A newly minted biopharma initial public offering (IPO) has Wall Street analysts rushing to the gates to price it for massive gains.
Artiva Biotherapeutics (NASDAQ: ARTV) is making waves with its potentially groundbreaking treatment since its July IPO, fueling bold analyst predictions. Based on the company’s share price of around $10 as of August 27, the average Wall Street analyst price target signals an upside of over 100%.
So, what does Artiva do, and why is Wall Street so bullish on the company?
Artiva: Revolutionizing the science and economics of cell therapies
Artiva develops medicines in the cell therapy discipline of biotherapeutics. Doctors use cell therapies to modify, replace, or destroy cells that cause diseases.
Traditionally, for cell therapies to be effective, doctors need to take cells from the body of each specific patient. The scientists then multiply and modify the cells before reintroducing them into the patient’s body to treat the condition.
Performing this process for each patient individually can be expensive and time-consuming. Artiva is working to solve this problem. Artiva’s therapies take cells from a healthy donor rather than from each individual patient. There is a major benefit to this: the medicine could be mass-produced, greatly reducing overall costs.
Mass production could spread costs across all patients, reducing the cost for each patient. Creating an “off-the-shelf” treatment would allow for much faster production than developing personalized treatments. Patients could have their illnesses treated much faster, reducing the chance of their condition worsening.
The drug that is the main source of excitement is Artiva’s allogeneic Natural Killer (NK) cell therapy. Allogeneic cells come from a donor rather than the patient, and Natural Killer cells are a specific type of cell therapy. Artiva markets the drug as AlloNK.
However, AlloNK is still in the early stages of research and development. It is currently in Phase 1 of Food and Drug Administration (FDA) trials to treat non-Hodgkin lymphoma cancer and various autoimmune diseases, including lupus and rheumatoid arthritis. But have the treatments shown that they work, and how big is the market?
Regulators put Artiva on the “fast-track” after impressive results
Artiva presented a study at the 2023 American Society of Clinical Oncology showing that its allogeneic NK cell therapy was effective. Of the seven patients, 57% responded positively to treatment for non-Hodgkin lymphoma.
These results contributed to the FDA giving Artiva the “fast track designation” in researching the drug to treat lupus nephritis. This is because the treatment works through the same mechanism. The FDA gives this designation to expedite the development of drugs that address an unmet medical need.
Artiva announced it gave the first dose of AlloNK to a lupus patient in April. They said, “To our knowledge, this is the first time a patient has received an allogeneic NK cell therapy in a U.S. clinical trial for the treatment of an autoimmune disease.”
Already a multibillion-dollar market, one researcher believes the lupus nephritis treatment market will grow at 11% a year through 2033 to $5.7 billion. Artiva hopes to use the treatment for multiple autoimmune diseases. Another researcher expects the size of the whole autoimmune market to grow by 13% a year to $12.6 billion in 2028.
Artiva’s IPO provides financial health in the near-term
Looking at Artiva’s financial statements, the company has basically no revenue and is posting millions in losses every quarter. Since Artiva has no approved drugs yet, it can’t generate significant revenue. As a clinical-stage company, analysts expect this, so it’s not a huge issue. The main concern is making sure it has enough cash to keep operating until the FDA approves its drug, if it ever does.
The company burned through an average of $54 million in 2022 and 2023. Prior to the IPO, it had $62 million in cash and equivalents on its balance sheet. The IPO raised approximately $167 million. So, it should now have around $229 million in cash, a little over four years’ worth at current outflow levels. For the foreseeable future, Artiva’s cash position is secure, as long as it maintains similar spending levels.
A study of fast-track designated drugs found that they typically take seven years to fully approve after their Investigational New Drug (IND) application. This application happened a little over a year ago for AlloNK, meaning that under typical circumstances, it has around six years to approval. However, it could have as little as four years if it passes with flying colors.
So, unless the best-case scenario occurs, the company will have to raise more cash down the road. This could involve selling equity or issuing debt. This would dilute current shareholders or cause Artiva to pay more in interest expenses, further reducing cash flow.
Artiva could be a shot in the arm to portfolios
Looking at all these details, it makes sense why analysts are bullish on Artiva. Its treatment has shown early effectiveness, and there is a market for the drug. The FDA’s fast-track designation backs this up.
From a business perspective, scaling the treatment cost-effectively is a big competitive advantage. Also, AlloNK’s ability to potentially treat various autoimmune diseases and cancers helps reduce the company’s risk. Even if it fails to gain popularity in treating one disease, it may be able to find it in another. Artiva’s near-term financial health allows investors to carefully assess its viability when changes occur without worrying that the company will go under.
Artiva could be a massive breadwinner if AlloNK gains FDA approval. However, investors should be aware that investments in early-stage pharmaceutical companies are risky. Only 12% of drugs that enter FDA trials ever get approved, and AlloNK’s failure to gain approval would be devastating for Artiva’s share price.
Investors should consider their risk tolerance before investing. They should keep a watchful eye on the company and reevaluate its prospects when something changes.
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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Leo Miller has no positions in any of the stocks mentioned.
This Biotech IPO Stock Aims to Seize a Multibillion-Dollar Market with Its Innovative Treatment was originally published by The Motley Fool
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