Cardiff Oncology (CRDF) is a small oncology company whose shares have been caught up in the biotech sell-off for the first six months of 2022. Now, at CRDF’s current trading levels, I see that shares are set for a trade compelling risk/reward.
In fact, with the right options strategy, you can reduce your potential entry level to significantly below net cash on the company’s balance sheet; In theory, get the rest of the company’s assets and pipeline for free.
Cardiff is trading at just over $2.50 a share and has a market capitalization of roughly $120 million. This market capitalization turns out to be the amount of cash and marketable securities on the company’s balance sheet in the first half of this year. Cardiff spends just over $2 million a month to finance its operating activities and has no long-term debt.
Cardiff was the first company to successfully target Polo-like kinase 1, or PLK1, a target in several solid tumors, all of which are known as KRAS-mutated cancers. Mutated KRAS genes found in some types of tumors can cause cancer cells to spread. Cardiff’s lead drug candidate is a highly selective, oral PLK1 inhibitor called Onvansertib. PLK1 is overexpressed in several types of cancer, including breast and colorectal cancers. The company is positioning Onvansertib as part of combination therapies to improve the outcomes of current standard treatment for cancers with KRAS mutations.
Cardiff has three mid-stage studies currently underway targeting different indications with different combination partners for Onvansertib. These three indications collectively represent a potential market of $10 billion or more. While the company’s development is still many years away from commercial development, Pfizer (PFE) saw enough promise to make a $15 million equity investment in the company late last year, when the stock was trading above from $6 per. I wouldn’t be surprised if a pharmaceutical giant like Pfizer headed to Cardiff.
To initiate a position in CRDF via a covered call strategy, place your potential entry point solidly below the company’s cash value.
Using the $2.50 call strikes from February, form a covered call order with a net debit in the range of $1.65 to $1.75 per share (net share price – option premium). This strategy provides downside protection of more than 30% and just north of 45% of upside potential, even if the stock does nothing for the six-month option duration.
(Please note that due to factors including a low market capitalization and/or insufficient public float, we consider these stocks to be small-cap stocks. You should be aware that such stocks are subject to more risk than large-cap stocks.) larger companies, including volatility, lower liquidity, and less publicly available information, and that releases such as this may have an effect on their share prices).
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