I’m (Finally) a Believer in This Low-Priced Biotech
Here's why I finally overcame my pessimism and opened a new position.
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For many years, I have avoided a small biopharma name almost religiously. It was not that the key product in the company's pipeline did not have significant promise. It always had the potential to become a "best of breed" solution in a growing but largely niche market. The problem was that the company and its management had what I viewed as somewhat of a credibility issue and the FDA approval process felt like a version of "Waiting for Godot."
Well, I have finally changed my tune.
A week ago, I initiated an initial position in CorMedix Inc. CRMD via covered call orders and then I added to the position Friday, even as the stock moved up sharply this past week despite the decline in the overall market.
Why did I change my view on CorMedix?
The company is playing a different tune these days. CorMedix made some key management changes in recent years, including bringing in a new CEO in 2022. More importantly, its primary asset was finally approved by the FDA this past spring. The original marketing application was submitted before the Covid pandemic. The company ultimately needed to respond to and overcome two complete response letters from the government agency before finally garnering the "thumbs up" from the FDA.
The product in question is a superior antimicrobial catheter lock solution called DefenCath. Based on study results, DefenCath has the potential to disrupt and dominate the space to reduce catheter-related bloodstream infections in adult patients with kidney failure.
In the third quarter, the first full quarter DefenCath was on the market, CorMedix delivered $11.5 million in sales, nicely beating expectations. Importantly, management has already gotten access to roughly 60% of outpatient dialysis centers in the United States.
The indication DefenCath is approved for could eventually be a $1 billion market for CorMedix. Even with the stock’s big recent rise, it still only has a market capitalization of around $700 million. The company is also pursuing DefenCath for other indications. A study evaluating it to treat total parenteral nutrition should kick off sometime in the first half of this year.
What really got me even more positive on the stock was the company released preliminary Q4 results this past Tuesday. They blew away all projections as revenues came in at $31 million and its cash balance grew after a burn rate north of $10 million in the third quarter.
CorMedix should swing to a nice profit in 2025 and might even attract some buyout interest from a larger player at some point this year, in my view. In addition, the options against the equity are quite liquid and lucrative. This made it an easy decision late in the week to add more exposure to CRMD via covered call orders.
Option Strategy
This is how one can initiate a holding in CRMD 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 June $10 call strikes, fashion a covered call order with a net debit in the $8.10 to $8.30 a share range (net stock price - option premium).
This strategy provides downside protection of just over 25% with upside potential of 22% even if this equity gives back 10% during its around five-month option duration.
At the time of publication, Jensen was long CRMD.
