Leerink: Armo Biosciences' 'Promising' Data Justifies A Bullish Stance

ARMO Biosciences Inc ARMO's lead product candidate AM0010 is a drug for the treatment of pancreatic ductal adenocarcinoma recently showed "promising" data that's supportive of a potentially large commercial opportunity, according to Leerink.

The Analyst

Leerink's Jonathan Chang assumed coverage of Armo Biosciences' stock with an Outperform rating and $50 price target.

The Thesis

Armo's lead product candidate is also its "main value driver," Chang said in the Tuesday report. AM0010 has shown "very promising" clinical results in a Phase 1 study and could eventually address a large commercial opportunity, the analyst said. 

AM0010 has been evaluated as a single agent or in combination with chemotherapy or a checkpoint inhibitor among 350 patients and 15 tumor types, Chang said. The data so far has shown that AM0010 has single-agent activity in some patients, including in renal cell carcinoma, while a combination with CPIs show higher activity versus agents along, according to Leerink.

"Key opinion leaders" the analyst spoke with were "encouraged" by the data results released so far, Chang said. 

Armo's SEQUOIA study of AM0010 plus FOLFOX versus FOLFOX alone was recommended by the Data Monitoring Committee to continue without any modifications, the analyst said.

Armo is proceeding with a randomized study among 178 patients that could be the basis for a Biologics License Application in the coming years, Chang said. 

Leerink's $50 price target is based on a 50-50 blend of a discounted cash flow analysis and revenue multiple analysis and assumes the following:

• A 50-percent probability of success for AM0010 in pancreatic cancer.
• A 35-percent probability of success in non-small cell lung cancer.
• A 30-percent probability of success for renal cell carcinoma.
• Royalties of 20 percent on all ex-U.S. sales from a future partnership.
• A 15-percent discount rate and zero terminal growth.

Price Action

Shares of Armo Biosciences were trading slightly lower at the time of publication at $39.95. 

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