When companies see their shares rise almost 50%, most investors probably just assume the news is from a buyout or a merger. In the case of Tuesday’s massive gain in shares of Protagonist Therapeutics Inc. (NASDAQ: PTGX), it was that the company announced a key worldwide licensing and collaboration agreement with Janssen Biotech, a subsidiary of Johnson & Johnson (NYSE: JNJ). While this pact was covered in-depth, the reality is that it could end up bringing close to $1 billion spread out over many years, if milestones and other targets are achieved.

Tuesday’s closing price of $11.82 generated a final gain of almost 44% in Protagonist’s shares. Still, the stock opened at $12.28 on Tuesday and traded as high as $14.85. Many speculative biotech investors had to be scratching their heads trying to figure out if this was the beginning of great things for the company or whether all the good news is now baked into the cake.

According to the analysts tracking Protagonist Therapeutics, investors might even see much larger upside ahead. Investors will want to consider several key issues about the company before they decide whether to trust analysts calling for exponential upside. These are some of the top considerations:

• The company had a market cap of only about $140 million prior to this big move, and that market cap was $192 million on Wednesday morning.
• This company raised close to $90 million in an initial public offering in August of 2016 after selling 7.5 million shares at $12 per share.
• Trading volume on Tuesday was 3.23 million shares — well over 100 times normal daily trading volume.
• Protagonist Therapeutics has a 52-week trading range (actually less than a year) of $8.00 to $26.36, showing just how volatile this company’s stock has been.
• The May 15 short interest may look small at 237,623 shares, but that was the second highest since the IPO and was over 22 days to cover.

Three different analyst calls have been highlighted here, two of which were either updated or made after Tuesday’s monumental move. As a reminder, these are outside analyst views, and investors should only use analyst research reports in speculative biotech stocks for information rather than blindly following the calls. Just because they have “outperform” ratings and are calling for upside of 100% or more doesn’t assure that the outcomes will be achieved.

One last note for investors to consider is that analysts often ratchet up expectations and targets after news creates a big move in the stock. It is very common for stocks to give back some of their instant profits due to profit taking and to new short sellers betting against the move.

Leerink issued a Flash Note after the news on Tuesday, May 30, keeping its Outperform rating and a $29 price target. Leerink’s Joseph Schwartz and Dae Gon Ha based their 12-month price target of $29 on a discounted cash flow analysis that assumes a 13% discount rate and 2% terminal growth rate. They have a 35% probability of PTG-100 launch in 2021 with peak revenue of $480 million and about $185 million for the rest of its preclinical assets. Their report said:

Commercial terms of the agreement mean $50 million upfront payment for Protagonist with up to an additional $940 million tied to development, regulatory, and sales milestones. Much of the development milestones will be recognized upon completion of each component of the Ph.2a/2b clinical trial in Crohn’s disease (if Janssen/JNJ elects to retain licensing at that time). Since Janssen/JNJ will receive exclusive, WW rights to develop and commercialize PTG-200, however, Protagonist will receive double-digit tiered royalties on net product sales. For a nascent company, leveraging Janssen/JNJ’s sizable salesforce could facilitate rapid commercialization upon regulatory approval.

Leerink’s first coverage was initiated back in September of 2016 with an Outperform rating and a $17 price target. Then after Protagonist’s shares rose to about $25 (in November of 2016), Leerink raised its target to $29 and that target has remained since.

BMO Capital Markets issued an update to its prior Outperform rating with a $34 price target back on May 10, 2017. The firm’s M. Ian Somaiya has now raised the target price after the news up to $45. The strong target was based on PTG-100 being de-risked given the clinical and commercial success of its biological target, which is shared by Takeda’s Entyvio, and that it could achieve blockbuster sales of $2.3 billion in ulcerative colitis alone.

BMO’s report in early May said:

We recommend investors take advantage of recent weakness in Protagonist Therapeutics shares as we expect interim analysis of the Phase 2b trial (2H17) of PTG-100 and advancement of pipeline drugs PTG-200 (2H17) and PTG-300 (2Q17) into the clinic to enable shares to start to reflect value for what we consider to be a de-risked pipeline. The company’s strategy of going after clinically validated targets with oral peptides and focus on IBD, which has a concentrated prescriber base, should translate to attractive licensing deals ex-U.S. and independent selling efforts in the U.S.

Barclays had reiterated an Outperform rating and $30 price target on Protagonist Therapeutics, but that has not yet been updated since March of 2017. Its report at that time noted that PTG-100 is the company’s alpha 4 beta 7 antagonist being investigated in ulcerative colitis. At that time the Barclays report called for peak revenues over $1.1 billion for the asset with an opportunity to expand into Crohn’s disease and into pediatric IBD indications. The firm had also modeled $660 million in revenues for PTG-200 in Crohn’s disease, with upside coming from approvals in other IBD indications.

Protagonist Therapeutics currently lists three candidates in its product pipeline. The company announced earlier in May that up to $1.34 million over two years to support research aimed at developing biomarkers that define IL-23 receptor target engagement by oral peptide antagonists and the effects of that engagement on downstream signaling. The company’s three candidates were shown as follows, directly from their website:

• PTG-100 — An oral GI-restricted α4β7 integrin-specific antagonist for the treatment of moderate-to-severe UC (currently in global Phase IIb).
• PTG-200 — A first-in-class oral GI-restricted IL-23R antagonist for the treatment of moderate-to-severe Crohn’s disease.
• PTG-300 — An injectable hepcidin mimetic for potential treatment of iron overload related rare diseases (pre-clinical).

Protagonist Therapeutics was last seen trading down 3.7% at $11.38 after an hour of trading on Wednesday morning. Its 52-week range is $8.00 to $26.36. Again, it is quite common for shares to give back part of their gains after such large moves.

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