When investing, you must go with what works -- not what you wanted to work.
That's the situation I find myself in now, as I'm writing about TG Therapeutics (TGTX) . This column was going to be about another biotech firm, Veru, Inc. (VERU) . I took an initial position in Veru on Wednesday, when the stock suffered just over a 20% decline on news of a Food and Drug Administration request related to the marketing of a Covid therapy. I figured that was likely a temporary setback. But, by Friday the market had also recognized that, and the stock clawed back all of its losses from three days earlier.
Such is the life of a trader.
TG Therapeutics has also gotten hit by setbacks in 2022, but I see near-term catalysts to propel the shares forward.
Let's review: In the spring, TG was forced to pull the marketing authorization for its lymphoma therapy called Ukoniq. That was strike one. Then in late May, the FDA extended its Prescription Drug User Fee Act date for potential approval of TG Therapeutics' experimental multiple sclerosis drug candidate ublituximab to Dec. 28 to allow more time for a review of additional clinical data submitted by the company.
But recently the company has started to see more positive news flow. TG significantly reduced its quarterly net loss in the second quarter, thanks to some cost cutting and dropping the development of Ukoniq after the marketing application fell flat. The company also got a boost when the results of two Phase 3 trial results for ublituximab were published in the peer-reviewed New England Journal of Medicine and were received favorably. This therapy is given as a one-hour infusion every six months, following the first dose.
Ublituximab is a targeted B-cell therapy and monoclonal antibody that has showed significant cuts in risk of relapses in MS, as well as reduction of active or new brain lesions in trials. It was encouraging to see not a single insider sold a share during the company's tribulations in spring. Right after second quarter results were posted, both H.C. Wainwright ($19 price target) and B. Riley ($17 price target) reissued "Buy" ratings on the stock. (Disclosure: B. Riley has a financial stake in Arena Group, the owner of Real Money.) The shares currently trade just over seven bucks a share with an approximate $950 million market cap.
Closer to home, I have a friend who is a very good biotech trader. She also has MS. She has dug into the details of trial results and talked to a myriad of specialists around the data as well. She believes ublituximab will be approved and I concur. If it's approved, the company is likely to raise capital. This is fine, given the potential of the drug vs. TG Therapeutics' current market cap. Approval could also make the company a logical buyout target.
Now, see how shifting gears on which stock to feature turned out to be the right move?
Here is how one can initiate a position in TGTX via a covered call strategy. Using the February $8 call strike, fashion a covered call order with a net debit in the $4.30 to $4.40 a share range (net stock price - option premium). This strategy provides 40% of downside protection over the just over five-month option duration and over 80% of potential upside even if the shares slide a bit from here.