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CymaBay (CBAY) Stock Is up 127% in a Day. How Much Higher Can It Go?

Six months ago, disturbing liver biopsies suggesting some patients in an FDA Phase 2b study of CymaBay Therapeutics (CBAY) suffered inflamed and destroyed liver cells forced the company to suspend nonalcoholic steatohepatitis (NASH) treatment trials of its seladelpar liver treatment drug — and cost CymaBay stock 75% of its market cap. Six months later, a new study just showed no evidence that seladelpar causes liver damage, giving CymaBay the all-clear to proceed with its trials, and more than doubling the stock’s share price on Tuesday.

Analysts rushed to hail the results, and as of today, every one of the six analysts tracked by TipRanks, who have voiced an opinion on CymaBay stock in the last two months, rate the stock a “buy” — with an average target price of $5.15 on the shares (23% upside from Tuesday’s closing price).

Some analysts think it could be worth even more than that — Oppenheimer’s Jay Olson for example. In a note out Tuesday, Olson explained the importance of the new results:

An “independent expert panel review of seladelpar” has determined “unanimously” that there is “no evidence” of “seladelpar-induced liver injury.” The panel furthermore unanimously recommends that the CymaBay resume developing its drug pending the FDA’s analysis of the results, which is not expected  until 30 days after CymaBay officially submits its findings in Q3 2020.

Olson expects the FDA’s response to be positive, leading to the drug’s progression to Phase 3 trials in early 2021, and concluding in 2023. Based on this timeline, and his estimate of the chance of the drug ultimately winning FDA approval rising to 35%, Olson rates CymaBay stock “outperform,” and assigns the shares a $6 price target — up from $4 previously.

Based on Olson’s recommendation, Oppenheimer’s price target on CymaBay is now 9% above the consensus target — but it’s still far from the most optimistic price being posited. That honor now goes to Stifel Nicolaus, which on Tuesday doubled its price target on the shares. Previously valuing the company at no more than Oppenheimer did ($4 a share), Stifel now thinks the stock could be worth $8 within the next 12 months.

Why? As analyst Derek Archila explains, you don’t even have to accept Oppenheimer’s 35% probability of success (POS) to assign an $8 price target to CymaBay shares. 15% POS suffices, even assuming it takes two or more years for seladelpar to win FDA approval, especially given the unequivocal nature of the expert panel’s endorsement.  (“No clinical or biochemical/serological evidence of drug-induced liver injury,” whatsoever, was discovered).

Archila furthermore notes that CymaBay has $176 million in cash currently, or about $3 a share. Thus, most of CymaBay’s current $4-a-share valuation is already backed up by cash. And that cash, says the analyst, “at current burn rates should be more than enough to make it through a decision from the FDA” — meaning there’s little risk of stock dilution from CymaBay needing to raise more cash to complete its clinical work.

Flush with cash and with solid clinical results underlying its new drug, Archila sees CymaBay as a “highly favorable” stock offering much more reward than risk to investors.

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