HC Wainwright Initiates OncoMed Pharmaceuticals With Buy Rating, $20 Target

HC Wainwright has started coverage of Oncomed Pharmaceuticals Inc (NASDAQ: OMED) shares with a Buy rating. The firm sees 68 percent potential upside for the pharmaceutical company on upcoming opt-in decisions for its lead drug candidates expected from three partners: Celgene Corporation (NASDAQ: CELG), Bayer AG (ADR) (OTC: BAYRY) and GlaxoSmithKline plc (ADR) (NYSE: GSK).

The brokerage expects OncoMed to share in demcizumab's potential success with Celgene, while OncoMed's co-promotion rights give the company greatest exposure to Celgene partnership.

Redwood City-based OncoMed's lead anti-DLL4 monoclonal antibody demcizumab is actively being evaluated in combination regimens for pancreatic and non-small cell lung cancer (NSCLC).

"We believe a positive readout from the Phase 2 YOSEMITE trial in pancreatic cancer could lead partner Celgene to opt-in to the demcizumab program in early 2017, followed by readout from the Phase 2 DENALI trial in NSCLC a year later," analyst Shaunak Deepak wrote in a note.

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Meanwhile, the upcoming data of vantictumab in breast cancer patients could drive Bayer's opt-in to the Wnt program in 2017.

"We regard the pancreatic cancer indication as a source of potential upside for our vantictumab estimates. We see the second Wnt pathway antagonist ipafricept as a source of potential upside," Deepak highlighted.

Further, the analyst expects GlaxoSmithKline may opt-in to develop tarextumab, as it may show activity in lung cancer despite the compound failed in pancreatic cancer trial.

"In addition to near-term opt-in milestones that could reach $172 million, we believe these partnerships could payoff with long-term benefits and free-up OncoMed's resources to pursue new development activities," Deepak added.

Deepak's $20 price target assumes $10 for demcizumab, $4 for vantictumab, $2 for tarextumab and $4 for YE16 cash of $171.50 million.

Shares of OncoMed closed Wednesday's trading at $11.87. At time of publication Thursday, OncoMed was up 1.94 percent at $12.10.

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