Arcturus Therapeutics Ltd (NASDAQ:ARCT), which traded under the ticker ADHD and the name Alcobra until last Wednesday, fell more than 85% on the day prior to its ticker change.
The company currently trades for a little over $10 a piece at a market capitalization of $39 million – having reverse split its shares on a one for seven ratio at market open on Thursday last week.
This is a pretty common move in the biotech space – a privately held company reverse mergers into a NASDAQ stock as a way to pick up a public listing (and, in turn, access to the public market capital that said listing brings) without having to go through the rigorous process that NASDAQ puts a fresh list company through ahead of a standard initial public offering (IPO).
Exactly why the stock fell 85% before the ticker change is unclear but there’s often an opportunity when we see situations like this to jump in on a discount play and – in turn – to gain an exposure to a longer-term upside revaluation.
So is this the case here?
The thing to recognize here is that – for all intents and purposes – Alcobra (in its prior iteration) is no longer part of the picture. The company offloaded its lead asset – an Abuse-Deterrent Amphetamine Immediate-Release (ADAIR) development program – to an investor group.
Operationally, then, and from a value perspective, everything rests in the portfolio of the Arcturus entity that was previously private. This portfolio rests on a proprietary technology that can be used to target individual genes in the human genome, as well as viral genes, and other species for therapeutic purposes. The tech is called LUNAR lipid-mediated delivery and Unlocked Nucleomonomer Agent (UNA) technology including UNA Oligomers and it’s formed the basis of a whole host of partnerships and collaborations between Arcturus and big pharma, including names such as Johnson & Johnson (NYSE:JNJ) and Takeda Pharmaceutical Co Ltd (ADR) (OTCMKTS:TKPYY).
So there’s plenty of value here and the collaborations could be fruitful from a long-term growth perspective – what are we looking for going forward as supportive of the suggestion that the company could be a nice play at current prices?
Well, for us, it’s all rooted in the collaborative advance of Arcturus’ technology. The company’s strategy is a neat one in the sense that it allows it to transfer much of the cost of developing assets in various indications to larger, better capitalized entities and – as such – means that there’s not any degree of substantial dilution risk associated with an exposure. For a company at this end of the biotech space to be able to say that is pretty rare, especially while it’s still able to offer the sort of binary event upside lined to pipeline catalysts hitting press.
In line with this, then, we want to see a couple of things near term. First, some degree of update as to how the JNJ programs and the collaboration with Synthetic Biologics Inc (NYSEAMERICAN:SYN) is going. There’s room for an update during the first quarter of next year at the outside and – if things are moving forward – we’re going to see the stock pick up some near-term strength.
Second, we’d love to see some fresh collaborative activity rooted in the UNA tech. The current programs aren’t exclusive so the more big names the company can get working with its lead asset the more shots on goal it is going to have over the coming twelve months.
As a final note, while the company’s approach mitigates the dilution risk associated with pipeline development somewhat, it’s not entirely negated. There’s a chance we may see a raise early next year as Arcturus seeks to leverage its newly found listing. It’s not prohibitive to an exposure but it’s something to bear in mind for anyone thinking about picking up a speculative position.
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Image courtesy of University of Michigan School for Environment and Sustainability via Flickr
Disclosure: We have no position in ARCT and have not been compensated for this article.