Long-Term Uptake Of Prenatal And Oncology Testing Will Support A Stronger Business Profile

Catalysts

About BillionToOne

BillionToOne is a molecular diagnostics company focused on prenatal screening and oncology testing using its single molecule next generation sequencing platform.

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

• Growing adoption of noninvasive prenatal testing and broader carrier screening, supported by UNITY publications and an exclusive Johnson & Johnson companion diagnostic agreement, can support higher test volumes and ASPs. This would feed directly into revenue and gross margin.
• Clinician interest in liquid biopsy for therapy selection and treatment monitoring, coupled with data showing higher detection of pathogenic variants for Northstar Select, can support deeper penetration in oncology testing. This is already contributing to oncology revenue growth and could have a meaningful effect on total earnings.
• Expanded reimbursement coverage, including approximately 235 million contracted lives, more Medicaid programs loading the UNITY Carrier panel PLA code and in house reimbursement efforts, can improve cash collections and ASPs. This directly supports revenue and operating margin.
• Investments in Epic Aura EMR integration aimed at easing ordering in large health systems can address what management calls a key impediment to UNITY adoption. This may support higher test volumes per account and better utilization of existing lab capacity, potentially supporting both revenue and net margins.
• Planned Medicare coverage for Northstar Response and a later launch of a tumor naive MRD assay, if achieved, would position BillionToOne within expanding use cases for liquid biopsy. This could increase oncology ASPs and volumes and influence both segment level revenue and consolidated earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming BillionToOne's revenue will grow by 37.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.4% today to 10.6% in 3 years time.
• Analysts expect earnings to reach $69.6 million (and earnings per share of $1.08) by about January 2029, up from $-11.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 133.3x on those 2029 earnings, up from -354.8x today. This future PE is greater than the current PE for the US Healthcare industry at 23.3x.
• 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 broader prenatal testing market is already attracting larger incumbents, and management explicitly mentions new competitive fetal risk assessment launches. If rivals use their EMR integrations, larger sales forces, or pricing to win key health systems, BillionToOne could see slower UNITY adoption and pressure on ASPs, which would filter through into revenue growth and gross margin.
• Oncology is described as growing faster than prenatal and carries lower gross margins. If the long term mix continues to tilt toward oncology without a matching lift in oncology ASPs or cost per test reductions, the company could see overall margin pressure that limits future earnings expansion even if top line revenue remains healthy.
• Many of the longer term oncology and MRD opportunities still depend on future Medicare and MolDX coverage, along with additional clinical data. Any delay, denial, or narrower than expected coverage for Northstar Response or the planned tumor naive MRD assay could reduce the addressable reimbursed market, limiting oncology revenue and keeping net margins lower than hoped.
• The company is currently benefiting from expanded reimbursement, true up revenue, and higher prenatal ASPs. If payers reassess coverage, tighten policies on UNITY Carrier, or reduce reimbursement for specific codes, the ASP tailwind could stall or reverse, which would have a direct impact on revenue and gross margin.
• Management highlights relatively low historical clinical spend compared with some peers and plans to increase investment. If future oncology and MRD studies need to be larger or longer than currently anticipated to satisfy physicians and payers, R&D and SG&A could rise faster than revenue, eroding operating margin and earnings despite the current profitability.

Valuation

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

• The analysts have a consensus price target of $135.29 for BillionToOne 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 $160.0, and the most bearish reporting a price target of just $110.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $659.7 million, earnings will come to $69.6 million, and it would be trading on a PE ratio of 133.3x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $85.95, the analyst price target of $135.29 is 36.5% 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.