Industry experts contend that Aerie Pharmaceuticals Inc. (NASDAQ:AERI) stock valuation is too low, considering that the company boasts Roclatan, a blockbuster drug candidate for glaucoma. RBC Capital tends to agree with this proposition. In a research note issued today, analyst Adnan Butt remarked that if the molecule, or even the company’s glaucoma franchise churns in more than $1 billion in sales, there is room for upside given the current level, regardless of the valuation methodology.
There are some concerns as to whether AERI stock could replicate the move, following the data announcement from Rocket 2 Phase 3 trial that focused on Rhopressa. Mr. Butt emphasized that the set-up after positive data from Mercury 1 Phase 3 trial is different, with no correlation to Mercury 2 study. Therefore, a potential takeover bidder could emerge at any time.
Moreover, there is some ambiguity around Roclatan’s likelihood to become a first-line drug, given the availability of generics and potential pricing pressure from pharmacy benefit managers (PBMs). The analyst underscored that since this is a brand new plan of action, with the best efficacy and potential for disease modification, the drug’s and Rhopressa’s chances to surpass the $1-billion threshold together are high.
In terms of the timing of a potential buyout, some market players argue that this was an event that brought down the risk surrounding AERI shares; therefore, it should now be set up as a takeout candidate. Mr. Butt opined that there are a number of big pharmaceutical companies engaged specifically in glaucoma, coupled with new bio-pharmaceutical entrants.
The analyst considers that a limited offering would be unlikely to cap demand, and in fact, would open up AERI stock for broader uptake. If one accepts that Roclatan and the company’s glaucoma franchise can bring in $1 billion in annual sales, then the shares are undervalued.
Mr. Butt reaffirmed his Outperform rating on the stock, with a $55 target price. With regard to his upside scenario, AERI shares may surge to $96, which comprises $70 and $26 from the US and EU market opportunities, respectively.
As the news crossed the wires, AERI stock is up 11.71% at $34.19, as of 12:13 PM EDT. Trading activity has been quite strong so far as well, as it exchanged hands 7.09 million times, which reflects approximately 6.7x the average daily trading volume of 1.06 million shares.