Neos Therapeutics Valuation Appears Low Should They Report Operating Profits In 2020

Summary

• Average weekly prescriptions grew ~15% Q4 2019 versus Q3 2019 (excl. holiday weeks) and NEOS has more than tripled its NEOSRxConnect network within the last 4 months.
• Goldman Sachs and Sphera Funds Management both recently filed 13G's reflecting recent investments in NEOS that take both over 5% shareholders.
• Q42018 restructuring working well. NEOS's continues to significantly grow revenues on much lower expenses successfully pivoting from 2018 operating losses of ~$10mm/quarter to almost break-even in Q32019.
• NEOS's enterprise valuation versus forward looking are less than half that of peers suggesting material gains are likely should dilution concerns pass. 1 new product in development.
• NEOS as a whole continued to burn cash into Q32019 (but much less than before). Investors should consider risk of dilution.

NOTE: All tables, graphs, charts and inserts below were prepared by the author based on company filing's (unless otherwise noted).

Our analysis concludes NEOS Therapeutics (ticker symbol "NEOS") share price is materially undervalued because:

• NEOS trades at much lower forward looking revenue multiples than peer commercial biotechs (by a factor of almost 3 times) while at the same time simple analytics suggest NEOS's FY2020 consensus growth estimate (per Seeking Alpha) of ~25% is understated, primarily because FY2020 consensus revenue estimates are unchanged after a 13% price increase for 1 of its 2 primary products announced 1/1/2020 and:
• We know via Symphony data NEOS product prescriptions continue to grow rapidly up to the date of this report in 2020 and:
• NEOS has grown its prescriber centric NEOSRxConnect program by more than 200% in the last 3 months and:
• NEOS implemented a restructuring 1 year ago to focus on becoming profitable and have reduced operating expenses and quarterly losses for 5 quarters in a row. NEOS reported an operating loss of ~$400K in Q3 2019 versus consistent ~$10MM+ operating losses per quarter pre-Q32018 and:
• NEOS secured a new working capital line of credit of up to $25MM on eligible accounts receivable that mitigates the apparent risk of an imminent dilution and:
• NEOS should attract new investor attention should NEOS's report positive clinical data from its Phase I trial of a new Sialorrhea (excessive drooling) therapy (named NT0502 on NEOS's investor presentation). Per biopharmcatalyst top line PK data from the NEOS trial is due Q12020.

At $1.50 per share, NEOS trades at an enterprise valuation of ~$100MM which is only 1.2X consensus FY2020 revenue estimates of $83.2MM that should produce ~70% gross manufacturing margins. Anecdotally, NEOS's revenues, revenue growth and gross margin profile are similar to Osiris Therapeutics (previously ticker symbol OSIR

Analyst’s Disclosure:I am/we are long NEOS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.