Why Scholar Rock Shares Are Soaring

Scholar Rock (NASDAQ:SRRK) shares rose more than 30% on Monday in response to the failure of a competitor's SMA drug in its Phase 3 trial. Truist analysts raised the company's price target from the previous $36.00 to $45.00, maintaining a Buy rating on the stock. This revision followed the setback of a rival pharmaceutical company in the Spinal Muscular Atrophy (SMA) market.

According to a Truist Securities analyst, the failure of the competitor's Phase 3 trial has strengthened Scholar Rock's case as its candidate Apitegromab has shown statistically significant improvements in the situation. As a result of these developments, the firm increased its peak sales estimate for Apitegromab from $1.2 billion to $1.5 billion.

The analyst's revised price target of $45.00 per share reflects a more optimistic valuation informed by the belief that the SMA market opportunity could be greater than previously anticipated. This reassessment is partly due to the reduced competitive pressure following the rival's trial failure. The report also notes that every $100 million increase in expected peak sales could add an additional $3.00 to Scholar Rock’s discounted cash flow (DCF) valuation per share.

Additionally, Scholar Rock is not only making progress with Apitegromab in SMA but is also currently conducting a Phase 2 trial for obesity, with data expected in the second quarter of 2024. The Truist analyst pointed out that this obesity trial has not yet been included in their financial models.

In light of these factors, the analyst believes Scholar Rock has emerged as an attractive buy target given its positive SMA data and the ongoing development of Apitegromab for additional indications.