Gilead Sciences is ready to launch a major shopping spree and these stocks are prime candidates for acquisition.
CLVS - Clovis Oncology - Company Profile
Clovis Oncology, Inc., a biopharmaceutical company, focuses on acquiring, developing, and commercializing anti-cancer agents in the United States, Europe, and internationally. It is developing three product candidates, which include Rociletinib, an oral epidermal growth factor receptor and mutant-selective covalent inhibitor that is under review with the U.S. and E.U. regulatory authorities for the treatment of non-small cell lung cancer; Rucaparib, an oral inhibitor of poly polymerase, which is in advanced clinical development for the treatment of ovarian cancer; and Lucitanib, an oral inhibitor of the tyrosine kinase that is in Phase II development for the treatment of breast cancers. Company description from FinViz.com.
Clovis is on a rocket ride higher as its cancer drugs progress through the various trials. Several are expected to prove worthy and make it to actual drug status with billions a year in revenue. There are more than 250 types of cancer. It is the leading killer because most cancers are not diagnosed until they have already taken root and become tougher to combat.
I believe Clovis will be acquired by Gilead Sciences (GILD) when their shopping spree begins. Gilead has amassed $29.5 billion in cash and they need to buy new drugs that could make it to blockbuster status. Cancer drugs can do that because of the widespread number of patients. The Clovis drugs in trials are just the tip of the iceberg. Once they have a couple drugs that are effective on several types of cancer they will expand the technology to target the other types. Clovis is going to be a cancer drug powerhouse.
Their market cap is just over $1 billion. For a company with $29 billion in cash, this is a slam-dunk to acquire the cancer technology.
Earnings Nov 3rd.
Unfortunately, the availability of options is limited. The 2018 LEAPS only have one strike out of the money at $35 and the premium is $13. That is too high on a $30 stock and there are no higher strikes to enable us to spread it. Also, the bid ask spread is $4.
The April strikes include the $35 and $40 levels but they are $9.60 and 8.00 respectively and the bid ask spread is $2.
We have to drop back to the January 2017 calls and make it a short-term position. If Clovis is going to make an offer, it will happen well before January. We have to buy close to the money to capture any weak acquisition offer. With Clovis at $32.50 today, a $40 offer would not be unreasonable even though I would expect it to be more. That means a $5 premium on a $35 strike is questionable. However, I would expect a price war if they only bid $40 so I am willing to take the risk.
Buy January $35 call, currently $6.30, no initial stop loss.
Short January $50 call, currently $2.00, no initial stop loss.
Net debit $4.30.
NBIX - Neurocrine Biosciences - Company Profile
Neurocrine Biosciences, Inc. discovers and develops pharmaceuticals for the treatment of neurological and endocrine-related diseases and disorders in the United States. The company's products in clinical development stage include elagolix, which is in Phase III study for endometriosis and uterine fibroids; Vesicular Monoamine Transporter 2 Inhibitor (VMAT2) that is in Phase III study for tardive dyskinesia, as well as in Phase II study for tourette syndrome; and NBI-640756, which is in Phase I study for essential tremor. Its research programs comprise Corticotropin-Releasing Factor Receptor1 Antagonist for congenital adrenal hyperplasia; VMAT2 Inhibitors for movement disorders, bipolar disorders, and schizophrenia; and G Protein-Coupled Receptors and Ion Channels for epilepsy, essential tremor, pain, and other Indications. It has collaborations with AbbVie Inc. to develop and commercialize elagolix and GnRH antagonists for women's and men's health; Mitsubishi Tanabe Pharma Corporation to develop and commercialize valbenazine for movement disorders in Japan and other Asian markets; The Mount Sinai School of Medicine of the City University of New York to develop and commercialize licensed products worldwide; and Dainippon Sumitomo Pharma Co. Ltd. Company description from FinViz.com.
This is another potential takeover target for Gilead Sciences. NBIX has a large portfolio of potential drugs in the pipeline and several are very close to approval. They are developing a drug with AbbVie (ABBV) for endometriosis and uterine fibroids. The drug is called Elagolix and it is expected to be a multibillion dollar blockbuster. Endometriosis can also be associated with chronic non-menstrual pelvic pain and about 50% of infertility in women. Some 6% to 10% of women worldwide, about 176 million, suffer from this condition with monthly pain associated with their monthly cycles.
The company just submitted a New Drug Application last week for valbenazine in treating tardive dyskinesia. This is an orphan drug and there is currently no known treatment for the disease. This is a once daily dosing that relieves the symptoms of involuntary, repetitive movements of the face: lip smacking, grimacing, tongue protrusion, facial movements or blinking, puckering and pursing of the lips, or the extremities.
Earnings Nov 2nd.
NBIX does not have LEAPS. I am recommending the February call. If there is going to be an acquisition offer it should happen before year-end. NBIX broke above recent resistance on Friday and could be headed to new highs on the strong drug pipeline.
Buy February $60 call, currently $3.90, no initial stop loss.