Take a pass on Arch Biopartners, says Raymond James

Raymond James is remaining “cautiously optimistic” on Toronto-based biotech company Arch Biopartners (Arch Biopartners Stock Quote, Charts, News, Analysts, Financials TSXV:ARCH) after a new funding announcement. In a Thursday company report, Raymond James analyst Rahul Sarugaser kept a “Market Perform” rating on the stock, saying investors should watch for important upcoming trial data from ARCH.

Arch Biopartners, which is developing new drug candidates to inhibit inflammation in the lungs, liver and kidneys through the dipeptidase-1 (DPEP-1) pathway, including lead candidate Metablok (or LSALT peptide), announced on Thursday up to $4 million in funding from the Canadian National Research Council (NRC) through its Canada Industrial Research Assistance Program (IRAP). 

The funding is to support Arch’s LSALT peptide program in terms of dose escalation studies, costs related to its COVID-19 Phase 3 trial, drug product manufacturing and Arch’s planned Phase 2 trial in cardiac surgery associated acute kidney injury (AKI).

“We appreciate this support from NRC IRAP as we continue to develop LSALT Peptide as a treatment for inflammation injury in the lungs, kidneys and liver. This project funding will enable Arch to complete several important drug development tasks in the next twelve months,” said CEWO Richard Muruve in a press release.

Sarugaser said the NRC’s decision to approve funding typically follows from assessment and opinions from third party academic experts on the scientific and clinical merits of a program, in this case with Arch likely to have submitted data from its Phase 2 trial among COVID-19 patients as evidence to support DPEP-1 as a relevant therapeutic target for inflammation-related diseases of the lung, liver and kidney.

“[W]e see the award of this grant from the NRC—primarily for activities not associated with the COVID program—as external validation of ARCH’s data, and Metablok’s clinical potential in these non-COVID applications: i.e. of ARCH’s planned Phase 2 trial in cardiac surgery associated AKI,” Sarugaser wrote.

“This said, we remain cautiously optimistic as we await publication of ARCH’s Phase 2 COVID data (est. 1H23)—which, in our view, will be seminal in determining the likely success (or failure) of ARCH’s anticipated Phase 2 trial in cardiac surgery-associated AKI—before making any further prognostications on its predictiveness, so maintain our Market Perform rating,” he said.

ARCH’s share price moved from sub-$2.00 territory to as high as $5.00 by the end of 2021. Since then, the stock has pulled back all the way to its current level at just above $2.00. 

With the update, Sarugaser maintained a 12-month target of $3.50 per share, reflecting at press time a one-year return of 66 per cent.