AbbVie Agreement And Clinical Trials Will Unlock New Avenues

Key Takeaways

• Strategic partnerships and collaborations with top pharma companies ensure sustainable revenue streams and growth opportunities for Gubra.
  
• Promising clinical trial results and innovative treatments could boost future revenue and market position in weight management and obesity treatments.
  
• Revenue and profitability are at risk due to dependency on partnerships, increased costs, and challenges in strategic expansion and execution.

Catalysts

A biotech company, focuses on the pre-clinical contract research and peptide-based drug discovery within metabolic and fibrotic diseases in Europe, North America, and internationally.

• The landmark agreement with AbbVie grants Gubra significant economic freedom with a $350 million upfront payment and potential milestones worth $1.875 billion, along with tiered royalties on net sales. This is likely to boost Gubra's future revenue and earnings.
  
• The successful interim data from the GUBamy trial, showing substantial weight loss in patients, could position GUBamy as a best-in-class weight management treatment. This may lead to increased future revenue through sales and potential market expandability.
  
• The UCN2 program's promising results in altering body composition by promoting fat loss while preserving lean muscle mass indicate potential differentiation from other obesity treatments. This could enhance future earnings through new product offerings and market capture.
  
• Gubra's strategic relationships with 16 out of the top 20 pharma companies and the ongoing partnerships, including 7 active collaborations, should provide sustainable revenue streams and collaborative growth opportunities.
  
• The maintained and expected growth in the CRO business, particularly strong demand in Europe, suggests a potential increase in future revenue, despite current slight declines, by expanding service offerings and leveraging existing client relationships.

Gubra Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gubra's revenue will grow by 49.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -13.7% today to 85.0% in 3 years time.
• Analysts expect earnings to reach DKK 749.0 million (and earnings per share of DKK 11.22) by about August 2028, up from DKK -36.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, up from -161.5x today. This future PE is lower than the current PE for the DK Life Sciences industry at 50.9x.
• 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 5.25%, as per the Simply Wall St company report.

Gubra Future Earnings Per Share Growth

Risks

• The slight decline in CRO business revenue indicates a potential risk in maintaining or growing revenue from this segment, especially if longer decision times from U.S.-based companies persist or increase. This could impact overall revenue stability.
  
• The significant upfront payment and potential future milestones from the AbbVie deal imply dependency on this partnership for financial gains. Any setbacks in this partnership could jeopardize expected earnings from these milestones and royalties.
  
• Increased costs due to simultaneous program developments for Amylin and UCN2 may pressure net margins, particularly if these programs face delays or require added investment without immediate return.
  
• The CRO business experienced a decline in EBIT, indicating potential struggles with maintaining profitability amidst rising fixed costs, such as salaries, which may affect net margins if revenue growth does not outpace cost increases.
  
• The ongoing need to evaluate M&A opportunities and explore expansion areas suggests the company might face strategic execution risks. These risks could impact the effective allocation of capital and ultimately affect future earnings if these ventures do not yield expected returns.

Valuation

• The analysts have a consensus price target of DKK635.0 for Gubra 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 DKK750.0, and the most bearish reporting a price target of just DKK520.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be DKK881.3 million, earnings will come to DKK749.0 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 5.2%.
• Given the current share price of DKK361.4, the analyst price target of DKK635.0 is 43.1% 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.