There is no segment in the stock market which offers a more compelling risk/reward profile than the biotech sector. These stocks are uniquely catalyst-driven – mostly based on positive/negative clinical trial results or regulatory approval/rejection.
Of course, an investment in a biotech company could either go down the drain should any of these outcomes disappoint, but the rewards are immense if the company executes.
There’s no doubt, that in the case of RAPT Therapeutics (RAPT), investors were very happy with the latest developments and rewarded more than handsomely for taking the plunge.
Shares soared by 115% in Monday’s session after RAPT announced positive top-line results from a phase 1b clinical trial testing RPT193 as a treatment for moderate-to-severe atopic dermatitis (AD).
After being treated for 4 weeks, patients who took RPT193 exhibited improvements in the Eczema Area and Severity Index (EASI) score, EASI-50 response rate, validated Investigator Global Assessment (vIGA), and pruritis Numerical Rating Scale (NRS) when compared to the placebo.
Moreover, after 6 weeks, further improvements in EASI score and vIGA were noted, with the percentage change in EASI score and EASI-50 shown to be statistically meaningful on day 43.
As RPT193 is a once-daily oral treatment, investors were particularly thrilled with the data. The drug could have the edge over competing treatments that are administered via injection if the regulators eventually give their seal of approval.
Next up, the company intends to move RPT193 forward to a phase 2b study targeting atopic dermatitis. RAPT will also assess the drug in a phase 2a study as a treatment for asthma.
So, is it too late to pick up RAPT shares after Monday’s unseemly gains?
Not according to Wells Fargo’s Yanan Zhu. Following the results, the analyst reiterated an Outperform (i.e. Buy) rating on the stock, while boosting the price target from $30 to $65. Investors could be sitting on additional gains of ~72%, should the target be met in the year ahead. (To watch Zhu’s track record, click here)
Zhu believes that the clinical results increase the probability of success of the RPT193 program from 20% to 50%.
“Overall, we believe RPT193 has demonstrated clear proof-of-concept, with initial data supporting its profile as a safe, oral alternative to DUPIXENT,” Zhu said. “We expect responses to deepen with longer treatment duration. We would also highlight the favorable safety profile of RPT193, which should support differentiation from oral JAK inhibitors.”
Zhu’s colleagues back his stance. The stock’s Strong Buy consensus rating is based on Buys only – 5, in total. Going by the $56 average price target, shares are anticipated to add an extra 47% of muscle over the next 12 months. (See RAPT stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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