I'm Moving Back Into This Oversold Biopharma Name
I have done this profitably three or four times. Here's how I am playing this solidly profitable mid-cap, with multiple revenue streams.
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Late last week I reestablished a position in mid-cap biopharma name BioMarin Pharmaceutical BMRN via covered call orders. I have done this profitably three or four times over the past half decade. The options are quite liquid against the equity and while not as lucrative as some of my trades on small-cap biotech names, BioMarin is a much lower-beta play with multiple and significant revenue streams. The company is also solidly profitable.
California-based BioMarin has eight products on the market. The biggest two contribute approximately 25% each to overall sales.
One of the company's two largest products is Voxzogo, which garnered initial FDA approved in late 2021 to improve growth in children five years of age and older with achondroplasia and open epiphyses. It is now approved for all children with this condition. Sales were growing north of 60% year over year in 2024 and the drug still has global expansion opportunities.
BioMarin's overall revenues should grow 16% in 2024. Profit growth should clock in at just north of 50%. While sales and earnings growth should decelerate in 2025, they should still be solid. The current analyst firm consensus has earnings growing just over 25% on 10% revenue gains in 2025.
BioMarin should post around $2.8 billion in overall sales in 2024. Management’s goal is to get to $4 billion in revenue and $1.25 billion in operating cash flow by 2027. It should be noted that BMRN currently has a market cap of around $12 billion.
The company brought in a new person to head M&A, so BioMarin could be involved in some bolt-on strategic acquisitions in the coming years to further build out its product portfolio and pipeline.
The stock has been hit hard since the summer, dropping by a third from its highs. Most of this is due to fears that Voxzogo could soon face competition from Ascendis Pharma ASND, whose marketing application for TransCon CNP was accepted for review in mid-December by the FDA.
The stock's decline seems excessive, in our view. There was a rash of reissued "Buy" ratings on BMRN following the company’s presentation at the huge JPM Healthcare confab in San Francisco in mid-January. Goldman Sachs and Piper Sandler put out price targets roughly twice the $62 level the stock currently trades at.
BioMarin is estimated to post earnings north of $4 per share in 2025, meaning the stock trades at a deep discount to the overall S&P 500. The shares do not pay a dividend, but BioMarin’s balance sheet is solid.
A low-risk covered call strategy to either accumulate a stake in this name or pick up a decent premium is how I am playing this oversold mid-cap biopharma name.
Option Strategy
This is how one can initiate a holding in BMRN 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 July $60.00 call strikes, fashion a covered call order with a net debit in the $54.70 to $54.90 a share range (net stock price - option premium).
This strategy provides downside protection of just over 11% with upside potential of around 9% even if this equity falls some over the option duration — a good solid single in what is already a reasonably priced stock.
At the time of publication, Jensen was long BMRN.
