Biosimilar Pipeline And R&D Capability Will Open New Markets

Key Takeaways

• Upcoming biosimilar launches and strategic manufacturing expansions might drive substantial revenue and margin growth, leveraging lost biologic patents.
  
• Strategic R&D expansions, including acquisitions, could enhance pipeline strength, while a Stockholm Exchange listing may boost investor interest and liquidity.
  
• Ambitious expansion in a competitive biosimilar market may strain financial resources, with potential revenue volatility and high debt posing significant financial risks.

Catalysts

Through its subsidiaries, develops and manufactures biosimilar medicines for patients worldwide.

• Alvotech anticipates a significant number of biologics losing patent protection over the next decade, with a large addressable market and limited biosimilar competition, potentially driving substantial revenue growth from new biosimilar launches.
  
• The company plans to leverage its end-to-end R&D and manufacturing capabilities to accelerate its pipeline development, potentially enhancing revenue and margin growth through increased product offerings.
  
• Alvotech's strategic expansions, such as acquiring Xbrane's R&D operations, are expected to provide access to new talent and collaborations, potentially improving R&D output, pipeline strength, and long-term earnings growth.
  
• The company forecasts strong revenue growth through 2025 and beyond, driven by successful product launches and the scaling of their manufacturing capabilities, which could lead to improved net margins as operational efficiencies are realized.
  
• Alvotech's plans to list on the Stockholm Exchange could enhance global trading liquidity and attract new investors, providing capital that may further support strategic growth initiatives and strengthen overall financial performance.

Alvotech Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alvotech's revenue will grow by 37.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -47.1% today to 16.3% in 3 years time.
• Analysts expect earnings to reach $210.8 million (and earnings per share of $1.3) by about May 2028, up from $-231.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $359 million in earnings, and the most bearish expecting $62.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.6x on those 2028 earnings, up from -10.7x today. This future PE is greater than the current PE for the US Biotechs industry at 19.7x.
• 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 7.0%, as per the Simply Wall St company report.

Alvotech Future Earnings Per Share Growth

Risks

• The biosimilar industry is young, which may mean significant competition will emerge as more companies enter the market, potentially impacting future revenues and market share negatively.
  
• High manufacturing investment and the ambitious expansion strategy, such as the acquisition of Xbrane's R&D operations, could strain financial resources and impact net margins if returns are not as anticipated.
  
• Price erosion, particularly in competitive markets like the U.S. and Europe, could limit revenue growth and profit margins as competition increases in the biosimilar space.
  
• Expected dependency on milestone revenues and product mix to drive financial performance introduces volatility and uncertainty, which could affect earnings consistency and impact investor confidence.
  
• The high level of leverage with significant debt outstanding ($1.069 billion) poses financial risks, potentially affecting the company's ability to invest in growth initiatives or handle unexpected financial challenges, impacting net margins and overall financial health.

Valuation

• The analysts have a consensus price target of $18.0 for Alvotech 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 $28.0, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $210.8 million, and it would be trading on a PE ratio of 38.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $8.22, the analyst price target of $18.0 is 54.3% 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.