Vera Therapeutics

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 3/5

Vera Therapeutics is a clinical-stage biotechnology company focused on developing and commercializing treatments for patients with serious immunological diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

Vera Therapeutics is primarily a clinical-stage biotechnology company that is focused on developing treatments for immunologic diseases. They don’t have a recurring source of revenue currently as they don’t yet have products approved. The main focus of the business is advancing their pipeline towards getting approvals which is an expensive and uncertain process. This implies that for the next few years, any news of the business and its financials is tightly linked with the performance of clinical trials and development programs.

Revenues: Since Vera is a clinical stage company, they currently do not have a product for commercial sale and as a result does not have any revenue.

Industry Trends: The biotechnology industry is characterized by intense competition, high R&D costs, and a high degree of risk due to the high failure rate of drugs. The need for innovative treatments for chronic autoimmune and immunological diseases remains strong. The pace of FDA and other regulatory approvals are also very important for growth of the industry.

Margins: As a clinical stage company, Vera currently has no positive profit margins. They have significant losses in all 3 main income statement measures of gross profit, operating profits, and net income. As they continue to progress the pipeline, they will need to have higher revenues to offset those costs and turn the business profitable.

Competitive Landscape: The biotechnology industry is highly competitive, with many companies pursuing similar therapeutic targets. There are big pharma companies, well-funded biotech companies, and specialized labs all trying to develop therapies and treatments. Some examples include:

  • AnaptysBio: Competitor working in similar area of using antibodies to treat autoimmune diseases
  • Aurinia Pharmaceuticals: Competitor working in similar market.
  • Other biotech companies working on similar immunologic diseases.

The market for any successful products is likely to be huge.

What Makes Vera Different?: Vera is developing treatments for Immunoglobulin A nephropathy (IgAN) and other B-cell and plasma cell driven diseases. Atacicept, a recombinant fusion protein, targets two proteins that are key in B-cell and plasma cell differentiation and production of autoantibodies, called BAFF and APRIL. MAU868, a monoclonal antibody, targets a type of BK virus, which causes BK virus nephropathy in kidney transplant recipients.

They believe that these product candidates may represent a more differentiated approach to specific diseases. By focusing on a very specific part of the body’s immune system, they are hoping to tackle the root causes of the disease with more precision and less side effects. Their current focus is on niche indications within the therapeutic area. Their management, they have been successful with previous startups in immunology and nephrology.

Financials Deep Dive:

Cash Position: The company has a good cash balance of $265.5 million, which gives them the ability to support operations at this stage. Management has indicated they have enough cash to fund operations and initial plans, at least until Q4 2025 or into 2026. However, cash burn is very fast in clinical research and drug development. Therefore, they will need to obtain additional funding either from debt, partnership, or offering new shares in the near future.

  • Cash and cash equivalents of $353.7 million as of September 30, 2023. This cash primarily resulted from the proceeds of stock issuances completed in July 2022 and November 2022.

  • Net loss for the nine months ended September 30, 2023 is $124.8 million. Compared to the net loss of $70.5 million for the nine months ended September 30, 2022. These losses are normal for a clinical-stage biotechnology firm.

  • Research and development expenses increased to $93 million in 9 months of 2023. Compared to $49.8 million from previous period. This was mainly due to the clinical trials.
  • General and administrative expenses increased from $20 million to $32 million for the same period. The increase is due to an increase in the company’s overall activities.

Debt: They have minimal debt other than lease liabilities. They have some minimal obligations for lease liabilities and loans related to the leased assets.

Equity: They currently have a negative retained earnings balance due to the losses that the company has incurred, which is typical of clinical-stage biotechnology firms.

Valuation: The company has no recurring sources of revenue and it will take many years to realize the revenue potential. The revenue is primarily in the far-out future. As a result, it is very difficult to perform valuation of the stock. The stock price is dictated more on success of clinical trials than on value calculation.

Moat Rating: 2/5

Vera Therapeutics possesses a narrow moat, based primarily on their intellectual property surrounding their current product candidates, Atacicept and MAU868, as well as their scientific knowledge. The core driver of this moat rating, though is their limited history, they are focused on a very specific set of diseases, and are primarily in research phase. Therefore, they may or may not have a wider moat based on the science they have developed if it provides more differentiation to their targeted treatments. Here’s the justification for the 2/5 rating:

  • Intellectual Property: Vera has patents on its core technologies and proprietary compounds, forming a barrier against direct imitation for a defined period. This does give it some advantage, however, those patents are not permanent and can still be legally challenged.
  • Specialization and Focus: They are focused on specific niche areas with a well-defined strategy and a targeted product pipeline, which means that they are not stretched across multiple therapies, and that allows more focus on particular areas. This reduces the chance of failure and increases probability of success.
  • Switching costs (low): There are potentially many other competing treatments and there are no switching costs for end users. Therefore, once the company’s drug is launched, they may have trouble retaining the patients if they switch to better alternatives.
  • No Brand Recognition: Being clinical-stage biotech company, the company does not have a recognized brand for its treatments that could bring in customers.
  • Competition: The biotechnology industry is very competitive, with various players, large and small, all aiming to develop new treatments, reducing the likelihood of any single company’s long term success.

Risks That Could Harm the Moat and Business Resilience

The biggest risks to their moat come from:

  • Clinical Trial Failure: The biggest risk is their clinical trials failing to meet desired efficacy outcomes and not gaining approvals from regulatory bodies. This is an inherent risk to all companies that are in the clinical stage, and could drastically affect the business and value.
  • Regulatory Issues: Even if the drug is successful, obtaining FDA approval has been complex for many other companies. They must adhere to strict regulatory guidelines. Any setback or any delay would result in the value of the company falling. Further, if after approvals some issues emerge that lead to market withdrawal, this could be detrimental to the business.
  • Competition: As a clinical stage company, it is possible that the market they are targeting can suddenly be saturated by better/more effective treatments. This will lead to limited commercial potential for their drug candidates.
  • Lack of Financing: They are dependent upon additional funding through either debt or equity offerings to continue development efforts and bring the drugs to market, which is both a risk and dilutes stock prices. A failure to obtain funds could severely hamper the business, and a change in terms and rates may affect the company’s cash burn.
  • Management Turnover: Personnel changes and the departure of key scientists or management can cause a decline in the company’s performance due to the loss of knowledge, experience, and leadership. Further, a company’s management changes could mean a change in strategy, which can make investors unsure of the business.
  • Manufacturing and Supply Chain Risks: The company may experience manufacturing issues relating to producing quality drugs and their manufacturing chain may suffer problems with suppliers. These issues can lead to a reduction in supply and higher costs.

Business Resilience: Although in the face of many risks the company seems unlikely to be resilient against unforeseen circumstances, but the current leadership has prior history of success in drug development and that does help provide the needed edge. Further, if some of the treatments gain regulatory approval, the business will have enough potential and revenue that would allow it to quickly recover from any misstep. They also have enough cash on hand to continue their research for a long time.

Understandability Rating: 4 / 5 Vera is relatively easy to understand at the strategic level, but requires some understanding of biotech and immunology at a deeper level. The concept of drug development, specifically around antibodies is easier to understand, but the details and nuances of this particular scientific field would require some specific understanding of the field. Overall I would rate the company at 4/5 because most of the company depends on success of ongoing clinical trials and drug approvals which can be difficult to interpret for most.

The complex jargon surrounding immunology, the intricacies of regulatory approvals and clinical trials could be hard to understand for most investors who are not experienced in biotechnology space and it does take some research and understanding to make well-informed judgments about the business prospects.

  • Easy to Understand Business Model: While complicated at the scientific level, their business model is simple; they develop new drugs and try to get them through clinical trials for approval.
  • Requires Complex Knowledge: The science itself is very complicated. Without understanding basic concepts, it is very difficult for average investor to determine if they are on the right track or not.
  • Dependence on Research: Future depends on results of clinical trials and regulatory approval. Therefore, only investors with deep knowledge and ability to analyze clinical trial data would be able to make informed judgement about future prospects.

Balance Sheet Health: 3 / 5 A rating of 3/5 would indicate a fair health of balance sheet for the company, with some important conditions:

  • Strong cash position: They have over $300m in cash on hand which provides runway for future development efforts.
  • Minimal Debt: There is a minimum amount of long-term debt in the balance sheet which is a good sign.
  • Negative retained earnings: The company continues to accrue losses which has led to a negative retained earnings. This could hinder capital raise in the future.
  • Unprofitable: The company is still unprofitable which will lead to cash burn in future years unless their treatments become commercialized.

Additional Financial Information:

  • Total expenses are way higher than revenue, with a net loss of $116 million for 2022
  • The company is in the middle of trials for various treatments, and a setback can mean that there would be no revenue for the forseeable future. Therefore, the company has lots of dependence on the outcome of its clinical trials.

Recent Concerns, Controversies, and Problems:

  • Clinical Trial Results: The company has provided updates on clinical trial results. While most show the treatment to be safe, the efficacy endpoints and outcomes may differ on clinical trial basis and as compared to pre-clinical models. There is no guarantee they will be able to meet primary or secondary outcomes, and therefore, a continuous watch for this is required. Any negative results in clinical trials can negatively impact investor sentiments.
  • Market Volatility: The company’s shares are subjected to market volatility as biotechnology firms typically respond with higher market swings compared to stable businesses. This means that even when the company performs well, external factors could cause the share price to significantly dip.
  • Funding: Although they have cash at the moment, they would still need additional funding for long-term operation and that will create some pressure on the valuation.
  • Management Response: Management has focused to maintain a good level of funding and are working to improve the chances of positive results and regulatory approvals.

Overall:

Vera Therapeutics is a typical high-risk, high-reward biotechnology firm. Their financials are stable at this stage, but are also indicative of a business that depends on many factors out of their control. While the science behind their approach may have good potential, the likelihood of long term success in financial terms is currently questionable. Investment in VERA is more speculative than investment for a long-term, value investor.

Disclaimer: I am an AI Chatbot and not a financial advisor, this is not investment advice. Please do your own due diligence.