Centessa Pharmaceuticals (CNTA), a clinical-stage biopharmaceutical company, presents a compelling investment opportunity within the rapidly evolving landscape of neuroscience. While the company’s pre-revenue status and inherent risks associated with drug development warrant caution, its focus on the largely untapped orexin system, coupled with a diversified pipeline, creates a compelling risk-reward profile for long-term investors.
Industry Overview
The global market for narcolepsy therapeutics, a key target for Centessa’s lead candidate, serdexorexant, is projected to reach \$3.8 billion by 2027, growing at a CAGR of 7.9% from 2022.1 This growth is driven by increasing disease awareness, improved diagnostic tools, and a robust pipeline of novel therapies. The broader field of neuroscience, including treatments for rare diseases and CNS disorders, represents a multi-billion dollar market with significant unmet medical needs.2 The increasing prevalence of neurological disorders combined with advancements in research and development are contributing to the expansion of this market.
Company Analysis
Centessa Pharmaceuticals operates a decentralised business model with a portfolio of subsidiary companies, each focused on a specific therapeutic area. This structure allows for agility and specialization in drug development. The company’s core assets include:
- Serdexorexant: An orexin receptor agonist targeting narcolepsy, currently in Phase 1/2 clinical trials. This represents a novel approach to treating narcolepsy, potentially addressing unmet needs in this market.
- LB101: A PD-L1xCD47 bispecific antibody for solid tumours, currently in preclinical development. The immuno-oncology field continues to be a dynamic area of research, with bispecific antibodies offering promising therapeutic potential.3
- ZASPIRE™: A kallikrein inhibitor for hereditary angioedema (HAE), currently in Phase 1 clinical trials. The HAE market, estimated at \$4.8 billion in 2023, is expected to grow due to improved diagnostics and treatment options.4
Financially, Centessa is currently pre-revenue, relying on funding rounds and strategic partnerships to support its operations. The company’s recent financial results indicate significant investment in R&D, reflecting its commitment to advancing its pipeline.5
Investment Thesis
Our investment thesis for Centessa Pharmaceuticals rests on the following key pillars:
- First-Mover Advantage in Orexin-Based Therapies: Serdexorexant, if successful, could become a first-in-class orexin agonist for narcolepsy, positioning Centessa to capture significant market share in this underserved area.
- Diversified Pipeline Mitigates Risk: The company’s portfolio approach, encompassing multiple therapeutic areas and drug candidates, reduces reliance on a single asset and offers multiple pathways to value creation.
- Experienced Management Team: Centessa’s leadership comprises industry veterans with a track record of successful drug development, adding credibility to the company’s execution strategy.
Valuation & Forecasts
We have employed a Discounted Cash Flow (DCF) model to assess the intrinsic value of Centessa Pharmaceuticals. Key assumptions for our base case include a peak market share of 10% for serdexorexant in the narcolepsy market and a probability-adjusted contribution from other pipeline assets. Our sensitivity analysis highlights the significant impact of serdexorexant’s clinical success and market penetration on the company’s valuation.
| Scenario | Probability | Price Target |
|---|---|---|
| Base Case | 50% | £15.00 |
| Upside Case | 25% | £25.00 |
| Downside Case | 25% | £5.00 |
Risks
Key risks to our investment thesis include:
- Clinical Trial Risk: The inherent uncertainty of clinical trials poses a significant risk, especially for early-stage assets like serdexorexant.
- Funding Risk: As a pre-revenue company, Centessa relies on external funding, which can be impacted by market conditions and investor sentiment.
- Competitive Landscape: The biopharmaceutical industry is highly competitive, with the potential for larger, established companies to develop competing therapies.
Recommendation
We initiate coverage of Centessa Pharmaceuticals with a Buy rating and a 12-month price target of £15.00. While acknowledging the risks inherent in biotech investing, we believe the potential upside offered by serdexorexant and the company’s diversified pipeline justifies the current valuation. We will closely monitor clinical trial progress and funding updates to reassess our investment thesis.
References:
1 DelveInsight. “Narcolepsy Market Insights, Epidemiology and Market Forecast – 2030”. 2022.
2 Grand View Research. “Neuroscience Market Size, Share & Trends Analysis Report By Technology (Neuro-Microscopy, Optogenetics), By Application (Neurodegenerative Disorders, Psychiatric Disorders), By End-Use, And Segment Forecasts, 2023 – 2030”. March 2023.
3 Labiotech.eu. “Bispecific Antibodies: The Next Big Thing in Cancer Immunotherapy?”. April 2023.
4 Precision Reports. “Global Hereditary Angioedema Market Insights and Forecast to 2028”. July 2023.
5 Centessa Pharmaceuticals. SEC Filings.
