This biopharmaceutical firm acquires, rebrands and reprices drugs for sale in the U.S., with many that treat inflammatory conditions, including a few that take aim at rare diseases.
Cabot Profit Booster 125
The Cabot Profit Booster portfolio continues to perform spectacularly, largely aided by a strong stock market, great stock picks from Cabot Top Ten Trader chief analyst Mike Cintolo and expensive call options that we are selling. At some point the market will cool off, but until then we will aggressively push forward.
The Profit Booster portfolio is largely made up of growth stocks, and this week I wanted to add a little diversification to the portfolio via a biopharmaceutical company. Here is the stock and trade …
The Stock – Horizon Therapeutics (HZNP)
Companies working on COVID treatments are getting most of the attention in the medical field, but lost in the shuffle are those helping patients with underserved diseases. Horizon falls in this category, and a blowout first quarter has helped the stock catch fire. This biopharmaceutical firm acquires, rebrands and reprices drugs for sale in the U.S., with many that treat inflammatory conditions, including a few that take aim at rare diseases.
One of the firm’s big growth drivers is Tepezza, which is the first and only FDA-approved treatment for thyroid eye disease; management earlier guided for net sales of $30 to $40 million for the drug in 2020, yet it delivered sales of $23.5 million in Q1 alone! Full-year sales estimates were subsequently increased to more than $200 million, easily offsetting COVID’s expected impact on sales for the rest of Horizon’s drug portfolio.
All told, first quarter sales were $356 million (+27%), led by its rapidly growing orphan drug segment, which cranked out $245 million of revenue (up 47%). Even better, earnings of 44 cents per share nearly doubled estimates. All of that good news caused Horizon to hike full-year net sales guidance to $1.4 to $1.45 billion, and analysts expect earnings to increase for the next three quarters and really take off in 2021. Seeing as how growth comes via acquisitions, Horizon will never be looked upon as favorably as a biotech that develops its own patented blockbuster treatments, but there’s no doubt business is picking up much faster than expected.
Technical Analysis
HZNP has been in a solid uptrend since bottoming near 10 back in 2017, though shares have had lots of pullbacks and rest periods along the way. The decline earlier this year was sharp, but it immediately began bouncing back with the market and hasn’t stopped since—the Q1 report caused a gap to new highs and HZNP has followed through nicely on the upside. Stop - 40.5
The Covered Call Trade
Buy Horizon Therapeutics (HZNP) Stock at 48.5, Sell to Open July 50 Calls (exp. 7/17/2020) for $2.25, or a Net Price of 46.25 or less
Static Return: $225 per covered call (4.86%)
Breakeven: 46.25
Covered Call Return (if assigned): $375 per covered call (8.1%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 46.25 or less. (In this case 48.5 minus 2.25 = 46.25. Or another example is you could pay 48 for the stock and sell the call for 1.75, which also equals 46.25)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
