Investing in biotech stocks is a risky business. While shares can potentially soar majestically on regulatory approval or promising results in a clinical trial for a drug, the opposite holds true as well, something Arcturus Therapeutics (NASDAQ:ARCT) investors felt rather painfully on Wednesday.
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The shares’ value got slashed in half after the release of interim results from its mid-stage trial of ARCT-032, an mRNA-based treatment for cystic fibrosis.
Cystic fibrosis is an inherited disease that disrupts the function of the body’s mucus-producing glands, causing the formation of thick, sticky mucus that can block the lungs, digestive system, and other organs. In the interim trial analysis, changes in forced expiratory volume (FEV₁) – an important indicator of lung function that helps evaluate how well cystic fibrosis treatments are working – between day 1 and day 28 did not show a significant improvement. Still, after 28 days of treatment with a 10 mg dose of ARCT-032, four of the six participants with class I cystic fibrosis showed encouraging signs, including fewer mucus plugs and a reduction in mucus volume. The company reported that the therapy was generally well tolerated and had a favorable safety profile.
That obviously wasn’t good enough for investors, but evidently not how Cathie Wood saw things. No stranger to going against the grain, Wood took advantage of the crash and loaded up on 223,292 shares via her ARK Genomic Revolution ETF (ARKG). Overall, Wood’s stake now totals 2,135,006 shares, a haul currently worth just under $25 million.
Assessing the data, Wells Fargo analyst Yanan Zhu thinks the results highlight challenges with the topical delivery approach in cystic fibrosis, although the analyst believes these issues could be resolved.
“Variability in mucous reduction data may reflect inherent challenges in penetrating the mucus layer and the associated inconsistency, which we think could be overcome with longer dosing,” the 5-star analyst explained. “Lack of FEV1 signal is understandable given the variability, and may be addressable with longer and larger study. Overall, we think the class still has potential for Class I disease with no alternatives, and with daily dosing being tolerable, we think future study & data could better unveil efficacy signals,” Zhu opined.
To this end, Zhu assigns ARCT shares an Overweight (i.e., Buy) rating, although he trims his price target from $42 to $20. Even so, that still points to potential gains of 68% over the next year. (To watch Zhu’s track record, click here)
Meanwhile, the Street’s average price target still sits at $48.75, implying a 310% upside over the same period. All told, the stock boasts a Strong Buy consensus rating, based on a mix of 6 Buys vs. 1 Hold. (See ARCT stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.