On Wednesday, B.Riley adjusted its outlook on Verastem (NASDAQ:VSTM), a biopharmaceutical company, by reducing its price target to $7 from the previous $21 while retaining a Buy rating on the shares.
This decision follows Verastem's announcement of a proposed public offering after the market closed on Tuesday. The firm's reduced price target reflects concerns over potential development and financial headwinds for the company.
Verastem disclosed plans to raise approximately $55 million by offering shares at $3 each, a price that is notably at a 52-week low for the company. Additionally, the offering includes warrants for the purchase of around 18.3 million shares at $3.5 per share.
B.Riley's analysis suggests that the influx of cash from this offering and the subsequent exercise of warrants is expected to fund the company's operations into the commercial launch phase of its drug.
Despite the lowered price target, the firm's analyst expressed continued optimism regarding Verastem's drug development path, particularly for treating low-grade serous ovarian cancer (LGSOC).
However, the analyst also noted a lower probability of success (POS) in the KRAS WT subgroup of patients and acknowledged that the significant equity dilution from the public offering would likely cap the stock's potential growth from its current levels.
The anticipated cash from the public offering and the exercise of warrants is projected to extend Verastem's financial runway. Nevertheless, the analyst indicated that Verastem is expected to require additional capital before it achieves cash flow positivity following the launch of its drug.
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