Emrosi Launch Will Expand Rosacea Treatment Options

Key Takeaways

• Emrosi's launch and favorable Phase III results are expected to boost revenue growth and enhance net margins through existing operations.
  
• Expansion plans and international licensing opportunities could drive significant long-term revenue and profitability growth.
  
• Declining revenue, increased losses, and limited coverage for Emrosi pose challenges to Journey Medical's profitability and future financial stability.

Catalysts

Focuses on the development and commercialization of pharmaceutical products for the treatment of dermatological conditions in the United States.

• The launch of Emrosi, a best-in-class oral treatment for rosacea, is expected to significantly increase Journey Medical's product revenues and operating cash flow, impacting future revenue growth positively.
  
• Completion of all financial obligations for Emrosi's regulatory fees clears the way for its commercial debut, allowing the company to leverage existing commercial operations without additional sales force expenses, likely enhancing net margins.
  
• Emrosi enters a $1 billion-plus treatment category with favorable Phase III results, providing potential for significant revenue growth and operating leverage as it could achieve peak annual sales of $200 million in the U.S. and $100 million internationally, boosting earnings.
  
• Anticipated expansion in payer coverage and prescriber demand for Emrosi in 2025, driven by positive Phase III trial results and head-to-head superiority over current treatments, is expected to drive revenue and earnings growth.
  
• International market expansion through potential licensing of Emrosi's commercial rights, providing additional revenue streams and shareholder value, will further improve long-term revenue and profitability.

Journey Medical Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Journey Medical's revenue will grow by 40.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -26.1% today to 24.6% in 3 years time.
• Analysts expect earnings to reach $38.0 million (and earnings per share of $1.82) by about May 2028, up from $-14.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $68.6 million in earnings, and the most bearish expecting $7.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, up from -11.9x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 17.2x.
• 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 6.21%, as per the Simply Wall St company report.

Journey Medical Future Earnings Per Share Growth

Risks

• Journey Medical's total net product revenue decreased from $59.7 million in 2023 to $55.1 million in 2024 due to higher rebate costs and lower unit volumes from legacy products, which could impact future revenue growth.
  
• The company reported a net loss to common shareholders of $14.7 million in 2024, compared to a net loss of $3.9 million in 2023, indicating increasing challenges in achieving profitability.
  
• Journey Medical has only a 20% commercial payer coverage and 4% Medicare coverage for its new product Emrosi, which may limit revenue potential if coverage does not expand as anticipated.
  
• As of December 31, 2024, Journey Medical's cash balance decreased to $20.3 million from $27.4 million in 2023, potentially impacting their ability to fund future operations and growth initiatives without additional capital.
  
• The company's future financial performance heavily depends on Emrosi’s success, yet market penetration and achieving expected sales levels could be uncertain due to factors like competition and payer negotiation outcomes, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $9.875 for Journey Medical 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 $11.0, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $154.4 million, earnings will come to $38.0 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 6.2%.
• Given the current share price of $7.54, the analyst price target of $9.88 is 23.6% 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.