Fast-Growing Biopharma's Temporary Setback Provides Attractive Opportunity
I am taking advantage of this stock’s recent decline using a strategy offering upside potential of 25%.
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We're heading back to the healthcare sector for the focus of a new covered call trade idea. This is a new name to my portfolio, but it has a lot in common with some recent selections such as CorMedix CRMD. This company has seen a recent product launch gain notable traction, which will enable the firm to rapidly move into profitability, and its balance sheet will allow it to do so without the need to raise additional capital.
The stock is in the buy zone after a selloff triggered by a recent setback, which should turn out to be a temporary hiccup in the end. Indeed, the pullback in the shares already provides a solid entry point for long-term investors, in my view. I can also enhance this opportunity while mitigating additional downside via a simple covered call trade. Fortunately, the options against the equity are quite liquid and sport solid premiums.
The biopharma name in question and recent addition to my personal portfolio is Travere Therapeutics TVTX. After a recent 30% slide, the stock trades just below $16 and sports an approximately market capitalization of $1.4 billion.
San Diego-based Travere's key asset is an oral medication called Filspari. This drug was fully approved to treat IgA Nephropathy or IgAN in late summer of last year after being initially being green lighted on a more limited basis under accelerated approval criteria in the first half of 2023. Travere commenced the full marketing rollout in late 2024. IgAN is a rare disease that causes kidney damage to the immune system.
While there are several approved options for IgAN, Filspari is the only non-immunosuppressive kidney-targeted therapy for individuals at risk of IgAN progression regardless of their proteinuria level. Wedbush estimated eventually peak sales for Filspari for this indication at just over $650 million when the drug garnered full FDA approval.
Filspari recently was approved in Europe for the same indication and will be marketed by Travere’s partner outside the U.S. Approval in Europe triggered a $17.5 million milestone payout to Travere and the company can receive additional regulatory and sales-based payouts in the future. If all goes well, Filspari should be approved in Japan probably sometime in 2026 generating similar payout arrangements.
Filspari is seeing solid marketing traction in its first several quarters on the market. Net product revenues came in at around $56 million in the first quarter. That was up 13% sequentially from the fourth quarter of last year and an over an 180% increase from the same period a year ago when the product had more limited approval.
What kicked off the recent decline in the stock was the FDA recently elongated the approval process for a marketing application for another indication for Filspari. Travere's leadership submitted a marketing application for Filspari to treat focal segmental glomerulosclerosis, or FSGS, hoping to garner priority review status. Instead, the FDA, in mid-May, added an AdCom Panel to the marketing application process. This action moved back the anticipated approval date from September to January of next year and caused the significant decline in the shares. FSGS is expected to be a slightly bigger potential market for Filspari than IgAN, it should be noted.
That said, the marketing application is likely to eventually be approved as FSGS is a rare affliction with no current approved treatment and trial data looks solid. The company is moving rapidly to profitability regardless.
Travere is projected to cut losses dramatically in 2025 on approximate 70% revenue growth and the analyst firm consensus has the company becoming significantly profitable in 2026 with a mean projection of over a buck a share in earnings. Travere ended Q1 with about $320 million of cash and marketable securities on its balance sheet and has no need to raise additional capital until it reaches profitability on its current trajectory.
The stock looks slightly undervalued for Filspari’s current approved indication, and substantially so if it garners approval for FSGS early next year. Therefore, I am taking advantage of the stock’s recent decline using the following covered call strategy.
Option Strategy
This is how one can initiate a holding in TVTX 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 December $15 call strikes, fashion a covered call order with a net debit in the $11.90 to $12.10 a share range (net stock price - option premium).
This strategy provides downside protection of 24% with upside potential of 25% even if this equity trades down 5% over the option duration.
At the time of publication, Jnesen was long CRMD and TVTX.
