ARCT - Arcturus Therapeutics Should Benefit From A Variety Of Positive Developments

Summary

• Arcturus Therapeutics' tie-up with CSL secures financial stability for a number of years.
• Developing a diverse range of mRNA technology products for a variety of conditions.
• In a poor economic environment, biotechnology is an area not necessarily harmed by recessionary trends.
• The latest financial results are very positive.
• The company has specific strengths in the Asian region.

I last wrote about Arcturus Therapeutics Holdings ( ARCT ) in September 2021. Readers can see the basics of the company from that article here.

The company is a leading self-amplifying mRNA researcher and vaccine provider and has a valuable lipo nanoparticle delivery technology.

Since my last article there has been a host of positive news. The positive earnings in the most recent quarter add substance to this news. More important than quarterly earnings is the cash injection resulting from the new agreement with CS.

By definition, small biotech stocks are high risk. Arcturus does, however, meet the criteria an investor should look for. These are good cash reserves, joint ventures with Big Pharma companies, and a promising testing programme going forward. Now is a good time to invest in the company, but always with the proviso that such companies are high risk.

ARCT Q3 Earnings

Revenue and profitability are not the most significant factors in a small-cap biotech. However, those produced by Arcturus were healthy. More important is cash balances.

Based on the SA Quant Ratings , revenue is forecast to grow strongly, as per the illustration below:

Q3 GAAP EPS was -$0.82, beating expectations by $1.04. Revenue of $27.09 million beat by $24.58 million.

Cash balance at $283.5 million compares to $370.5 million as of December 31, 2021. That was healthy after cash infusions from Vietnamese company Vinbiocare and from the Economic Development Board of Singapore. The company's strong links around Asia could be of extra special benefit. Asia is the most populous continent and with a growing population and growing affluence. However, Arcturus is now even healthier with a pending strong infusion of cash funds from the new tie-up detailed below.

The balance sheet details are as follows:

The capital structure is summarised below:

The full statement of details can be seen in the company press release here.

CSL Sequirus

Of all the good news coming in, the tie-up with CSL Sequirus seems the most relevant. CSL is a publicly listed unit of CSL Ltd (CSLLY). The company is a world leader in flu vaccine development and distribution. They are putting in $200 million upfront which gives Arcturus "carte blanche" to push forward with their research programme for the medium term. The potential input of funds from CSL is $4.3 billion. The details of the agreement can be seen here.

The deal gives CSL exclusive licensing rights for a variety of products. Under the deal, Arcturus would get 40% of profits on the COVID-19 products. They would also get double-digit royalties on other products developed in conjunction with CSL.

At the analyst call CEO Joseph Payne reckoned the new funding secured means they have a sufficient cash balance to carry out their planned expenses for the next 3 years. That is quite a rare state of affairs for a small scale biotech company. The 3-year capability does not take into account any sales revenue that might occur.

Arcturus Pipeline

The pipeline is quite complex. A summary of the company is illustrated below:

The company specialises in vaccines for Covid-19, influenza for other respiratory illnesses and liver ailments, and in pandemic preparedness. Target treatments include also OTC (ornithine transcarbamylase deficiency) and cystic fibrosis. There is currently no efficacious treatment for the OTC liver condition.

Looking long-term, mRNA technology in general can lead to an almost infinite number of new treatments for various conditions. For instance, rival BioNTech (NASDAQ: BNTX ) is working on mRNA vaccines for malaria, tuberculosis, and HIV amongst others. The process allows the recipient's own cells effectively to become drug manufacturers of the spike protein. This speedy and effective approach has led experts to assume that in 15 years time about one-third of all new drug approvals will be from mRNA drugs.

Arcturus' products are based around its STARR (self-transcribing and replicating RNA) platform technology and LUNAR lipid-meditated delivery technology with its 250 proprietary lipids. That is where CSL effectively saw the rich promise, especially in terms of the inhaler delivery. The self-amplifying vaccines Arcturus can produce have certain major advantages over those in the market right now from Pfizer (NYSE: PFE ) and Moderna (NASDAQ: MRNA ).

They are cheaper, easier to transport and easier to store. That can be a crucial difference to curb an outbreak quickly. Covid-19 mRNA vaccines act on T-cells and attack Covid's spike protein (t-cells are a type of white cell which protect the body against outside attacks). mRNA vaccines appear to have a better safety profile than inactivated vaccines in terms of lower incidence of side effects. These vaccines produce a far greater number of these white cells than inactivated viruses such as those produced by Sinovac and Sinopharm. It may be that future treatments might recommend a combination of the two types of vaccine.

* The next major development should be in regard to the ARCT-154 Covid primary and booster vaccine. This is expected to get Emergency Use Authorisation in Vietnam in the next couple of months. It had successful Phase III efficiency trial results in April this year. The company had been working closely with its partner Vingroup in Vietnam. This now seems to have reached its concluding stage. Illustrated below from the company's Twitter page is company staff meeting with the Vietnamese president:

Of particular merit here is the fact that although ARCT-154 only provided 55% protection against catching Covid, it provided 95% protection against hospitalisation or death. This is the most important factor now we have moved into the reality that Covid is endemic around the world. The focus now is less on avoiding catching Covid and more on avoiding serious illness from Covid.

In August this year , their booster vaccine had been shown to be effective against Omicron variants including BA.5.

* In addition for COVID treatment there is their ARCT-201 product. This is only at Phase 2 testing. It is understood that this product was developed in conjunction with Duke-NUS in Singapore.

* ARCT-810 is targeted at liver problems with OTC deficiency. It is now moving into Phase II testing after Phase 1B dosing. Its progress unexpectedly slowed this year after delays in recruitment for the testing. Management reiterated at the analyst call that they did not expect this problem to recur.

* ARCT-032 is targeted at lung problems from cystic fibrosis. This affects about 70,000 people worldwide.

* LunaFlu is targeted at influenza. This might be developed in conjunction with CSL.

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In addition, the company has various joint drug developments with outside parties.

* Janssen Pharmaceutica, which is part of Johnson & Johnson (JNJ), for hepatitis B.

* Ultragenyx (NYSE: RARE ) for various rare disease targets.

* Takeda Pharmaceutical (NYSE: TAK ) and Millennium Pharmaceutical for various mRNA developments

* Millennium Pharmaceutical for non-alcoholic steatohepatitis.

* Cooperation with Singapore Economic Development Board and Duke-NUS Medical School for Covid-19. This is already well advanced. Singapore is targeting itself to be a bio-pharma hub for Asia. Arcturus could benefit greatly from their close cooperation with Singapore government-linked entities. It is thought that the company has close financial and research ties with Israel as well.

ARCT Stock Price

The stock price has fallen in line with the general market.

The one-year stock chart as provided by Charles Schwab Inc illustrates this:

This is not really justified by the micro picture of the company. It has been said that the stock price has been artificially lowered by a cabal of short traders. I don't have the details of this but if so they may have to cover soon. Daily share trading turnover for the company is only about $1 billion.

Stock ownership is quite favourable. 83.6% of stock is owned by institutions. This can generally be regarded as stable for a company. 12.2% is owned by company insiders.

In general, analysts are very mixed on the company as the detail below from SA evidences:

Analysts have been changing their price targets since the results and the CSL news. For instance, Citi has put in a new price target of $35. This is very conservative in my view if you are bullish about the company. Baird on the other hand have reduced their price target to $18 (neutral to underperform) on what I think are quite spurious grounds. Goldman has increased their price target from $8 to $14. There may be some connection between analyst forecasts and the shorting community.

Risks

* Small biotechs such as this are prone to stock price manipulation by groups acting in concert together.

* It may be that the promising pipeline drugs all prove to not be efficacious or to have harmful side effects.

* The company may need to indulge in share dilution in the future to raise more funds.

Conclusion

Recent developments outlined in this article highlight the company has a promising pipeline and the cash to advance it. Previous downturns in the stock price had mainly been centred around the idea that the Covid-19 crisis was over. In fact, it seems clear that Covid-19, along with influenza, is endemic and will continue with no end date in sight. Thus effective and less costly vaccines will be a long-term need.

Arcturus has a number of prime attractions. It has an excellent cash runway. It has apparently very advantageous self-replicating mRNA technology. It has specific strengths in the Asian region. In common with other drug development companies, it is not reliant on macroeconomic conditions.

That does not of course guarantee that the company's products will be commercially viable. Investors should note that Arcturus is an attractive investment but still a high-risk one.

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