Drawing Up a Play for a Potential Biotech Game Changer
The options against the equity of this promising gene-editing concern are lucrative and liquid, making it an ideal covered call candidate.
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Today we are going to highlight a promising gene-editing concern whose stock that currently trades for around $25 a share. So far, early in 2024, six analyst firms, including Wells Fargo, RBC Capital and Oppenheimer, have reissued "Buy" ratings on this name, with price targets ranging from $62 to $95.
The company has produced extremely encouraging early-stage trial data that support the thesis that it can deliver a "best of breed" solution to a significant disease indication. The problem is that any potential commercialization is many years away and the stock could well be swayed by whatever the sentiment is on the small biotech space at any given time. Still, the options against the equity are lucrative and liquid, making it an ideal covered call candidate.
The danger, to me, is the company could one day be acquired for a substantial buyout premium, which would result in covered call investors leaving significant money on the table. That said, no one ever went broke taking profits.
The company is Intellia Therapeutics NTLA . This clinical-stage biopharmaceutical is focused on the development of potentially curative therapies leveraging its CRISPR-Cas9 genome editing platform. Intellia has two programs in the clinic with another slated to enter sometime in 2024. It has also signed multiple collaborations and licensing deals for its technology.
Intellia's first systemically delivered CRISPR-based therapy is NTLA-2001, which has the potential to be a game changer. This candidate is undergoing investigation in a Phase 1 study for the treatment of transthyretin (ATTR) amyloidosis, a disease where the liver produces faulty transthyretin (TTR) proteins.
These abnormal proteins break apart, misfold on themselves and form clumps of amyloid fibrils. They are carried by the circulatory system and deposited in nerves or (typically) in the left ventricle of the heart, causing polyneuropathy or cardiomyopathy, respectively. As such, patients afflicted with ATTR amyloidosis suffer heart failure, shortness of breath, muscle weakness, and sensory deficits.
Intellia believes that this malady affects between ~250,000 and ~550,000 worldwide, of which ~50,000 cases are hereditary. Life expectancy after diagnosis is two to seven years for cardiomyopathy (ATTR-CM) patients and approximately 10 years for polyneuropathy (ATTRv-PN) patients.
There are currently four FDA-approved therapies for ATTRv-PN. These include RNA-silencers such as Alnylam Pharmaceuiticals' ALNY IV-infused Onpattro (patisiran), as well as AstraZeneca's AZN and Ionis Pharmaceuticals' IONS recently green-lighted self-injected, ligand-conjugated antisense oligonucleotide therapy Wainua (eplontersen).
There is only one approved therapy -- Pfizer's PFE Vyndamax (tafamidis) -- for ATTR-CM. These treatments have varying degrees of effectiveness, but all require lifetime dosing. By contrast, NTLA-2001 aspires to be a one-time dose with curative potential. Intellia places the FY29 global market opportunity for ATTR amyloidosis treatments at ~$11+ billion.
In an ongoing open-label, two-part, two-arm Phase 1 trial -- one for ATTR-CM and the other for ATTRv-PN -- NTLA-2001 achieved a 91% mean reduction in serum TTR versus baseline at day 28 in the 62 evaluable patients who received a dose of 0.3mg/kg or higher. Furthermore, this response was sustained at 12 months in the 29 patients who had reached that threshold as of the May 2023 cutoff date. The therapy was well tolerated across all dose levels.
Intellia will soon begin a pivotal 765-patient Phase 3 study (MAGNITUDE) for ATTR-CM with the first individual expected to be dosed this quarter. With the potential for this candidate and a couple of others in development, combined with nearly $1 billion in net cash on the balance sheet as of the end of the third quarter, Intellia's current market cap of under $2.3 billion sets up a very attractive risk/reward profile -- one that can be enhanced by this simple option strategy.
Option Strategy
Here is how one can establish a position in NTLA using a covered call strategy. Remember, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the September $25 call strikes, fashion a covered call order with a net debit in the $18.60 to $18.80 a share range (net stock price - option premium). This strategy provides downside protection of nearly 30% over the option duration with potential upside of 33% even if the stock trades flat to current trading levels.
At the time of publication, Jensen was long NTLA.
