On Tuesday, BMO Capital Markets increased its price target on shares of Merus N.V. (NASDAQ:MRUS), a clinical-stage oncology company, from $58.00 to $84.00. The firm sustained its Outperform rating on the stock. The adjustment follows Merus's recent update on the combination of petosemtamab and pembrolizumab as a first-line treatment for head and neck cancers, presented ahead of the American Society of Clinical Oncology (ASCO) meeting.
The analyst at BMO Capital noted the updated model reflects a higher probability of success for the drug in treating first-line head and neck squamous cell carcinoma (HNSCC). The new $84.00 price target is based on a risk-adjusted valuation of approximately $3.6 billion for petosemtamab, assuming a 65% probability of success.
In the report, the firm expressed a strong positive outlook on the potential of petosemtamab in HNSCC. Comparisons were drawn to pembrolizumab, a similar drug, suggesting that market comparisons imply a net present value (NPV) of $4.5 to $6 billion for petosemtamab. This is set against the full-derisked NPV of roughly $5.7 billion for the drug in BMO's model.
The analyst reaffirmed the bullish stance on the opportunity that petosemtamab represents in the HNSCC market. Merus was also reiterated as a top pick by BMO Capital, reflecting the firm's confidence in the drug's prospects and the company's position in the oncology sector. The market has reacted positively to the news, with Merus shares experiencing an uptick following the announcement.
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