Early Diagnostics And Licensing Deals Will Advance Neurodegenerative Treatment

Key Takeaways

• Rapid Leqembi adoption and new administration options could greatly expand revenue and margins beyond expectations as the drug becomes standard of care.
  
• BioArctic's pipeline flexibility and expanding BrainTransporter platform position the company for significant, sustained growth in diversified neurology markets.
  
• BioArctic faces significant profit and growth risks due to heavy dependence on a narrow drug pipeline, regulatory pressures, rising R&D costs, and intensifying competition.

Catalysts

Develops biological drugs for patients with central nervous system disorders in Sweden.

• Analyst consensus assumes Leqembi will steadily grow as Alzheimer's patient access expands, but recent real-world data and multi-year treatment results suggest adoption could accelerate far beyond consensus as evidence mounts for earlier intervention and treatment duration, potentially multiplying royalty revenues and driving much higher operating margins than currently forecast.
  
• While most analysts expect peripheral advances such as subcutaneous and home-use options to "support" longer-term penetration, the new data on patient convenience, cost savings for healthcare systems, and future auto-injector approvals could make Leqembi the standard of care far more quickly, significantly expanding the recurring revenue base and reducing future SG&A costs relative to revenue.
  
• BioArctic's BrainTransporter platform is demonstrating momentum as a major out-licensing engine, with recent deals (Novartis, BMS) providing multi-hundred-million-dollar deal value and upfront cash – but the company's move to expand BrainTransporter across new modalities such as proteins, peptides, and antisense therapies opens up vast new addressable markets, holding out the potential for a step-change in future milestone, royalty, and recurring licensing revenues.
  
• The company's flexible approach to pipeline commercialization – retaining optionality between outright licensing and developing some assets further in-house, particularly in rare diseases – is enabled by its robust balance sheet and cash position, raising the possibility of retaining greater downstream economics and long-term earnings leverage than currently modeled in analyst expectations.
  
• With the rising prevalence of neurodegenerative diseases and increasing prioritization of early diagnostics at the primary care level worldwide, BioArctic's diversified precision neurology pipeline and platform positioning place it to capitalize on both higher patient volumes and potential premium pricing over time, setting up multi-year top-line and margin expansion well ahead of consensus models.

BioArctic Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on BioArctic compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming BioArctic's revenue will grow by 16.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 57.4% today to 45.8% in 3 years time.
• The bullish analysts expect earnings to reach SEK 1.3 billion (and earnings per share of SEK 15.0) by about September 2028, up from SEK 1.1 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 bullish analyst cohort, the company would need to trade at a PE ratio of 27.2x on those 2028 earnings, up from 26.1x today. This future PE is lower than the current PE for the SE Biotechs industry at 32.5x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.92%, as per the Simply Wall St company report.

BioArctic Future Earnings Per Share Growth

Risks

• BioArctic's growth is heavily dependent on royalties from Leqembi, which is exposed to heightened regulatory scrutiny, reimbursement challenges, and gradual rollout across Europe due to complex national pricing negotiations. This environment could delay sales expansion and compress future revenues and net margins.
  
• The persistence of public and political pressure to curb healthcare costs worldwide increases the risk of price caps and mandatory discounts on innovative dementia drugs, which could erode BioArctic's product pricing power and reduce long-term profitability.
  
• The company's very high reliance on a limited pipeline-especially the late-stage assets lecanemab and exidavnemab-subjects it to significant binary risk; any negative trial results, safety signals, or competitive setbacks could cause sharp, unpredictable declines in earnings and revenue.
  
• Increasing R&D expenditure, especially as BioArctic invests in advancing next-generation neurodegenerative therapies and expanding its BrainTransporter platform, will continue to place sustained pressure on operating expenses. If future candidates underperform or partnerships fail to materialize, this could damage free cash flow and long-term profit.
  
• Growing competition from established pharmaceutical giants and emerging biotechs in the neurodegeneration space, along with ongoing advances in digital and preventative healthcare approaches, may reduce demand for BioArctic's therapies and threaten market share, ultimately undermining long-term revenue growth and limiting upside for earnings.

Valuation

• The assumed bullish price target for BioArctic is SEK353.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of BioArctic's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK353.0, and the most bearish reporting a price target of just SEK280.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SEK2.9 billion, earnings will come to SEK1.3 billion, and it would be trading on a PE ratio of 27.2x, assuming you use a discount rate of 4.9%.
• Given the current share price of SEK314.8, the bullish analyst price target of SEK353.0 is 10.8% 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.