Inotek Pharmaceuticals Corp (NASDAQ:ITEK) shares are on a rapid 70% descent after the firm announced top-line results this morning from the Phase 3 MATrX-1 study of tranodenoson for treatment of elevated intra-ocular pressure that failed to meet the primary endpoint. The only dose of tranodenoson that even came close to success still did met a negative fate. Investors have been sent scrambling in the aftermath of the clinical update.
In reaction, Piper Jaffray analyst Joshua Schimmer downgrades from a Buy a Neutral rating on shares of ITEK while chopping the price target from $24 to $3 price target, which implies a 69% upside from where the stock is currently trading.
Schimmer asserts, “While it may be tempting to hold out hope for the middle dose, we lack confidence given the multiple study arms and analyses (so p<0.05 should not be considered statistically significant) combined with the disconnect in findings versus the P2 trials where lower doses appeared active but with a very mixed signal of efficacy. While we had been hopeful and optimistic for these binary results, we are now downgrading to Neutral until we have a clearer path towards clinical, regulatory and commercial success.”
Therefore, in light of the setback, one which the analyst deems the “first victim” claimed by 2017, he adjusts his model, noting, “We are: moving Trabo launch out one year to accommodate another P3 study; increasing our discount rate from 11% to 15% to reflect meaningfully heightened risk as a result of this study; lowering cadence of uptake and terminal growth (4% vs prior 5.5%) to reflect a modest treatment effect, if any; and increasing dilutional impact of future equity raises.”
Moving forward, the first half of 2017 is set to yield more data from MATrX-1 along with a Phase 2 data read-out from FDC trabo and latanaprost by the middle of the year. The firm intends to assess its trabo plans contingent upon these pivotal results, although Schimmer is not holding out hope considering the “modest” results that emerged from the Phase 2 latanaprost combination trial. “We expect FDC study results to be difficult to interpret,” Schimmer concludes.
At the close of 2016, ITEK held $125 million in cash and equivalents with a $50 million partial offset in Convertible notes coupled with an $8 conversion price.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, Joshua Schimmer is ranked #4,231 out of 4,345 analysts. Schimmer has a 35% success rate and faces a loss of 8.5% in his annual returns. When suggesting ITEK, Schimmer loses 19.6% in average profits on the stock.
TipRanks analytics exhibit ITEK as a Strong Buy. Out of 4 analysts polled by TipRanks in the last 4 months, all 4 are bullish on Inotek stock. With a return potential of 900%, the stock’s consensus target price stands at $18.00.You can learn how to set up your own top-notch biotech portfolio here.