When the financial markets enter their once-a-decade crisis mode, it often feels impossible to think rationally and to make normal investing decisions. After a loss of more than 30% on the S&P 500 in a month, it’s hard to listen to very many analyst upgrades and downgrades. That said, it’s important to keep in mind that “this too shall pass” and that eventually calm will prevail after the COVID-19 scare starts to end. A 150-point rally in the S&P 500 and a 400-point rally in the Nasdaq might help, but remember that long-term views still have to be kept in mind.
On March 24, 2020, Compugen Ltd. (NASDAQ: CGEN) received an analyst call that seems like just another aggressive bull market call. After all, this stock, like many other speculative biotechs, had seen its shares fall by more than half. SunTrust Robinson Humphrey issued a new Buy rating on Tuesday, and the firm’s $16 target price represented more than 100% in implied upside from the prior $6.25 close. Compugen’s 52-week high was $12. 80 as well, so this target price is extremely aggressive on a company valued at close to $500 million.
Asthika Goonewardene, the SunTrust analyst behind the call, noted that Compugen is in the clinical stages (i.e., without revenue) and that its lead asset (COM701) is first-in-class and appears to be the strongest lever in a hot and new immuno-oncology (IO) cluster of potential drug targets. COM701 already has demonstrated single-agent activity, and the analyst has positive expectations for what is expected to be a “data-rich next 18 months.”
New investors reviewing Compugen should keep in mind that the company recently raised about $75 million in an underwritten secondary offering at $9 per share. SVB Leerink and Stifel acted as joint bookrunning managers for that offering, while SunTrust was the lead manager and Oppenheimer was the co-manager. As 24/7 Wall St. warns about all analyst calls, any individual call should be used as only one tool in any investing decision. Investors should never rely on or treat any one analyst call as though it is a crystal ball.
Goonewardene sees the IO potential as huge:
We think aggregate Street estimates of $27 Billion+ for the class in 2020 is fair and expect it to keep growing. There is ample headroom for new mechanisms that enable IO to work in unresponsive or resistant tumors, in our view. This is a favorable set-up for Compugen, and we feel it is uniquely placed to differentiate versus the competition in this hot new IO cluster.
Roche is said to be in the major IO players that already has assets in the clinic (at Phase 3), which helps validate all the players in the field. A collaboration from Bristol-Myers Squibb included an equity investment that further validates the group and further validates COM701 specifically. The company’s lead asset is said to act on a different component of the cluster and data suggests targeting both has an even better effect. The firm’s competitive analysis also suggests that Compugen is the only company addressing this mechanism in the clinic and is two to three years ahead of any potential rival. COM701 was recently shown to promote tumor shrinkage at a more optimal dose as well.
As for the timing, SunTrust is looking at upcoming data releases in the second half of 2020 and the first half of 2021, and the analyst expects it to illustrate the right combinations to further explore in selected tumor types. The report even outlines the potential level of approximately $3 billion in unadjusted peak sales out in 2029, and those updates should materially affect the share price.
The only other analyst call that has been seen in 2020 was from Cantor Fitzgerald in mid-January. At that time, Compugen was started as Overweight and a $10 target price.
It feels hard to send reports on speculative companies that have limited history and a $500 million market cap at a time when the globe seems to be hyper-focused on COVID-19 and nothing else. That said, Compugen shares were up 10.5% at $6.91 in mid-afternoon trading on Tuesday. Their 52-week range is $2.73 to $12.80.
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