Kezar Life Sciences (KZR) shares rallied 47% on Friday afternoon despite analyst downgrades and price target cuts.

Jefferies analyst Maury Raycroft downgraded Kezar Life Sciences to 'Hold' from 'Buy' with a price target of $7, down from $18. Meanwhile, William Blair analyst Matthew Phipps downgraded Kezar Life Sciences to 'Market Perform' from 'Outperform' without a price target. Wells Fargo kept its 'Equal Weight' rating on the shares but slashed the price target to $5 from $7.

Kezar announced on Thursday that it has initiated a process to explore strategic alternatives focused on maximizing shareholder value after being unable to align with the U.S. Food and Drug Administration on a potential registrational clinical trial of Zetomipzomib in patients with relapsed and refractory autoimmune hepatitis (AIH). Autoimmune hepatitis is a rare, chronic disease that predominantly affects women and, if left untreated, can lead to cirrhosis, liver failure, and hepatocellular carcinoma.

However, the FDA Division of Hepatology and Nutrition cancelled a Type C meeting that was previously scheduled with Kezar in the fourth quarter to discuss a proposed study in AIH, the company said.

Earlier this year, Kezar reported positive safety and efficacy data from a clinical trial in patients with refractory or relapsed AIH. However, the regulator requested that Kezar conduct a stand-alone study to define the pharmacokinetics of Zetomipzomib in subjects with significant hepatic impairment before the initiation of another clinical trial in AIH.

This study would delay future trials of Zetomipzomib in AIH by approximately two years, the company said, while adding that the requirements put forth by the FDA would also hinder patient enrollment and participation.

“While we remain excited about the potential of Zetomipzomib to be the first approved agent in AIH, we lack the resources to extend the development timeline,” CEO Chris Kirk said.

The company also said it would be implementing a restructuring plan, including layoffs and other cash conservation measures, as part of the strategic alternative evaluation.

William Blair said on Friday that it is surprised to see the FDA refusing to host a Type C meeting. Considering Kezar's current cash balance and liabilities, Blair believes a potential acquisition in the $6 to $7 per share range could be feasible.

Wells, however, thinks there could be upside if they return cash to shareholders or in a reverse merger scenario.

On Stocktwits, retail sentiment around KZR stock soared from 'bearish' to 'extremely bullish' territory over the past 24 hours, while message volume rose from 'normal' to 'extremely high' levels.

A Stocktwits user opined that $6.50 to $7 would be a good range for the stock.

Another user expressed doubts over the rally.

KZR stock is down by 9% this year and by about 25% over the past 12 months.

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