Delayed Payer Approvals Will Curtail Revenues But Offer Recovery

Key Takeaways

• Revenue growth depends on payer coverage and overcoming formulary, reimbursement, and regulatory hurdles, which may delay product adoption and impact margins.
  
• Intense competition, pricing pressure, and dependency on successful licensing and international partnerships threaten long-term profitability and earnings momentum.
  
• Heavy reliance on Emrosi amid slow market uptake and pricing pressures creates significant uncertainty for revenue stability, profitability, and future financial performance.

Catalysts

A biopharmaceutical company, engages in the development and commercialization of biopharmaceutical products.

• While Journey Medical is positioned to capitalize on the growing demand for novel therapies driven by an aging population, near-term revenue growth from Emrosi hinges on the pace of payer formulary additions, which typically take twelve to eighteen months and may face delays or restrictions, impacting the ramp in gross product revenue.
  
• Although continued advancements in personalized medicine and robust clinical results offer opportunities for market expansion, ongoing reimbursement challenges and dependence on commercial payer coverage could suppress net margins if adoption is limited by prior authorization or step edit hurdles.
  
• While the company benefits from operating leverage and cost controls-as seen in reduced SG&A and improved margins in some legacy products-intense pricing pressure and generic competition in dermatology could limit pricing power and erode margins across both new and existing product lines.
  
• Despite the potential upside from international licensing and expanding healthcare spending abroad, realizing the projected $100 million in international Emrosi sales is contingent on the successful execution of out-licensing agreements, which may be delayed or diluted by increased regulatory scrutiny and partner negotiations, impacting longer-term revenue contribution.
  
• Although the publication of positive Phase III clinical data in high-impact journals increases product visibility and physician interest, failure to secure sustained demand from both prescribers and payers-particularly given early-stage market adoption and required step edits-could result in slower-than-expected earnings growth and delay the achievement of sustainable profitability.

Fortress Biotech Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Fortress Biotech compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Fortress Biotech's revenue will grow by 47.1% annually over the next 3 years.
• The bearish analysts are not forecasting that Fortress Biotech will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Fortress Biotech's profit margin will increase from -33.4% to the average US Biotechs industry of 16.3% in 3 years.
• If Fortress Biotech's profit margin were to converge on the industry average, you could expect earnings to reach $30.7 million (and earnings per share of $0.85) by about August 2028, up from $-19.8 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 6.0x on those 2028 earnings, up from -3.2x today. This future PE is lower 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 8.41%, as per the Simply Wall St company report.

Fortress Biotech Future Earnings Per Share Growth

Risks

• Slow ramp-up in payer coverage for Emrosi, with only 20% commercial and 4% Medicare lives covered at launch and full peak coverage expected only 12 to 18 months post-launch, may delay revenue growth and impact near-term operating cash flow and net margins.
  
• Ongoing erosion in legacy product volumes, especially for brands like Targadox and ACCUTANE due to competition from generics and new market entrants, could reduce the stability of existing revenue streams and negatively affect overall earnings.
  
• Heavy dependence on the successful commercialization of Emrosi, with ambitious peak sales targets, increases risk if market adoption, payer reimbursement, or competition do not meet expectations, which could pressure future revenues and net profit goals.
  
• Absence of 2025 financial guidance and early-stage uncertainty in Emrosi's launch environment-highlighted by delayed visibility on prescription demand and payer contract outcomes-could result in volatile or unpredictable revenue and profitability in the near and mid-term.
  
• Industry-wide pricing pressures and the need for step edits (prior trials of generics or other oral agents before insurance will cover Emrosi) may cap net realized prices and sales volumes, limiting margin expansion and earnings growth even if top-line demand is strong.

Valuation

• The assumed bearish price target for Fortress Biotech 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 Fortress Biotech'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 $16.0, 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 $188.9 million, earnings will come to $30.7 million, and it would be trading on a PE ratio of 6.0x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $2.12, the bearish analyst price target of $4.0 is 47.0% 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.