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On Friday, BofA Securities issued a downgrade for Sutro Biopharma (NASDAQ:STRO) from Buy to Underperform, with a significant reduction in the price target, which now stands at $1.00, down from the previous target of $11.00. The downgrade follows Sutro Biopharma’s recent announcement that it will deprioritize the development of its drug candidate luvelta, a move that has prompted BofA Securities to recalibrate its expectations for the company’s stock performance. The stock has already fallen nearly 70% over the past year, with a particularly sharp 17% decline in the past week alone. According to InvestingPro data, analyst targets now range from $2 to $20, reflecting the heightened uncertainty surrounding the company’s future.
The decision to shift focus away from luvelta was largely due to Sutro Biopharma’s current cash position, as noted by the company’s management. While InvestingPro analysis shows the company maintains more cash than debt with a healthy current ratio of 3.09, the rapid cash burn rate has become a significant concern. The management also mentioned ongoing discussions with potential partners for out-licensing opportunities for luvelta. However, BofA Securities expressed concerns over the unclear status and timing of these partnership discussions, leading them to exclude any projected value for luvelta from their Discounted Cash Flow (DCF) model.
In addition to the strategic shift regarding luvelta, Sutro Biopharma has announced a workforce reduction of approximately 50%. This major restructuring extends to the executive leadership, with COO Jane Chung set to take over as CEO from Bill Newell. Furthermore, CFO Ed Albini is expected to leave the company. These changes have contributed to a more cautious outlook from BofA Securities.
BofA Securities is now adopting a conservative stance on Sutro Biopharma as they await further details on the potential for a partnership concerning luvelta. The firm is also looking for clinical validation of the company’s early-stage next-generation Antibody-Drug Conjugate (ADC) pipeline before reassessing the investment potential of the company’s stock. With a negative EBITDA of $123M in the last twelve months and analysts forecasting continued sales decline, investors seeking deeper insights can access comprehensive analysis and 15 additional key ProTips through InvestingPro’s detailed research report.
In other recent news, Sutro Biopharma has announced a strategic shift in its drug development focus, emphasizing its ADC pipeline and discontinuing its lead program, luvelta. The company reported these changes alongside its fourth-quarter and full-year 2024 earnings, which led to analyst downgrades from Wedbush and JMP, both citing the company’s strategic pivot and workforce reduction of nearly 50%. Sutro Biopharma’s financial position remains strong, with $316.9 million in cash and equivalents, providing a cash runway through at least the fourth quarter of 2026. The company plans to initiate clinical trials for STRO-004, a tissue factor-targeting agent, in 2025, and anticipates filing an IND for STRO-006 in mid-2026. Despite the deprioritization of luvelta, Sutro Biopharma is actively seeking partners to continue its development. Additionally, Jane Chung has been appointed as the new CEO, succeeding Bill Newell, who will remain in an advisory role. The company continues to prioritize its collaborations with Ipsen (EPA:IPN) and Astellas, which could result in significant milestone payments and royalties.
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