Treprostinil Dependence And Litigation Risks Will Undermine Long Term Pulmonary Hypertension Prospects

Catalysts

About Liquidia

Liquidia develops and commercializes inhaled treprostinil therapies for pulmonary hypertension and related lung diseases.

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

• The current surge in YUTREPIA adoption could prove front loaded if physician awareness and prescriber breadth plateau, leading to slower incremental patient additions and stalling revenue growth as the initial high demand normalizes.
• Heavy dependence on a single drug franchise in a niche pulmonary hypertension market leaves the company exposed if clinical practice shifts toward alternative mechanisms or competing inhaled options, which could pressure long term revenue durability and earnings visibility.
• Planned indication expansions into PH-ILD, IPF, PPF and other chronic lung conditions may encounter more complex trial execution, tougher regulatory standards and a higher bar for differentiation, which could delay launches and depress future top line growth.
• Scaling L606 into a global pivotal program increases fixed R&D and commercialization commitments at a time when pricing pressure from large payers and parity contracting could compress net pricing, dampening margins and EBITDA even if volumes grow.
• Potential adverse litigation outcomes in the treprostinil space, including market withdrawal, label restrictions or royalty obligations, could reduce accessible market size or siphon economics from YUTREPIA sales, materially impacting net income and cash generation.

Assumptions

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

• The bearish analysts are assuming Liquidia's revenue will grow by 100.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -179.3% today to 4.2% in 3 years time.
• The bearish analysts expect earnings to reach $23.4 million (and earnings per share of $0.27) by about December 2028, up from $-124.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $614.1 million.
• 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 82.1x on those 2028 earnings, up from -24.2x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.8x.
• The bearish 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?

• YUTREPIA is showing rapid early adoption with more than 1,500 patients on therapy, over 2,000 unique prescriptions and an 85 percent referral to start conversion rate. If this is sustained as breadth and depth among prescribers increase, it could drive structurally higher long term revenue than currently assumed, supporting the share price.
• Management already achieved positive adjusted EBITDA of 10.1 million dollars in the first full quarter of launch, reached the first month of positive net cash flow and ended the quarter with 157.5 million dollars of cash on hand. Taken together, these factors suggest operating leverage and balance sheet strength that could support expanding net margins and earnings.
• Securing contracts with the three largest commercial payers and the removal of new to market blocks, combined with strong patient support services, reduces access friction over time. This could enhance script pull through, stabilize pricing relative to peers and underpin durable revenue growth and gross margins.
• Long term secular growth in PAH and PH ILD treatment, plus planned clinical expansion into IPF, PPF, PH COPD and other indications alongside the next generation L606 program, create multiple avenues for indication and market expansion. This could significantly increase the addressable market and lift long run revenue and earnings power.
• Competitive positioning appears to be strengthening as YUTREPIA captures an outsized share of recent market growth versus Tyvaso products and is perceived by physicians as easier to initiate, faster to titrate and better tolerated. This could translate into growing market share, improving operating scale and sustained improvement in net margins and earnings.

Valuation

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

• The assumed bearish price target for Liquidia is $16.99, which represents up to two standard deviations below 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 more bearish 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 bearish analyst cohort, you'd need to believe that by 2028, revenues will be $555.6 million, earnings will come to $23.4 million, and it would be trading on a PE ratio of 82.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $34.53, the analyst price target of $16.99 is 103.3% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• 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.