$CNTA Analysis Overview

$CNTA is a pharmaceutical holding company that uses their business model to gain a competative advantage. Their business model and 'asset centric' approach is unique within the industry. However, there is no revenue so far but the business model allows them to have lower costs so they can limit the pressure of time that majority of R&D companies face. There are a few notable risks to consider, such as financial uncertainty and accounting red flags.

A Look at Centessa’s Unique Business Model

According to Centessa Pharmaceuticals official website. Centessa is a holding company for smaller research and development pharmaceutical companies. They operate what they call a ‘single asset centric’ approach which is a way of hedging the negatives usually associated with research and development companies within the industry. Essentially the business model is a way of limiting the negatives of a small R&D company as well as a big pharma company. Then benefiting from both the advantages of the small and big companies within the industry. A better way to describe it is a hybrid between the 2.

They also operate with a mindset they call ‘’fail fast and fail early’’ concept. This is a mindset to help them limit costs and make their process of R&D more efficient than other companies. They have demonstrated this in action and the benefits is produces when comparing their financials to other already established R&D companies. For instance, it limits and keeps their overall negative cash flows less than those of other similar companies.

Advantages and Disadvantages of Cantessa’s Business Model

The pharmaceuticals industry typically has 2 types of companies;

Smaller research and development companies who focus on 1 specific problem and 1 specific solution, and
Big pharma companies who use their tremendous number of resources to offer multiple solutions for multiple problems.

Advantages

Smaller R&D companies

Specific problem and solution, lots of expertise going into finding a solution
All resources are being used towards the one problem, in search of one solution
If there is a breakthrough, means generally extreme growth and extreme profits (greater upside)

Big Pharma Companies

They have tremendous amount of resources
They have multiple streams of making money due to multiple projects and solutions
They have management that can overlook all activities and therefore takes responsibility away from lower managers in regard to business activities and administration.

Disadvantages

Smaller R&D companies

If they are unable to have success with their specific solution, they will never be profitable. Risk of specificity.
Size of company can limit the number of resources they have.
Because they only have the one asset / project to work on it can be very easy to continue funding the project as the more money they put into it the more they feel the need to make it successful and can ultimately lead to greater losses if the asset doesn’t work out.

Big Pharma Companies

Because their revenue comes from multiple projects adding another project or making a new discovery, makes much less of an impact on the overall profitability and therefore growth of the company and sometimes even cause losses depending on how much $ went into R&D.
Big Pharma controls the assets/ projects being researched and developed, this limits the knowledge and expertise for each individual development. Not to say that one single project won’t have an expert, but it is hard to believe that the people in control of big pharma are experts on absolutely everything they do from running the business, to the medical fields and problems being researched.

Potential Risks With Investing in CNTA

The greatest concern for CNTA is not just the little financial data given, but also that the data has many accounting red flags to suggest that it may not be accurate or even a fair and true representation of the company. All the financials are unaudited, and they even disclose in their SEC ‘’prospectus’’ filling that their ‘’is’’ material issues with their internal controls. This makes it extremely hard to value the company and even begin to form a basis of comparison to other already established companies in the space. They also are currently unprofitable and have no prediction on when they may begin producing revenue. This is due to multiple hurdles in the process of taking a drug from discovery to market. Although this is common with in R&D companies, it makes it near impossible to predict future value of the stock. The concern here is that of timing when regarding investment. Investing now surly exposes investors to extreme risk, but after news of possible profitable drug, surly investing at that time would result in missing out on the majority of growth that resulted from the profitable news.

CNTA Financials and Recent Performance

From the IPO in late May $CNTA was able to raise $330 million. This is important to know because of their $9 million negative cash flow they have from R&D expenses as well as business operations. The $9 million negative cash flow in comparison is relatively low compared to other R&D companies within the industry, this is largely due to their ‘fail early fail fast’’ process. However, since the IPO the overall stock price has been a little volatile increasing and decreasing throughout recent weeks. With the concern of unstable financials as well as the unknown of when to expect revenue. The value of the stock is purely a result of investors speculation on when the company will start producing positive cash flows. Something that with R&D companies will only be able to be known when news of a successful project occurs. Until the company can produce audited financials or news of successful R&D projects, they will continue to lose money and be cash flow negative.

CNTA Has A Strong Management Team

One of Centessa’s perceived strengths is their team. The business model enables this due to their ability to have business professionals at the top, much like big pharma companies, but also allow each subsidiary of their business to have specialized team regarding the medical field, similar to what smaller R&D companies would have.

For instance, the CEO of Centessa Saurabh Saha has experience as a management consultant and venture partner with previous pharmaceutical R&D companies. Whereas the CEO Joseph Birkett of PearRiver bio, a Centessa subsidiary that focuses on cancer treatments, comes from experience strictly related to cancer. This allows the subsidiary to focus more on the actual R&D rather than the business aspects. Along with giving them more freedom than a specialized manager at a big pharma company.

What You Should Consider Before Investing in CNTA

I believe that Centessa is a bear position because there is more risk than possible reward if investing at this time. Although I believe that the hurdles and restriction in the process of taking a drug from discovery to market are larger than many investors realize and will cause much negative news in the future of failed drugs in regard to Centessa. I do acknowledge that there is potential for a drug to be successful and for Centessa to soon become profitable. My investment approach looks for at least an even trade-off between risk and reward and I believe that Centessa does not offer this. Centessa needs future financial results and an update on the internal controls of the company via audit in order to provide some credibility to investors, in order to remove some of the extra risk involved.