If you have a high tolerance for risk, then it could be worth checking out the small cap ASX stock in this article.
That's because Bell Potter believes the signing of an "impressive deal" could be the catalyst to sending its shares materially higher.
Which small cap ASX stock?
The stock that Bell Potter is bullish on is Immutep Ltd (ASX: IMM).
It is a clinical-stage biopharmaceutical company that is developing a novel LAG-3 (lymphocyte activation gene-3) immunotherapy for cancer and autoimmune disease.
Its core technology is based on the LAG3 protein, which is a key mediator of the immune system.
Immutep's lead drug candidate, eftilagimod alpha (efti), is currently undergoing clinical trials in five different oncology indications.
What is the broker saying?
Bell Potter was very pleased to see the small cap ASX stock sign an exclusive license agreement with Dr Reddy's Laboratories (NYSE: RDY). This is for the development and commercialisation of its lead asset Efti in all countries outside North America, Europe, Japan and China.
As part of the deal, Immutep will receive US$20 million (A$30 million) upfront, US$350 million (A$528 million) in potential development and commercial milestones, and double-digit royalties on net sales.
Commenting on the deal, the broker said:
We view this as an impressive deal that provides: (1) financial and industry validation from a credible pharma company in Emerging Markets, (2) significant non-dilutive cash in the form of A$30m upfront plus potential milestones, (3) leaves the commercial rights to the most lucrative US, EU and Japanese markets (>90% of market value) unencumbered for future licensing/M&A opportunities, and (4) could spur other industry parties (most obviously clinical collaborator Merck) to more actively engage for rights to the US and EU markets.
Big potential returns
According to the note, the broker has responded to the update by retaining its speculative buy rating on the small cap ASX stock with an improved price target of 60 cents (from 46 cents).
Based on its current share price of 32 cents, this implies potential upside of almost 90% for investors over the next 12 months.
Commenting on its recommendation, Bell Potter said:
We have updated forecasts to include contributions from the Dr Reddy's deal in FY26 and FY27. The deal sets a precedent for the de-risked global valuation of Efti to be closer to ~US$7b excluding royalties, a large premium to the closing market cap of $472m. There is clear multi-fold upside potential for IMM should it succeed through the current Phase 3 lung cancer trial in a NSCLC market valued at US$12b/yr in the US alone. We maintain our BUY (speculative) recommendation and valuation is increased to $0.60/sh after increasing licensing revenue forecasts.
