Early-Stage Prolactin Antibody Risks Will Eventually Support Long-Term Hair Loss And Endometriosis Potential

Catalysts

About Absci

Absci uses an AI driven platform to design and develop biologic drug candidates, including its own antibody pipeline and partnered discovery programs.

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

• Although ABS-201 targets androgenetic alopecia with a large population and limited treatment options, the program relies on future proof of concept data from a single Phase I/IIa trial. Any delay or inconclusive efficacy could slow expected revenue contribution and extend the period of high R&D expense relative to revenue.
• While the move into endometriosis taps into a sizeable, poorly served chronic pain and fertility market, ABS-201 is still pre Phase II in this indication. Future trial design or recruitment challenges could push out timelines for potential revenue and keep earnings weighed down by clinical spend.
• Although Absci is leaning into prolactin receptor biology that already has external human proof of concept, the company is positioning ABS-201 as potentially best in class based on nonhuman primate PK and formulation. If those technical advantages do not translate clinically, pricing power and long term margin expectations could be at risk.
• While Absci’s AI drug creation platform and programs like ABS-301 and ABS-501 are attracting interest and management anticipates one or more pharma partnerships, those agreements are not yet signed. Expected nondilutive cash inflows that could support revenue, cash flow and earnings remain uncertain in timing and size.
• Although reallocating resources away from ABS-101 into ABS-201 is intended to concentrate capital on larger potential indications, the decision to seek a partner for ABS-101 after a Phase I readout means future economics from that asset could be more back end weighted. This may limit nearer term revenue and margin contribution if deal terms are conservative.

Assumptions

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

• The bearish analysts are assuming Absci's revenue will grow by 17.2% annually over the next 3 years.
• The bearish analysts are not forecasting that Absci will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Absci's profit margin will increase from -4071.2% to the average US Biotechs industry of 16.2% in 3 years.
• If Absci's profit margin were to converge on the industry average, you could expect earnings to reach $736.4 thousand (and earnings per share of $0.0) by about January 2029, up from $-114.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $38.8 million in earnings, and the most bearish expecting $-114.8 million.
• 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 1392.3x on those 2029 earnings, up from -4.5x today. This future PE is greater than the current PE for the US Biotechs industry at 21.4x.
• The bearish 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 7.04%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• ABS-201 is still moving from preclinical and early clinical work into longer, more complex trials. If human data in androgenetic alopecia or endometriosis do not show clear efficacy or durability, the long runway of R&D spend could weigh on revenue visibility and delay any path to positive earnings.
• Absci is concentrating heavily on a single prolactin receptor antibody across multiple large indications. Any unforeseen safety signal, immunogenicity issue or class effect that emerges over time could affect multiple programs at once and materially impact future revenue and earnings potential.
• The business model relies on out-licensing assets such as ABS-101 and signing drug creation partnerships, yet these transactions are still in discussion. Slower or less favorable deal making could leave the company more dependent on its current US$152.5 million cash balance and extend the period of losses at the net income level.
• ABS-201 is being developed in markets with existing therapies and other prolactin receptor programs. If competitors deliver stronger clinical data, more convenient dosing or move faster to market, Absci's pricing power and eventual net margins could be pressured.
• Current revenue of US$400,000 for the quarter is small compared to research and development expenses of US$19.2 million and selling, general and administrative expenses of US$8.4 million. If long term secular demand for new biologics or AI designed assets does not translate into larger commercial or partnership revenue, ongoing operating losses could weigh on earnings for an extended period.

Valuation

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

• The assumed bearish price target for Absci is $4.54, which represents up to two standard deviations below the consensus price target of $8.05. This valuation is based on what can be assumed as the expectations of Absci'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 $10.0, and the most bearish reporting a price target of just $4.32.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $4.5 million, earnings will come to $736.4 thousand, and it would be trading on a PE ratio of 1392.3x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $3.44, the analyst price target of $4.54 is 24.2% 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.