Scholar Rock (NASDAQ:SRRK) shares surged by more than 30% Monday in response to the failed Phase 3 trial of a competitor's SMA drug.
Truist analysts lifted the company's price target to $45.00 from the previous $36.00, while sustaining a Buy rating on the stock. This revision follows a recent development where a competing pharmaceutical company encountered a setback in the Spinal Muscular Atrophy (SMA) market.
According to the analyst from Truist Securities, the failed Phase 3 trial of a competitor's SMA drug has bolstered the case for Scholar Rock's candidate, Apitegromab, which has shown statistically significant improvements in the condition. As a result of these developments, the firm has raised its peak sales estimate for Apitegromab to $1.5 billion, up from $1.2 billion.
The analyst's revised price target of $45.00 per share reflects a more optimistic valuation, informed by the belief that the SMA market opportunity may be larger than previously expected.
This reassessment is partly due to the reduced competitive pressure following the competitor's trial miss. The report also notes that each additional $100 million in anticipated peak sales could potentially add another $3.00 per share to Scholar Rock's discounted cash flow (DCF) valuation.
Furthermore, Scholar Rock's Apitegromab is not only making progress in SMA, but it is also currently in a Phase 2 trial for obesity, with data expected in the second quarter of 2024. The Truist analyst pointed out that this obesity trial is not yet factored into their financial model.
In light of these factors, the analyst believes that Scholar Rock presents itself as an attractive acquisition target, given its positive SMA data and the ongoing development of Apitegromab for additional indications.
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