Could 2023 Be a Breakout Year for This Pharma Stock?
By Jeff Little – Motley Fool Jun 22, 2022
An FDA review panel response is scheduled for July 29.
Roflumilast has the potential to bring in $1.4 billion in peak sales.
If analyst price targets are correct, the stock could rise sharply.
A pending FDA review and promising clinical trial data brings blockbuster potential.
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). 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.
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.
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.
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.
>>> Is Now the Time to Bet on Arcutis Biotherapeutics?
By Jeff Little – Motley Fool Sep 18, 2021
Phase 3 trials of its psoriasis treatment delivered positive results.
A New Drug Application by the end of 2021 could lead to FDA approval in 2022.
Analyst price targets tease big potential gains in the stock price.
Motley Fool Issues Rare “All In” Buy Alert
Management has high hopes for the company's treatment candidates for dermatological conditions, but can they get one to market before its cash cushion is depleted?
More than 7.4 million people in the U.S. and 125 million worldwide suffer from psoriasis, an autoimmune disease of varying severity that often leads to red patchy skin on the elbows, knees, scalp, and elsewhere on the body. Its cause is unknown, and so far, no cures have been discovered -- only treatments.
Arcutis Biotherapeutics (ARQT 11.11%) focuses on developing treatments for dermatological diseases and conditions such as psoriasis. With one phase 3 clinical trial of a formulation of its lead candidate just getting under way and another for a different formulation nearing completion, the company hopes to soon provide sufferers with alternative treatments for their itchy, irritated skin. But does the current situation also provide a smart buying opportunity for investors?
In January 2020, Arcutis IPOed on the Nasdaq at $17 per share. With multiple clinical trials under way at the time of its IPO to study treatment candidates for plaque psoriasis and extreme hand eczema, among other conditions, the company's initial prognosis was good.
In early trials, Roflumilast Foam showed some success in treating dermatitis, and by June 2020, Arcutis' stock price had nearly doubled to $33, primarily driven by clinical study data from drug candidates to treat psoriasis affecting the body and scalp. But while its clinical trials continued amid the COVID-19 pandemic, the stock's honeymoon on Wall Street came to a gradual end. With no FDA-approved drugs and no revenue to speak of, the company's appeal for traders waned. In November, after Arcutis sold $135 million worth of stock in secondary offerings, its shares sank back to just above their original IPO price.
Then came news of successful data from further trials of Roflumilast. The use of this drug in cream form to treat chronic plaque psoriasis was supported by data from a long-term study. Shortly thereafter, the last patients completed their participation in phase 3 trials of Roflumilast Cream as a plaque psoriasis treatment.
Driven by excitement around this news, the stock began to spike once again, climbing above its previous high. It reached its 52-week peak just above $38 in February, at which time the company announced another secondary stock offering of $150 million, further diluting shareholders.
The stock price traded sideways through May before succumbing once again to a decline sparked by clinical trial news. In early July, Arcutis announced the termination of phase 2 trials for ARQ-252, a JAK inhibitor. After studying that formulation as a potential treatment for hand eczema and skin pigmentation loss, the company concluded that its results weren't promising enough to warrant additional trials in those indications.
The company continued to operate using the $446 million in cash it had on the books as of the second quarter, and the stock price continued to slide. At the end of August, it sat at $21 per share -- just 24% above its IPO price 19 months earlier.
Roflumilast offers new reasons for investors to get excited
Now, the stock price is in the early stages of what looks like another climb, and for investors considering opening a position, this could be a great entry point. On Aug. 25, Arcutis announced the enrollment of its first patient in a phase 3 trial of Roflumilast Foam.
One challenge faced by patients suffering from scalp and body psoriasis is that there is generally no single treatment for both. Based on previous trials, the company considers Roflumilast Foam an effective solution. It provides a single, topical treatment in one that can be used in the hair as well as on the body, without the concerns of thinning skin or the worsening of symptoms that can come with the use of some topical steroids.
The newly launched final phase 3 program will focus on the safety and effectiveness of the Roflumilast Foam treatment when administered once daily. The study will follow 420 subjects ages 12 and older who currently suffer from body and scalp psoriasis. Final data readouts are expected to arrive in 2022.
Based on the results of previous studies, Arcutis expects to file a new drug application (NDA) for Roflumilast Foam late in the third quarter or early in the fourth. One concern for investors might relate to the time it could take for the treatment to complete a full FDA review.
After an NDA is submitted, the FDA has 60 days to accept that application for review. After that, the FDA's decision-making process can take up to 10 months. But as the company stated on its second-quarter earnings call, the cash and cash equivalents it has on the books are sufficient to allow it to operate well into 2023.
An investment opportunity
For investors looking long term, right now could be the perfect time to get in low. The average price target on the stock from analysts covering Arcutis is $54 -- 145% higher than where it was trading as of mid-morning Wednesday. Throw out the lofty range-high target of $80, while focusing more on the top two performing analysts of the group based on returns and accuracy of picks -- Gregg Gilbert of Truist, and Craig Suvannavejh of Goldman Sachs -- and you're still looking at a more tempered but extremely tempting $42 average target that forecasts a 90% gain.