Licensing And EU Harmonization Will Open New Markets

Key Takeaways

• Transitioning to a commercial trait company and leveraging licensing agreements can unlock new revenue streams and enhance market penetration.
  
• Proprietary rapid trait development and strategic partnerships position Cibus for increased customer adoption and long-term growth in the gene-edited crop market.
  
• Leadership changes and strategic execution risks may affect Cibus' operational stability, earnings, and future profitability, requiring careful management to overcome financial deficits.

Catalysts

An agricultural biotechnology company, develops and licenses plant traits to seed companies for royalties.

• The company's transition from an agricultural trait development business to a commercial trait company is poised to unlock new revenue opportunities through licensing agreements and annual royalties on seed sales. This strategic shift is likely to contribute positively to future revenue streams.
  
• Recent advancements in the regulatory landscape, particularly in the EU, are expected to harmonize the global regulatory environment for gene-edited crops. This regulatory progress can potentially expand Cibus' global addressable market, enhancing future revenue potential and market penetration.
  
• Cibus' proprietary rapid trait development system (RTDS) offers a competitive advantage by enabling faster and more predictable trait development compared to traditional methods. This efficiency is expected to increase customer adoption and accelerate revenue growth.
  
• The ongoing development and commercialization of high-demand traits, such as herbicide tolerance in rice and pod shatter reduction in canola, strengthen Cibus' product portfolio. Successful commercialization of these traits is anticipated to improve revenue and profit margins.
  
• The continuous focus on strategic collaborations and partnerships, such as the one with Biographica for advanced disease resistance, positions Cibus to enhance its technological capabilities, potentially leading to innovative trait developments that could result in increased earnings and long-term growth.

Cibus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cibus's revenue will grow by 164.5% annually over the next 3 years.
• Analysts are not forecasting that Cibus will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Cibus's profit margin will increase from -5784.9% to the average US Biotechs industry of 14.0% in 3 years.
• If Cibus's profit margin were to converge on the industry average, you could expect earnings to reach $12.3 million (and earnings per share of $0.2) by about August 2028, up from $-274.8 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 114.5x on those 2028 earnings, up from -0.3x today. This future PE is greater than the current PE for the US Biotechs industry at 15.6x.
• 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 12.1%, as per the Simply Wall St company report.

Cibus Future Earnings Per Share Growth

Risks

• Leadership changes can bring about uncertainties in strategic execution, potentially impacting the company's operational stability and future revenue trajectories.
  
• The transition from a trait development company to a commercial trait company is a critical inflection point that may involve significant execution risk, potentially affecting earnings if not managed properly.
  
• Cibus relies on the successful commercialization of its traits through licensing agreements with seed companies, which could be impacted by regulatory challenges or slower adoption, affecting projected royalty revenues.
  
• The company's cash position only extends funding into the late third quarter of 2025, posing a risk to its ability to continue developing new products without securing additional financing, which could impact future profitability.
  
• The company has yet to achieve profitability, reporting net losses, and while cost-saving measures have been implemented, continued financial deficits could strain resources needed for ongoing R&D and innovation, influencing long-term margins and earnings.

Valuation

• The analysts have a consensus price target of $16.375 for Cibus 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 $25.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $87.9 million, earnings will come to $12.3 million, and it would be trading on a PE ratio of 114.5x, assuming you use a discount rate of 12.1%.
• Given the current share price of $1.47, the analyst price target of $16.38 is 91.0% 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.