Arcellx: Clinical Hold Lifted, Charting A Brighter Path Forward (Rating Upgrade)

Introduction

Arcellx (NASDAQ:ACLX) is a biotech firm developing advanced cell therapies for diseases like cancer using the unique D-Domain. Their main product, CART-ddBCMA, targets multiple myeloma, with other significant ARC-SparX projects underway.

I recently analyzed Arcellx after their CART-ddBCMA program faced a partial clinical hold. Despite this setback, the program's prior success in Phase 1 trials and the FDA's collaborative stance seem promising. I noted that Arcellx's partnership with Kite Pharma should provide financial and expertise support. With strong financial projections leading up to 2025, Arcellx seems well-prepared to navigate this challenge. From an investment perspective, given their strong position and potential, I recommended holding onto their shares and closely watching for developments.

Recent Developments: Last month, Arcellx revealed that the FDA lifted the partial clinical hold on their T-cell therapy for multiple myeloma.

The following article discusses Arcellx's promising CART-ddBCMA program, recent positive FDA developments, and recommends investing in Arcellx due to its potential in oncology treatments.

Q2 Earnings Report

Looking at Arcellx's most recent earnings report, as of June 30, 2023, the company held $506.5M in cash, cash equivalents, and marketable securities, with an anticipated runway to fund operations into 2026. Collaboration revenue stood at $14.3M, thanks to an agreement with Kite Pharma. R&D expenses rose by $6.2M to $28.3M due to costs related to their CART-ddBCMA clinical program and personnel. G&A expenses increased by $6.3M to $15.5M, primarily from personnel and professional fees. The net loss was $23.9M, improving from a loss of $30.8M in 2022.

Cash Inflow & Liquidity

Turning to Arcellx's balance sheet, as of June 30, 2023, the company's combined assets for 'Cash and cash equivalents' and 'Marketable securities' amounted to $506.5M ($303.7M + $202.8M). The "Net cash provided by (used in) operating activities" indicates that the company had a positive cash flow of $159.4M for the first six months of 2023. This means an estimated monthly cash inflow of approximately $26.6M. However, caution should be exercised: these values and estimates are based on past data and might not necessarily be indicative of future performance.

Regarding the company's liquidity status, Arcellx seems to be in a healthy position with a significant amount of current assets, including a strong cash position. There's no explicit mention of debt. Considering the company's healthy liquidity and its capacity to generate cash from collaborations, it appears Arcellx would be well-positioned to secure additional financing if necessary. These are my personal observations, and other analysts might interpret the data differently.

Valuation, Growth, & Momentum

According to Seeking Alpha data, Arcellx's capital structure shows a minimal debt relative to its market capitalization with an enterprise value of $1.40B. In terms of valuation, the company has high enterprise value-to-sales, indicating a substantial valuation given their current revenue levels. Despite being a biotech firm in its developmental phase, their growth prospects look positive, especially with their partnership with Kite Pharma and a jump in collaboration revenue. Their stock momentum outperforms the S&P500, witnessing substantial appreciation over the past year.

Arcellx's Bounce-Back: A Phase 2 Tale with Twists

After a patient death due to protocol deviations, Arcellx's iMMagine-1 Phase 2 program was briefly put on partial hold but was subsequently fully reinstated following necessary adjustments and retrains. FDA now permits a broader scope for bridging therapies. Arcellx plans to share preliminary findings from the study in late 2024.

Targeting BCMA with a synthetic antigen-binding domain in the CAR T construct is particularly promising for relapsed refractory multiple myeloma (r/r MM) given BCMA's prominent role in MM cell survival and growth. This strategy seeks to address the unmet needs in r/r MM patients who often face limited treatment options and poor prognosis. As Arcellx's Phase 2 program progresses, investors should keenly observe:

• Efficacy Data: How effective is the treatment in reducing or eradicating cancer cells compared to existing treatments?

• Safety Profile: Are there significant adverse effects or is the treatment well-tolerated, especially given the previous clinical hold?

• Patient Response Duration: For how long do patients remain in remission? A prolonged response can position the therapy as a preferred option.

• Manufacturing & Scalability: Can Arcellx consistently produce the CAR T cells at scale, ensuring widespread access if approved?

The success of this trial could not only signal a potential breakthrough in r/r MM treatment but could also act as a bellwether for the wider adoption of synthetic antigen-binding domains in CAR T therapies. Investors should stay vigilant and monitor these key factors as the trial unfolds.

My Analysis & Recommendation

In summary, Arcellx's work in biotech, particularly the CART-ddBCMA program, is potentially groundbreaking. This therapy offers significant potential for multiple myeloma patients, especially the r/r MM group with few therapeutic alternatives. Despite past concerns, the FDA's positive response and Arcellx's proactive approach show determination and adaptability. Financially, Arcellx is solid, emphasized by its collaboration with Kite Pharma, indicating preparedness for future challenges. Yet, the path to drug approval is complex. Issues like CAR T cell manufacturing consistency and safety standards are crucial. Investors should keenly monitor the forthcoming efficacy and safety results from the trials. Successful treatments require consistent and wide distribution. Considering Arcellx's strong financials, its alliance with Kite Pharma, and CART-ddBCMA's potential, I advise a speculative "Buy" on ACLX for risk-tolerant, biotechnology-focused investors. The benefits seem to surpass the risks at present, promising considerable returns and a chance to transform oncology treatments.

Risks to Thesis

In recommending Arcellx for investment, there are several risks I may have overlooked:

• Overreliance on CART-ddBCMA: While CART-ddBCMA holds promise, an overemphasis might blindside us to other projects that could significantly impact Arcellx's valuation.

• Regulatory Concerns: The FDA's collaboration does not guarantee approval. Regulatory processes can be unpredictable, and any negative results could derail the therapy's path to market.

• Market Competition: Other firms might be developing similar or more advanced therapies for r/r MM, which could pose competition.

• Economic and Industry Factors: External factors, like economic downturns or industry-wide challenges, could affect Arcellx's growth.

• Biases: My optimism post the lifting of the clinical hold might be a confirmation bias, emphasizing positive news while downplaying potential future setbacks.

• Safety Concerns: The previous clinical hold, due to a patient death, indicates the potential for unforeseen side effects that could halt the program again.

• Scalability and Production: Even if the drug proves effective, Arcellx may face challenges in mass production and maintaining consistent quality.