A Food and Drug Administration (FDA) approval for a highly anticipated treatment is the kind of news that can make a company's stock skyrocket, even during a bear market -- like the one we're in now.
One company hoping for such success is Arcutis Biotherapeutics (ARQT -1.08%). It has been developing a treatment for Seborrheic dermatitis -- a skin disorder that causes scaly skin, or dandruff-like flakes, on the face and scalp. It affects 7% of the global population. There are treatments on the market, but none has been developed that can clear it up for good. So companies that develop a successful way to fight the disease have a promising opportunity.
Arcutis is awaiting the outcome of an FDA review that would expand its customer base and boost revenue. Should investors be as equally excited? Let's take a closer look.
The backstory
In September, I provided readers with an article discussing a pending FDA approval for a therapy from Arcutis that treats psoriasis. The company is now using a similarly based approach to treating dermatitis. That, together with $225 million in newly secured debt financing, could help 2023 be a huge year for the company.
After the FDA accepted its application in December, Arcutis received a path to that needed financing by way of SLR Capital Partners, which is providing $75 million upon closing of the loan facility with the potential for another $125 million upon FDA approval of its current drug, roflumilast. The final $25 million would be achievable as Arcutis hits certain revenue milestones.
With top treatments like Otezla already on the market from big names like Amgen, Arcutis could benefit from offering a deeper pipeline that reaches more potential customers. And so the company is also developing a foam version of roflumilast -- which should please investors.
What's new
With the funding in place, Arcutis is closing in on the July 29 PDUFA date, which is when the company can expect the FDA's response to its submission. Arcutis hopes it will bring FDA approval to its roflumilast cream to treat plaque psoriasis -- a projected $47 billion market by 2029, growing at a compound annual rate of 9%.
The cream form of roflumilast to treat psoriasis could be worth $1 billion in annual revenue. In trials, it achieved favorable efficacy against Otezla. Based on its non-steroidal form, it's expected to be offered at a lower price than the oral Otezla, and could likely come with less side effects such as nausea, headaches, and diarrhea reported by 20% of Otezla patients.
Now, Arcutis is furthering its development of roflumilast to incorporate a foam form of the treatment in order to serve those who suffer from seborrheic dermatitis, which impacts the face and scalp. In phase 3 clinical trials, the treatment achieved an 80% success rate compared to 59% in the control group receiving a placebo treatment, with improvement showing as early as the second week of treatment. The company also achieved success when it comes to variables related to itching, scaling, and redness -- 66% success versus 42% of those on a placebo.
Based on feedback from the FDA, Arcutis has high hopes for eventual approval, with no limiting safety warnings attached to the final product. The company believes the study results are sufficient to support approval, and intends to file with the FDA in the first half of 2023. If approved for seborrheic dermatitis and atopic dermatitis, that could introduce Arcutis to an additional market value of $27 billion over the next five to seven years, in addition to the $47 billion from plaque psoriasis.
What's next
Investors will be looking toward that July 29 PDUFA date for word from the FDA related to plaque psoriasis. In the meantime, investors who are more risk-tolerant could consider buying shares prior to the news. Analysts from Cowen and Mizuho believe peak sales for an approved roflumilast for treatment of psoriasis could hit $1 billion, with Mizuho analyst Uy Ear saying the treatment has blockbuster potential.
Arcutis' stock price has gone from a high of $36 in February 2021, when clinical trials showed promise for roflumilast in treating psoriasis, to a low of $14 this past January due to market volatility and its lack of FDA approval. Now, news of additional trial success and a nearing PDUFA date may be just what the doctor ordered for investors.
The company has funds to support development, along with promising data, and analysts believe the stock price could rise 125%. It could be that the only thing holding the stock back right now is the uncertainty of the broader market, but when you look into the potential for Arcutis, it could be a diamond in the rough for investors.
