Vir Biotechnology, Inc. (VIR) is a biotech company facing the apparent winding down of the Covid crisis while sitting on a huge amount of net cash -- and with other projects in the pipeline.
The company focuses on identifying the limitations of the immune system in its fight against specific pathogens and the vulnerabilities of those pathogens. Vir uses this information to develop way of treating infectious diseases. This small biotech has one approved Covid-19 therapy in collaboration with GlaxoSmithKline (GSK) (with significantly declining revenue) called sotrovimab and four others in the clinic.
The company has benefited significantly from the fight against Covid, including receiving an upfront payment of $225 million as well as a $120 million equity investment from Glaxo in 2021. Unfortunately, this human neutralizing monoclonal antibody proved ineffective against new variants and has all but been discontinued from mass use. However, Covid-related revenues have allowed the company to build up a huge cash position.
Vir's balance sheet reflects cash and investments of $2.4 billion (as of year-end 2022) plus an additional $400 million or so anticipated from sotrovimab and other collaboration payments from GSK, meaning that it holds essentially around $20 a share in cash. The stock currently trades around $23 a share. The company also has been able to fund and advance the rest of its pipeline. These include a promising vaccine for influenza A that is in mid-stage development. It also has candidates to treat hepatitis B and D in mid-stage clinical study and a pre-clinical effort evaluating T cell candidates as a potential treatment for HIV.
All in all, Vir is a pretty compelling "sum of the parts" story at current trading levels. One we can enhance further by bringing down any potential entry at under the company's current net cash using a simple covered call strategy.
The company is somewhat reminiscent of last week's covered call trade idea for Fulgent Genetics (FLGT) . This diagnostic concern will see overall sales plunge in 2023 as its Covid testing revenue dries up as the pandemic ebbs. However, the company will see big growth from it core testing business and Fulgent was sitting on a huge cash hoard. This Tuesday, the company beat fourth quarter expectations and provided a nice boost in guidance for the coming fiscal year as well.
Option Strategy:
To establish an initial position in Vir using a covered call strategy, do the following: Selecting the July $22.50 call strikes, fashion a covered call order with a net debit in the $19.25 to $19.75 a share range (net stock price - option premium). This strategy provides downside protection of approximately 15% and 18% of potential upside even if the stock drops a bit over the just less than five month option duration. Basically, a very similar set up to the FLGT trade last week.
