ARCT - Arcturus' mRNA Platform: The Future Of Quick And Efficient Vaccine Delivery

Summary

• Arcturus is revolutionizing biotechnology with its cutting-edge mRNA vaccines and delivery systems.
• They recently teamed up with CSL Seqirus, a leading player in the flu vaccine industry.
• The company still looks like a startup in an investment phase, but upfront payments from recent deals suggest a significant liquidity runway.

Arcturus ( ARCT ) is revolutionizing biotechnology with its cutting-edge mRNA vaccines and delivery systems. They just teamed up with CSL Seqirus, a leading player in the lucrative flu vaccine industry, to tackle COVID-19 and other respiratory illnesses. With CSL's vaccine know-how and Arcturus's mRNA expertise, they're well-positioned to make a real difference in pandemic preparedness. And the best part? Arcturus stands to earn a whopping $200 million upfront and up to $4.3 billion in milestones and royalties.

Arcturus has made achieved an interesting milestone by agreeing with BARDA to further develop their mRNA vaccine technology. This agreement, valued at a maximum of $63.2 million, will go towards crucial preclinical and manufacturing studies, as well as ensuring nonclinical safety. The company has a steadfast commitment to providing vaccines that promise to be both safe and effective, and their mRNA vaccines have the potential to offer quick protection against diseases with added advantages such as lower doses, ease of transportation, and storage.

Arcturus is making steady progress in multiple areas of research, including vaccine development and therapeutic treatment for Ornithine Transcarbamylase deficiency. Their cystic fibrosis program, with ARCT-032 as its inhaled mRNA candidate, is showing promising results. The latest preclinical data highlights the effectiveness of ARCT-032 in delivering mRNA to crucial respiratory cells, leading to the expression of vital CFTR protein and improved chloride-ion flow. The company is eager to bring ARCT-032 to clinical trials and is optimistic about its potential to greatly improve the lives of individuals living with cystic fibrosis (Source: 3Q22 earnings call ).

Arcturus mRNA Platform

Arcturus holds a unique advantage with their self-amplifying mRNA vaccine platform technology. This technology offers quick and efficient scale-up in times of pandemics, needing lower doses for mass vaccination, making it cost-effective. The stable nature of the technology facilitates easy transportation and storage, particularly in remote or underdeveloped areas. Arcturus' expertise in this field has led to multiple partnerships with bigger companies.

Arcturus is making steady progress in its therapeutic endeavors. Their candidate ARCT-810 for treating Ornithine Transcarbamylase deficiency holds promise to improve the lives of those affected by restoring urea cycle activity. In addition, the cystic fibrosis program with ARCT-032, an inhaled messenger RNA therapeutic, is making progress with positive preclinical results in delivering mRNA and expressing crucial CFTR protein. The company is confident in the potential of this technology to bring significant benefits to individuals living with cystic fibrosis, especially those not currently receiving adequate treatment. These advancements demonstrate Arcturus' commitment to its technology and innovative solutions that improve patient outcomes.

Arcturus financial situation

Arcturus has seen a positive shift in its financial status due to recent successful deals. These agreements have brought in capital, strengthening the company's financial position, providing the necessary resources to maintain investment in R&D and grow operations.

The company was facing a yearly burn rate of approximately $120 million, with current assets of around $240 million. The recent $200 million upfront payment brings considerable stability to the company, providing almost 4 years of runway liquidity. Additionally, there are other contracted payments tied to achieving specific milestones. All of this is of utmost importance in the current environment of high interest rates.

Arcturus is reducing financial risk through profit sharing and royalty agreements, decreasing its reliance on FDA commercial approvals for therapies. Currently, the company's primary revenue sources come from consulting and technology transfer fees, reservation fees, license fees, and payments received through R&D collaborations with partners.

Nevertheless, the company's income statement still resembles a startup in investment phase, with revenue yet to surpass costs. However, the trend of decreasing costs relative to revenue is positive, and the numerous partnerships established to generate revenue through profit sharing and royalties are promising (Source: Arcturus ).

Arcturus Valuation

Bull & bear scenarios for the company: If the firm can narrow its cash burn by growing revenue to $200 million by 2023, and assuming a 7% annual increase in dilution, revenue per share would be $6.18. Applying a 10x revenue multiple gives a price target of $61.70. Conversely, if revenue stays stagnant with the same dilution, revenue per share would be $1.85. With a lower revenue multiple of 6, the price target would be $11.12.

According to the model, the stock appears to have a favorable risk-reward profile, making it worthy of consideration by potential investors.

Conclusion

Arcturus is an innovative player in the self-amplifying mRNA vaccine sector, leveraging a technology platform with benefits like fast scaling, lower dose needs, and convenient transport/storage - crucial in fighting pandemic flu. Their impact is being acknowledged by the US government, having won a $63.2M award from BARDA to boost platform development and regulatory backing.

The collaboration agreement with CSL Seqirus, a global leader in the multi-billion dollar influenza vaccine market will allow Arcturus to leverage CSL's vaccine commercialization and manufacturing infrastructure while combining its expertise in self-amplifying mRNA vaccines. The partnership aims to develop vaccines for COVID-19, influenza, and three other respiratory infections, and to prepare for pandemics. Arcturus has received an upfront payment of $200 million and has the potential to earn up to $4.3 billion in development and commercial goals. This is a positive sign for the company.

Despite the potential rewards, Arcturus faces several risks. I'll just mention some that I find more relevant, but that doesn't mean there aren't others. While it is true that the company offers promising technology and positive trends in its business model, it also faces significant threats that could derail its progress. These include the possibility of failure to meet milestones, being surpassed by competitors, or even running out of funds.

Given some of the risks involved, investors should perhaps consider the investment as a small part of a diversified portfolio, rather than a large, focused bet. It would also mean being willing to accept the possibility of losses, but with the understanding that this could also lead to larger gains if the company is able to overcome its risks and succeed.

Take this company for what it is, exposure to mRNA technology, with a business model showing interesting trends, but also very risky. I like the underlying trends and technology profile, but given the high-risk profile, I suggest that interested investors ponder very well how to incorporate it correctly in their portfolios.

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