FDA Approval Will Open $1 Billion Dermatology Market

Key Takeaways

• Emrosi's successful launch and growing market adoption are expected to drive significant revenue growth, improved operating leverage, and expanding net margins.
  
• Strategic international out-licensing could deliver non-dilutive income, strengthen cash flow, and support global expansion without requiring additional capital.
  
• Sluggish adoption of new products, mounting competition, and payer hurdles create uncertainty around stable growth, margins, and visibility into future financial performance.

Catalysts

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

• The recent FDA approval and market launch of Emrosi, a best-in-class oral rosacea treatment with superior head-to-head Phase III results versus the current standard of care, positions the company to significantly increase revenue as it enters a large and growing $1 billion+ market driven by the aging population and greater demand for effective dermatological indications.
  
• Increasing commercial and Medicare payer coverage for Emrosi is expected to ramp up substantially over the next 12–18 months, improving patient access and driving prescription volumes, which should accelerate top-line revenue growth and support operating leverage as fixed costs remain stable.
  
• The JAMA Dermatology publication and additional upcoming peer-reviewed articles about Emrosi's efficacy and quality-of-life improvements will boost awareness among prescribers, leveraging advancements in medical science to expand adoption and further broaden the patient base, positively impacting future revenue and earnings visibility.
  
• The company's ability to launch Emrosi without adding headcount, utilizing its established dermatology sales infrastructure, demonstrates the potential for meaningful operating margin expansion as new products capitalize on existing SG&A investments, leading to improved net margins and earnings scalability.
  
• Out-licensing Emrosi's commercial rights internationally presents an opportunity for non-dilutive income via milestone payments and royalties, lowering the need for further capital raises and benefiting cash flow, while international expansion capitalizes on rising global healthcare spending and demand for innovative therapies.

Fortress Biotech Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fortress Biotech's revenue will grow by 49.5% annually over the next 3 years.
• 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 -87.8% to the average US Biotechs industry of 10.5% in 3 years.
• If Fortress Biotech's profit margin were to converge on the industry average, you could expect earnings to reach $20.4 million (and earnings per share of $0.57) by about July 2028, up from $-50.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, up from -1.1x today. This future PE is greater than the current PE for the US Biotechs industry at 16.5x.
• 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 8.28%, 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% of commercial lives and 4% of Medicare lives currently covered, could limit near-term adoption and delay meaningful revenue growth and operating cash flow for the company.
  
• Erosion of legacy product revenues due to increased competition from generics-especially for products like Targadox and Accutane-poses a risk to the stability and growth of overall company revenues.
  
• Continued dependence on high rebate costs and volume declines in the existing portfolio, without clear visibility on rapid uptake for new launches, could lead to persistent pressure on net margins and operating earnings.
  
• The company is not providing financial guidance for 2025 until there's greater clarity on Emrosi's initial launch performance and payer negotiations, indicating significant uncertainty around near-term revenue, cash flows, and earnings forecasts.
  
• Mandatory step edits and prior authorization requirements by payers could make it harder for Emrosi to gain widespread or unrestricted access, hampering its projected peak sales and putting further downward pressure on future revenues and earnings.

Valuation

• The analysts have a consensus price target of $10.0 for Fortress Biotech 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 $16.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $193.1 million, earnings will come to $20.4 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 8.3%.
• Given the current share price of $1.97, the analyst price target of $10.0 is 80.3% 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.