On Monday, Mizuho Securities adjusted its outlook on biopharmaceutical company Verastem (NASDAQ:VSTM), reducing the 12-month price target to $7.00 from the previous $36.00. The firm, however, continues to hold an Outperform rating on the stock. The revision comes as the company prepares to announce its second-quarter results, expected in mid-August.
The significant revision in the price target was prompted by a comprehensive review of Mizuho's financial model for Verastem. The new model now employs a discounted cash flow (DCF) valuation methodology and extends the forecast period to 2037, from the earlier 2033 horizon. These changes reflect a more conservative outlook on the revenue potential for Verastem's leading drug candidates.
Verastem's primary focus is on the development of avutometinib plus defactinib (A+D) for the treatment of low-grade serous ovarian cancer (LGSOC). Mizuho has revised its revenue assumptions downward for this combination therapy, citing a smaller addressable market than previously anticipated, now limited to patients with KRAS mutations.
The financial model update also includes the impact of a $55 million financing that Verastem announced earlier in the week. This capital raise is expected to support the company's ongoing clinical trials and research efforts.
Despite the reduced price target, Mizuho anticipates over 100% upside potential for Verastem's stock from its current levels. This optimism is based on multiple data sets expected to be released in the second half of 2024.
These include mature data from the RAMP 201 study in LGSOC, expected to be presented at an upcoming medical conference, and additional data from the RAMP 203 and RAMP 204 studies in non-small cell lung cancer (NSCLC). With these milestones on the horizon, Mizuho's Outperform rating stands reaffirmed.
In other recent news, Verastem, a biopharmaceutical company, has been the focus of several financial firms' analyses following a series of developments. B.Riley and RBC Capital Markets have both downgraded their price targets for Verastem, citing concerns about equity dilution and risks related to the New Drug Application (NDA) submission process. Despite these concerns, both firms maintain a positive outlook on the company's drug development path.
Verastem has disclosed plans to raise approximately $55 million through a proposed public offering, which is expected to fund operations into the commercial launch phase of its drug. The company has also initiated a rolling NDA submission process for its drug candidate avutometinib/defactinib, aimed at treating low-grade serous ovarian cancer (LGSOC) in patients with KRAS mutations.
In addition to these developments, Verastem has announced promising interim results from its ongoing RAMP 205 Phase 1/2 clinical trial for the treatment of metastatic pancreatic cancer. However, BTIG has adjusted its outlook on Verastem, reducing its price target due to recent data suggesting modest efficacy of the drug in KRAS wild-type LGSOC, which may limit the drug's full market potential.
InvestingPro Insights
In light of Mizuho Securities' revised price target for Verastem, a look at the latest InvestingPro data and tips provides additional context for investors considering the stock. Verastem's market cap stands at $114.43 million, but with a negative P/E ratio of -0.69 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at -1.08, the company's profitability challenges are evident. The stock's price volatility is also highlighted by a 1-week price total return of -13.45% and a staggering 6-month price total return of -76.01%. Despite these figures, Verastem holds more cash than debt on its balance sheet, which is a positive sign for financial stability.
InvestingPro Tips suggest that analysts have recently revised their earnings upwards for the upcoming period, indicating potential optimism in Verastem's future performance. However, the company is quickly burning through cash, which may raise concerns about long-term sustainability. Additionally, with the stock having taken a big hit over the last week, investors should be prepared for high price volatility. For those looking to delve deeper, there are over 14 additional InvestingPro Tips available, which can provide further insights into Verastem's financial health and stock performance. These tips can be accessed with a subscription to InvestingPro, and readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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