TAK - MoonLake Immunotherapeutics: Poised For Acquisition

2023-12-07 23:57:14 ET

Summary

• MoonLake Therapeutics is a clinical-stage biopharmaceutical company developing nanobody-based therapies for inflammatory diseases.
• Their lead product candidate, Sonelokimab, has shown best-in-class potential in treating Hidradenitis suppurativa and Psoriatic arthritis.
• MoonLake's unique MoA and potential for high sales make it an attractive target for acquisition by pharma companies.

Introduction

My interest in this company was sparked when a news head flashed by regarding a successful 2b study that blew away the competition in Hidradenitis suppurativa ((HS)), an inflammatory disease. The news had a negative impact on one of my portfolio holdings, namely UCB ( OTCPK:UCBJF ) , that markets a competing drug molecule (Bilmex). The news came a bit as a surprise to me as I honestly never heard about MoonLake before. What specifically triggered my interest was the fact that their leading asset was a Nanobody® in-licensed from Merck KgA ( OTCPK:MKGAF ) . Merck lang ago partnered with a Belgium biotech firm, called Ablynx, to develop the molecule. In 2018 Ablynx, which I also held in my portfolio at that time, was acquired by Sanofi (NASDAQ: SNY , OTCPK:SNYNF ). After the acquisition Sanofi logically cleaned out many of Ablynx’ assets that were partnered and for which full rights were not retained. Ablynx was known for its Nanobody® platform in which much smaller modular antibodies were derived from camelids. The small size of camelids antibodies was discovered in a Belgian university, in which I studied. The antibody properties were discovered by accident during a practical lab session.

MoonLake Therapeutics

MoonLake ( MLTX ) was founded in 2020 by a team of experienced drug developers with a deep understanding of nanobodies and their potential in therapeutics. The company has a strong intellectual property portfolio and a robust pipeline of nanobody-based therapies for inflammatory diseases. MoonLake is a clinical-stage biopharmaceutical company developing innovative nanobody-based therapies for the treatment of serious inflammatory diseases.

The company's lead product candidate, Sonelokimab (SLK), is a novel investigational Nanobody® that targets the interleukin ((IL)), a key mediator of inflammation. Sonelokimab unleashes the power of IL-17A and IL-17F inhibition to treat inflammatory diseases, by independently inhibiting the naturally occurring IL-17 A/A, A/F and F/F dimers that drive inflammation in patients. Sonelokimab is currently in clinical development for the treatment of several inflammatory conditions.

The company’s financial position & financial statements look as follows (Source Q3 business update) :

• Revenues: None
• SG&A costs (first 9 months 2023): $15.4million
• R&D costs (first 9 months): $ 23.7 million
• Total cash burn (first 9 months 2023) $ 36.1 million
• Cash & cash equivalents (end of Q3): $ 496.0 million
• Financial debt: None
• Market Capitalisation: $ 2.76 billion
• Enterprise Value: $2.26 billion

Note that R&D costs will be a lot higher over the course of the next years. Moonlake recently increased their capital in order to finance expensive phase III studies in HS. According to the company, the current cash position provides a cash runway to the end of 2026. The company states it will be able to fully finance two phase 3 studies (in Hidradenitis suppurativa and Psoriatic arthritis), one additional phase 2 and one BLA submission with current available resources.

IL-17 potential in inflammatory diseases

MoonLake Immunotherapeutics plans to accelerate the development of Sonelokimab in multiple inflammatory diseases in dermatology and rheumatology driven by IL-17A and IL-17F. This group of IL-17A/F Inflammatory Diseases include psoriatic arthritis, ankylosing spondylitis, and hidradenitis suppurativa – conditions affecting millions of people worldwide with a large need for improved treatment options. In these diseases, studies showed that IL-17A/F inhibition showed highest & more durable responses versus other mechanisms of action, such as anti-TNFa (AbbVie’s Humira, UCB’s Cimzia, …) and JAK-inhibitors (AbbVie’s Rinvoq, Elli Lilly’s Olumniant…)

The company's lead product candidate, Sonelokimab (SLK), differentiates itself from other IL-17 inhibiting molecules by the ability to bind all combinations of IL-17 A/A, IL-17 A/F & IL-17 F/F dimers. UCB’s Bimzelx (Bimekizumab, BZK) is the only other molecule that is able to bind all 3 dimeric combinations needed for strongest inhibition.

Sonelokimab, however, has an extra binding albumin-binding site that helps it to penetrate tissues. As a nanobody, SLK also is 4x smaller then BZK (classical antibody) which improves kinetics and tissue penetration.

Best in class potential in Hidradenitis suppurativa

Hidradenitis suppurativa ((HS)), also known as acne inversa , is a chronic inflammatory skin disease that affects approximately 1-2% of the population. It is characterized by recurrent or persistent boil-like nodules and abscesses that occur in skin folds, such as the armpits, groin, and under the breasts. HS can cause significant pain, scarring, and emotional distress, and it can have a profound impact on patients' quality of life. The current standard of care for treatment is Humira (adalimumab). In HS IL-17A/F is the most favorable target according to key opinion leaders.

MoonLake reported results for SLK from its MIRA clinical trials in HS in June . The trials met its primary endpoint on HiSCR50. SLK’s differentiating point is that it scored higher than competitors for both HiSCR50 & HiSCR75 after 12 weeks. HiSCR50 is defined as a 50% reduction in the total number of HS lesions, with no increase in abscess count or draining fistula count, relative to baseline. The results confirm its best-in-class potential.

The results after 24 weeks showed that the response deepened further. The percentage of patients reaching a 90% reduction in lesions even rose from 22% after 12 weeks to 38% after 24 weeks.

It should also be highlighted that HS is a disease area with a high level of unmet needs. The market for HS is expected to grow significantly in the next decade because of newly approved treatment methods, such as SLK and BZK.

Best in class potential in Psoriatic arthritis (PsA)

Psoriatic arthritis (PsA) is a chronic inflammatory arthritis that affects about 0.5% of the global population. It is most common in adults between the ages of 30 and 55, but it can also affect children and adolescents. PsA is characterized by joint pain, swelling, and stiffness that can be like rheumatoid arthritis ((RA)). However, PsA is often accompanied by skin lesions called psoriasis), which are red, scaly patches that can appear anywhere on the body. In this disease, there is a high level of unmet needs. The market is expected to grow with 11% per year because of several promising treatments that are expected. In this disease, IL-17 treatments are also the preferred method of treatment over IL-23 inhibitors and JAK-inhibitors.

In November , MoonLake reported results from its ARGO trial in Psoriatic Arthritis. The trial met its primary endpoint on ACR50 response at week 12 compared to those on placebo. ACR50 is an acronym for the American College of Rheumatology 50% response. It is a clinical endpoint used to evaluate the efficacy of treatments for inflammatory diseases, such as rheumatoid arthritis ((RA)) and psoriatic arthritis (PsA). ACR50 is defined as a 50% improvement in both tender joint count and swollen joint count, as well as a 50% improvement in three of the five recognized disease parameters.

It also showed outstanding results on PASI scores. PASI90, one the trial’s secondary endpoints, stands for Psoriasis Area and Severity Index 90 and is a clinical endpoint used to evaluate the efficacy of treatments for psoriasis, a chronic inflammatory skin condition. PASI90 is defined as a 90% reduction in the PASI score from baseline. The PASI score is a measure of the severity of psoriasis, based on the percentage of body surface area affected by psoriasis lesions, the degree of erythema (redness), and the thickness of the lesions.

Achieving PASI90 is considered a significant treatment goal for psoriasis, as it indicates a near-complete resolution of psoriasis lesions. Patients who achieve PASI90 often experience a dramatic improvement in their quality of life, with reduced symptoms such as itching, burning, and pain, as well as improved self-esteem and social functioning.

PASI90 is particularly important in the context of newer, more effective psoriasis treatments, such as biologics and targeted therapies. These treatments have the potential to achieve PASI90 in a significant proportion of patients, offering a higher level of efficacy compared to traditional psoriasis treatments.

Textbook example of value creation in biotech

Unlike other R&D-focused biotech firms, MoonLake focuses less on the R(esearch) and more on the D(evelopment). The company has no technology platform and does not occupy itself on pre-clinical research. Its lead candidate, Sonelokimab, was in-licensed from Merck KgA in 2021. Merck KgA acquired the remaining rights from Sanofi after acquiring Ablynx. Merck partnered up with Ablynx to develop the Nanobody dating back in 2011 . It remains a strange move from Merck selling such a promising molecule. Merck sold the molecule because it did not fit with its portfolio focused on cancer, neurogenerative diseases, fertility and endocrinology. In return Merck acquired a large stake in MoonLake, and remains a large shareholder to this day.

MoonLake shows you do not need a hot burning technology platform and a catchy story to be successful in biotech. The company’s business model folds down to the essence value creation in Biotech, namely clinical advancement of promising molecules and a flawless execution of such clinical trials. And instead of developing, multiple molecules at one, it focuses in crystalizing the potential of its star molecule in the vital few number of indications where the target already has some validation. Some would call this a one-trick-pony, others would call it a pipeline-in-a-product. My personal preference for investment is to have a very focused pipeline. This way it is crystal clear where precious resources are heading. This is also reflected in the company’s cash burn. This is also reflected in the company’s relatively low cash burn.

A target for acquisition

As explained above, MoonLake’s SLK, has a large market potential in a short list of diseases equivalent to a sales potential of several billions of dollars. Sonelokimab, has a unique MoA, that alongside UCB’s Bimzelx is the only other known molecule inhibiting dimers of IL-17 (A/A, A/F and F/F). Moonlake is therefore perfectly positioned as a bolt-on target for acquisition. Any pharma company that is active therapies for autoimmune diseases and that does not have a IL-17 inhibitor might be an interested party. I personally do not believe that MoonLake’s management has the intention of marketing their own product and building sales channels. Big pharma might be waiting for a successful phase III study before biting. Yet, this does not necessarily imply that we would have to wait several years for an acquisition. Smaller to mid-size pharma companies are certainly willing to pick de-risked phase II assets and pushing them through phase III. Recent examples of acquisitions in this domain include Nimbus, Chemocentryx and Telavent . Biotech acquisitions typically take place at multiples of 2-7x peak sales (EV/peak sales) for late-stage molecules. The average multiple for biotech acquisitions has been around 4-5 times peak sales in recent years. Some recent data points were Reata (acquired by BioGen for ~7.1x peak sales), Nimbus (acquired by Takeda for 1.5x peak sales), Chemocentryx (acquired by Amgen at ~3.5x peak sales). Since analysts expect MoonLake to reach more than $ 4 billion in peak sales for Sonelokimab (Source: MoonLake investor’s presentation) , an acquisition of more than $ 10 billion is realistic, equivalent to 2.5x peak sales. With a market cap of $ 2.76 billion and an enterprise value of $ 2.26 billion, this leaves an upside of around 280%. Likely suspects that might be interested in expanding their existing product portfolio in inflammatory diseases and have actively include: Abb V ie (NYSE: ABBV ), Takeda (NYSE: TAK ), Eli Lilly (NYSE: LLY ) and Amgen (NASDAQ: AMGN ).

Company specific risks

MoonLake's phase II data were extremely promising, showing best-in-class potential. Sonelokimab is largely derisked meaning the chances for making it through clinical phases successfully are quite large for HS & PsA:

1. Superior results on primary endpoints versus key competing drug molecules
2. A competing molecule (UCB's Bimzelx) with a very similar mechanism of action is proven successful and has superior results over other mechanisms.
3. Reasonable amount of data from phase I/II studies showed the molecule has a reasonable safety molecule.

However, it would not be the first time that a potential blockbuster unexpectedly under impresses or an unexpected safety signal shows up out of the blue. These risks are inherent to the execution of clinical trials. It must also be underpinned that the space is quite competitive and the bar is quite high. The difference between being a best-in-class or being a late-to-the-party drug really depends on MoonLake's ability to replicate strong phase II data in phase III studies. There is also one attention point concerning the dosing of the drug. During the MIRA trials in HS it was notable that the highest dose (240 mg) was less effective than the lower dose (120 mg), which is opposite to what you would expect. In the ARGO trials in PsA similarly the lower dose (60 mg) scored higher than the high dose (120 mg). Because the most effective dose in HS scored lower in PsA is also not reassuring that optimal doses are being selected for phase III. On the other hand there is no reason why the optimal dose cannot differ in different diseases.

General disclaimer: Investing in biotech is considered as a high risk investment. Investors should carefully read into the risks that are associated with biotech and MoonLake in specific before making a purchase decision.

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