Lund-based Arcede Pharma has had a tough start to its journey as a listed company after the spin-off from Respiratorius this summer. The ice cold stock market environment has weighed on the company’s shares. At the time of writing, the share is trading at well below Arcede Pharma’s cash position, despite the fact that the development is going according to plan. Here, BioStock looks closer at how the market values the potential that the company believes is present in the research.
With its drug candidate RCD405, Arcede Pharma targets one of the pharmaceutical industry’s largest segments, i.e. drugs that treat various respiratory diseases. The segment accounts for almost 10 per cent of the world’s pharmaceutical sales, which in 2021 corresponded to just under 80 BUSD. More specifically, RCD405 is developed for the treatment for chronic obstructive pulmonary disease (COPD) and severe asthma, which account for about half of the total respiratory market. Toxicological studies with the candidate are currently underway, after which a phase I clinical trial is planned.
Tough start to the stock market journey
The climate was not the most welcoming when trading began in Arcede Pharma after the spin-off from Respiratorius during the summer. Stock markets around the world hit their lows of the year, with high-risk sectors such as biotech were particularly weak. The Nasdaq Biotechnology Index had at that time lost about 20 per cent from the turn of the year and heading into wintertime the index still trades at those levels.
The sour mood has led to many of the companies in the sector now trading below the current cash position, something that BioStock previously reported. Learn more.
Arcede Pharma is one of these companies. After intensive opening trading – where the share peaked at almost 5 SEK – the share has now stabilised around 2 SEK. At the time of writing, the company is trading at a market value of approximately 11 MSEK. This can be compared with the cash position, which at the end of the first quarter amounted to just over 23 MSEK.
In mid-September, Analysguiden initiated coverage of Arcede Pharma, where they set a so-called justified value of 4.3 SEK, i.e. about 130 per cent above the current price.
Breakthrough for sector colleague
Estimating a fair value in biotech is difficult and the sector is known for its high volatility on the stock market. From an investment perspective, it can be interesting to compare the company’s market capitalisation with other players in the respiratory field. The direct comparison is hard to make because there are many aspects to consider, but it still gives an indication of how the market values this type of project in the current market environment.
One of the factors that distinguishes RCD405 from existing treatments is that it has a double mechanism of action – both relaxing and anti-inflammatory. The anti-inflammatory effect is important in the treatment of COPD patients. A high level of inflammation often leads to severe and acute relapses and is associated with a high mortality rate. A project similar in this respect to RCD405 is ensipentrine developed by British-American Verona Pharma.
The company was recently able to present positive phase III data, which caused the stock to soar with over 100 per cent on Nasdaq in the US. At the time of writing, Verona Pharma’s stock is trading at approximately 10 USD, which corresponds to a market capitalisation of just over 770 MUSD. As we discussed earlier, it is not quite comparable to Arcede Pharma, which is in a completely different development phase, but the valuation of other players is nevertheless an indication of the market’s expectations for an approved candidate in the company’s indication areas.
Several major agreements in the sector
Another reference point that can be used in this type of valuation assessment is deals. Here, too, Verona Pharma can be used as an example. In June 2021, it entered into a license agreement with the Shanghai-based pharmaceutical company Nuance Pharma regarding the right to market ensipentrine in markets in and around China. The deal was worth a total of 219 MUSD and involved an upfront payment of 40 MUSD to Verona.
Another example is Taiwanese Oneness Biotech, which in April 2020 licensed its drug candidate FB825 to Danish Leo Pharma for a total of 570 MUSD plus royalties. FB825, or LP0201 as it is now called, is being developed for the treatment of atopic eczema and allergic asthma.
One of the larger deals in the field in recent years was signed this summer when Royalty Pharma acquired the royalty rights to the bestseller Trelegy for a total of just over 1.6 BUSD. Trelegy is a combination therapy in which an inhaled corticosteroid is combined with two bronchodilator substances for the treatment of COPD and asthma.
Comparison can give an indication
Although there are many parameters that distinguish the companies and the deals mentioned above from Arcede Pharma, they can, however, give some indication of the interest in the sector. Arcede Pharma is still in the very early stages of its development, and it will be many years before an deal is a realistic possibility. At the same time, it is important to point out that the company so far has promising data, both in terms of the pharmacological effect and the physicochemical properties.
RCD405 acts via completely different receptors than the drugs currently on the market and there is a good chance that the substance can be formulated as an inhalable drug. It should also be highlighted that when the time comes, the company is aiming for one of the world’s largest pharmaceutical markets with a completely new double-acting mechanism of action.The content of BioStock’s news and analyses is independent but the work of BioStock is to a certain degree financed by life science companies. The above article concerns a company from which BioStock has received financing.