Thursday, Wolfe Research initiated coverage on shares of Insmed (NASDAQ:INSM) Incorporated (NASDAQ:INSM), assigning an Outperform rating with a price target of $42.00. The research firm's optimism hinges on the anticipated positive outcome of phase 3 clinical trials for brensocatib, the company's treatment for non-tuberculous mycobacterial (NTM) lung disease. Despite a less convincing phase 2 trial outcome, the market has priced brensocatib with only a 35% probability of success (POS), which Wolfe Research considers conservative.
The firm's analysis suggests a significant potential gain of $34 per share if the upcoming trial results are favorable, against a potential loss of $19 per share if the results disappoint. Wolfe Research justifies its more confident 75% POS for the ASPEN trial, underpinning their $42 price target for Insmed's stock.
Beyond brensocatib, Wolfe Research sees enduring growth opportunities for Insmed's existing product Arikayce, used to treat NTM. The firm anticipates organic growth in the U.S. and a boost from favorable currency exchange in Japan. With NTM market size expected to double every 7 to 10 years, there's a chance Insmed could project higher future market potential.
The research firm also notes potential upside from Insmed's early-stage gene therapy research, led by a team that previously developed Zolgensma for spinal muscular atrophy (SMA), which Novartis (SIX:NOVN) acquired. While further details are awaited in 2024, the pedigree of the team could enhance investor confidence.
Wolfe Research's discounted cash flow (DCF) valuation model treats Insmed as a two-asset company, with no terminal value after accounting for the possibility of additional financing needed for the company to become cash-generative. The firm's model assumes a 50% POS for Arikayce in a broader NTM indication and a 75% POS for brensocatib, with a conservative estimate of approximately 37 million additional shares being issued.
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