CELG/Alter – Like STT, they are down with their sector more so than having their own troubles.
Trump threatens to reign in drug pricing (which is really a threat to step up GOP contributions) and Revlimid sales are still a big part of their Revenues that is going away over time as they lose exclusivity – but it's a long way off, so shouldn't be considered by shorter-term investors:
Currently, Revlimid is about 1/2 of CELG's sales and essentially all of it's profits so they've acquired Juno to pump up their pipeline but, at the moment – there is no immediate replacement for Rev:
They can also reformulate and re-package Rev to improve its lifetime – any announcement to that effect would be a market-booster. Even in their pipeline presentation – 3 of their 5 main rollouts depend on Revlimid variations:
CELG may be a one-trick pony, but it's a great trick:
He's a one-trick pony
One trick is all that horse can do
He does, one trick only
It's the principal source of his revenue
But when he steps into the spotlight
You can feel the heat of his heart
Come rising throughHe's just a one-trick pony, that's all he is,
But he turn that trick with prideHe's a one-trick pony
He either fails or he succeeds
So we're paying $48Bn at $70 with $4Bn in earnings and we should hit $5Bn, maybe $6Bn at the peak of the Rev cycle so anything else they figure out between now and 2022 is bonus money. I don't know that I'd want to play them aggressively but we can add the following to the LTP:
- Sell 5 CELG 2021 $65 puts for $9 ($4,500)
- Buy 15 CELG 2021 $70 calls for $14.20 ($21,300)
- Sell 15 CELG 2021 $85 calls for $8.60 ($12,900)
That puts us into the $22,500 spread that's 1/3 in the money for $3,900 so our upside potential is $18,600 (476%) at $85 but, as you know, the reason I generally go with 15 longs is because I like to sell 5 short calls that I could easily split if they go against me and still not be in trouble. At the moment, of course, they are too low but I have my eye on selling 5 of the Jan $80 calls, now 0.80 for $1.70 (the price of the $75s) if CELG gets back over $75 soon.
If not, we can always sell 5 of the April $75s ($3.75) for $1,875 and use that money to roll the 2021 $70 calls ($14.20) to the $65 calls ($16.80) for $2.60 ($2,900) so two short call sales and I pay for my roll to a $5 (7,250) wider spread. That's the kind of trade we like to get involved in!
