Investors should buy bullish Vertex Pharmaceuticals Inc. options because the drugmaker’s hepatitis C treatment telaprevir may account for more than 80 percent of sales by next year, Goldman Sachs Group Inc. said.
Equity derivatives strategists Maria Grant and Katherine Fogertey recommended buying the July $41 call options. The shares climbed 0.4 percent to $38.48 as of 4 p.m. in New York, extending their gain this year to 9.9 percent. They haven’t closed above $41 since March.
The strategists cited Goldman Sachs biotechnology analyst Terence Flynn, who initiated the Cambridge, Massachusetts-based company with a “buy” rating today and said the shares may climb to $46 in 12 months. Telaprevir, also known as TVR, may be approved by the U.S. Food and Drug Administration in May and introduced in the second half of this year, Flynn wrote today.
“We expect the TVR launch to exceed high expectations as the Street is underestimating the ‘warehoused’ treatment-failure population awaiting new treatments and pricing power of TVR,” Flynn wrote. “We believe we are more bullish than the Street on the sustainability of the TVR revenue stream beyond 2014 following the potential entry of next-generation competitors.”
Calls give the right to buy a security for a certain amount, the strike price, by a set date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.
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