I'm Over the Moon About This Promising Biotech
There are multiple reasons to like this mid-cap concern. Here's how to trade it.
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Despite continued concerns around tariff and trade policies, a moribund housing market, a much hotter than expected July PPI report, a deteriorating jobs market and uncertainty about near-term monetary policy, equities once again took the path of least resistance last week. The major indexes continued to post all-time highs.
While I remain reticent around overall market valuations, an investor still has to dance while the music is playing. Here I highlight a mid-cap biotech name that is attractive on numerous fronts and also sets up well as a covered call trade. The company is MoonLake Immunotherapeutics MLTX.
This clinical-stage biotech company is developing what is commonly referred to as a pipeline in product across the industry. In MoonLake’s case the candidate in question is a subcutaneously injected, tri-specific IL-17A and IL-17F inhibiting nanobody dubbed sonelokimab or SLK.
A nanobody is approximately 25% of the size of a typical antibody and the inhibitors in question are key to treating numerous potential indications — two of which have blockbuster potential. The first is acne inversa, more commonly known as hidradenitis suppurativa or HS. This condition causes small and quite painful lumps to form just under the skin.
There are several approved drugs on the market that treat HS, including the mega-blockbuster Humira. Sonelokimab could be quite competitive in this space and management believes the market can support four drugs each doing $2 billion to $3 billion in annual sales.
Phase 3 study data should be out in September. Given the same primary endpoint and demographic similarities with a successful mid-stage trial, the data are highly likely to support approval. Management has a series of healthcare conferences it will be presenting this data to in the fourth quarter. If all goes to schedule, MoonLake will submit a Biological License Application for this indication in mid-2026 with approval likely in the first half of 2027.
Sonelokimab is also in late-stage evaluation for psoriatic arthritis, another huge market. There are several drugs on the market to treat this condition including the blockbuster drug Skyrizi. MoonLake has two Phase 3 trials that are fully enrolled now. Sonelokimab is also using both a placebo and Skyrizi as comparison points, the first study to do so.
In the second quarter, the Financial Times reported that Merck MRK made a non-binding buyout offer for MoonLake. Given Sonelokimab is wholly owned by MoonLake and the markets the candidate is targeting, the company makes an enticing potential acquisition with a market cap of approximate $3.5 billion.
This is how I have established a position in this promising mid-cap:
Option Strategy
This is how one can initiate a holding in MLTX with a covered call order. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the February $50 call strikes, fashion a covered call order with a net debit in the $39.00 to $40.00 a share range (net stock price - option premium).
This strategy provides downside protection of over 25% with similar upside potential even if this equity trades down by 8% over the option duration.
For those that want to target a slightly higher potential return, while accepting a bit less downside risk mitigation, utilize the February $55 call strikes for your covered call orders.
At the time of publication, Jensen was long MLTX.
