Phase III And PROTAC Data Will Advance Pipeline Despite Hurdles

Key Takeaways

• Successful trials and partnerships in oncology could support Arvinas' transition to commercial operations, driving growth and revenue potential.
  
• Expansion into neurodegenerative diseases and strong capital reserves position Arvinas for long-term innovation and earnings growth.
  
• Arvinas faces significant challenges including trial results, regulatory risks, competition, and financial pressures that could delay revenue growth and strain resources.

Catalysts

A clinical-stage biotechnology company, engages in the discovery, development, and commercialization of therapies to degrade disease-causing proteins.

• Arvinas anticipates significant developments with their first Phase III trial data expected soon, which could support a new drug application and transition the company to a commercial stage, potentially impacting future revenue growth.
  
• The initiation of two new Phase III vepdegestrant combination trials in 2025, including partnerships with Pfizer, might drive increased revenue if successful, as they aim to become a best-in-class therapy for metastatic breast cancer.
  
• The company is expanding into neurodegenerative diseases with their ARV-102 PROTAC, targeting LRRK2 in Parkinson’s disease, and obtaining first-in-human data could open new revenue streams by addressing unmet medical needs.
  
• Progress on ARV-393 for non-Hodgkin lymphomas and the planned IND filing for a KRAS G12D degrader could drive Arvinas' pipeline forward, potentially impacting future earnings with innovative treatments in oncology.
  
• Arvinas is well-capitalized and expects cash reserves to support operations into 2027, enabling sustained R&D investments to fuel long-term growth and potential increases in overall earnings.

Arvinas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Arvinas's revenue will decrease by 8.5% annually over the next 3 years.
• Analysts are not forecasting that Arvinas will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Arvinas's profit margin will increase from -75.5% to the average US Pharmaceuticals industry of 19.8% in 3 years.
• If Arvinas's profit margin were to converge on the industry average, you could expect earnings to reach $39.9 million (and earnings per share of $0.58) by about April 2028, up from $-198.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 75.0x on those 2028 earnings, up from -2.6x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 15.0x.
• Analysts expect the number of shares outstanding to grow by 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Arvinas Future Earnings Per Share Growth

Risks

• The success of Arvinas' future revenue largely hinges on the upcoming results of their pivotal Phase III VERITAC-2 trial. Any failure to demonstrate superior efficacy could delay commercialization or impact future revenue streams.
  
• The company's reliance on their PROTAC technology and the complexity of getting regulatory approval for this novel approach poses regulatory risks that could affect the timing of revenue recognition and add to operating costs.
  
• Competition from other companies developing therapies in the oncology and neurodegeneration space could limit market share and thus impact Arvinas' ability to secure strong revenue growth.
  
• Arvinas is facing financial risks associated with the scale-up required for potential commercialization. Increases in general and administrative costs aimed at preparing for commercial operations could put pressure on net margins if revenue growth does not meet expectations.
  
• The company's liquidity is positioned to support operations into 2027, but unexpected additional R&D expenses or unsuccessful trial outcomes could strain resources and potentially impact earnings or require additional capital raises.

Valuation

• The analysts have a consensus price target of $36.222 for Arvinas 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 $110.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $202.1 million, earnings will come to $39.9 million, and it would be trading on a PE ratio of 75.0x, assuming you use a discount rate of 6.2%.
• Given the current share price of $7.65, the analyst price target of $36.22 is 78.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.