On Wednesday, Mizuho (NYSE:MFG) Securities updated its financial model and raised the price target on shares of Verastem (NASDAQ:VSTM) to $9.00, up from the previous target of $7.00. Currently trading at $4.60, with a market cap of $205 million, InvestingPro analysis suggests the stock is undervalued.
The firm has maintained an Outperform rating on the biopharmaceutical company's stock. This adjustment comes as a result of a revised valuation model for Verastem's leading cancer treatment, avutometinib plus defactinib (A+D), specifically for its application in low grade serous ovarian cancer (LGSOC).
The new price target represents a 29% increase from the prior estimate, reflecting Mizuho's refreshed outlook on the drug's potential. While InvestingPro data shows the company holds more cash than debt and maintains a healthy current ratio of 3.23, it's worth noting the company is quickly burning through cash.
The firm shifted to an incidence and prevalence-based model, as opposed to the solely incidence-based approach used previously. This change in modeling methodology has led to a projection of peak year sales for A+D at approximately $750 million, a slight uptick from the earlier forecast of $714 million.
Mizuho anticipates that Verastem will reach these peak sales more swiftly than initially expected, now forecasting this milestone to be achieved in 2029 instead of 2037, which was the end of the previous forecast period. The updated model and price target imply a significant upside potential of about 100% for Verastem's shares.
Additionally, the firm highlighted an imminent clinical data catalyst, with Phase 1/2 combination data for A+D in lung cancer anticipated to be released this month. The potential for further upside from other indications for A+D that have not yet been factored into their model, such as additional revenue from other types of cancer beyond LGSOC, supports the firm's positive stance on Verastem's stock.
With analyst targets ranging from $7 to $15, investors can access detailed valuation metrics and 10+ additional ProTips through InvestingPro's comprehensive research report.
In other recent news, Verastem, a biopharmaceutical company, experienced a significant decline in its shares, despite an announcement highlighting an accelerated pathway opportunity focusing on KRAS mutations. Truist Securities maintained a Buy rating on Verastem, keeping a $15.00 price target, suggesting confidence in the company's future value.
The firm's analyst emphasized Verastem's ongoing potential, underscoring that the market may not fully appreciate the company's commercial prospects, particularly given these recent developments.
Verastem's strategic opportunity could expedite the development process for its treatments targeting KRAS mutations, a significant area of focus in oncology drug development. Despite the sharp decline in share price, Truist Securities' stance reflects a belief in the stock's potential for recovery and growth.
In addition to Truist Securities, several other financial firms, including H.C. Wainwright, B.Riley, and RBC (TSX:RY) Capital Markets, have revised their stock targets for Verastem following the company's second-quarter financial results. These results exceeded expectations due to milestone payments, and the company announced plans to raise approximately $55 million through a public offering.
Lastly, Verastem has received the FDA's Orphan Drug Designation for a drug combination aimed at treating pancreatic cancer and disclosed promising interim results from its ongoing RAMP 205 trial, with a majority of patients showing a reduction in tumor size. This is a part of the company's recent developments, highlighting its ongoing efforts in the field of oncology.
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