On Thursday, Tracon Pharmaceuticals (NASDAQ:TCON) experienced a revision in their stock outlook by H.C. Wainwright, with a significant adjustment to the price target. The firm has lowered the price target to $3.00 from the previous $6.00, while still maintaining a Buy rating on the company's shares. This adjustment comes as a result of a decreased probability of success (PoS) for the company's drug candidate, envafolimab.
The revised price target is based on probability-adjusted revenue forecasts for envafolimab, taking into account the new 20% PoS, down from the prior estimate of 35%. H.C. Wainwright's methodology includes using the net present value (NPV) of envafolimab revenue forecast through 2029, applying the updated PoS, and utilizing a 3x price/sales multiple.
The analyst firm employs a 20% discount rate for the NPV calculations for the pipeline, which falls within the typical range of 15-25% for products in development stages. The price-to-sales multiple of 3x is considered to be aligned with the industry standards for Tracon's peers, which typically ranges between 2-5x.
H.C. Wainwright forecasts that envafolimab will enter the market in 2026, projecting $44 million in revenue for that year, and anticipates that the revenue will grow to $176 million by 2029. The firm has chosen not to assign any value to other potential preclinical or early-stage programs within Tracon's portfolio at this time. The update reflects a cautious but still optimistic outlook on the company's lead product's market potential.
InvestingPro Insights
As Tracon Pharmaceuticals (NASDAQ:TCON) faces a revised stock outlook, it's important to consider key financial metrics and expert analysis to understand the company's current position. InvestingPro data shows that TCON has a market cap of approximately $9.99 million USD, indicating a relatively small market valuation which may appeal to certain investors. Despite the challenges highlighted by the recent price target revision, TCON's revenue over the last twelve months as of Q4 2023 stood at $12.04 million USD. However, the company's gross profit margin during the same period was negative, at -1.93%, reflecting cost pressures against revenues.
InvestingPro Tips highlight that TCON holds more cash than debt on its balance sheet, which is a positive sign for financial stability. Additionally, while analysts anticipate sales growth in the current year, they do not expect the company to be profitable this year. The stock's high shareholder yield and valuation implying a strong free cash flow yield could be attractive to certain investors, but the stock is also known for high price volatility and has suffered from weak gross profit margins.
For those interested in a deeper dive into Tracon Pharmaceuticals' financial health and future prospects, InvestingPro offers additional insights and tips. There are 18 more InvestingPro Tips available for TCON, which can be accessed by visiting: https://www.investing.com/pro/TCON. To make the most of these resources, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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