Regulatory Risks Will Limit Hormone Therapy But Telemedicine Will Help

Key Takeaways

• Heavy dependence on hormone therapy heightens risk from market shifts, regulatory scrutiny, and clinic retention challenges, potentially limiting consistent revenue and margin growth.
  
• Gains from industry trends and operational restructuring face headwinds from legal, reputational, and onboarding concerns, which could constrain long-term financial performance.
  
• Continued revenue pressure from core business declines and operational disruptions, with limited offset from supplements, raises earnings volatility and risks to long-term financial performance.

Catalysts

Operates in practice-building business within the hormone optimization space.

• While Biote is implementing a comprehensive organizational restructure aimed at driving sustainable long-term growth and operational efficiency, the company's narrowly-focused product portfolio in hormone replacement therapy exposes it to concentration risk, which can negatively affect both revenue growth and net margins if the adoption of non-pharmaceutical alternatives accelerates.
  
• Although an aging U.S. population coupled with greater healthcare consumerism could significantly boost demand for hormone optimization and personalized wellness, Biote's continued clinic attrition, slower new provider onboarding, and salesforce disruptions have so far undermined near-term top-line growth, raising questions about when these demographic tailwinds will genuinely translate to meaningful revenue expansion.
  
• Even as Biote benefits from secular advances such as the destigmatization of hormone therapy and potential growth in its addressable market, heightened regulatory scrutiny and the threat of stricter oversight in the wellness and hormone therapy sectors may result in increased compliance costs, potentially compressing earnings and limiting operating leverage over time.
  
• While the ongoing shift toward telemedicine and digital health integration has the potential to make Biote's offerings more scalable, Biote's limited geographic reach and issues with clinic retention could constrain its ability to capitalize on these industry tailwinds, leading to uneven and potentially volatile revenue growth.
  
• Despite showing improvements in gross margins through vertical integration in manufacturing and SG&A reductions, persistent questions around the long-term safety and efficacy of hormone replacement therapies could bring about elevated legal and reputational risks, which may weigh on Biote's future net margins and overall financial profile.

biote Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on biote compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming biote's revenue will grow by 1.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 15.7% today to 4.6% in 3 years time.
• The bearish analysts expect earnings to reach $9.6 million (and earnings per share of $0.3) by about August 2028, down from $31.3 million 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 26.3x on those 2028 earnings, up from 2.9x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 18.4x.
• Analysts expect the number of shares outstanding to grow by 2.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

biote Future Earnings Per Share Growth

Risks

• Persistent declines in procedure revenue, combined with higher-than-expected clinic attrition and slower new clinic additions, indicate potential difficulties in driving top-line growth, which could negatively impact future revenues.
  
• Disruptive organizational restructuring, including sales force reorganization and changes to compensation plans, has resulted in short-term operational inefficiencies; prolonged disruption could reduce sales productivity and weigh on net earnings.
  
• The company's heavy reliance on the hormone replacement procedure business, which is experiencing volume pressure, increases concentration risk and exposes Biote to amplified negative impact if secular trends or regulations reduce demand, threatening both revenue and net margins.
  
• Absence of clear evidence that recent strategic and cultural changes have begun to reverse negative trends raises questions about the timing and effectiveness of these initiatives, thereby creating risk for earnings volatility and future financial performance.
  
• Despite growth in dietary supplements, this segment is not yet material enough to offset softness in core procedures, so continued headwinds in Biote's primary business line could pressure overall cash flow and limit long-term earnings growth.

Valuation

• The assumed bearish price target for biote is $4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of biote'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 $6.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $210.8 million, earnings will come to $9.6 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $2.88, the bearish analyst price target of $4.0 is 28.0% 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.