Enobosarm Phase III And Sabizabulin Tests Will Yield Mixed Prospects

Key Takeaways

• Successful clinical trials indicate potential for regulatory approval and commercialization, enhancing future revenue and earnings.
  
• Strategic focus on drug development and novel formulations could improve operational efficiency and uncover new market opportunities.
  
• Veru's reliance on successful enobosarm trials, coupled with financial instability and strategic missteps, poses significant risks to its revenue and operational sustainability.

Catalysts

A late clinical stage biopharmaceutical company, focuses on developing medicines for treatment of metabolic diseases, oncology, and viral-induced acute respiratory distress syndrome (ARDS).

• Positive results from the Phase 2b QUALITY clinical study for enobosarm as an adjunct to GLP-1 therapy in obese patients suggest potential for increased demand, likely boosting future revenue.
  
• Advancing the Phase 2b extension trial and moving towards a Phase III study indicates a path to regulatory approval and commercialization, potentially leading to increased earnings.
  
• Selling the FC2 female condom business concentrates resources on drug development, which could improve operational efficiency and net margins.
  
• The ongoing development of a novel enobosarm modified release oral formulation presents future patent opportunities, potentially enhancing revenue through commercialization.
  
• Exploring a new application for sabizabulin in treating atherosclerotic cardiovascular disease could open a significant market opportunity, contributing to potential revenue growth.

Veru Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Veru's revenue will decrease by 16.0% annually over the next 3 years.
• Analysts are not forecasting that Veru will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Veru's profit margin will increase from -189.2% to the average US Pharmaceuticals industry of 20.0% in 3 years.
• If Veru's profit margin were to converge on the industry average, you could expect earnings to reach $2.0 million (and earnings per share of $0.01) by about May 2028, up from $-31.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 283.9x on those 2028 earnings, up from -2.5x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 17.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Veru Future Earnings Per Share Growth

Risks

• The company has a significant dependency on its Phase III enobosarm studies to succeed without comprehensive long-term safety data currently available, which could affect approval timelines and revenue prospects.
  
• Veru's financial status shows the company is not profitable and has negative cash flow from operations, highlighting potential risks to sustain operations without the need for further capital, impacting their net margins.
  
• The sale of the FC2 female condom business resulted in a reported loss of $4.2 million, indicating potential strategic missteps or financial maneuvers that might not fully align with expected market outcomes, thus impacting net earnings.
  
• GI side effects are being observed as a significant cause for study dropouts in ongoing trials, which may reduce the likelihood of commercial success and subsequent revenue from enobosarm if similar issues arise on a broader scale.
  
• Despite approval for Colchicine as the first anti-inflammatory drug for atherosclerotic cardiovascular disease, the potential adoption of sabizabulin as a safer alternative is still under investigation, and any delay or unmet expectations in these studies could hinder further investment and revenue growth.

Valuation

• The analysts have a consensus price target of $3.25 for Veru 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 $4.0, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.0 million, earnings will come to $2.0 million, and it would be trading on a PE ratio of 283.9x, assuming you use a discount rate of 6.2%.
• Given the current share price of $0.55, the analyst price target of $3.25 is 83.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.