ARCT - Arcturus: mRNA Therapies For Rare Diseases Accelerate Towards Proof Of Concept

2023-09-05 16:00:00 ET

Summary

• Arcturus Therapeutics specializes in mRNA medicines, targeting infectious diseases and rare disorders using proprietary technologies.
• Despite a financial dip post-Q2 2023, Arcturus remains financially strong, with significant focus and potential in mRNA therapeutics for rare diseases.
• Given their financial health and mRNA therapeutic potential, I recommend a speculative "Buy" for risk-tolerant, biotechnology-focused investors.

Introduction

Arcturus Therapeutics ( ARCT ) is a clinical-stage biotechnology specializing in messenger RNA medicines, primarily targeting infectious diseases, liver, and respiratory rare disorders. They utilize their proprietary LUNAR lipid nanoparticle delivery system and STARR self-amplifying mRNA technology, aiming for more effective RNA delivery and sustained protein expression. Their focus extends to developing mRNA vaccines and treatments for infectious diseases and rare genetic conditions. They have collaborated with CSL Seqirus for global mRNA vaccines, partnered with Meiji for ARCT-154 (a COVID-19 mRNA vaccine) in Japan. Additionally, their other mRNA therapeutic candidates include treatments for ornithine transcarbamylase [OTC] deficiency and cystic fibrosis [CF].

In my past analysis of Arcturus, I highlighted their late entry into the COVID-19 vaccine race with ARCT-154. While this may limit their market capture, I was particularly drawn to their work on rare diseases like OTC deficiency. Their unique approach in this niche area, especially with ARCT-810 and the LUNAR platform, offers potential. Coupled with strong Q1 2023 financials, I recommended Arcturus as a speculative 'Buy' due to their promising rare disease pipeline and financial stability.

Recent Developments: Arcturus saw an 18% drop after Q2 2023 results, with a widening net loss and a 61% revenue decline, despite a $380.6M cash reserve.

The following article discusses my perspective on Arcturus' financial position, mRNA therapeutics for rare diseases, and investment recommendation, emphasizing their potential in rare disease treatment.

Q2 Earnings Report

Looking at Arcturus' most recent earnings report , revenues for Q2 2023 were $10.5M, a decrease of $16.6M compared to Q2 2022, largely due to terminations with Vinbiocare and the Israeli Ministry of Health but offset by an $8.6M rise from the CSL Seqirus collaboration and BARDA grant. Total operating expenses for Q2 2023 reached $65.9M, with R&D expenses at $52.7M and General & Administrative at $13.2M. The company reported a Q2 net loss of $52.6M. As of June 30, 2023, their cash position stood at $380.6M, ensuring a cash runway through early 2026.

Cash Inflow & Liquidity

Turning to Arcturus' balance sheet , as of June 30, 2023, the combined values for 'cash and cash equivalents' stands at $323.5M with an additional $55M as 'restricted cash'. Over the six months ended June 30, 2023, the company reported a positive "net cash provided by operating activities" of $14.9M. This translates to an average monthly addition of approximately $2.5M to the company's resources. However, it's imperative to note that these values are based on past data and may not be applicable to future performance.

Regarding liquidity, Arcturus appears to be in a healthy position with a considerable amount of cash. On the liability side, as of June 30, 2023, the company has no current portion of long-term debt, indicating no immediate debt obligations. Given the company's positive net cash from operating activities and its liquidity status, securing additional financing, if required, might be plausible for Arcturus. These are my personal observations, and other analysts might interpret the data differently.

Valuation, Growth, & Momentum

According to Seeking Alpha data, Arcturus exhibits a capital structure with minimal debt relative to its market capitalization and a substantial cash position, leading to an enterprise value of $552.97M. The valuation is graded B-, indicating some concerns, but the company's growth receives a robust A- grade, emphasizing its strong growth prospects. Stock momentum is strong with an A+ grade, outperforming the S&P500.

The recent 18% drop post Q2 2023 is concerning, but its substantial cash reserve, coupled with positive Phase 3 results and collaborations in mRNA therapeutics for rare diseases, suggests a promising trajectory.

FDA Recognizes ARCT-810’s Potential in Rare Pediatric Diseases

The FDA has recognized ARCT-810 with both Fast Track status and the Rare Pediatric Disease Designation, underscoring the critical nature of conditions like OTC deficiency and the existing gap in pediatric care. OTC deficiency, a part of the urea cycle disorder group, presents significant health risks. With the advent of mRNA therapeutic solutions like ARCT-810, there's hope for advancement. As the ARCT-810 Phase 1b study in the U.S. completes enrollment and dosing of 16 patients, the Phase 2 trial in the UK and Europe, aiming to enroll up to 24 individuals, is underway, testing two dosage levels. Should ARCT-810 achieve pediatric approval, Arcturus could obtain a priority review voucher for another product, and preliminary results from the ongoing studies are anticipated shortly.

Embracing mRNA technology, like in the case of ARCT-810, marks a new era in our battle against genetic and metabolic ailments. These therapeutics might just be our key to fixing or replacing malfunctioning genes, painting a brighter future for conditions we once thought were a lost cause. The prospects of these treatments stretch beyond just OTC deficiency, opening doors for countless other rare conditions.

On another note, ARCT-032's move to Phase 1b after a successful run in New Zealand signifies Arcturus' unwavering dedication to address challenging respiratory ailments. CF, with its notorious genetic origins, has long impacted the lungs, spurring a continuous quest for groundbreaking treatments. The potential use of inhaled mRNA therapies, as hinted by ARCT-032, might just change the game in how we handle the disease.

My Analysis & Recommendation

In summary, Arcturus is notable not only for its COVID-19 vaccine contributions but prominently for its advances in mRNA therapeutics for rare diseases. Despite a recent financial dip after Q2 2023, it remains financially robust with funding secured until 2026. This stability allows Arcturus to tackle the expensive realm of drug development, especially in specialized areas requiring significant R&D. The FDA's endorsements of ARCT-810 highlight the importance of Arcturus' work. Investors should see the company's true potential in its dedication to treating rare diseases, signaling a shift in the healthcare sector where genetic disorders can be potentially treated. As time progresses, investors should watch for updates on clinical trials, especially concerning ARCT-810 and ARCT-032. Collaborations, like with Seqirus, might also reveal new growth avenues. Considering the financial health, clinical progress, and mRNA therapeutic potential, I maintain a speculative "Buy" recommendation for Arcturus for risk-tolerant, biotechnology-focused investors interested in mRNA technology and rare disease treatments. The recent stock price drop could be an ideal entry point for those who trust the company's long-term prospects and mission in the rare disease sector.

Risks to Thesis

Given my recommendation, there are potential risks and considerations that could contradict my final investment decision for Arcturus:

• Overemphasis on mRNA Technology: While mRNA therapeutics are revolutionary, they're still relatively new. Long-term effects and efficacy remain to be seen.

• Late Entry into COVID-19 Vaccine Race: I might have underestimated the impact of their late entry, especially with so many vaccines already in circulation.

• Overreliance on Rare Diseases: While OTC deficiency and cystic fibrosis are crucial, banking on niche markets may limit revenue potential.

• Q2 2023 Financials: The significant revenue decline and widening net loss can't be ignored. Am I being too optimistic about their long-term financial health?

• Bias Towards Rare Diseases: My enthusiasm for their work in rare diseases could be clouding my judgment, leading me to downplay their recent financial setbacks.

• Market Sentiment: The 18% drop post Q2 results might indicate a broader market sentiment, and I could be going against the tide.

• External Factors: Unpredictable global events or regulatory hurdles might pose challenges.

• Competitive Landscape: Potential advances by competitors in mRNA therapeutics might overshadow Arcturus' work.

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