24/7 Wall St. reviews dozens of analyst research reports each day of the week, and most of the so-called Buy and Outperform ratings come with upside of 8% to 10% for Dow Jones industrials, S&P 500 and relatively established companies. For some of the small-cap and more speculative companies, analysts predict upside of 50%, 100% or even exponential upside.
Atara Biotherapeutics Inc. (NASDAQ: ATRA) already was given an incredible upside call for exponential returns by Canaccord Genuity. On Tuesday, September 15, the firm reiterated its Outperform rating and raised the wildly bullish target price of $70 to $78. What is amazing here is the $1.1 billion market cap with shares at $15.03 ahead of the call.
While more than 400% implied upside to an analyst target price may seem incredible, 24/7 Wall St. always reminds investors that no single analyst report should ever be used as the sole basis to buy or sell a stock. That holds true even for the calls with exponential upside, where the risk versus reward may seem greatly skewed in favor of the company.
The company has no real revenues at this time, and Atara has been public since 2014. Its operating expenses were nearly $300 million in 2019, and cumulative loss over the past four years combined was close to $720 million.
Recently, the U.S. Food and Drug Administration (FDA) accepted Atara’s investigational new drug application for the company to begin its Phase 1 clinical study of ATA2271 in the war against asbestos as a potential treatment against mesothelioma.
Investors should realize that the ultimate success is still potentially years away. This ATA2271 is Atara’s CAR T therapy that is targeting mesothelin, and it is in a collaboration with Memorial Sloan Kettering Cancer Center as a potential treatment of advanced mesothelioma.
While mesothelioma was the recent driver behind the shares, the reason cited for Canaccord Genuity’s upgrade was that the firm added in Atara’s ATA188 into the forward valuation. ATA188 is listed in Atara’s drug study pipeline under the Epstein-Barr Virus (EBV), which is shown to be associated with a wide range of hematologic malignancies and solid tumors. EBV is also associated with certain autoimmune conditions, such as multiple sclerosis (MS), and T cells are a critical component of the body’s immune system that can selectively target EBV. Atara’s pipeline notes indicated that T cells are believed to be important in the pathogenesis of MS. Atara’s pipleline notes specify: “Off-the-shelf, investigational ATA188, has the potential to target EBV-infected B-cells and plasma cells in the central nervous system that may catalyze autoimmune responses and MS pathophysiology.”
Atara is advancing a Phase 1 ATA188 clinical study in patients with progressive MS across clinical sites in the United States and Australia.
John Newman, the Canaccord Genuity analyst behind this upside call, conservatively estimates roughly a $3.5 billion U.S. revenue opportunity for ATA188 in progressive forms of MS. He is even showing that Atara could see $917 million in ATA188 U.S. revenues by 2032, using very conservative assumptions. The analyst points out that Roche’s ocrelizumab does not improve disability and that it still booked roughly $2.7B in U.S. revenues during 2019. Newman’s report also noted that, if disability is improved by Atara, then his revenue estimates may be too low.
The Canaccord Genuity report does note that ATA188 could be first therapy to improve disability in MS patients. Newman said in that call:
No FDA-approved therapy improves disability in progressive forms of multiple sclerosis, and we believe ATA-188 could be the first to do so. ATA-188 has shown sustained disability improvement (SDI) at 12 months in 5/12 patients in cohorts 3 and 4 combined, vs 2/12 patients in cohorts 1 and 2 combined. Also, patients moving to dose level 3 during the open label extension from lower doses have also shown SDI.
Exponential upside price targets often create excitement around the report dates, but that huge upside may come with a very long time frame. Newman’s report specified that he expects additional updates in the second half of 2020, as well as during 2021 and 2022. He also specified that long-term follow-up should help confirm the durability of effect and also safety for ATA188 in progressive MS.
Newman’s report points to other positives within Atara as well. He sees meaningful upside from additional pipeline products, especially ATA3219. That is an off-the-shelf CD19-targeted CART for B-cell malignancies utilizing HLA matching to prevent rejection.
For the Canaccord Genuity call on a relative basis, Atara’s upgraded and updated $78 price target is handily above recent calls from other analysts. Back in early August, two firms maintained buy ratings but were much more modest in their target prices. Stifel cut its target to $28 from $30, and H.C. Wainwright raised its target to $26 from $25.
The shares traded at $12.91 the week before the recent FDA filing previously highlighted, and then shares rose to $13.46 ahead of the filing and were up 10% more to $14.80 last Wednesday.
Atara Biotherapeutics stock was up close to 3% more at $15.47 in midday trading on Tuesday. Its shares have a 52-week range of $4.52 to $19.36.
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