ARCT - Arcturus Therapeutics: A Beacon Of Hope For Rare Diseases Amid The mRNA Race

2023-06-26 13:40:30 ET

Summary

• Arcturus Therapeutics is developing mRNA medicines and vaccines for infectious diseases and rare disorders, with a focus on their ARCT-810 candidate for ornithine transcarbamylase deficiency.
• The company reported strong Q1 2023 financial results, with a significant increase in revenue and a net income of $50.8 million, along with a cash runway projected to last until early 2026.
• Despite late entry into the COVID-19 vaccine market, Arcturus' focus on rare diseases and their financial health make them an attractive investment opportunity, with a speculative 'Buy' recommendation.

Introduction

Arcturus Therapeutics ( ARCT ) is a global biotech company developing mRNA medicines and vaccines for infectious diseases and rare disorders. They use their proprietary lipid nanoparticle delivery system, LUNAR, and self-amplifying mRNA technology, STARR, for longer-lasting RNA and sustained protein expression at lower doses. Arcturus initiated a Phase 3 study for their COVID-19 vaccine, ARCT-154, in September 2021, with positive results announced in 2022. They are collaborating with Seqirus, Inc. on COVID-19, influenza, and other vaccines, while also advancing mRNA therapeutics for rare diseases like ornithine transcarbamylase [OTC] deficiency and cystic fibrosis [CF].

Recent Developments

Arcturus Therapeutics recently submitted a New Drug Application for their COVID-19 vaccine, ARCT-154, to the Japanese PMDA. The company also completed enrollment for a Phase 3 study to evaluate ARCT-154 as a booster dose compared to Pfizer's ( PFE ) Comirnaty. Their mRNA therapeutic candidate for OTC deficiency (ARCT-810) is progressing in a Phase 2 study. Lastly, their CF therapeutic, ARCT-032, completed a Phase 1 study, and patient dosing will begin in Q3 2023.

The subsequent discourse will mainly revolve around the company's foremost candidate for rare diseases, ARCT-810, following an evaluation of the company's latest earnings report and stock appraisal.

Q1 2023 Earnings

Let's first review financials. For the first quarter ended March 31, 2023, Arcturus Therapeutics reported total revenue of $80.3 million, a significant increase from $5.2 million in the same period of 2022, primarily due to the agreement with CSL Seqirus. Total operating expenses were $65.5 million, up from $55.6 million a year ago, while research and development expenses rose to $51.8 million from $44.9 million in 2022. General and administrative expenses were $13.8 million, an increase from $10.7 million in the comparable period last year. The company reported net income of $50.8 million, a significant turnaround from a net loss of $51.2 million in the same period of 2022. As of March 31, 2023, cash and equivalents stood at $330.1 million, with expectations to collect $90.0 million in Q2 2023 related to the CSL Seqirus milestones. The cash runway is projected to last until early 2026.

ARCT Stock Assessment

Per Seeking Alpha , ARCT has shown impressive growth, with a 1716% YoY revenue increase and 3-year CAGR at 145.11%. Its GAAP P/E is relatively low at 5.86 and it has a strong gross profit margin of 46.65%. In terms of momentum, the stock has significantly outperformed the S&P 500 over the past year. Its strong balance sheet is highlighted by a cash position of $327.94M against a relatively low total debt of $33.17M. The EV/Sales ratio at 1.21 suggests a potentially undervalued situation. Given its financial health, strong growth, and favorable valuation metrics, ARCT appears to be an attractive investment.

Arcturus' ARCT-810: A Potential Advance in OTC Deficiency Treatment

Arcturus Therapeutics' LUNAR-OTC program is currently progressing with ARCT-810, a potential breakthrough treatment for Ornithine Transcarbamylase (OTC) deficiency . Per Arcturus , this rare genetic disorder affects the body's ability to eliminate ammonia, a toxic byproduct of protein metabolism, impacting over "5,000 patients" in the U.S. and between "1 in 14,000 to 77,000" people globally. Existing treatments only manage symptoms, leaving a strong demand for an effective solution addressing the disease at its core.

ARCT-810 leverages Arcturus' proprietary LUNAR platform to transport functional OTC mRNA into liver cells. Once inside, the cells can use this mRNA to produce a functioning OTC enzyme, the lack of which is the root cause of OTC deficiency. This groundbreaking approach earned ARCT-810 orphan drug status from both the FDA and EMA.

During preclinical studies, ARCT-810 showed promising results. It improved ureagenesis – the process of converting toxic ammonia into urea, which can be safely eliminated from the body. This is a critical function impaired in patients with OTC deficiency. Additionally, the drug successfully reduced plasma ammonia levels, thus directly addressing a life-threatening symptom of the disease. These promising results suggest ARCT-810 could significantly alleviate the disease burden.

A Phase 1 study concluded in November 2020 demonstrated ARCT-810's favorable safety, tolerability, and pharmacokinetics. An ongoing Phase 1b study (active, not recruiting) in OTC-deficient adults is further assessing these aspects, with completion expected in Q2 2023.

Meanwhile, a Phase 2 study (recruiting), launched in December 2022, is testing ARCT-810 in adolescents and adults suffering from OTC deficiency, with interim data anticipated in H2 2023.

Given the above, ARCT-810 carries the potential to revolutionize the treatment landscape for OTC deficiency. It targets the genetic root of the disease, which, combined with the regulatory benefits of its orphan drug status, could facilitate a significant market share, pending continued favorable results regarding safety and efficacy.

My Analysis & Recommendation

In synthesizing the multifaceted narrative of Arcturus Therapeutics, one cannot overlook the forward momentum the company carries. While, in my view, they joined the COVID-19 vaccine race a bit late with ARCT-154, it is their rare disease pipeline, specifically their focus on the likes of OTC and CF, that captivates my attention and underscores the uniqueness of this firm.

Their entry into the COVID-19 market has not generated the excitement one might expect, as they are trailing behind well-established frontrunners. This late entrance may temper their potential for substantial market capture in this sector. However, it is my belief that the COVID-19 vaccine space should not be the sole lens through which we view Arcturus.

Pivoting to their work on rare diseases, I am compelled by the progress and the groundbreaking approaches they are taking. Their ARCT-810, in particular, leveraging the LUNAR platform, is on track to bring potentially transformative therapy for OTC deficiency. This strategy, focusing on rare and often overlooked conditions, capitalizes on an area of the medical field that is rife with unmet needs. This represents a significant opportunity for value creation and positions Arcturus to potentially become a major player in this niche market.

The impressive Q1 2023 financial results paint a picture of a company in robust health, well-cushioned by ample cash reserves that offer a runway stretching into early 2026. This financial stability combined with the potential of their rare disease pipeline makes a strong case for Arcturus as an investment opportunity.

In conclusion, while the company's COVID-19 prospects might not be particularly riveting given their late entry into the market, the evolution of their rare disease pipeline paints an altogether different picture. It's in these areas that I see Arcturus potentially making a significant impact, and that's why, on balance, I would recommend Arcturus Therapeutics as a speculative 'Buy'. The company's commitment to pioneering novel therapeutics for rare conditions and their financial health provide a compelling rationale for this recommendation.

Risks to Thesis

When the facts change, I change my mind.

As I contemplate my speculative 'Buy' recommendation for Arcturus Therapeutics, I also consider several potential risks that could undermine this investment thesis.

Firstly, the success of Arcturus largely hinges on the clinical progression of their lead drug candidates , particularly ARCT-810 for OTC deficiency. If the drug fails to demonstrate safety and efficacy in ongoing or future trials, or if there are any unexpected side effects, this could have a serious impact on the company's valuation and prospects.

Secondly, the company's proprietary LUNAR and STARR platforms are still relatively new , and their long-term efficacy, safety, and commercial viability remain unproven. If these platforms fail to live up to expectations, this could limit the company's potential for growth and undermine the viability of its drug pipeline.

Finally, Arcturus is operating in a highly competitive space . Other companies, some with significantly more resources, are working on similar mRNA technologies and treatments for the same rare diseases. If these competitors bring their products to market faster or if their treatments prove to be more effective, this could significantly impact Arcturus' market share and future profitability.

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