Restrictive Reimbursements And Pipeline Risks Will Erode Future Value

Key Takeaways

• Revenue growth is threatened by access barriers, regulatory scrutiny, and reliance on a narrow pipeline with key partnerships driving financial outcomes.
  
• Rapid innovation in neurology and evolving treatment approaches could diminish future demand for BioArctic's antibody-based product portfolio.
  
• BioArctic is poised for sustained growth through Alzheimer's market expansion, robust royalty revenues, major R&D partnerships, a diversified pipeline, and strengthening profitability.

Catalysts

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

• Despite the rapid growth in Leqembi royalties and expanding approvals, BioArctic remains heavily exposed to restrictive reimbursement environments, with market uptake already projected to be gradual and subject to prolonged national pricing and access negotiations, which threatens long-term revenue growth and consistency.
  
• The company's financial model is vulnerable to increasing regulatory and cost pressures, especially as payers and governments intensify scrutiny on the high cost of chronic Alzheimer's and neurology drugs; this could reduce authorized pricing levels, delay reimbursement decisions, and compress net margins over the coming decade.
  
• Heavy reliance on a small number of late-stage pipeline assets, principally lecanemab, exposes BioArctic to concentration risk such that any clinical setbacks, commercial underperformance, or adverse safety signals could precipitate a sharp contraction in royalty revenue and translate to sustained negative earnings volatility.
  
• A significant share of BioArctic's revenue growth and net margin improvement is dependent on decisions and continued collaboration with larger partners like Eisai and Novartis, rendering future profitability unpredictable and increasing the risk of abrupt changes in external priorities, strategy, or licensing agreements.
  
• While the BrainTransporter platform has generated recent deal flow, the broader neurology drug market faces accelerating innovation in gene therapy and digital modalities that could rapidly shift treatment paradigms over the next five to ten years, undermining the long-term demand and revenue for BioArctic's antibody-based portfolio.

BioArctic Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on BioArctic compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming BioArctic's revenue will decrease by 3.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 57.4% today to 30.6% in 3 years time.
• The bearish analysts expect earnings to reach SEK 506.0 million (and earnings per share of SEK 5.74) by about September 2028, down 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 bearish analyst cohort, the company would need to trade at a PE ratio of 56.9x on those 2028 earnings, up from 28.1x today. This future PE is greater than the current PE for the SE Biotechs industry at 31.5x.
• 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

• The global aging population is driving a sharp increase in Alzheimer's and other neurodegenerative diseases, and BioArctic is positioned to benefit from this secular growth trend, supporting sustained revenue growth as Leqembi and pipeline products address expanding markets.
  
• Leqembi has demonstrated strong sales momentum-growing 57% quarter-over-quarter globally and receiving approvals in nearly 50 countries-with successful launches in Japan, the U.S., and Europe, which enhances recurring royalty revenues and boosts earnings visibility.
  
• BioArctic's proprietary BrainTransporter technology has attracted multiple substantial partnerships (Novartis, Eisai, Bristol Myers Squibb), resulting in significant upfronts, multi-hundred-million milestone potential, and promising new revenue streams that support future net margin expansion and risk diversification.
  
• The R&D pipeline is becoming more diversified, with advancing programs like exidavnemab (now in Phase IIa for Parkinson's and MSA, backed by orphan drug designations), and an internal business model that flexibly allows for either internal development or new out-licensing deals-creating multiple long-term earnings opportunities.
  
• Strong financials, highlighted by record cash flows, rising recurring royalties, substantial milestone receipts, and an expectation of ongoing profitability and potential dividends starting within two years, collectively support improved net profit and shareholder value in the long run.

Valuation

• The assumed bearish price target for BioArctic is SEK280.0, which represents the lowest 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be SEK1.7 billion, earnings will come to SEK506.0 million, and it would be trading on a PE ratio of 56.9x, assuming you use a discount rate of 4.9%.
• Given the current share price of SEK339.0, the bearish analyst price target of SEK280.0 is 21.1% lower.
• 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.