Korlym's Patent Victory And Diverse Clinical Advances Promise Bright Financial Horizons

Key Takeaways

• Strong product demand and effective market penetration indicated by significant revenue growth, alongside progress in clinical development programs for new treatments.
  
• Legal actions to protect a key patent and expansion into oncology expected to secure long-term revenue streams and diversify earnings potential.
  
• Legal, market, and regulatory risks could significantly impact Corcept Therapeutics' revenue and earnings, especially related to Korlym's sales and introducing relacorilant.

Catalysts

Engages in discovery and development of drugs for the treatment of severe endocrinologic, oncologic, metabolic, and neurologic disorders in the United States.

• Substantial revenue growth in the second quarter of 2024, with a 39% increase compared to the previous year, suggesting strong product demand and effective market penetration, likely to boost future earnings.
  
• Litigation against Teva to protect Korlym's patent, with a positive outcome potentially preventing generic competition until 2037, could secure long-term revenue streams by maintaining market exclusivity.
  
• Increased screening and treatment of hypercortisolism, driven by awareness from the CATALYST study findings, is expected to expand the patient base and drive revenue growth through higher product demand.
  
• Progress in clinical development programs, especially the promising results from the GRACE trial for relacorilant, indicates potential market expansion into Cushing's syndrome treatment, improving net margins with a new, possibly premium-priced product.
  
• Expansion into oncology with relacorilant, particularly in platinum-resistant ovarian cancer, could open new revenue streams and diversify earnings potential beyond endocrinology.

Assumptions

• Analysts are assuming Corcept Therapeutics's revenue will grow by 21.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.9% today to 38.3% in 3 years time.
• Analysts expect earnings to reach $391.3 million (and earnings per share of $3.28) by about September 2027, up from $125.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $254.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.8x on those 2027 earnings, down from 28.7x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 17.8x.
• Analysts expect the number of shares outstanding to grow by 1.9% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 5.8%, as per the Simply Wall St company report.

Risks

• The ongoing legal battle with Teva regarding the marketing of a generic version of Korlym might lead to financial uncertainties and potential revenue loss if Corcept does not prevail, impacting its profit margins and earnings due to potential sales erosion.
  
• The dependence on Korlym’s commercial success, while a generic version is already in the market, introduces significant risk to revenue streams, particularly if more generic competitors are approved, impacting overall market share and pricing power.
  
• The anticipated introduction of relacorilant and its pricing strategy, especially given the uncertain size of the hypercortisolism market, poses a risk to expected revenue growth and net margins. Incorrect pricing or market acceptance could affect the ROI of this significant R&D investment.
  
• Expanding the target market through increased screening for hypercortisolism might not yield the expected increase in Korlym prescribers or patients due to potential barriers in diagnosis practices, acceptance among diabetologists, or competition from other treatments, impacting projected revenue growth.
  
• The company’s strategy to include GRADIENT trial data in the new drug application for relacorilant, delaying submission to the fourth quarter, adds regulatory risk. This delay could impact the timing of market entry and consequently the potential revenue and earnings from relacorilant.

Valuation

• The analysts have a consensus price target of $59.6 for Corcept Therapeutics 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 $78.0, and the most bearish reporting a price target of just $38.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.0 billion, earnings will come to $391.3 million, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 5.8%.
• Given the current share price of $34.38, the analyst's price target of $59.6 is 42.3% 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.