I'm Eyeing 2 Promising Biotech Plays as Oversold Market Gets Under My Skin
Intellia Therapeutics and MoonLake Immunotherapeutics have treatments advancing in clinical trials.
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Despite the challenges of navigating this significantly overbought market, I am spotting some good plays in the the small biotech and biopharma space. The SPDR S&P Biotech exchange-traded fund XBI is trading a bit higher than where it was a half-decade ago, so this part of the market can hardly be called overbid.
It is also where small names can get oversold on any news and where bargains can appear in a blink of an eye. Let’s take the case on gene-editing developmental company Intellia Therapeutics NTLA, which has a promising treatment in the works for what's called hereditary angioedema, a type of swelling under the skin and the lining of the lungs and gut that can be painful.
The shares plunged 20% in trading on Thursday. I added to my position in Intellia yesterday on that pullback using covered call orders. I used an option strike price that was still below the trading level of the stock after its decline and at a level that provided lucrative option premiums and solid additional downside protection. If the stock just stabilizes, I will make a 25% return by the time the options expire in April.
The trigger for the selloff was mid-stage clinical data around the company’s gene therapy NTLA-202 for angioedema. The results showed that approximately 80% of subjects in the higher dose cohort achieved a complete cure. While that may have been disappointing to investors hoping for a 100% cure rate, which did look possible based on earlier studies, NTLA-202 still could be a potential new treatment for hereditary angioedema. Data allowed Intellia to settle on the optimal dosage and it will now move forward with a potentially pivotal Phase 3 clinical study. Six analyst firms including Barclays and Bank of America reissued or assigned "Buy" ratings to NTLA following the disclosure of trial results. Price targets proffered ranged from $41 to $90 a share. After Thursday’s selloff, NTLA trades around $16.
I also used covered call orders yesterday to establish a small initial position in MoonLake Immunotherapeutics MLTX, a late clinical-stage biotech company that working on a treatment of a painful condition called hidradenitis suppurativa that causes lumps to form under the skin. The stock has drifted down by a third from its highs earlier this year as several buyout rumors failed to result in any offers. But data from its two pivotal trials in hidradenitis suppurativa, which will likely show improvement over current commercial competition, should be announced around mid-2025. The company also has two other late-stage clinical trials underway for psoriatic arthritis and a substantial related treatment market opportunity. The pullback seems a good opportunity to accumulate a small stake in this promising company pending further trial developments.
At the time of publication, Jensen was long NTLA, MLTX, XBI.
