r/valueinvesting
$SPRY opportunity
Author sees SPRY's 27% drop as an overreaction to pharmacy delays, highlighting strong sales growth, high margins, and 2x sales target.
- Strong revenue growth projected from $90M to $600M by 2029 with gross margins exceeding 75%.
- Attractive valuation at 2x forward sales implies significant upside from the current $650M EV.
- Clean balance sheet with sufficient cash to reach profitability by late 2028, backed by expert insiders.
- Near-term lack of new pharmacy distribution announcements disappointed investors and triggered a 27% sell-off.
I own $SPRY in the $8-9 range. The company produces Neffy which is a nasal spray version of an epi pen. The stock is down 27% today not on any business failures but on some short term hopes not being met. I think the negative reaction is seriously overdone. I believe the stock can double in the next 3 years.
The current Enterprise Value is $650mm. I believe the business should trade at 2x 1 year forward sales which would suggest the shares doubling by 2029. The 2x sales is a baseline standard for small cap biotech/pharmaceutical companies. I view that valuation target as quite reasonable with upside potential if the company can grow sales faster.
The product entered the market in 2024 and sold almost $90mm that year. Sales are expected to be $140mm this year and reach close to $600mm by 2029. That is a revenue growth rate of over 300% over the next 4 years. 2 x $600mm sales = $1.2B value versus the $650m EV today.
The business has a gross margin well in excess of 75%. The balance sheet is clean with sufficient cash to reach positive net income by late 2028.
The stock is down today because investors were hoping that more pharmacies would announce that they are stocking the product. These pharmacies generally add products each year starting July 1. The company announced today they it does not expect any new pharmacies to stock the product. The product is readily available already on many major platforms on both an Rx and over the counter basis.
Lastly, the top 4 shareholders of SPRY are all biotech specialist investors. I believe all of them backed the company when it was private. These investors are active on the board and have extensive experience in advising companies on how best to manage product growth and market penetration.
Conclusion: Good product, good financial metrics, strong governance from knowledgeable insiders, potential to double or more over 3 years.
I was looking at various stats on stocks, mainly around potential short squeeze candidates. This one ended up at the top my list.
Shorts are 54% of float. Near 52 week low. Volume is 42% higher than average. 17 days to cover.
I was surprised when I saw OrbiMed invested in this, to your last point.
With ARS, they’ve come out with Neffy, had first mover advantage against Aquestive’s ANAPHYLM, and they haven’t really done a great job with it. The epinephrine (adrenaline) market has historically been dominated by EpiPen, almost wholly, with a few generic IM autoinjectors too, so right of the bat it’s a tough market to break into because of the EpiPen brand value. Obviously nasal administration of adrenaline is far more appealing that an IM injection, so you can argue that maybe counters the branded moat.
But it also helps to consider the story of how EpiPen became a household name. I’ve never met someone who doesn’t know what I mean by saying ‘EpiPen’. I live in the UK and branded medicines are very rarely prescribed or seen by patients here, so I cannot tell you how incredible it is that everyone knows the brand name of EpiPen. That success can be attributed to Sherry Korczynski, who led the commercial effort at Mylan. She’s now working at Aquestive, which is a setback to ARS because she is categorically the best in the business.
Since approval, Neffy has been pretty lacklustre. I think this can attributed to potentially three things:
- That the EpiPen brand remains strong, and that prescribers aren’t interested in new administration methods. I personally don’t subscribe to this fully, but I think it’s worth considering.
- Neffy’s PK data are far inferior to IM administration. In a time-dependent situation like anaphylaxis, you can’t be waiting for Cmax to hit, and you don’t want to be in a situation where the dose administered is not enough.
- Prescribers are waiting on the verdict for ANAPHYLM. I think an oral administration is more palatable (excuse the pun) for patients, and it appears that it delivers superior PK results. The counter to this is the CRL that was received by Aquestive regarding human factors. I was confused by this when it came out but I think it’s a relatively straightforward fix. Additionally, ARS filed a citizen’s petition regarding a potential CV risk from ANAPHYLM metabolites. I don’t really take that seriously now because the deadline for an FDA response to that has passed and, as far as I can tell, there hasn’t been any response.
Overall I think ARS needs to show results, and very quickly because they seem a bit dead in the water. I believe that Aquestive provide the superior product to Neffy, if the adrenaline market moves away from IM injectors. And I believe ARS has a largely second-rate management team, even with additional input from OrbiMed/RA etc.
Apologies if this is a bit rambly, I could talk for hours about this market haha.
(Additional note: I didn’t mention the recent CVS issue. CVS have decided not to add Neffy to their formulary list, that will obviously stunt growth in the short to medium-term, and I think it really highlights an inertia in the payer base to move away for IM autoinjectors)