We Might See A Profit From Pharnext SA (EPA:ALPHA) Soon

With the business potentially at an important milestone, we thought we'd take a closer look at Pharnext SA's (EPA:ALPHA) future prospects. Pharnext SA, a clinical-stage biopharmaceutical company, develops therapies for orphan and common neurodegenerative diseases in France. With the latest financial year loss of €23m and a trailing-twelve-month loss of €20m, the €67m market-cap company alleviated its loss by moving closer towards its target of breakeven. Many investors are wondering about the rate at which Pharnext will turn a profit, with the big question being “when will the company breakeven?” In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

View our latest analysis for Pharnext

Consensus from 2 of the French Biotechs analysts is that Pharnext is on the verge of breakeven. They expect the company to post a final loss in 2019, before turning a profit of €3.1m in 2020. So, the company is predicted to breakeven approximately a year from now or less! At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 18%, which is relatively reasonable. However, if this rate turns out to be too buoyant, the company may become profitable later than analysts predict.

Given this is a high-level overview, we won’t go into details of Pharnext's upcoming projects, though, keep in mind that by and large a biotech has lumpy cash flows which are contingent on the product type and stage of development the company is in. This means a double-digit growth rate is not unusual, especially if the company is currently in an investment period.

Before we wrap up, there’s one issue worth mentioning. Pharnext currently has negative equity on its balance sheet. Accounting methods used to deal with losses accumulated over time can cause this to occur. This is because liabilities are carried forward into the future until it cancels. Oftentimes, losses exist only on paper but other times, it can be a red flag.

Next Steps:

This article is not intended to be a comprehensive analysis on Pharnext, so if you are interested in understanding the company at a deeper level, take a look at Pharnext's company page on Simply Wall St. We've also compiled a list of pertinent aspects you should further research:

1. Historical Track Record: What has Pharnext's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Pharnext's board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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