Arcturus Therapeutics (ARCT +8.56%) and Moderna (MRNA +4.45%) have more than a couple of things in common. Both companies are biotechs that develop mRNA-based medicines, and both stocks soared over the past two years on optimism about their coronavirus vaccine candidates. While it was ultimately Moderna that succeeded in bringing its product to the market, Arcturus is still working on its entry, not to mention a handful of other projects.
Could Arcturus' market cap of $597 million ever grow to rival Moderna's $62 billion, making early investors rich in the process? In my view, the odds aren't in its favor, but it could still be a good investment for the right type of buyer.
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There's no path to the stratosphere
At the moment, Arcturus' coronavirus vaccine candidate ARCT-154 is its most advanced project, and it's scheduled to complete its Emergency Use Authorization (EUA) filing in Vietnam by the end of the first quarter of this year. Like Moderna's Spikevax jab, ARCT-154 is an mRNA-based vaccination which uses a lipid nanoparticle (LNP) drug delivery system.
NASDAQ: ARCT
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That means investors don't need to be overly concerned that Arcturus' scientific approach is controversial or unproven, which isn't something that you can say about every biotech stock.
Still, assuming that ARCT-154 gets regulatory approval in Vietnam and elsewhere, it'll enter a global coronavirus vaccine market that's now saturated with competitors from significantly larger companies like Moderna, Pfizer, Johnson & Johnson, Novavax, and AstraZeneca.
That means its prospects for grabbing market share will be limited at best. And while its candidate appears to be somewhat effective at protecting people from the omicron variant, the variant's rapid and ongoing recession means that advantage simply isn't as important as it might have been months ago.
Because of the difficult fight for market share that's waiting in the wings, management is keen to tout the benefits of Arcturus' mRNA technologies, which the company claims are superior to those of competitors. In particular, the company's vaccines can be lyophilized (freeze-dried) for shelf stability; they are also more efficient per unit of volume, meaning that a full dose costs less to manufacture.
NASDAQ: MRNA
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While it's true that both of these factors are advantages over Moderna's shots, it's hard to see major customers like national healthcare systems defecting from products they know to work, given the high costs of failure.
Nonetheless, if Arcturus can just get a nibble out of the market for coronavirus vaccines, it could still grow by quite a bit. After all, it currently has no recurring income from sales of its medicines, and its trailing 12-month revenue is only $8.8 million.
It does have a cushion to take a bit of time in gaining market share. Its cash holdings are around $414 million, and its trailing-12-month operating expenses are near $205 million. And if it needs more money, it could comfortably borrow some as its debt of $67.2 million isn't alarming.
It could still be a decent biotech pick
On the basis of its coronavirus efforts alone, it's quite unlikely that Arcturus will follow a trajectory similar to Moderna's, because it won't have the benefit of an uncontested market.
It could, however, succeed in its other pipeline programs, including a therapy -- now in phase 2 -- for ornithine transcarbamylase (OTC) deficiency therapy, a rare genetic disorder. Because no other therapies are effective at addressing this disorder's underlying pathology, Arcturus could have a chance at dominating the global market if it can advance its candidate to commercialization. The catch is that there are thought to be around 10,000 people with OTC deficiency worldwide, which strictly limits the size of the market for therapies.
People who invest in Arcturus now might eventually benefit from the OTC deficiency program, assuming it progresses to commercialization in the coming years. When paired with potential growth from the company's tiny fraction of the coronavirus vaccine market, it might even multiply the value of the stock a few times. But in my view, Arcturus' chance of becoming a juggernaut like Moderna is gone.
