Citi is so bullish on this biotech stock it gives it 800% potential upside

Published Tue, Nov 28 20237:17 PM ESTUpdated Thu, Nov 30 20232:48 PM EST

Citi is so bullish on one biotech firm that it has given its shares a target price that represents around 800% upside. That company is U.S.-listed Biomea Fusion , which develops covalent therapies to treat cancers and metabolic diseases. These therapies offer "a number of potential advantages over conventional non-covalent drugs including greater target selectivity, lower drug exposure and the ability to drive a deeper, more durable response," the company says. In a Nov. 22 note, Citi gave the stock a buy rating and a price target of $90, representing potential upside of around 818% from Tuesday's price. However, the bank cautioned that the stock is high risk, given the "typical volatility" of biotech stocks and uncertainty associated with clinical trials. Citi noted that Biomea's initial data from its trial for a type 2 diabetes treatment — called BMF-219 —exceeded the bank's expectations. Citi predicts a 65% probability of success for that trial, with $1.9 billion in risk-adjusted U.S. sales by 2035. Beyond diabetes, Biomea is also testing the treatment on leukemia and other cancers. Biomea shares are around 18% higher year-to-date. Citi isn't alone in its bullishness on the company. According to FactSet, analysts covering the stock give it average price target upside of 385% and a buy rating of 88%. On FactSet, the highest estimate came from Oppenheimer, which gives it potential upside of over 600%. Outlook for biotech The biotech sector has faced headwinds since early 2022, as macroeconomic uncertainty, regulatory overhangs, and rapidly rising interest rates weigh, noted BMO Capital Markets in a Nov. 16 note. "Despite underperformance of the XBI, we see significant opportunity for investors to realize gains over the next 6-12 months," said BMO, referring to the SPDR S & P Biotech ETF . The investment bank said it expects outperformance in biotech to be driven by flattening or declining interest rates "disproportionately benefiting high duration Biotech," and other high-profile catalysts. "The speed and degree of interest rate increases have likely been the most influential factor in Biotech fluctuations, and any slowing in rate increases or reductions could rally the sector (especially in SMID-Biotech)," said BMO, referring to small and medium-sized biotech firms. Growth firms such as biotech and tech are more sensitive to any fluctuating costs of borrowing. — CNBC's Michael Bloom contributed to this report.