Centessa Pharmaceuticals (NASDAQ: CNTA) is a biotechnology stock that has nearly doubled its value so far this year, and its run may not be over. Analysts at Morgan Stanley have just massively raised their price target for the company. The re-rating from $11 per share to $26 per share is a 136% increase.
Not only that, but it also implies an upside for the company of 66% from its current level. Analysts at B. Riley are even more bullish, putting a price target of $33 on the firm. This means B. Riley believes the stock could over double in value from its current price.
So, what exactly does Centessa do, and what’s with all the excitement around the pharma stock?
Centessa’s Big 3 Drugs
Centessa currently has three main drugs in its pipeline. The first is SerpinPC, which is currently in Phase 2 of Food and Drug Administration (FDA) trials. The drug is being researched to treat hemophilia A and B, two types of a genetic disorder where blood doesn’t clot properly. The company’s drug has a novel mechanism of action (MoA) to treat the condition. Phase 2 data for this drug released last year showed solid safety, tolerability, and efficacy.
The company’s next drug is ORX750. The drug is meant to treat conditions such as excessive daytime sleepiness (EDS), narcolepsy 1 and 2 (NT1, NT2), and idiopathic hypersomnia (IH). These conditions are caused by a lack of orexin, a chemical that regulates sleep cycles and wakefulness.
It aims to do this by antagonizing orexin 2 receptors, mimicking the function of orexin. The company released positive interim Phase 1 results for the drug. According to MT Newswires, the drug was “found to restore wakefulness in acutely sleep-deprived healthy volunteers." It showed no adverse side effects, and patients were able to stay awake for 32 minutes during the Maintenance of Wakefulness Test (MWT).
This test measures how long a person can stay awake while lying down in a dimly lit room in a relaxed position. According to the Sleep Foundation, “In healthy sleepers, the average time it takes to fall asleep during the MWT is approximately 30.4 minutes." So, the fact that sleep-deprived individuals were able to stay awake for 32 minutes indicates normal levels of wakefulness, a very positive result.
However, these patients did not have the acute sleep-related conditions that Centessa hopes to help. The company said it will quickly initiate Phase 2 studies of ORX750 in patients with NT1, NT2, and IH beginning in the fourth quarter of 2024.
The company’s last important candidate is LB101. It is a chance treatment for solid tumors. It aims to help the body better identify and destroy tumors by blocking the function of chemicals that allow tumors to evade immune cells. The drug is currently in Phase 1 FDA trials.
Centessa in Good Shape Financially
The company currently has no significant revenue. However, the company has significant amounts of cash on its balance sheet. Its $295 million in cash and short-term investments can last nearly two years based on the company’s loss in cash from operations, which hovers around $40 million per quarter.
The company will also receive another influx of cash after it priced a $225 million public offering of more shares on Sept. 13. This could add another year to the company’s ability to operate without needing to raise more funds.
Wall Street Comments and Ratings Stand Out
The reason Morgan Stanley so dramatically raised its price target is due to the results of the ORX750 treatment. Indeed, the results were impressive. However, the fact that the results were based on people who were simply sleep-deprived and not actually narcoleptic makes this reaction somewhat surprising.
Still, the analyst used particularly strong wording, referring to the results as “de-risking” the orexin 2 antagonist mechanism of action for narcolepsy. He also reportedly increased the revenue estimates for the drug several times over after the results.
Overall, it certainly feels like there is some serious potential for Centessa going forward. This is some of the stronger language I have come across when it comes to biotech stocks. However, this is the opinion of just one analyst, although the rationale may be backed up by B. Riley and BMO’s even higher price targets.
Additionally, the company has another drug in SerpinPC that has shown positive results. Still, investors should be reminded that an exceedingly small number of drugs, around 12%, ever actually gets approved after entering FDA trials.
