MilliporeSigma And Lonza Collaborations Will Expand Market Reach

Key Takeaways

• The global agreement with MilliporeSigma is set to expand Growth Direct's market reach and potentially enhance supply chain efficiency, boosting future revenues.
  
• Collaborations with MilliporeSigma and Lonza aim to improve product margins and establish Rapid Micro Biosystems as an industry standard, driving revenue growth.
  
• Dependence on few large orders, negative cash flow, and uncertain cost-reduction efforts threaten financial stability and profitability amid ongoing high expenditures.

Catalysts

A life sciences technology company, provides products for the detection of microbial contamination in the manufacture of pharmaceutical, medical devices, and personal care products in the United States, Germany, Switzerland, Japan, and internationally.

• The global Distribution and Collaboration Agreement with MilliporeSigma is expected to significantly expand Growth Direct's reach and accessibility, increasing the total addressable market, which should drive higher future revenue growth.
  
• The partnership with MilliporeSigma aims to bring efficiencies to Rapid Micro Biosystems' supply chain, potentially reducing product costs and enhancing gross margins over time.
  
• The commitment from MilliporeSigma to purchase a minimum number of Growth Direct Systems, heavily weighted towards the second year of the partnership, is expected to have a meaningful revenue impact starting in 2026.
  
• The collaboration with Lonza for automation of their environmental monitoring QC process using Growth Direct reinforces Rapid Micro Biosystems’ position as an industry standard and is expected to lead to more sales and placements, boosting future revenues.
  
• The ongoing innovation and joint development efforts with MilliporeSigma for new products and enhancement of existing ones are anticipated to create additional revenue streams and improve net margins due to more efficient production and service offerings.

Rapid Micro Biosystems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rapid Micro Biosystems's revenue will grow by 19.0% annually over the next 3 years.
• Analysts are not forecasting that Rapid Micro Biosystems will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Rapid Micro Biosystems's profit margin will increase from -167.2% to the average US Life Sciences industry of 12.9% in 3 years.
• If Rapid Micro Biosystems's profit margin were to converge on the industry average, you could expect earnings to reach $6.1 million (and earnings per share of $0.14) by about May 2028, up from $-46.9 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 70.5x on those 2028 earnings, up from -2.2x today. This future PE is greater than the current PE for the US Life Sciences industry at 37.8x.
• Analysts expect the number of shares outstanding to grow by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.88%, as per the Simply Wall St company report.

Rapid Micro Biosystems Future Earnings Per Share Growth

Risks

• Despite the optimistic outlook, the absence of any assumed contribution from the MilliporeSigma collaboration in the 2025 guidance indicates uncertainty in revenue growth in the near term. This could impact revenue if the collaboration does not ramp up as expected.
  
• The dependency on a few large multisystem orders, which have complex purchasing processes, introduces uncertainty in order timing, potentially impacting revenue forecasts and contributing to cash flow volatility.
  
• The company has a projected negative cash flow of approximately $30 million for 2025, reflecting ongoing operational challenges and increasing pressure on maintaining the available cash reserves, which could affect overall financial stability.
  
• Product margins remain negative, and while there are efforts underway to reduce product costs, their success is not guaranteed, potentially impacting gross margins and overall profitability if targets are not met.
  
• The capital expenditure forecast of $2 million alongside a net loss of $9.7 million in Q4 2024 suggests ongoing high expenditure in relation to the company's scale, potentially hampering net margins if anticipated cost reductions and revenue targets are not achieved.

Valuation

• The analysts have a consensus price target of $8.0 for Rapid Micro Biosystems based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $47.3 million, earnings will come to $6.1 million, and it would be trading on a PE ratio of 70.5x, assuming you use a discount rate of 6.9%.
• Given the current share price of $2.35, the analyst price target of $8.0 is 70.6% 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.