Precision Medicine Tailwinds Will Drive Major Upside For This Diagnostics Leader

Catalysts

About BillionToOne

BillionToOne develops highly sensitive molecular diagnostic tests in prenatal health and oncology using its single molecule next-generation sequencing platform.

What are the underlying business or industry changes driving this perspective?

• Rapid adoption of advanced prenatal and oncology testing, supported by growing payer coverage and over 235 million contracted lives, is set to sustain triple digit revenue expansion and drive continued ASP gains that boost top line growth.
• Industry wide shift toward precision medicine and therapy selection, validated by publications showing superior mutation detection and an exclusive Johnson & Johnson companion diagnostic partnership, should accelerate oncology test utilization and materially expand oncology revenue and gross profit.
• Structural move by large health systems to standardize on deeply integrated, EMR connected diagnostics, combined with the new Epic Aura implementation, is likely to unlock high volume hospital contracts that support durable test volume growth and operating leverage.
• Increasing reliance on noninvasive, blood based testing in both prenatal care and cancer management, alongside BillionToOne’s smNGS platform that already delivers 70% gross margins at only about one quarter lab capacity utilization, creates substantial runway for margin expansion and earnings growth as volumes scale.
• Favorable reimbursement dynamics, including Medicaid adoption of UNITY Carrier Panel PLA codes and expected Medicare MolDX coverage for Northstar Response by late 2026, are poised to lift ASPs, improve oncology mix economics and translate directly into higher net margins and earnings power.
• Growing demand for more efficient, technology differentiated diagnostics and BillionToOne’s capital efficient model, with emerging GAAP profitability while growing revenues over 100 percent, position the company to compound free cash flow and fund pipeline expansion without diluting shareholders.

Assumptions

This narrative explores a more optimistic perspective on BillionToOne compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming BillionToOne's revenue will grow by 47.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -4.4% today to 9.9% in 3 years time.
• The bullish analysts expect earnings to reach $80.5 million (and earnings per share of $3.35) by about December 2028, up from $-11.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $37.7 million.
• 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 136.4x on those 2028 earnings, up from -421.0x today. This future PE is greater than the current PE for the US Healthcare industry at 23.7x.
• The bullish 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 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long term sustainability of current hyper growth may prove difficult as the company scales, particularly if test volume expansion in prenatal and oncology slows once early adopter health systems are penetrated. This would pressure revenue growth and limit operating leverage driven increases in earnings and net margins.
• Reimbursement tailwinds could reverse if commercial payers, Medicaid programs or MolDX tighten coverage criteria, delay decisions or reprice UNITY and Northstar tests at lower levels than expected. This would cap future ASP expansion and compress gross margins and net income.
• Rapidly intensifying competition in noninvasive prenatal testing, therapy selection, response monitoring and MRD, including new fetal risk and liquid biopsy assays from better capitalized peers, could erode BillionToOne’s technology and publication lead over time. This could force higher sales and R&D spending that offsets revenue gains and reduces net margins and earnings.
• The oncology growth thesis depends heavily on successful Medicare MolDX coverage for Northstar Response and later MRD. Any delay, denial or narrower than anticipated label would constrain the high growth oncology mix, limiting revenue diversification and slowing gross profit and earnings contribution from this segment.
• Ambitious pipeline plans such as pan cancer tumor naive MRD and deeper EMR integration require ongoing clinical, commercial and infrastructure investment. If these initiatives underperform or experience execution challenges, the resulting higher operating expenses without commensurate uptake would weigh on operating margin and net income despite strong current unit economics.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for BillionToOne is $160.0, which represents up to two standard deviations above the consensus price target of $137.83. This valuation is based on what can be assumed as the expectations of BillionToOne'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 $160.0, and the most bearish reporting a price target of just $110.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $810.7 million, earnings will come to $80.5 million, and it would be trading on a PE ratio of 136.4x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $101.99, the analyst price target of $160.0 is 36.3% 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.