Aerie Pharmaceuticals, Inc.'s (NASDAQ:AERI) Path To Profitability

We feel now is a pretty good time to analyse Aerie Pharmaceuticals, Inc.'s (NASDAQ:AERI) business as it appears the company may be on the cusp of a considerable accomplishment. Aerie Pharmaceuticals, Inc., an ophthalmic pharmaceutical company, focuses on the discovery, development, and commercialization of first-in-class therapies for the treatment of glaucoma, dry eye, retinal diseases, and other eye diseases. On 31 December 2020, the US$861m market-cap company posted a loss of US$183m for its most recent financial year. The most pressing concern for investors is Aerie Pharmaceuticals' path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.

View our latest analysis for Aerie Pharmaceuticals

Aerie Pharmaceuticals is bordering on breakeven, according to the 12 American Pharmaceuticals analysts. They expect the company to post a final loss in 2022, before turning a profit of US$7.9m in 2023. So, the company is predicted to breakeven approximately 2 years from today. How fast will the company have to grow each year in order to reach the breakeven point by 2023? Working backwards from analyst estimates, it turns out that they expect the company to grow 65% year-on-year, on average, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

Given this is a high-level overview, we won’t go into details of Aerie Pharmaceuticals' upcoming projects, however, keep in mind that by and large pharmaceuticals, depending on the stage of product development, have irregular periods of cash flow. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

One thing we would like to bring into light with Aerie Pharmaceuticals is its debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Aerie Pharmaceuticals, so if you are interested in understanding the company at a deeper level, take a look at Aerie Pharmaceuticals' company page on Simply Wall St. We've also put together a list of key factors you should look at:

1. Valuation: What is Aerie Pharmaceuticals worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Aerie Pharmaceuticals is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Aerie Pharmaceuticals’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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