RHHBF - Omega Therapeutics: 2023 Could Well Be A Turning Point

2023-05-10 15:28:29 ET

Summary

• Among US-listed biotech stocks with promising prospects, investors should consider holding a position in Omega Therapeutics, Inc. as the company calls 2023 a pivotal year.
• Omega Therapeutics is a clinical-stage developer of controllers of the epigenetic mechanisms involved in the development of tumor pathologies.
• Although preliminary, the results of a study in which a company is investigating a controller of epigenetic mechanism in hepatocellular carcinoma could provide a strong boost to the stock price.
• Shares are not trading low when their current market valuation is compared to the value of technical indicators such as the average prices over the past 200, 100, and 52 days. But that doesn't mean the shares can't pull back a bit before the upside catalysts kick in. Therefore, investors should only Hold shares for the time being.

Consider Omega Therapeutics, Inc. Among US-Listed Biotech Stocks with Promising Prospects

iShares Biotechnology ETF ( IBB ) and SPDR® S&P Biotech ETF ( XBI ) are assumed in this analysis as benchmarks for the US-listed biotech sector and their shares are recovering from the turmoil caused by the US regional banking crisis, as the below chart from Seeking Alpha illustrates.

However, the chart also suggests that the market valuation of US-listed biotech stocks is much more accessible than it was before the collapse of Silicon Valley Bank (SIVBQ) and Signature Bank ( OTC:SBNY ), which heralded the onset of headwinds due to investor concerns about the stability of the US banking system.

The current market valuation could present an interesting opportunity for investors looking for US-listed biotech stocks with promising prospects.

Today, investors should still be able to pay a lot less if they want to bet on one or more of these companies successfully converting a drug candidate into a profitable treatment product. The lower the purchase price for the stock, the greater the benefit to the investor's portfolio from the achievement of such a corporate target.

However, the key to the success of the investment is the growth potential embedded in the portfolio of treatments under development.

Investors rightly have high expectations of their position in Omega Therapeutics, Inc., ( OMGA ) as the company calls 2023 a pivotal year. The current year should bring important news from a study testing the company's epigenetic control of gene expression technology aimed at developing potential treatments for certain types of cancer.

Should the preliminary results of the study point to the possibility of a treatment for hepatocellular carcinoma [HCC] and other solid tumors alone or in combination with standard therapies, the impact on the stock could be a significant increase in the share price.

About Omega Therapeutics, Inc., and Its Technology

Based in Cambridge, Massachusetts, Omega Therapeutics, Inc. is a clinical-stage biotechnology company that owns the OMEGA platform technology.

The technology confers the ability to act at the level of epigenetic mechanisms involved in the development of tumor pathologies and exercise some control over these epigenetic mechanisms.

The epigenetic mechanisms (interaction of genes with each other and with the environment) can involve modifications and changes in an individual's phenotype, that is variations in the morphological and functional characteristics of an organism. The epigenetic mechanisms do not deal with variations in genotype or the actual genetic makeup of an individual.

The epigenetic mechanisms are not at the level of the information contained in DNA that predisposes to the development of cancer, but rather they are triggered by external environmental factors such as our lifestyle and state of health.

Thus, epigenetic modification consists of an adaptive change operated by the cells in response to external stimuli, and in the case of tumors consists of pathological changes which are defined as anomalies or aberrations.

Therefore, if these abnormalities have manifested themselves under the influence of external stimuli, it is also possible to re-modify the epigenetic changes to bring them to normal states through the use of synthetic molecules intervening in the epigenetic mechanisms.

Because they do not act directly on the genetic mutation that causes the tumor but act as controllers of the epigenetic mechanisms, these synthetic molecules aim to slow down or halt the progression of the neoplastic pathology rather than provide a definitive cure.

These innovative drugs could also enable dose reduction of the administered anti-tumor chemotherapy, which would significantly improve the quality of life of the patients and extend their life expectancy.

Omega Therapeutics Treatment Portfolio Under Development

Based on the described technology, the company is currently developing a treatment for hepatocellular carcinoma called OTX-2002 and a treatment for non-small cell lung cancer called OTX-2101.

OMEGA is also working on other epigenomic controllers for inflammatory lung diseases as well as for the treatment of dermatological, oncological and rheumatological diseases.

Recent Advances in the Pipeline

In March 2023, Omega Therapeutics, Inc. entered into a clinical supply agreement with Roche Holding AG ( OTCQX:RHHBY ) ( OTCQX:RHHBF ) ( OTCPK:RHHVF ) for the evaluation of OTX-2002 in select patients with hepatocellular carcinoma [HCC] through phases 1 and 2 of a trial called MYCHELANGELO I.

The product will be administered in combination with atezolizumab, marketed under the brand name Tecentriq and provided by Roche.

The above study is part of a larger study which through phases 1 and 2 will evaluate various clinical aspects of OTX-2002, including safety, tolerability and preliminary antitumor activity of the leading epigenomic controller in relapsed or refractory HCC and other solid tumor patients that are being enrolled in US and Asia.

The product is being evaluated alone or in combination with standard-of-care therapies and, as a monotherapy, the study is expected to publish preliminary results sometime in 2023.

The company is continuing preclinical studies evaluating OTX-2101 in non-small cell lung cancer and is seeking investigational drug status with US regulators to begin evaluating the epigenomic controller in patients.

How Omega Therapeutics, Inc. is Performing Financially

Omega Therapeutics, Inc. does not sell treatments. Therefore no revenue is generated, but a negative result for net income as the company supports expenditure on research and development activities and general and administrative activities.

Research and development expenses increased 41% year-over-year to $20 million in the first quarter of 2023, driven by higher labor costs and other expenses related to study progress.

General and administrative expenses increased more than 10% year-over-year to $6.0 million in the first quarter of 2023 due to spending to support business growth.

As a result, the company suffered a net loss of $25.3 million in the first quarter of 2023, which worsened 25.2% year-over-year from $20.2 million in the first quarter of 2022.

As of March 31, 2023, Omega's balance sheet showed $136.8 million in cash and short-term investments, including $39.7 million in proceedings from the February 2023 offering of common stock. The company has no debt and believes it has sufficient financial resources to sustain the business through the end of 2024.

The financial position appears to be very healthy and as indicated by an Altman Z-Score of 4.94 , Omega Therapeutics, Inc. is in the "safe zone" and at low risk of bankruptcy.

The Stock Valuation

Shares of Omega Therapeutics were trading at $8.57 per piece as of this writing, giving it a market cap of $485.3 million.

The shares are above the 200-day simple moving average line of $6.23, above the 100-day simple moving average line of $7.02, and above the 50-day simple moving average line of $7.41.

The 52-week range is $1.98 to $11.98 with a middle point of $6.98.

The 14-day Relative Strength Indicator of 55.97 suggests that shares are neither overbought nor oversold but there is more space to plunge from current levels than to move up.

Given the upside potential in the share price, which could be strong if the preliminary results of the MYCHELANGELO study on OTX-2002 are promising, I believe holding shares in Omega makes perfect sense.

If the stock was trading near the 200-day simple moving average, which is a long-term trend, then the valuation could have prompted a Buy decision. But as we have seen, shares are not currently trading low compared to the value of some technical indicators, so a Buy stance should be deferred until the stock price falls significantly from current levels.

A significant weakness in the stock price is possible amid renewed headwinds from concerns about the stability of the US banking system and an economic slowdown, but it could take some time for that to translate into a drop in the stock price as a bullish sentiment seems to be driving Omega's stock without hesitation right now.

The risk of a position in Omega Therapeutics is represented by the possibility of a fiasco in the company's plan to develop programmable epigenetic drugs. But that risk should not be high as analysts at Chardan Capital and Piper Sandler have recently reiterated a Buy rating on OMGA with price targets between $10 and $12.

Additionally, purchases of Omega stock by company insiders appear to have intensified recently, suggesting a bright future for the company's treatment. Insiders would likely not buy stock in their own company if they believed that the company's future performance would not be such to help the stock price to reach higher levels.

Conclusion

Omega Therapeutics Inc. is a biotechnology company developing controllers of the epigenetic mechanisms involved in the development of tumor pathologies.

These are innovative treatments that can have a major impact on the therapy of cancer patients on their quality of life and life expectancy.

The company is working on programmable epigenetic medicines for patients with hepatocellular carcinoma, and preliminary results are expected to be published sometime this year.

If the preliminary results are positive, they can potentially give the stock price a strong boost. However, since the stock isn't trading low, investors should consider holding the position to be on the safe side and adding shares once they drop significantly.

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