New Approvals And Regional Expansion Will Create Future Opportunities

Key Takeaways

• Waiving the Phase III study for FYB206 cuts significant R&D costs, improving net margins and freeing capital for other uses.
  
• Strategic regional expansions and targeted product introductions, like the FYB201 syringe, boost market penetration and revenue potential.
  
• Market volatility, deferred tax liabilities, litigation, and rising costs threaten Formycon's revenue and financial performance amidst biosimilar sales challenges in the U.S.

Catalysts

A biotechnology company, develops biosimilar drugs in Germany and Switzerland.

• The waiver of the Phase III study for the KEYTRUDA biosimilar (FYB206) reduces R&D expenses by over €75 million over the next four years, freeing up capital and improving future net margins.
  
• Strategic expansion into new regions such as Latin America, MENA, and others with biosimilar products enhances market penetration and potential revenue growth.
  
• Introduction of a prefilled syringe for FYB201 in European markets is expected to drive market adoption and improve sales, positively impacting revenue.
  
• Continued regulatory progress and approvals, such as in Canada and the U.K., are expected to lead to new market entries and bolster revenue streams.
  
• Partnership strategies focusing on regional rather than global deals for FYB206, which could lead to incremental revenue from milestone payments and diversified commercial partnerships.

Formycon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Formycon's revenue will grow by 22.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -180.4% today to 28.6% in 3 years time.
• Analysts expect earnings to reach €36.2 million (and earnings per share of €2.0) by about April 2028, up from €-125.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €110.7 million in earnings, and the most bearish expecting €-5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.6x on those 2028 earnings, up from -3.3x today. This future PE is lower than the current PE for the DE Biotechs industry at 29.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.74%, as per the Simply Wall St company report.

Formycon Future Earnings Per Share Growth

Risks

• The halting of product sales by Sandoz in the U.S. due to falling reimbursement prices raises concerns about potential revenue loss and reflects the market's volatility impacting formycon's earnings.
  
• FYB202 faces significant deferred tax liabilities and an impairment, indicating high uncertainty in financial performance and impacting net margins.
  
• The dynamic market environment for biosimilars in the U.S. requires flexible commercial strategies, yet a year-long pause in sales for some products indicates potential revenue stagnation.
  
• Ongoing litigations for products like FYB203 contribute to uncertainty in market entry and revenue timing.
  
• Rising development and operational costs for projects like FYB208 and the uncertain success rates of strategic partnerships for FYB206 may suppress net financial performance.

Valuation

• The analysts have a consensus price target of €49.333 for Formycon based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €86.0, and the most bearish reporting a price target of just €32.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €126.8 million, earnings will come to €36.2 million, and it would be trading on a PE ratio of 26.6x, assuming you use a discount rate of 4.7%.
• Given the current share price of €23.35, the analyst price target of €49.33 is 52.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.