Generic Competition Will Erode Margins Amid Cautious Growth Opportunities

Key Takeaways

• Heightened generic competition, pricing pressures, and regulatory challenges threaten both Ipsen's profitability and the sustainability of key legacy products.
  
• New product growth is uncertain amid aggressive rivals, rising R&D costs, and elevated execution risk, jeopardizing future earnings and pipeline productivity.
  
• Continued innovation, diversification, and global expansion position Ipsen for sustained growth, stability, and resilience amid healthcare sector tailwinds and evolving market demands.

Catalysts

Operates as a biopharmaceutical company worldwide.

• Ipsen's dependence on Somatuline for a significant share of profits has left the company exposed as generic competition in Europe and the U.S. accelerates, with management guiding to increased competition from loyalty generics and accelerated erosion beginning in 2025, which will sharply pressure both revenue and operating margins over the coming years.
  
• Global government cost-containment efforts and tough pricing interventions, particularly referenced in Europe and China, are driving down prices and reimbursement levels for core oncology and rare disease drugs like Decapeptyl, eroding top-line growth and placing structural pressure on long-term profitability.
  
• While recent launches such as Iqirvo and Bylvay contribute incremental growth, future volume gains are highly uncertain in the context of intensifying competition from larger rivals (such as Gilead's entry with Livdelzi) and an increasingly crowded rare disease pipeline, likely risking consensus revenue forecasts for 2025 and 2026.
  
• Ongoing increases in R&D spend above 20% of sales, along with uncertain returns from late-stage clinical programs and continued reliance on expensive bolt-on external innovation, threaten to compress net margins and elevate execution risk, as evidenced by the recent Sohonos impairment cutting expected peak sales below €100 million.
  
• Lengthening regulatory timelines and growing payer demands for value demonstration, especially in specialty and orphan drug areas, are expected to slow new product launches and reduce pricing power, resulting in lower future earnings growth and sustained headwinds for Ipsen's long-term pipeline productivity.

Ipsen Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ipsen compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ipsen's revenue will grow by 4.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 10.0% today to 14.0% in 3 years time.
• The bearish analysts expect earnings to reach €571.9 million (and earnings per share of €6.92) by about June 2028, up from €355.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, down from 23.4x today. This future PE is lower than the current PE for the GB Pharmaceuticals industry at 18.6x.
• Analysts expect the number of shares outstanding to decline by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.86%, as per the Simply Wall St company report.

Ipsen Future Earnings Per Share Growth

Risks

• Strong double-digit sales and core operating income growth in 2024, coupled with guidance for ongoing revenue expansion in 2025, suggest Ipsen is positioned to capture secular healthcare growth trends and sustain revenue and earnings momentum.
  
• Multiple recent and anticipated product launches-including Iqirvo, Onivyde, Bylvay, and advancements in rare disease and neuroscience pipelines-diversify Ipsen's portfolio and provide new drivers of revenue growth, offsetting erosion in legacy assets and supporting future top-line expansion.
  
• Expansion into the U.S. and other international markets, particularly for growth assets in rare diseases, oncology, and neuroscience, increases Ipsen's global revenue streams and reduces dependence on any single product or geography, which should enhance both revenue stability and profit resilience.
  
• Ongoing innovation in R&D, high investment levels (over 20% of sales in 2024 and commitment to maintain or slightly increase this level), and significant financial resources (€2.3 billion in firepower) for external innovation signal strong potential for pipeline replenishment and future margin expansion through high-impact assets.
  
• Positive long-term trends-including an aging global population and increased global healthcare spend-are likely to support durable demand for Ipsen's specialty therapies, underpinning sustainable growth in both revenues and net margins over the coming years.

Valuation

• The assumed bearish price target for Ipsen is €100.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ipsen's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €156.0, and the most bearish reporting a price target of just €100.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €4.1 billion, earnings will come to €571.9 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of €100.9, the bearish analyst price target of €100.0 is 0.9% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.