Avidity Biosciences (NASDAQ: RNA) is a biopharmaceutical stock focusing on RNA therapeutics. The company’s stock is up around 400% so far in 2024.

However, even with this massive appreciation, Wall Street analysts still see a solid upside in the stock. Based on recent analyst changes, the average price target is $62, implying an upside of 39%.

Avidity's shares rose 12% after earnings. This was due to positive results for its drug, Del-zota. It treats people with Duchenne muscular dystrophy (DMD), who are usually boys between the ages of 2 and 5.

Let’s dive into what Avidity Biosciences does and then review the earnings report. We'll examine the size of Avidity’s addressable market and its competitors and close with some outlook.

Avidity Pioneering Breakthrough DMD Treatments

Avidity focuses on developing a specific type of treatment to help cure genetic disorders. The treatments target ribonucleic acid (RNA). RNA essentially moves a person's genetic code around their body, providing instructions on how new cells should develop. Sometimes, parts of a person’s RNA can cause the body to produce harmful proteins, which can lead to conditions like muscular dystrophy.

Researchers use oligonucleotide therapies to try to stop the production of harmful proteins, but they have not been super effective for diseases like muscular dystrophy.

This is because they do a poor job of penetrating muscle cells. Avidity is developing drugs known as AOCs that combine oligonucleotide therapies with antibodies. These drugs may do a much better job of treating DMD as they penetrate muscles better.

DMD is caused by a lack of dystrophin production, which helps strengthen muscles and prevent injury. Avidity's trials showed that its treatment increased dystrophin production by 25%.

DMD Market Poised for Explosive Growth

From a business perspective, attempting to address the DMD market makes a lot of sense.

One researcher estimated the market's size to be around $2.8 billion in 2023 but expects it to reach $63.5 billion by 2030. This represents an astounding compound annual growth rate of 48%.

Another researcher puts growth rates at 39% annually. Additionally, that study says “exon skipping” treatments like Del-zota will grow at 45% annually.

Even with this massive addressable market, ISI Evercore analysts put the drug’s peak U.S. sales at just $315 million. If Del-zota gets approved, achieving this seems highly possible, as that revenue level represents a small part of the total market.

Avidity’s Low Revenue is Not Concerning at This Point

Avidity's latest earnings report, released on Aug. 9, reported mixed results. It reported a net loss per diluted share of $0.65, which represented a 17% earnings surprise and a 1 cent narrowing of its loss from the previous year.

However, revenue came in 33% below expectations at just $2 million. This should not be concerning, as Avidity is currently a clinical-stage therapeutics firm and is not expected to make money yet.

The rise in its stock price is due to the perceived potential of the drugs in its pipeline. About half of its drugs are in some level of Federal Drug Administration (FDA) trials, while the others have not reached that point yet.

Avidity is not expected to start seeing significant revenue or earnings until 2027. The company’s price-to-sales ratio for the next 12 months is outrageously high, at 332x. Looking three years out, when revenues are expected to rise by 500%, the ratio is 8.1x. But this relies on many things going right.

Avidity vs. Sarepta: Product Comparison Analysis and Outlook

Avidity’s biggest competitor is likely Sarepta Therapeutics (NASDAQ: SRPT). Comparing results from Sarepta’s DMD treatment, it seems that Avidity is showing superior results. Sarepta's treatment only increased dystrophin production by 5%. However, analysts say Avidity’s drug focuses on a slightly different type of DMD, but if tested on the same type, it would likely still perform 2% to 5% better.

Overall, Avidity seems to have a positive outlook considering the size of its market and that expectations regarding the amount of that market it can control are relatively low. Additionally, the fact that its treatment shows better results than a competitor's is promising.

Investments in preclinical drug companies can be risky. Only around 12% of drugs make it through FDA trials, and failure to gain approval would wipe out expected revenue growth.