A Secondary Offering and a Collaboration Could Propel This Stock
Secondary offerings can place a floor under a stock’s price. That could be bullish for investors, as GlobeNewswire reported, “iRhythm Technologies, Inc. Nasdaq: (IRTC), a leading digital health care solutions company focused on the advancement of cardiac care, announced the closing of its underwritten public offering of 1,575,342 shares of its common stock at a public offering price of $73.00 per share, which included the exercise in full of the underwriters’ option to purchase 205,479 additional shares of common stock on the same terms and conditions.
All of the shares were offered for sale by iRhythm Technologies. Gross proceeds from the offering to iRhythm Technologies were approximately $115 million, before deducting underwriting discounts and commissions and other offering expenses payable by iRhythm Technologies.”
Traders seemed to cheer the news.
The funds might be put to immediate use, as GlobeNewswire also reported,
“IRhythm Technologies, Inc. … announced a collaboration with Verily, an Alphabet company, focused on the development of solutions aimed at improving the screening, diagnosis and management of patients with atrial fibrillation (AFib).
This collaboration brings together iRhythm’s expertise in AI based arrhythmia diagnosis and Verily’s advanced health data analytics technologies to address the millions of patients living with undiagnosed AFib.
iRhythm estimates that more than 10 million Americans are at high risk for a common heart rhythm disorder known as atrial fibrillation. AFib is associated with a five-fold increase in the risk of stroke as compared to those without AFib, with these strokes tending to be more severe and associated with higher mortality rates.
For approximately 20 percent of individuals who experience a stroke due to AFib, the occurrence of AFib was not diagnosed until the time of their stroke or shortly afterward.
Further, an estimated one-third of those who have AFib are not aware they have it. Asymptomatic or “silent” AFib is associated with certain risk factors like high blood pressure, diabetes and sleep apnea – which increase an individual’s likelihood for developing the disorder.
The iRhythm and Verily collaboration aims to address this significant, underserved population at risk for asymptomatic or silent AFib.
Under the terms of the agreement, iRhythm and Verily plan to collaborate on solutions capable of providing earlier warnings, enabling the identification and management of patients that could otherwise go undiagnosed until they have a cardiac event, such as a stroke.
Clinical research is demonstrating a major unmet need in the market for this early warning approach.
At the annual meeting of the American College of Cardiology in May, the first phase of the mSToPS study, published in JAMA, showed that patients who were diagnosed with AFib in iRhythm’s Zio service-monitored group had a significantly lower rate of hospitalizations and emergency room visits than the non-monitored control group.
“We are excited to partner with iRhythm, a pioneer in ambulatory cardiac monitoring, to find innovative ways to deliver more efficient care to patients with atrial fibrillation,” said Dr. Jessica Mega, chief medical and scientific officer of Verily.
“With the high prevalence of cardiovascular-related health issues, we have an opportunity to not only improve how we diagnose, manage and monitor conditions like atrial fibrillation, but also develop patient-centric solutions that could ultimately prevent serious cardiac events.”
“iRhythm and Verily have a shared mission to create a better standard of care for cardiac patients – making heart health data more actionable so patients can live longer, healthier lives,” said Kevin King, president and CEO of iRhythm.
“We are pleased to partner with one of the world’s most reputable healthcare technology companies to better serve the millions of people living with AF today. Verily’s patient-centric approach to disease management and advanced hardware capabilities will prove critical in providing patients and providers with the tools needed to increase the efficiency of heart healthcare.”
This news comes as the stock is positioned to test and possibly break out of a trading range.
A Trade for Short Term Bulls
As with the ownership of any stock, buying IRTC could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for IRTC
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For IRTC, the October 18 options allow a trader to gain exposure to the stock.
An October 18 $85 call option can be bought for about $2.16 and the October 18 $90 call could be sold for about $1.09. This trade would cost $1.07 to open, or $107 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $107.
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in IRTC the maximum gain is $3.93 ($90- $85= $5; $5-1.07 = $3.93). This represents $393 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $107 to open this trade.
That is a potential gain of about 267% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.