Rising Regulatory And Pricing Pressures Will Erode Margins Despite Progress

Key Takeaways

• Regulatory headwinds, geopolitical tensions, and price controls threaten market access, profitability, and expansion for Everest Medicines.
  
• Heavy reliance on in-licensing and rising competition jeopardize margins, revenue growth, and prospects for sustained earnings.
  
• Rapid commercial execution, expanding innovative pipeline, and favorable regulatory trends position Everest Medicines for sustained revenue growth, margin expansion, and increasing market share.

Catalysts

A biopharmaceutical company, engages in the discovery, license-in, development, and commercialization of therapies and vaccines to address critical unmet medical needs in Greater China and other Asia Pacific markets.

• Accelerating global regulatory scrutiny and heightened protectionism in major markets like the United States and European Union may slow drug approvals and restrict Everest Medicines' ability to expand internationally, ultimately limiting global revenue growth and market access over the long term.
  
• Escalating geopolitical tensions and growing decoupling between China and the West put future cross-border licensing, critical supply chain access, and advanced technology transfers at risk, leading to increased costs and operational friction that are likely to compress gross and net margins.
  
• Intensifying price controls and reforms by governments and payors in China and other regional markets will place downward pressure on pricing power, which, combined with long-term drug price deflation, will directly undermine both revenue growth and profitability.
  
• Everest's business model remains heavily dependent on external in-licensing rather than internal R&D, which sustains high upfront costs and long-term royalty burdens, structurally lowering gross margins and putting future earnings growth at risk despite current impressive top-line expansion.
  
• The increasing number of domestic and international competitors pursuing China's lucrative specialty and rare disease markets is likely to trigger price wars, market share losses, and slower uptake of newly launched assets, directly threatening Everest's future revenue trajectory and its ability to achieve sustainable positive earnings.

Everest Medicines Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Everest Medicines compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Everest Medicines's revenue will grow by 75.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -147.4% today to 16.8% in 3 years time.
• The bearish analysts expect earnings to reach CN¥638.2 million (and earnings per share of CN¥1.95) by about August 2028, up from CN¥-1.0 billion 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 19.3x on those 2028 earnings, up from -21.8x today. This future PE is lower than the current PE for the HK Biotechs industry at 48.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.89%, as per the Simply Wall St company report.

Everest Medicines Future Earnings Per Share Growth

Risks

• The dramatic 461 percent year-on-year revenue growth in 2024, successful launches of NEFECON and XERAVA, and a reported gross margin of 83 percent indicate strong operational leverage and rapid sales expansion, which could drive earnings higher and lead to share price appreciation.
  
• NEFECON's recent inclusion in the 2025 National Reimbursement Drug List in China, coupled with over 10,000 new patients in just three months and the expectation of at least two years of reimbursement exclusivity, significantly increases patient access and recurring revenue potential, supporting long-term revenue growth.
  
• A robust late-stage and early-stage pipeline, including advances in EVER001 (with positive Phase 2a results and broad autoimmune/renal indications in China and the US) and mRNA cancer vaccine programs (with the first US IND approval), positions Everest for multiple new product launches and potential high-margin growth, which could positively impact future revenue and margin expansion.
  
• The company's strategy of expanding its highly efficient commercial infrastructure, strategic partnerships with contract sales organizations, and movement toward in-house manufacturing signals the ability to scale quickly while controlling costs, which may result in improved net margins and operating income.
  
• Broader secular trends such as population aging, growing healthcare spending in emerging Asia, increased acceptance and regulatory support for biotech innovation, and expanding focus on rare/orphan and specialty drugs create long-term tailwinds that could enable Everest Medicines to capture greater market share and drive higher sustainable earnings.

Valuation

• The assumed bearish price target for Everest Medicines is HK$25.61, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Everest Medicines'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 HK$79.89, and the most bearish reporting a price target of just HK$25.61.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥3.8 billion, earnings will come to CN¥638.2 million, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 6.9%.
• Given the current share price of HK$70.6, the bearish analyst price target of HK$25.61 is 175.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.