• Source: stocktwits.com

Jefferies downgraded Moonlake Immunotherapeutics stock (NASDAQ: MLTX) from Buy to Hold on Sept. 29 after the company reported disappointing Phase III clinical trial results for its lead therapy, sonelokimab. The firm also cut its price target for the stock to $8 from $65.

Moonlake Immunotherapeutics stock fell nearly 90 percent following the news, dropping from $56.38 at the previous close to $6.19, leaving the biotech valued at about $394 million. The sharp decline reflected investor concerns over the drug’s ability to meet expectations in treating hidradenitis suppurativa (HS), a chronic inflammatory skin condition.

Trial results fall short

The Phase III program included two pivotal trials, VELA-1 and VELA-2. The VELA-1 trial achieved its primary endpoint, with 35 percent of patients showing a significant reduction in inflammatory lesions compared with 18 percent in the placebo group. However, the 17 percent placebo-adjusted efficacy fell short of the 20 to 26 percent range anticipated by analysts.

The companion study, VELA-2, did not reach statistical significance. Analysts noted that while sonelokimab may still be eligible for regulatory review, the likelihood of approval has decreased. Jefferies said the commercial prospects of the drug are now more limited than previously projected.

Impact on valuation of Moonlake Immunotherapeutics stock

The downgrade also weighed on Moonlake Immunotherapeutics stock potential merger and acquisition value, which Jefferies said has diminished due to the clinical setbacks. The firm indicated that investor sentiment may remain cautious until clearer data emerges on the therapy’s future prospects.

Other research firms, however, maintained a more positive stance. Wedbush reaffirmed its Outperform rating and $80 price target, noting that despite the trial uncertainty, the drug candidate still showed activity in patients with moderate to severe HS. Guggenheim and Clear Street also reiterated Buy ratings, with Clear Street setting a higher target of $108.

Broader outlook

Sonelokimab, also referred to as SLK, has been Moonlake Immunotherapeutics most advanced program and central to its growth strategy. The therapy is designed to block interleukin-17, a protein linked to inflammatory diseases. The mixed Phase III results have created uncertainty about the therapy’s path to market and the company’s ability to compete in a crowded dermatology pipeline.

Moonlake Immunotherapeutics stock has not yet released guidance on next steps for the VELA program. Industry observers expect further updates from the company as it evaluates potential regulatory submissions and considers the design of future trials.

For now, Jefferies’ downgrade highlights the risks faced by small biotechnology companies that rely heavily on single-product