Complex Neuroplastic Treatments And Clinic Risks Will Challenge Progress Yet Ultimately Support Long-Term Promise

Catalysts

About NRx Pharmaceuticals

NRx Pharmaceuticals is a clinical stage biopharmaceutical company developing neuroplasticity driven drugs and integrated clinic based treatments for severe mood and brain disorders.

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

• Although the company is positioned to benefit from a structural shift toward rapid acting, clinic delivered treatments for severe depression and suicidality, its current dependence on a small base of newly acquired HOPE clinics creates execution risk that could limit near term revenue scale and delay operating leverage.
• Despite growing medical and employer demand for therapies that restore workforce readiness in first responders and military personnel, slow payer adoption and complex reimbursement pathways for novel TMS and ketamine based protocols may cap the speed of revenue growth and pressure near term net margins.
• While NRX 100 and KETAFREE target a large and inadequately served market for safer, more scalable ketamine formulations, any delay or restrictive outcome in NDA or ANDA reviews, including uncertainty around the benzethonium chloride petition, could push out anticipated ketamine revenue streams and prolong losses.
• Although the D cycloserine plus TMS paradigm and the planned Phase 3 program for NRX 101 address an enormous population with depression, PTSD and bipolar depression, the need to prove durable real world outcomes and manage safety concerns around DCS could constrain adoption dynamics and limit upside to earnings from this indication.
• While the company is aligned with a long horizon trend toward biologically based treatment of behavioral and neurological conditions at scale, constrained cash resources, rising R&D and integration costs for additional clinic acquisitions could require dilutive capital raises that weigh on per share earnings even if top line revenues expand.

Assumptions

This narrative explores a more pessimistic perspective on NRx Pharmaceuticals 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 NRx Pharmaceuticals's revenue will grow by 1391.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -15727.3% today to 14.2% in 3 years time.
• The bearish analysts expect earnings to reach $114.0 million (and earnings per share of $1.91) by about December 2028, up from $-38.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $701.9 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 9.2x on those 2028 earnings, up from -1.6x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 19.7x.
• The bearish 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 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long-term shift toward neuroplastic, device based treatments could attract larger, better capitalized competitors into TMS and ketamine enabled care. This could erode HOPE Therapeutics clinic level pricing power and slow revenue growth from the current small base of Florida clinics, which would weigh on top line revenue and delay operating leverage in future earnings.
• Regulatory paths for NRX-100, KETAFREE and NRX-101 remain complex and dependent on accelerated approval frameworks and novel real world evidence. Any delay, refusal of a CNPV voucher, unfavorable ruling on the benzethonium chloride petition or rejection at NDA or ANDA review could push out monetization of the ketamine and DCS franchises, prolonging operating losses and depressing net margins.
• Payer and employer enthusiasm for rapid return to duty solutions for first responders and military personnel may not translate into broad or consistent reimbursement if long-term safety, durability of response or logistics of ONE-D TMS plus DCS are questioned. This could cap procedure volumes and reimbursement rates and in turn constrain revenue expansion and margin improvement.
• The business model relies heavily on continued acquisition and integration of small interventional psychiatric clinics to build a national network. Execution missteps, slower deal flow than the pipeline of targets suggests or underperforming acquired sites could limit the scale needed to absorb rising R and D and G and A expenses, pressuring both operating margins and future earnings.
• Despite a stronger near term cash position, the company remains loss making and is investing ahead of revenue in multiple Phase 3 programs and clinic build outs. In an adverse capital markets environment this could force dilutive equity raises or expensive financing that offset any benefit from future revenue growth at the per share earnings level.

Valuation

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

• The assumed bearish price target for NRx Pharmaceuticals is $25.0, which represents up to two standard deviations below the consensus price target of $36.5. This valuation is based on what can be assumed as the expectations of NRx Pharmaceuticals'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 $47.0, and the most bearish reporting a price target of just $25.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $803.1 million, earnings will come to $114.0 million, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $2.21, the analyst price target of $25.0 is 91.2% 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.