TRDA - Entrada Therapeutics Stock Deserves Higher Resonance After Q1 2023 Report

2023-05-12 18:04:15 ET

Summary

• Entrada Therapeutics, Inc., is a biotechnology developer of endosomal escape vehicle therapeutics for the treatment of multiple neuromuscular diseases.
• After the results of the first quarter of 2023, the shares are still somewhat subdued, unfairly, because this stock has instead provided important confirmation of its transformation project.
• The strategic collaboration and licensing agreement with Vertex Pharmaceuticals Incorporated has significantly increased the likelihood that Entrada's pipeline in the area of muscle wasting diseases will flourish.
• With financial and technical support from Vertex, Entrada's project is now alive and against this backdrop the stocks are looking quite attractive.

The Market Should Be More Kind to Entrada After Q1 2023 Results

Entrada Therapeutics, Inc. ( TRDA ) closed 1.84% higher on Thursday, May 11, only partially recovering from its 2.13% loss at the end of the previous trading day, following the release of its first quarter 2023 financial results before market open on Wednesday.

Assuming the market has taken full note of Entrada’s Q1 2023 report, the market verdict, judging by the share price's cumulative performance 2 days after the quarterly results publication, was not what this stock deserves.

Not so much because analysts were behind on earnings by a significant $0.63 per share this time — made possible thanks to the first revenue received from Entrada's collaboration with Vertex Pharmaceuticals Incorporated ( VRTX ) — but rather because of the important validations Entrada has provided for its transformational project.

About Entrada Therapeutics

Headquartered in Boston, Entrada Therapeutics is a biopharmaceutical developer of innovative therapies with the goal to become potential treatments for muscular dystrophy diseases.

These diseases are characterized by severe progressive weakness of muscle tissue and occur at a rate of 3 to 4 cases per 100,000 inhabitants worldwide, with the highest incidence of more than 5 lying among Americans, according to statistics from a study published in the Journal of Orthopedic Surgery and Research in 2022.

The study also shows that Duchenne [DMD] and Becker [BMD] — the most severe forms among genetic muscular dystrophies affecting skeletal muscle — instead have prevalence rates of 4.8 per 100,000 inhabitants and 1.6 per 100,000 inhabitants, respectively.

Entrada Therapeutics' research efforts to develop therapeutics to treat muscular disorders are currently targeting DMD as one of the two most severe forms of genetic muscular dystrophy and myotonic dystrophy or atrophic myotonia.

The second group of musculoskeletal disorders, also hereditary, is characterized by atrophy, which occurs mainly in some facial muscles and in the distal segments of the limbs.

The therapies that Entrada Therapeutics wants to develop are based on its proprietary technology of the Endosomal Escape Vehicle [EEV] concept.

EEV technology can facilitate the delivery of pharmaceutical agents that could potentially have tremendous therapeutic implications for the patient if they somehow penetrate the cell's cytoplasm.

Q1 2023 Financial Results

Thanks to the strategic collaboration and licensing agreement of early February 2023 with Vertex, which provides financial support and assumes full responsibility for the entire pipeline from research to commercialization of ENTR-701 for myotonic dystrophy type 1 [DM1], Entrada reported total revenue of $25.26 million from the collaboration.

Orpha.net defines myotonic dystrophy type 1, also called Steinert myotonic dystrophy, as follows:

“A rare genetic multi-system disorder characterized by a wide range of muscle-related manifestations (muscle weakness, myotonia, early onset cataracts (before age 50) and systemic manifestations (cerebral, endocrine, cardiac, gastrointestinal tract, uterus, skin and immunologic involvement) that vary depending on the age of onset. The very wide clinical spectrum ranges from lethal presentations in infancy to mild, late-onset disease.”

Orpha.net also points out that DM1 is the most common form of muscular dystrophy syndrome in adults. The incidence varies regionally, but spreads worldwide.

There are cases of the condition that can lead to severe symptoms that significantly reduce life expectancy. This can be observed especially in cases that appear early and are triggered by massive gene expansion.

The prognosis of DM1 in adult patients depends on whether or not the cardiac manifestations of the disease are severe, also according to orpha.net . Additionally, when these patients are seriously ill, their death is usually due to respiratory failure or the ominous consequences of cardiovascular disease as well as cardiac arrhythmias and neoplasia.

Collaboration revenue was more than offset by a strong 40.3% year-over-year increase in total expenses in the first quarter of 2023 to $31 million, primarily due to additional preclinical studies and higher personnel costs as well as (non-cash) stock-based compensation.

As a result, Entrada Therapeutics suffered a net loss of $6.7 million, which was significantly less severe than the net loss of $21.7 million in the year-ago quarter.

The Project Looks Vibrant

The collaboration agreement with Vertex has significant implications for the Entrada transformation project, both from a financial and operational perspective.

The US pharmaceutical giant has made an upfront payment of $224 million to fund the next eight to nine quarters of Entrada's research and development collaboration. These activities should also result in an Investigational New Drug Application [IND] for ENTR-601-45 to be submitted before late 2024/early 2025.

The drug is in preclinical studies and is seeking approval for initial human trials as a potential treatment for DMD patients.

Vertex has also acquired shares in Entrada for $26 million, which combined with the upfront payment, has brought cash on the young US biotech company's balance sheet to approximately $412 million, enough for research and development to be supported until the second half of 2025, according to the company.

Entrada Therapeutics has no debt, which further strengthens the balance sheet. Additionally, based on the collaboration agreement, Entrada should continue to receive financial and operational support from Vertex through at least 2027, which is a fairly long-term horizon for bringing more than just a muscle-wasting treatment to market.

Vertex is a $90 billion market cap leading healthcare company and its financial support, professionalism, experience and know-how will be crucial. This agreement also increases the chances of success for another product that appears to be stuck in the pipeline right now.

In late 2022, Entrada saw the U.S. Food and Drug Administration shelve treatment candidate ENTR-601-44 for DMD patients, causing some disappointment among small shareholders.

However, the agreement could now remove those bottlenecks as Vertex's support should also focus on the progress that the research and development team will make on a wider range of muscle disorders, including Duchenne muscular dystrophy.

It is not a coincidence that Entrada now appears poised to begin a clinical trial of ENTR-601-44 as a potential treatment for DMD patients this year.

Dipal Doshi, Entrada Therapeutics’ President and CEO said :

“Within our growing Duchenne franchise, we are pursuing global opportunities to initiate a healthy volunteer clinical trial for our ENTR-601-44 program while simultaneously working to address FDA’s feedback regarding our IND. There is a profound unmet medical need for Duchenne patients who are exon 44 skipping amenable and we remain very confident in achieving our goal of initiating a clinical trial in 2023.”

Ultimately, the pipeline now looks more vibrant than it used to, as there are several reasons why the share price of Entrada stock could actually rise significantly, "potentially" of course. Also, the possibility of receiving another $235 million tranche from Vertex could boost shares. The latter would be the further signal that the healthcare giant is more committed than ever to Entrada's transformation project, reinforcing positive momentum throughout the pipeline.

The Stock Valuation

Shares of Entrada Therapeutics were changing hands at $12.15 apiece as of this writing giving it a market cap of $395.92 million.

The share price is currently not high compared to its past performance indicated by long term trend of the 200-day simple moving average line of $14.73, the 100-day simple moving average line of $13.78 and the 50-day simple moving average line of $13.82.

The share price is also below the middle point of $14.955 of the 52 Week Range of $5.53 to $24.38.

Short interest as a percentage of the float is 8.85% for Seeking Alpha , so currently Entrada's shares are affected by bullish sentiment.

Nonetheless, they are still near the slums of the price cycle, as shown by the indicator below.

Shares have a 14-Relative Strength Indicator of 42.72 which tells that the stock is neither oversold nor overbought, indicating the unfolding of sentiment in favor of an increase in the stock price and there is much more room for stock gains than declines from current levels.

Based on the catalysts present in Entrada's transformation project, and based on the current low share price levels despite ongoing bullish sentiment, I believe it makes perfect sense to add shares to the position, bearing in mind that there could be setbacks in the pipeline.

The latter defines the risk of an investment in Entrada, which appears, however, sustainable given the following aspects. The strategic collaboration and licensing agreement with Vertex significantly reinforces positive expectations for the junior biotech's pipeline, and analysts currently give the stock a positive recommendation.

The stock has a Buy rating stemming from 3 Strong Buys, one Buy and one Hold rating. Among the issuers of these recommendations there are analysts of prominent caliber such as HC Wainwright & Co, Goldman Sachs, Evercore ISI Group and Cowen & Co.

The stock has a price target of $21.50, which reflects the potential for a 76.95% upside as of this writing.

Conclusion

Entrada Therapeutics, Inc., is a biotechnology developer of endosomal escape vehicle therapeutics for the treatment of multiple neuromuscular diseases.

The strategic collaboration and licensing agreement with Vertex Pharmaceuticals Incorporated has significantly expanded Entrada's pipeline and now offers opportunities to bring treatments for muscle wasting diseases to market.

Given these potential upside catalysts, I believe shares do not trade expensively.

As a further indication that shares are trading attractively, the share price is now below the $16.26 that Vertex agreed to pay for the purchase of shares of Entrada.

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