Why Synageva BioPharma Shares Jumped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of biopharmaceutical company Synageva BioPharma (NAS: GEVA) are ascending to the heavens today -- higher by as much as 10% -- following an upgrade by Morgan Stanley.
So what: Morgan Stanley this morning initiated Synageva with an overweight rating with a nearly unfathomable $76 price target. That's double where it trades currently and more than 600% higher than where the company was trading in September. The reasoning behind Morgan Stanley's upgrade is that it feels the company's focus on ultra-orphan drugs will allow it better pricing power, and thus higher operating margins. In particular, Morgan Stanley cited optimism around the company's early proof of concept data for SBC-102, an experimental treatment for early- and late-onset lysosomal acid lipase deficiency.
Now what: Did someone just push the way-back button on the time machine? Because I feel like we're back in 2000 again. To say I disagree with Morgan Stanley's call would be an understatement. Outside of the orphan drug designation for SBC-102, Synageva has only four other compounds under development and they're all preclinical in nature! If SBC-102 fails to meet its efficacy results, Synageva is going to crater. This isn't to say SBC-102 won't be great, but the risk-versus-reward is so skewed toward the risk angle here it's not even funny. With profitability likely many years off in the most optimistic scenario, I'm not attracted in the least to Synageva at these levels.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.