FDA Approval And Ipsen Licensing Will Expand Pediatric Treatment Options

Key Takeaways

• FDA approval and the launch of OJEMDA boost long-term revenue growth, addressing unmet medical needs and strong market uptake in pediatric glioma.
  
• The Ipsen licensing deal and DAY301 acquisition enhance revenue streams and earnings growth through geographic expansion and pipeline diversification.
  
• Potential slow market adoption and variability in clinical trial timing may lead to inconsistent revenue streams and impact future earnings growth for the company.

Catalysts

A commercial-stage company, focused on advancing class medicines for childhood and adult diseases with equal intensity in the United States.

• The FDA approval and subsequent launch of OJEMDA for pediatric low-grade glioma are expected to drive long-term revenue growth due to the unmet medical need addressed by this treatment and its strong market uptake.
  
• The ongoing FIREFLY-2 clinical trial and the anticipated full enrollment by the first half of 2026 will likely contribute to future earnings growth by expanding the indications for OJEMDA.
  
• The exclusive licensing agreement with Ipsen for ex-U.S. rights to OJEMDA could substantially increase revenue streams through geographic expansion pending regulatory approvals.
  
• Improvements in gross to net due to CMS's designation of OJEMDA as exclusively pediatric, combined with effectively managed operating expenses, are catalysts for improving net margins moving forward.
  
• The acquisition of DAY301 and its first and best-in-class potential in targeting PTK7 in solid tumors could significantly enhance Day One's pipeline, leading to potential future revenue diversification and earnings growth.

Day One Biopharmaceuticals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Day One Biopharmaceuticals's revenue will grow by 44.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -72.8% today to 7.9% in 3 years time.
• Analysts expect earnings to reach $31.2 million (and earnings per share of $0.27) by about April 2028, up from $-95.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $86.4 million in earnings, and the most bearish expecting $-122.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 147.2x on those 2028 earnings, up from -8.2x today. This future PE is greater than the current PE for the US Biotechs industry at 20.3x.
• 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 6.41%, as per the Simply Wall St company report.

Day One Biopharmaceuticals Future Earnings Per Share Growth

Risks

• The potential for limited market adoption and penetration, especially among Priority 2 and 3 accounts, could lead to slower revenue growth if prescribers are hesitant or require more time to adopt OJEMDA. This could impact future revenue projections.
  
• The dependency on continued high new patient start rates and the transition of off-label to on-label usage may result in inconsistent revenue streams if not achieved, impacting the company's net margins over time.
  
• Variability in clinical trial timing and enrollment, such as the FIREFLY-2 timing shifting to the first half of 2026, could delay potential earnings growth associated with any new product approvals or expanded indications.
  
• Stock inventory levels are set to grow proportionally with patient scripts, meaning any eventual reduction in the patient growth rate might lead to decreased sales, affecting revenue stability.
  
• Financial assumptions regarding gross to net improvements from exclusive pediatric designation are optimistic and might fluctuate due to changes in the payer mix or regulatory adjustments, impacting net earnings.

Valuation

• The analysts have a consensus price target of $30.75 for Day One Biopharmaceuticals 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 $36.0, and the most bearish reporting a price target of just $21.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $395.4 million, earnings will come to $31.2 million, and it would be trading on a PE ratio of 147.2x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of $7.74, the analyst price target of $30.75 is 74.8% 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.