Shares of Zealand Pharma (ZEAL) fell by 5.32% on Tuesday, following a downgrade from Jefferies, which moved its rating from Buy to Hold. This decision came with a significant price target reduction, slashing it to DKK320 from DKK505, reflecting a 37% decline.
The downgrade is primarily attributed to a lack of immediate catalysts that could boost the company's prospects in the next six to twelve months. Jefferies' revised assessment follows disappointing Phase III trial results for survodutide, a key player in Zealand’s pipeline aimed at treating obesity and liver disease. Previously, the probability of success for this drug was pegged at 60%, but it has now been cut to 40% after the recent data presentation at the American Diabetes Association meeting.
Future Prospects for Survodutide and Petrelintide
Jefferies has indicated that the next critical results for survodutide in the context of liver disease are not anticipated until the latter half of 2027. This delay raises uncertainties surrounding the asset’s valuation, which now heavily relies on the success of upcoming trials. Furthermore, the firm highlighted that building confidence in petrelintide, another obesity treatment candidate, will take considerable time. The competitive landscape for obesity medications is evolving, with data from rival drugs expected soon, potentially overshadowing petrelintide's strengths until it achieves more advanced trial outcomes.
Long-Term Valuation Considerations
Despite the immediate challenges posed by the downgrade, Jefferies maintains that Zealand Pharma's long-term valuation remains compelling. The company has a net cash position and a diverse rare disease portfolio. Currently valued at approximately $3 billion, the stock trades at a P/E ratio of 3.13, suggesting potential undervaluation based on fair value metrics. Notably, petrelintide has entered Phase 3 trials in collaboration with Roche, following encouraging Phase 2 results that indicated significant weight loss and strong tolerability.
In light of the recent downturn, Deutsche Bank adjusted its price target for Zealand Pharma to DKK300, up from DKK275, although that optimism may seem premature given the latest trial disappointments. Investors may need to exercise patience, as significant clinical readouts that could shift sentiment are still a few years away.
This material is informational and should not be considered financial advice.
