International Sales Can Boost This Company’s Fortunes
Many traders closely watch the FDA calendar. The US-based Food and Drug Administration makes decisions about the safety of drugs and those decisions can make or a break a company. Stock prices react quickly to the decisions and that explains their importance to trades.
But FDA decisions only affects sales in the US. European countries, Japan and others have their own approval processes. Recent news from Brazil demonstrates the importance of other global agencies.
“Ultragenyx Pharmaceutical Inc. (Nasdaq: RARE), a biopharmaceutical company focused on the development of novel products for serious rare and ultra-rare genetic diseases, [recently] announced that Brazil’s National Health Surveillance Agency (ANVISA) has approved Crysvita (burosumab) for the treatment of X-linked hypophosphatemia (XLH) in adult and pediatric patients one year of age and older.
“This approval of Crysvita offers patients in Brazil the first treatment option that targets the underlying cause of XLH, and also marks the first Crysvita approval in Latin America,” said Eduardo Thompson, Senior Vice President and Regional Head, Latin America at Ultragenyx.
“Crysvita is now approved in three key regions of the world including North America, Europe, and now the first country in Latin America, all in just over a year.”
Crysvita was previously approved by FDA and by Health Canada for the treatment of XLH in adult and pediatric patients one year of age and older. It’s also received European conditional marketing authorization for the treatment of XLH with radiographic evidence of bone disease in children 1 year of age and older and adolescents with growing skeletons.
XLH is a rare, hereditary, progressive and lifelong skeletal disorder characterized by renal phosphate wasting caused by excess FGF23 production. It affects both children and adults.
In children, XLH causes rickets that leads to lower-extremity deformity, delayed growth and decreased height. Adults with XLH have an increased risk of fractures.
Crysvita is a recombinant fully human monoclonal IgG1 antibody, discovered by Kyowa Hakko Kirin, serum levels of phosphorus and active vitamin D by regulating phosphate excretion and active vitamin D production by the kidney.
Phosphate wasting in XLH is caused by excessive levels and activity of FGF23. Crysvita is designed to bind to and thereby inhibit the biological activity of FGF23.
By blocking excess FGF23 in patients, Crysvita is intended to increase phosphate reabsorption from the kidney and increase the production of vitamin D, which enhances intestinal absorption of phosphate and calcium.
The news pushed the stock price to the upper edge of its recent trading range.
The longer-term chart shows the recent price action has been part of a strong up trend and there is no significant resistance on the chart until the old highs near $90 are approached.
A Trade for Short Term Bulls
As with the ownership of any stock, buying RARE 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 is 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 RARE
Every day, we scan the markets looking for trades that RARE 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 RARE, the May 17 options allow a trader to gain exposure to the stock.
A May 17 $75 call option can be bought for about $4.95 and the May 17 $80 call could be sold for about $3.00. This trade would cost $1.95 to open, or $195 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 $195.
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 RARE the maximum gain is $3.05 ($80 – $75 = $5; $5 – $1.95 = $3.05). This represents $305 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $195 to open this trade
That is a potential gain of about 56% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.