I am not the CEO, and I am not in control of the company.  I am cautious again with this company, as it as run up over 100% from bottom.  They have some support at $15.5, so easing in is the way to go, selling ½ 15 Nov09C and buying the 12.5 Apr10 for 4.5.

BiogenIdec (BIIB) – BIIB is a biotechnology company specializing in drugs for neurological disorders, autoimmune disorders and cancer. The company was formed in 2003 by the merger of Cambridge, Massachusetts-based Biogen Inc. and San Diego, California-based IDEC Pharmaceuticals (formed in 1986 by biotech pioneers Ivor Royston and Howard Birndorf).  Biogen, one of the oldest biotechnology companies, was founded in 1978 by several biologists, including Phillip Sharp of the Massachusetts Institute of Technology and Walter Gilbert of Harvard (who served as CEO during the start-up phase).

Biogen Idec's products include multiple sclerosis treatments Avonex (interferon beta-1a) and Tysabri (natalizumab); the latter is also approved for treatment of Crohn's disease, and is co-marketed with Élan. Biogen Idec also makes Rituxan (rituximab), a treatment for non-Hodgkin's lymphoma which is also approved for rheumatoid arthritis; Rituxan is co-marketed with Genentech. The company acquired Fumaderm (fumaric acid esters), a psoriasis treatment (licensed in Germany) when it acquired Fumapharm AG in 2006. In December, 2007, Biogen Idec sold the U.S. rights for Zevalin (ibritumomab tiuxetan), another treatment for non-Hodgkin's lymphoma, to Cell Therapeutics, but continues to produce it for European marketing partner Bayer Schering Pharma. In 2006, the company sold rights for Amevive (alefacept), another psoriasis treatment, to Astellas Pharma, continuing to manufacture the drug under contract. 

Two weeks ago, BIIB moved ahead with a $356 million hostile bid for Facet Biotech (FACT), two weeks after Facet rejected its previous proposal. Biogen Idec’s $14.50 per share all cash offer represents a 64 percent premium over Facet Biotech’s $8.82 share price right before the first proposal. For the time, Facet’s board of directors has recommended that its shareholders do nothing until they can review and consider the offer, which will happen by the end of this week.

BIIB with $14B market cap, and 18.5 trailing P/E, BIIB is right on the heels of big pharma (8-12 range trailing P/E) and better than their competitors (GILD, GENZ).  Growth is steady, and not as great as some competitors (growth and profit margins are narrower).  I am looking at BIIB to cut more deals in the near term with smaller companies that can foster the growth everyone is looking for.  Low is $42, and good support in the $45/6 range, so buying 45 Apr10 for 8.9 and selling ½ 50 Nov09 C and ½ 45 Nov09 P for 0.7c would offer some protection and allow the company to run.

 


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  1. About the BIIB play, at what target price would you consider selling the Nov 50 C…..The net debit for buying 2 45 Apr10 for 8.3 and selling 1 50 Nov09 C and 1 45 Nov09 P was of $13.10.  You think it is a good entry point….


  2. what about ONTY and SPPI that were mentioned in your 1st article? thanks


  3. Margret – 45 Apr is correct in buying for 8.3.  I would SELL 1/2 the 50/45 Nov C/P spread for a net credit of 3.7.   The Nov C can be rolled 2X to the Jan 55s.
     
    Drum – Phil summarized those in one of his write ups.  But all are doing quite well.
    For ONTY – So $5.44 seems like a fair price but expect them to fill that gap to $4.50.  If we buy here and sell Feb $5 puts and calls for $2.70 that’s $2.74/3.87.  Everything is on track here, so holding steady.
     
    In August, SPPI we bought @ $7.10, selling Sept $7.50 puts and calls for $2.75 for net $4.35/5.92. If you did this one, both expired worthless and the stock closed at 7.5.  At which point you could have stepped out with a 40% profit.
    At $360M the buyout would be $10 so the Feb $5s at $3.20, selling the Feb $7.50s for $2.15 is net $1.05 with a nice 128% profit if the stock can just pretty much maintain it’s current price for 6 months.  Everything is on track here, so holding steady.
    You can just sell the Jan $5 puts naked for $1.10 – these are currently up 50%.


  4. The BIIB 45/50 Apr10 Bull call spread is one easy to just let it sit.  One can sell P for extra $$, but it is more margin intensive.  Phil may have some input in to that one.


  5. What about PARD stock and selling the puts and calls. That was talked about a lot and I don’t see it.


  6. Micro – Phil recommended that one in chat.  I do not have a formal writeup.  From Sept 3rd, the buy write was: PARD at $7.86, selling the Dec $5 puts and calls for $5.40 nets $2.46/$3.73 per our buy/write strategy.  Still on track, as they are currently 5.60 net.