Enjaymo And Isturisa Approvals Will Expand Global Treatment Options

Key Takeaways

• Strategic acquisitions and market expansions enhance revenue growth, especially the rights to Enjaymo and early Isturisa approval in China.
  
• Strong financial health supported by operational efficiencies and cost management drives sustained earnings growth and stability.
  
• Adverse currency effects, regulatory risks, and generic competition challenge revenue stability and profitability, despite regional growth.

Catalysts

Engages in the research, development, manufacture, and marketing of pharmaceuticals worldwide.

• The acquisition of global rights to Enjaymo from Sanofi is seen as a strategic fit for Recordati, expected to drive revenue growth with projected 2025 revenues greater than €150 million and peak sales of €250 million to €300 million. This is likely to boost both revenue and margins as it becomes accretive from 2025 onwards.
  
• The approval of Isturisa in China earlier than anticipated adds a new market for its Cushing's syndrome treatment, contributing to potential revenue growth, with expected peak sales of around €50 million. This expansion into new territories acts as a significant revenue driver.
  
• The anticipated label extension for Isturisa in the U.S. by mid-2025 could further increase its market potential, enhancing future revenue growth prospects. It is projected to add an additional 20% to 25% sales potential, positively impacting revenue expansion.
  
• Recordati's rare disease segment continues to sustain strong double-digit growth driven by key products such as Isturisa, Signifor, Qarziba, and Sylvant. The addition of Enjaymo is expected to reinforce this growth, supporting both revenue and margin enhancements.
  
• The company's strategic cost management and operational efficiencies, reflected in a robust free cash flow and maintaining an EBITDA margin around 37%, indicate strong financial health. This efficient cost management and leverage position could contribute to further earnings growth and financial stability.

Recordati Industria Chimica e Farmaceutica Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Recordati Industria Chimica e Farmaceutica's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.6% today to 21.6% in 3 years time.
• Analysts expect earnings to reach €620.5 million (and earnings per share of €2.93) by about December 2027, up from €423.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €523.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.9x on those 2027 earnings, down from 24.7x today. This future PE is greater than the current PE for the GB Pharmaceuticals industry at 19.2x.
• Analysts expect the number of shares outstanding to grow by 1.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Recordati Industria Chimica e Farmaceutica Future Earnings Per Share Growth

Risks

• The company has experienced adverse effects and volatility due to currency exchange rates and hyperinflation, particularly related to the Turkish lira, which could impact revenue stability and overall financial performance.
  
• The acquisition of Enjaymo, while promising, involves regulatory clearances and integration challenges, presenting execution risks that could affect revenue projections and EBITDA contribution timelines.
  
• There is erosion observed in the metabolic franchise due to generic entries affecting key products like Carbaglu in certain markets, which could lead to reduced revenues and net margins in the immediate term.
  
• Counteracting unfavorable factors such as hyperinflation in Turkey and timing of price increases could contribute to unpredictable profitability, potentially impacting net margins and financial consistency.
  
• Despite the strong growth across several regions, fluctuations in demand for specific therapeutic areas like Cough & Cold and uneven quarterly EBITDA could lead to revenue and profitability inconsistencies in the future.

Valuation

• The analysts have a consensus price target of €55.74 for Recordati Industria Chimica e Farmaceutica 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 €65.0, and the most bearish reporting a price target of just €48.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €2.9 billion, earnings will come to €620.5 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 8.0%.
• Given the current share price of €51.1, the analyst's price target of €55.74 is 8.3% higher. The relatively low difference between the current share price and the analyst consensus 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.