The world of biotech and emerging pharmaceuticals can be a wild ride for investors. While most analyst calls in Dow Jones industrials and S&P 500 stocks are targeting 8% to 10% upside at this stage in the bull market, it is not uncommon to find many speculative analyst calls looking for 50%, 100% or even more upside in the more speculative companies with potential big new drug candidates. Selecta Biosciences Inc. (NASDAQ: SELB) is one such company, but the projected upside here was nearly 200% to the analyst price target.

Janney Montgomery Scott has initiated coverage of Selecta Biosciences with a Buy rating. The firm’s whopping $33 price target would represent upside of 168% from the most recent $12.31 closing price. The driving force behind the call is Selecta’s SEL-212 ongoing Phase 2 study in chronic refractory gout. The firm believes that the immune tolerance induction by SVP-rapamysin should lead to a much improved clinical profile of the drug versus currently available treatments.

Investors need to consider that this particular analyst call is coming when Selecta’s share price is close to a 2018 high, although this stock sold off handily late in 2017. Also, many emerging biotech and emerging pharma stocks are not suitable for many investors.

The treatment of chronic refractory gout affects an estimated 100,000-patient population in the United States. Those who suffer from chronic gout understand just how important a new treatment can be if the results prove to be better. Gout can be debilitating during an attack, and many who suffer from gout have permanent problems due to mobility restrictions, inflammation and pain.

While it does not project Selecta will have a blockbuster drug ($1 billion in annual sales), the Janney report did say this:

There is an FDA-approved therapy, another uricase, available for the indication but the treatment effect is limited by immunogenicity. SEL-212 has demonstrated higher response rate, due to the inhibition of anti-drug antibody formation by SVP-rapamycin, and we expect the improved dosing regimen to be evaluated in the Phase III study will demonstrate even better efficacy. Our peak U.S. revenue estimate of over $500M in 2026 suggests Selecta shares are undervalued.

The report further projected:

We expect positive data in the third quarter of 2018, from a new cohort that is evaluating a modified dosing regimen, and believe the Phase III, to be initiated in the second half of 2018 with a similar dosing regimen, should have a high probability of success. Our valuation is based on SEL-212 alone and we treat the rest of Selecta’s pipeline as upside potential. However, Selecta’s immunomodulatory technology platform, upon successful clinical development, should allow the company to target a wide range of indications.

Janney’s report also addressed how and why Selecta’s shares were hit so hard in late 2017. The more than 50% stock price drop in November 2017 was said to be due to updated Phase 2 data raising questions on whether SVP-rapamycin truly induces immune tolerance. Janney believes that the evidence is clear, when results from patients treated with or without SVP-rapamycin were compared.

There may be more to Selecta than its lead product candidate here. Janney believes that Selecta’s pipeline provides strong upside potential:

Selecta is conducting a Phase I clinical study, in collaboration with the National Cancer Institute, to evaluate SEL-403, a combination therapy consisting of SVP-rapamycin and a recombinant immunotoxin LMB-100, for the treatment of mesothelioma. Immuomodulation should allow patients to better tolerate the therapy for improved treatment outcome… Additionally, Selecta has entered to a collaboration agreement with Spark Therapeutics to evaluate SVP-rapamycin in repeat administration of gene therapy that is based on adeno-associated virus (AAV) technology, and Selecta also has two proprietary gene therapy programs in preclinical development for the treatment of inherited metabolic disorders. We have not included any of these programs into our valuation but believe clinical data from each program should further validate the SVP-rapamycin technology platform.

Back on June 15, 2018, Selecta presented data from its ongoing Phase 2 trial of SEL-212 at EULAR 2018. Werner Cautreels, Ph.D., president and CEO of Selecta, said at that time:

We are very pleased with this continued improvement in clinical activity observed in this expanded patient data set presented today at EULAR, and believe it further demonstrates SEL-212’s potential ability to change the chronic severe gout treatment paradigm by providing better and more sustained serum uric acid control, fewer flares, and less frequent dosing compared retrospectively to Krystexxa. We are now in the fourth treatment cycle of patients receiving five monthly doses of the combination treatment of SEL-212 and plan to report data from those patients at an upcoming medical meeting in the third quarter of this year. Those data have the potential to demonstrate the extended benefit of SEL-212 in chronic severe gout patients with high medical need and position us to execute on our Phase 3 program, which we plan to start later this year.

To prove how and why biotech and emerging pharma can be so unpredictable: the Thomson Reuters consensus shows that almost nonexistent revenues of 2017 are supposed to be remain close to zero in 2018 and 2019, before jumping to $116 million in 2020. Janney is targeting 2023 as the year that SEL-212 starts translating into $100 million in revenues.

On June 14, a day before Selecta presented its updated data, its shares closed at $11.98. After the presentation, its shares rose to $12.75, and the stock’s 3.7% gain to $12.77 on Wednesday has shares right back in line with that price. Thomson Reuters now has a consensus analyst target price of $28.60, but that is from only five analysts.

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