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Jensen: BioMarin Is a Synthetic Dividend Play

Using options to play the trading range in drug developer proves profitable.

BioMarin Pharmaceuticals BMRN, a company that develops and manufactures drugs for people with serious and life-threatening rare disorders, has emerged into a synthetic dividend play, Real Money’s Bret Jensen argues.

Using a simple covered call strategy, Jensen has seen the mid-cap biotech company return yields in the low teens around every six months.

Jensen first used the approach last year. The stock plummeted by 40% to $75 a share in August 2020 after the Federal Drug Administration issued a complete response letter (CRL) for its application on its gene therapy under the brand name Rockavian, eliminating the potential for additional revenue.

“Equity-only shareholders in this stock have been largely marking time since,” Jensen wrote recently on Real Money. “However, for me, this trading action has resulted in a series of successful covered call trades.”

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The stock is still trading “nearer the bottom of its trading range over the past year than the top.”

Following a series of successful covered call trades means that BioMarin Pharmaceuticals has become a synthetic dividend play and could continue its current path. The biotech is expected to generate over $1.8 billion in 2021 revenue and its compound vosoritide in children with achondroplasia, which is a rare form of dwarfism, received approval from European regulators in August and could receive the same green light from the FDA in less than four weeks.

Studies conducted for Rockavian have been promising, which means it could receive approval in the U.S. in a couple of years, he wrote. The drug could be approved in the first half of 2022 by European regulators since they accepted the company’s marketing application. BioMarin Pharmaceuticals plans to resubmit its application to the FDA during the second quarter of 2022.

BioMarin Pharmaceuticals has potential for growth, a solid balance sheet, more favorable analyst coverage recently, an “intriguing” early-stage pipeline and the “occasional buyout rumor to these upcoming potential catalysts,” Jensen wrote.

“.... the risk/reward profile on BMRN seems attractive at these levels,” Jensen wrote. “This might even be the time I finally leave money on the table by continuing to use my covered call strategy on this name instead of just holding the shares outright. However, as my late father like to say, ‘if it ain't broke, don't fix it.’”

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