ARCA Biopharma (NASDAQ: ABIO) traded with gains well over 100% in the session today after announcing that its data was published in a peer reviewed journal. While a single session of strong gains should never be a basis for a decision to invest, gains like this will always attract attention.
With that said, the big question is, “Is it time to consider an investment in ABIO?” In my opinion, the stock could be a great choice for the right investor. Here’s why:
What Is Arca Biopharma
ARCA Biopharma is a clinical-stage biotechnology company with a focus on a precision medicine approach to drug development. The company tailors its treatment to the individual genetic characteristics of patients with the goal of creating more effective therapies that improve patient outcomes and decrease the cost associated with healthcare.
The company’s claim to fame is Gencaro (bucindolol hydrochloride). The treatment is currently under clinical development in patients with atrial fibrillation (AF) with a specific type of Heart Failure (HF).
To target this patient population, ARCA Biopharma has identified genetic variations in cardiac receptors that it believes may predict individual patient response to Gencaro. As a result, the treatment may be the first genetically-targeted prevention treatment for patients with AF.
Recent clinical data suggests that the company is onto something. The treatment has been shown to improve outcomes in this patient population when compared to the standard of care, metoprolol succinate.
The News That Drove ABIO To Gains In Multiples
As mentioned above, ABIO shares gained more than 100% in the trading session on May 1, 2019 after the company announced that its data was published in a peer-reviewed journal. In a press release, ARCA announced the publication of a paper titled, “GENETIC-AF: Bucindolol for the Maintenance of Sinus Rhythm in a Genotype-Defined Heart Failure Population” was published in JAAC: Heart Failure.
In the paper, lead author Jonathan P. Piccini, MD, MHS, FACC, Director at Duke Center for Atrial Fibrillation at the Duke University Medical Center and Duke Clinical Research worked with senior author Stuart J. Connolly, MD, Professor Emeritus at the Division of Cardiology at McMaster University in Hamilton, Ontario to convey the benefits of bucindolol in the defined patient population.
The paper outlined the fact that precision therapeutic phenotyping led to a differential response to bucindolol. The study from which the data came showed that the interval of time from initial diagnosis of HF and AF to treatment and the onset of AF relative to initial HF diagnosis played key roles in the efficacy of the treatment. In both of these populations, the treatment led to an improvement in the hazard ratio when compared to patients receiving metoprolol succinate.
In a statement, Dr. Michael R. Bristow, President and CEO at ARCA Biopharma and co-author of the published paper, had the following to offer:
“Atrial fibrillation (AF) is a common and serious medical problem associated with significant morbidity and mortality, especially in patients with heart failure (HF). Development of AF is associated with increased risk of adverse cardiovascular outcomes, and when AF occurs in patients with HF these adverse effects are accentuated. AF and HF often co-exist and have common risk factors, as well as overlapping pathologies. “
When digging into clinical-stage biotechnology investment opportunities, it’s important to dive into the future market potential of the product or products that the company is working to develop. In the case of ARCA Biopharma, the market potential is incredible.
At the moment, AF is considered to be an epidemic cardiovascular disease. Moreover, there are limited options when it comes to safe and effective treatments for patients with heart failure, representing a major unmet medical need.
While there are some options on the market, these options are largely known to be toxic to patients and may have negative cardiovascular effects. Also, treatments currently on the market for AF are riddled with warnings that are a turn off to patients and physicians alike.
Should bucindolol make it to market, and maintain its strong safety, tolerability, and efficacy portfolio that we’ve seen in clinical trials, it could quickly become a leader in the space. The truth is, that space is a massive one.
At the moment, it is expected that by the year 2025, the AF market will reach an annual value of $12.5 billion. Moreover, the compound annual growth rate (CAGR) ranges from the high 13%s to the low 14%s depending on the sector within the market. Considering the less than $12 million market cap of ABIO, even taking a small percentage of this market would lead to tremendous value for investors.
Consider The Risks
Risk is part of investing. This is especially the case when it comes to investing in clinical-stage biotechnologies companies like ARCA Biopharma. In this case, the most pressing risks that investors should consider include:
- Need For Funding – As a clinical-stage biotechnology company, ARCA Biopharma is not yet able to earn revenue through the sale of its product. To earn revenue, bucindolol will need to make it through development and be approved by the FDA. However, on the company’s most recent financial report, we see that it only had under $7 million in available funding. With a 2018 loss of around $8 million, this isn’t enough to get through the year. As such, the company will need to find a way to get their hands on funding before the end of Q3. This may result in dilution.
- Potential For Clinical Failure – Any biotechnology company comes with the risk of the potential for a clinical failure. However, for ARCA Biopharma, that risk is a little larger. At the end of the day, the company doesn’t have a robust pipeline with several clinical assets. It’s only clinical asset is bucindolol. Should this asset fail to make it through the development process, the company has little to nothing to fall back on.
- Penny Stock – Finally, ABIO is a penny stock. Small companies like this come with increased risk and tend to experience high levels of volatility in the market.
ARCA Biopharma’s bucindolol has the potential to be a blockbuster treatment, improving patient outcomes and providing an option in an area with a high level of unmet medical need. While there are clear risks present, for investors with a healthy appetite for risk, this could be a strong play.
At the end of the day, the company is targeting an area which, should the data continue to be positive, bucindolol has the potential to take the market by storm. With positive data to date, there is no indication that a clinical failure would take place. Moreover, this strong data could lead to partnerships that alleviate the company’s need for funding or even a potential takeover, providing immediate value for investors.
Nonetheless, as long as the company makes it through to commercialization, it could quickly become the goose that lays the golden eggs. Moreover, even after today’s massive gains, the market cap of the stock is under $12 million, which may be a gross undervaluation. All in all, I believe that ABIO represents a compelling investment opportunity!