It is the last day of trading options this week and I am signing out in style as I explore options of Mylan Inc. (NASDAQ:MYL). Mylan with its market capitalization of $17.26B is a fully integrated global pharmaceutical company that develops, licenses, manufactures, markets and distributes generic, branded generic and specialty pharmaceuticals. Corporate speak aside, Mylan is one of the largest generic companies in the world and one of the top performers in the pharmaceutical sector this year.
An Attractive Generic Play
The first reason I am attracted to Mylan is that the company is one of the seven companies that have been licensed to sell the generic version of Gilead Sciences’ (NASDAQ:GILD) Sovaldi in some 91 developing countries. Sovaldi from Gilead, which is developed for treating Hepatitis C, has been designated with a blockbuster status because of its high cure rate. In fact, Sovaldi continues to be a choice drug among hepatitis C patients despite the fact that the drug comes with a hefty price tag.
However, Sovaldi is not likely to succeed outside the U.S and Europe because the hefty price tag would keep it out of the reach of many people in developing countries. Interestingly, Gilead Sciences has licensed 7 generic drug manufacturers to produce Sovaldi for sale in developing countries where there are more than 100 million people living with hepatitis C.
Sovaldi retails for around $1000 per pill in the United States and we can conservatively estimate that Mylan will sell the generic version for $10, which is 1% of the U.S selling price. If Mylan treats 100,000 patients annually, we can expect the company to generate annual revenue of $1,000,000 out of which it would pay a royalty to Gilead.
Mylan investors are already happy with the stock and the thought of a potential increase in revenue from the Sovaldi sales is already driving increased bullish action on the stock.
The thoughts of an increase in revenue for Mylan because of potential Sovaldi sales might look like a shot into the future; yet, the company is showing increased confidence in the short term. The optimistic short-term outlook is seen in Mylan’s raising of its third quarter and full year 2014 adjusted diluted EPS guidance range.
Earlier this morning, Mylan increased its third quarter adjusted diluted earnings per share from the previously announced range of $0.90 to $0.95 to a higher range of $1.12 to $1.15. Mylan attributes the increment to “stronger than anticipated third quarter operational performance, supported by multiple product approvals and launches in the U.S. during the quarter.”
In addition, the company now expects its adjusted earnings per share for the full year to come in between $3.25 and $3.54 per share up from the previously announced range of $3.25 and $3.45 per share.
How to Trade MYL Options
The stock chart above shows how shares of Mylan have traded within the last one year. You will observe that the stock has experienced resistance at the $53 price even though it did break the resistance once to establish a $46 support.
The stock currently trades around $50 per share; hence, I am confident that it would rise to touch the $53 target before it experiences a resistance. However, the bullish vibes surrounding the stock and the RSI of 66.17 suggests that the stock might be breaking out of the resistance on the current bull run. I recommend the MYL Jan 2015 52.500 call (MYL150117C00052500) at an asking price of $2.50.
— Daily Option Alerts