ImmunoGen Inc. (NASDAQ:IMGN), Regeneron Pharmaceuticals Inc. (NASDAQ:REGN), and Healthways Inc. (HWAY) are three analyst stock picks in the healthcare industry with strong catalysts moving forward. In this article, we’ll take a look at the catalysts behind the analysts’ moves and how to profit using options.
ImmunoGen Could Be Worth $16/Share
ImmunoGen Inc., a biopharmaceutical company focused on the development of antibody-based anticancer therapeutics, was initiated with a Buy rating and $16.00 per share price target by Summer Street. At a significant 43% premium to the current market price, the analyst’s recommendation suggests a very bullish outlook on the company’s future.
Many analysts are bullish on the fact that the company’s co-developed T-DM1 – which is currently enrolled in multiple Phase II and III clinical trials – will eventually replace Herceptin as an effective cancer treatment. However, the firm’s valuation suggests a very high probability of approval, even if the target market could approach $2 billion, according to some analysis.
Investors interested in gaining exposure to this market opportunity without the risks associated with any failure to receive approval may want to consider one of two options strategies. First, investors could hedge any downside by purchasing put options alongside an equity position. And second, investors could purchase at-the-money April 2012 calls for just $2.25 per contract.
Regeneron Should Obtain FDA Approvals
Regeneron Pharmaceuticals Inc., a biopharmaceutical company focused on the treatment of serious medical conditions, is likely to see FDA approval for its EYLEA on its November 18th PDUFA date, according to Roth Capital. And after Roche’s Avastin caused at least 16 serious eye infections, the drug could have a larger-than-expected end market.
The infections from Roche’s Avastin have left many patients blind, while a study by John Hopkins University found that patients given Avastin to treat AMD were 11% more likely to die and 57% more likely to suffer a stroke than those treated with the more expensive Lucentis. With these problems in the market, a potential approval for EYLEA could help the drug into a very ready marketplace.
Investors interested in gaining exposure to this opportunity may want to consider at-the-money February 2012 calls trading with a premium of $11.30. With a breakeven point of $71.30, any more beyond this would have a cost basis of just $11.30 per share, making the upside potential very significant and the upfront capital requirements relatively modest.
Healthways Appears to Be Undervalued
Healthways Inc., a provider of solutions designed to help people maintain or improve their health via phone, direct mail, Internet, face-to-face or venue-based interactions, was upgraded to Overweight with an $18.00 per share price target by Piper Jaffray. The analyst believes concerns about its Cigna contract renewal is already priced into the shares and they now appear undervalued.
According to one recent analysis, the company’s shares appear significantly undervalued using Benjamin Graham’s criteria. With a MRQ book value of $13.00 per share, and a Graham number of $17.44 per share, the analyst’s $18.00 per share price target seems more than reasonable. Meanwhile, a short float of nearly 7% could make it a candidate for a short squeeze.
Investors looking to capitalize on this long-term opportunity may want to consider the 17.50 February 2012 calls. While they are somewhat thinly traded, a limit order could enable an investor to acquire the options over time at a favorable price. Meanwhile, the options may become even cheaper when the Cigna results are announced, if negative, offering an opportunity to get in even lower.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.