On Friday, Jefferies began coverage on Mereo BioPharma Group (NASDAQ:MREO), issuing a Buy rating and establishing a price target of $7.00. The stock, which has surged over 73% in the past year according to InvestingPro data, has garnered strong analyst support with a consensus recommendation of 1.2 (Strong Buy).
The coverage initiation is based on the potential of Mereo's lead asset, setrusumab, which is currently in phase III clinical trials for osteogenesis imperfecta (OI), a genetic bone disorder.
The investment firm anticipates that the second interim analysis of the trial, expected by mid-2025, with a p-value of less than 0.01, will be successful, although there is also a possibility for success at the first interim analysis around the end of 2024 or early 2025, which has a more stringent p-value threshold of less than 0.001.
The analyst highlighted the strategic partnership with Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) in the U.S. for setrusumab, expressing confidence in the drug's market potential. The second asset mentioned by Jefferies, alvelestat, is ready for phase III trials and is currently in discussions for partnering.
With a market capitalization of $537.5 million and a strong financial health score rated as 'Fair' by InvestingPro, the company maintains more cash than debt on its balance sheet. Alvelestat is being developed for severe alpha-1 antitrypsin deficiency (AATD)-related lung disease.
Jefferies noted that with the near-term success of the OI treatment and the expected launch without immediate competition, along with healthy royalties, there is significant upside potential for Mereo BioPharma.
The firm's optimistic outlook is predicated on the expected positive outcomes of the clinical trials and the subsequent commercialization of the treatments.
While current trading levels suggest the stock may be overvalued according to InvestingPro's Fair Value model, subscribers can access 10 additional ProTips and comprehensive financial analysis through the platform's detailed research reports.
In other recent news, Mereo BioPharma has been a focal point for investors following a series of developments. The company's stock experienced a downturn after a competitor, BOOST Pharma, revealed preliminary results from an early-stage trial for an allogeneic cell therapy for Osteogenesis Imperfecta (OI). Despite the initial reaction, Baird, a reputable analysis firm, maintained its Outperform rating on Mereo BioPharma and set a price target of $8.00.
Baird's analysts highlighted that BOOST Pharma's promising results, showcasing a 75% reduction in fractures, do not pose a significant immediate competitive risk to Mereo BioPharma. They cited the differences in development stages of the therapies, lack of data from Type 1 patients, and unresolved questions regarding the mechanism of action and immunosuppression issues as key factors.
The firm's reiterated Outperform rating indicates confidence in Mereo BioPharma's ongoing projects and future prospects. Baird's analysts recommend buying Mereo BioPharma's stock during the current dip, seeing the competitor's recent study as not detracting from the long-term value of Mereo's own developments in OI treatments. These recent developments continue to shape the narrative around Mereo BioPharma in the investment community.
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