How Relevant is Vital Therapies After Its Selloff?

Vital Therapies was downgraded to Underperform from Buy and the price objective was slashed to $5 from $40 at BofA Merrill Lynch.

Canaccord Genuity maintained its Buy rating, but lowered its price target down to $8 from $35. The downgrade from Canaccord Genuity said:

We maintain our Buy rating and lower our price target to $8 based on our probability adjusted net present valuation, which includes $3/share in net cash. We reached our price target based on reduced market opportunity for ELAD in a narrow subset of AILD patients assuming success, and risk of a still to be determined design of a new Phase 3 trial.

Other analyst downgrades were seen as follows:

• Credit Suisse cut the rating to Neutral with a $9 price target.
• SunTrust Robinson Humphrey downgraded its rating to Neutral from Buy with a $5 price target.
• William Blair cut its rating to Market Perform from Outperform.

The real question now is whether or not Vital Therapies remains vital or irrelevant. Any time a drop of 77% is seen in the price of shares in a single session, usually the fear is that a company is now irrelevant and has little or no assured future.

Vital Therapies saw its stock down 77% at $3.96 on Monday, and this stock would have faced a crush-depth selling frenzy whether the market was volatile or not. Its $95 million market cap comes with a 52-week range of $3.51 to $29.67 and law firms have already announced their investigations into whether or not a class action law suit will be mounted on behalf of shareholders.

That $95 million market cap compares to a June 30, 2015 cash balance of $73.3 million and it had an average burn rate of just over $14 million in each of the last two quarterly periods.