Arcturus Therapeutics Holdings Inc

Arcturus Therapeutics Holdings Inc (NASDAQ: ARCT) is the leading clinical-stage messenger RNA medicines Company.

Investment Highlights – Speculative Buy at USD 28.55

• The Company had initiated Phase 3 study for the Covid-19 vaccine candidate ARCT-021, post successful Phase-2 interim data showing greater than 90% seroconversion after a single dose.
• The Company’s cash position is expected to be adequate to fund operations for more than two years.
• ARCT is on track to file CTA (“Clinical Trial Application”) for Phase 2 multiple-dose study of ARCT-810 during Q2 FY21.
• On the liquidity front, the current ratio of ARCT remained higher than the industry median of 6.99x during FY20, illustrating the Company is more capable of paying short term obligations than the industry.
• From a technical standpoint, 14-day RSI stood at around 38.66, which means the stock price could move upward in the short term.

Key Risks

• The Company operates in a strict regulatory environment; any change in regulations or government policies could affect its overall business.
• Any significant delay in the clinical trials and FDA approvals can postpone drug commercialization and increase the cost.
• Failure to obtain sufficient funds for clinical trials and the development of vaccines may hamper the growth trajectory.
• As ARCT is making revenue from licensing fees only, any disruption in the strategic partnership may significantly impact the top-line business.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 10 May 2021)

(Source: Company website)

• ARCT’s revenue had declined from USD 2.6 million during Q1 FY20 to USD 2.1 million for Q1 FY21.
• R&D expenses increased by approximately USD 42.1 million during Q1 FY21 as compared to Q1 FY20 due to higher clinical and manufacturing cost of USD 17.2 million for the ARCT-021 program.
• With regards to the financial position, ARCT had a cash balance of USD 466.90 million as of 31 March 2021, increased from USD 463.00 million as of 31 December 2020.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

ARCT is making revenue in the form of license fees and collaborative payments received from research & development arrangements with pharmaceutical & biotechnology partners. Moreover, the Company had made accelerated progress towards the advancement of the clinical pipeline. ARCT expects to initiate Phase 3 study of the Covid-19 vaccine ARCT-021 after receiving encouraging interim results from Phase 2 study, indicating favourable safety profile and greater than 90% seroconversion after a single dose. Furthermore, the Company expects to file CTA for Phase 2 multiple-dose study of ARCT-810 (therapeutic candidate for Ornithine Transcarbamylase Deficiency) during Q2 FY21. Currently, it has activated two additional sites in the US for the ongoing Phase 1b study of ARCT-810. The stock made a 52-week low and high of USD 24.87 and USD 129.71, respectively. On the technical chart, the next important support level is at USD 24.87.

Based on the impressive clinical pipeline, encouraging Phase 2 study data of the Covid-19 vaccine candidate ARCT-021, and the various factors discussed above, we have given a "Speculative Buy" stance on Arcturus Therapeutics Holdings Inc at the closing market price of USD 28.55 (as of 26 May 2021).

Retractable Technologies Inc

Retractable Technologies Inc (NYSE: RVP) manufactures, develops and markets safety needle devices. It holds VanishPoint® products which leverage a patented friction ring mechanism to prevent reuse and needlestick injuries.

Investment Rationale – SPECULATIVE BUY at USD 9.08

• RVP has demonstrated a stellar revenue growth in Q1 FY21, with improvement in bottom-line items of the income statement and better liquidity. It underpins bright Company prospects.
• RVP has received additional funding of US$27 million from the US government to expand vaccine needle production.
• To the Series II preferred shareholders, the Company paid a cash dividend of US$39,050 in April 2021.
• From a technical standpoint, 14-day RSI (40.81) is moving towards the oversold position and supporting the upside potential.
• Over the past two years, the stock has yielded a remarkable return of over 1314% and significantly outperformed the benchmark, the NYSE American Composite index.
• Over the past four years (FY16 to FY20), revenue and gross have grown significantly by a CAGR of around 28.71% and 37.55%, respectively.

Risk Assessments

• The stock has remained quite volatile in the past six months, while there are operational challenges to ramp up production.
• Increased operational expenses, higher marketing expenses amid intense competition can put pressure on pricing and impact revenue generation.
• Changing production volumes, increased cost of products, higher interest costs, overdependence upon large existing customers, and insufficient cash reserves amid macroeconomic uncertainties can also impact the growth trajectory.

Recent News

25 May 2021: RVP announced an amendment to the Technology Investment Agreement with the US government, whereby additional funding of US$27,365,232 will be provided to boost the manufacturing capabilities to meet the US COVID-19 medical countermeasures demands.

Financial Highlights for the quarterly period ended 31 March 2021 (Q1 FY21) (as on 17 May 2021)

 (Source: Company Website)

• During Q1 FY21, Domestic revenues surged 484.7% year-on-year, with 282.6%-unit sales increase against Q1 FY20.
• Sales growth was predominantly supported by existing customers and certain small new customers.
• Adjacently, the cost of manufactured products rose by over 181% against Q1 FY20 due to increased unit sales. Similarly, there was a 236% jump in royalty expenses from Q1 FY20.
• The cash balance (as on 31 March 2021) comprised 22.3% of total assets, driven by increased accounts receivables.

Share Price Chart    

 (Research done by Kalkine Group)

Conclusion

RVP has delivered strong financial and operating results in Q1 FY21. Despite the pandemic uncertainties, it has witnessed a strong demand for its products. Moreover, its products continued to be distributed nationally and internationally during the pandemic. The Company has increased the workforce and enhanced capabilities to meet the market demand. Further, RVP has substantial financial resources currently to manage its operations and have decent profitability margins to be competitive in the market. The stock made a 52 week High and Low of USD 21.50 and USD 5.11, respectively. On the technical chart, the next important support level is at USD 7.72.

Based on the robust revenue growth, improved financials, enhanced liquidity with additional funding from the US government, favourable market dynamics, we have given a “SPECULATIVE BUY” stance on Retractable Technologies Inc at the closing price of USD 9.08 (as on 26 May 2021).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

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