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Oppenheimer Cuts Price Target on Verastem (VSTM) to Reflect Recent Dilution


Verastem (NASDAQ:VSTM) just riled up Wall Street today with enticing Phase Ib/II study results in chronic lymphocytic leukemia (CLL), sending shares on a nearly 30% bump.

On a different note, Verastem closed today a registered sale to funds managed by Consonance Capital of 7,166,666 shares of the company’s common stock at a price of $6.00 per share. The drug maker also closed an underwriting on May 23 that included 7,777,778 shares of its common stock at a price to the public of $4.50 per share, and an additional underwriter’s option of 1,166,666 shares of its common stock. The combined impact, net of estimated fees, to Verastem from these two underwritings is an increase in capital of $81.2 million and a 31.7% increase to shares outstanding.

As a result, Oppenheimer analyst Leah R. Cann reiterates an Outperform rating on Verastem shares, while cutting the price target to $11 (from $15), which implies an upside of 28% from current levels. (To watch Cann’s track record, click here)

Cann commented, “Our outlook for revenue and operating income for 2018-22 remains unchanged. We are increasing our estimated interest income to account for higher cash balances from the underwritings and decreasing interest expense due to removing the previous need for debt to finance the company’s development programs. We are increasing the shares outstanding to account for the dilution from the two underwritings.”

“Applying the biotech group average price-to-sales ratio of 5.9 to our 2022 risk discounted revenue of $362.6 million, we arrive at a value of $2.1 billion. Discounting this for investment returns, we arrive at a value of $749.0 million, or $11 per share compared to our previous $15 per share. The change in target price is due to increased shares outstanding,” the analyst added.

Most analysts on Wall Streets are out rooting for this drug maker to be a winning stock pick, as TipRanks analytics showcase VSTM as a Strong Buy. Based on 5 analysts polled in the last 3 months, all 5 are bullish on Verastem stock. The 12-month average price target stands at $13.80, marking a nearly 59% upside from where the stock is currently trading.