Treprostinil Platform Expansion Into Lung Diseases Will Drive Powerful Long Term Upside

Catalysts

About Liquidia

Liquidia develops and commercializes inhaled treprostinil therapies that aim to transform treatment standards in pulmonary hypertension and related lung diseases.

What are the underlying business or industry changes driving this perspective?

• Rapid adoption of YUTREPIA as a preferred prostacyclin option in PAH and PH-ILD, with high conversion of referrals to starts and growing prescriber breadth, is positioning the brand for sustained double digit revenue growth as patient volumes compound over time.
• Growing recognition that higher, better tolerated treprostinil exposure improves outcomes, combined with strong real world feedback on YUTREPIA’s ease of use and titration, may support pricing power and mix improvement, which could expand gross margins and earnings.
• Expanding use of inhaled treprostinil across broader fibrotic and inflammatory lung conditions such as IPF, PPF and PH-COPD is creating a multi-indication franchise opportunity that can meaningfully increase Liquidia’s addressable market and long term revenue base.
• Early profitability and positive adjusted EBITDA in the first full launch quarter, together with disciplined R&D and SG&A spending, are creating operating leverage that can support faster growth in operating income and net margins as sales scale.
• Advancement of next generation L606, with reported tolerability and efficacy signals and a convenient twice daily dosing profile, supports a competitive position that can extend the lifecycle of the treprostinil platform and influence long term earnings power.

Assumptions

This narrative explores a more optimistic perspective on Liquidia compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Liquidia's revenue will grow by 143.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -179.3% today to 60.3% in 3 years time.
• The bullish analysts expect earnings to reach $603.6 million (and earnings per share of $6.84) by about December 2028, up from $-124.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $23.0 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from -24.1x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 19.5x.
• The bullish analysts expect the number of shares outstanding to grow by 1.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The ongoing patent litigation with United Therapeutics creates a wide range of downside outcomes, including YUTREPIA being removed from the market or being subjected to a royalty structure, which could sharply curtail long term revenue growth and compress net margins and earnings.
• Liquidia’s heavy dependence on a single product, YUTREPIA, in a relatively concentrated PAH and PH-ILD market leaves the company exposed to competitive responses from entrenched players like Tyvaso and potential new entrants, which could slow prescription growth and pressure future revenue and earnings expansion.
• Long term payer and reimbursement dynamics, including commercial contracting rebates, Medicare policy, and the growing use of voucher programs, may erode pricing power over time, leading to lower realized pricing per script and constraining gross margins and sustainable net margin improvement.
• The strategy to expand YUTREPIA and next generation L606 into additional indications such as IPF, PPF, PH-COPD and Raynaud’s depends on positive clinical data and regulatory success, and any trial setbacks or smaller than expected real world uptake in these chronic diseases would limit the anticipated expansion of the addressable market and cap long term revenue and earnings potential.
• The rapid early launch trajectory, including high referral to start conversion and aggressive market share capture, may prove difficult to maintain as the market matures and growth normalizes, introducing the risk of slower patient additions, rising commercial spend to sustain momentum and ultimately weaker operating leverage and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Liquidia is $67.0, which represents up to two standard deviations above the consensus price target of $44.0. This valuation is based on what can be assumed as the expectations of Liquidia's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $67.0, and the most bearish reporting a price target of just $16.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $603.6 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $34.41, the analyst price target of $67.0 is 48.6% 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.