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Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) received an upgrade from Wall Street on Wednesday as it awaits Phase 2 data for the S1P modulator etrasimod in ulcerative colitis.
The Analyst
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Wells Fargo's Jim Birchenough upgraded Arena Pharmaceuticals from Market Perform to Outperform and increased the price target for the stock from $19 to $53.
The Thesis
Wells Fargo upgraded the stock following significant progress in 2017 on ralinepag for pulmonary arterial hypertension, a drug that could be approved due to a more positive FDA environment, Birchenough said. (See the analyst's track record here.)
The analyst also expressed optimism ahead of Phase 2 data for S1P modulator etrasimod in ulcerative colitis. Recent data from competing S1P modulator ozanimod lowered the bar for differentiation, Birchenough said.
"We believe that both asssets could attract large pharma interest and have greater faith in current management to realize appropriate pipeline value," he said.
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Proof-of-biology for selective S1P modulator etrasimod has already been established, with lymphocyte reductions of 67 percent —comparable to the approved S1P modulator GILENYA and the emerging S1P modulator ozanimod, Birchenough said.
The analyst estimates peak ralinepag sales of $600 million, with a probability-adjusted net present value of $25 per share, assuming a 65-percent likelihood of success.
Assuming positive data, the peak sales estimate of $1 billion for etrasimod may be conservative in the context of $3.3 billion in sales of the competitor GILENYA, Birchenough said. Wells Fargo assigns a net present value estimate of $25 per share for etrasimod, assuming a 55-percent likelihood of success.
The Price Action
Arena Pharmaceuticals closed Wednesday up almost 11 percent higher at $40.17.
Related Links:
Benzinga's Top Upgrades, Downgrades For January 3, 2018
Why Arena Is Taking Center Stage Today
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.