Looking for Attractive Gains in the Weight Loss Space

Today, we are putting a clinical stage biopharma concern in the spotlight and teeing it up as a covered call trade. 

The company is targeting one of the hottest parts of the healthcare industry right now — the GLP-1 weight loss drug space. Currently dominated by products such as Novo Nordisk's NVO Wegovy and Ozempic, and Eli Lilly's LLY Mounjaro and Zepbound, the market has blasted off. JP Morgan Research recently projected this market could see an astounding $100 billion in annual revenues by 2030. 

Obviously, many companies are working on new entrants. One of them is Altimmune ALT. Despite a $500 million market capitalization, options against the equity have good bid/ask spreads and are quite lucrative. The shares also set up well as a covered call trade as it will be nine months or so before additional trial data comes out. 

In the meantime, the stock is likely to drift up or down with the biotech sector outside of occasional buyout speculation or an actual purchase by a larger firm looking to gain entry to this lucrative space. The company could also choose to ink a collaboration deal with a larger pharma name.

Altimmune’s primary and real only asset at this point is a compound called pemvidutide. This is a peptide-based dual glucagon-like peptide 1 (GLP-1)/glucagon receptor agonist that is now being clinically investigated for the treatment of both obesity and MASH (which was known as NASH until recently). 

 The company recently disclosed some encouraging data from a Phase 2 trial called MOMENTUM). In this placebo-controlled, four-treatment-arm, 391-participant study, mean weight loss of 15.6% was achieved at week 48 in the highest dose cohort (2.4 mg weekly), with no signs of bottoming out. That compares favorably to Wegovy 2.4 mg (15.6% at week 68; ~15% at week 48) and somewhat unfavorably to Zepbound 15mg ( ~18% at week 48).

In addition, data showed that only 25.5% of the weight loss achieved by pemvidutide was lean mass. This compared favorably to Wegovy, from which ~40% of weight loss was lean mass. Finally, 2.4mg dose achieved a greater reduction of LDL cholesterol levels than either Wegovy or Zepbound.

Trial data from a Phase 2b study evaluating pemvidutide to treat MASH should be out in the first quarter of 2025, so as previously stated, there is a bit of "news vacuum" around this company on the horizon. 

Altimmune ended 2023 with just under $200 million of cash and market securities on its balance sheet, which accounts for approximately 40% of its current market cap. 

Since trial data came out in late March, five analyst firms, including Jefferies and Piper Sandler, have reissued "Buy" ratings on ALT. Price targets range from $12 to $35 a share, with the median being $25. ALT currently trades for just under $7 a share.

Option Strategy

Here is how one can establish a position in ALT 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 $6 call strikes, fashion a covered call order with a net debit in the $4.45 to $4.55 a share range (net stock price - option premium). 

This strategy provides downside protection of nearly 35% across the option duration. It also provides 33% upside potential over the five-month option duration even if the stock trades down just over 10% over that time.

At the time of publication, Jensen was long ALT.