Looking at the Newbury share price development over the last six months, the stock’s performance has generally been very strong. Since its bottom in September 2022, the share has gained upwards momentum driven by the announcements of won tenders, market authorizations, and the expansion of its portfolio with promising new products. Looking ahead, we believe that the Newbury stock still has further upside potential. Mainly, we judge that increasing sales growth in upcoming quarterly reports will act as a key catalyst and could regain positive investor sentiment.

New market approvals

Newbury obtained market approvals for three separate products from the Swedish Health Authorities in recent months, Fampridine, Dimethyl Fumarate, and Lapatinib. We believe that these will contribute to the evergrowing "snowball" of market-ready products and support Newbury’s sales growth in the future. We see the development in market approvals as positive and important for Newbury’s financial performance in the coming quarters.

These approvals also expand Newbury's commercial offering in the fields of neurology and oncology, increasing the company's market reach and potentially creating new revenue streams. However, it's worth noting that Newbury can only launch these products in each respective market after the expiration of regulatory exclusivities.

Despite these achievements, the company also stated in its Q2 report that it has experienced some delays in having product registrations issued by the national health authorities. In some instances, there have also been requirements for additional documentation. These delays could potentially affect commercial development if they result in longer product launch delays. Nevertheless, Newbury still expects to launch 7-8 products in the market by the end of the year as preparations for the launch of new products in the Autumn are progressing, as stated in their report.

Strengthened product portfolio

Newbury's product portfolio encompasses a diverse range of in-licensed generic prescription drugs, with a strategic focus on specialty medicines and proprietary brands. While the company has successfully entered the commercial phase with initial product launches, it remains steadfast in its efforts to continuously strengthen and expand its product offerings. Notably, Newbury recently bolstered its portfolio by incorporating Buspirone tablets during the previous quarter.

Buspirone is a medication specifically indicated for the treatment of anxiety, acting by modulating select neurotransmitters in the brain. The regulatory filing for Buspirone is anticipated in the near future, with Newbury’s strategic plans to introduce this medicine in the markets of Sweden and Finland, where the estimated total annual market value is EUR1.5m, as per DLMI Nordic Pharma Insights.

With the inclusion of Buspirone, Newbury’s product portfolio now encompasses an impressive collection of 33 in-licensed products. Moreover, the license deal for Buspirone also facilitated the establishment of a new strategic partnership for Newbury, which could potentially serve as a conduit for sourcing additional innovative products. Undoubtedly, business development remains a priority for the company as Newbury continues to engage in discussions with various new and existing partners to explore opportunities for expanding its product pipeline.

Net sales for the period amounted to SEK1.5m (0.3m), indicating a y/y sales growth but falling short of our estimated sales of 1.9m. While being somewhat lower than our expectations, we argue that this is not a significant difference for our long-term view of the case. We expected sales in Q2 to increase q/q as both Icatibant Newbury and Lenalidomide Newbury won the Swedish monthly tenders for January, and due to the international sales orders received at the beginning of the year. The orders totaled approximately SEK6.2m and will be distributed throughout the year. However, Newbury is still very much in its initial commercial ramp-up stage, and we believe that the growing portfolio of market-ready products will begin to be reflected in the upcoming quarters’ sales figures as more products are launched on the market.

Newbury reported a Q2 EBIT of SEK-4.9m (-3.6m), which was exactly in line with our expectations. The shortcoming in net sales was evened out by slightly lower operating expenses at SEK-5.4m (SEK-3.9m) compared to our estimated SEK-5.9m. This was primarily due to lower external expenses and personnel costs than expected. Accordingly, as investments in intangibles also came in lower than we expected, we have made some slight downward adjustments to our future estimates for cash burn.

We argue that the company’s cash position is in a healthy state at SEK21.2m, slightly above our initial expectations. We believe that this is enough to finance operations over FY 2022/2023. However, as previously stated, our belief is that Newbury could perform a capital raise during 2023 to avoid ending up in a financially precarious situation. Therefore, we factor in a share issue in the year’s second half in our valuation model. As we have slightly decreased our estimates for future cash burn, we now see a share issue in the range of SEK25-30m (before the deduction of transaction costs) as reasonable. Furthermore, we still expect Newbury to achieve positive operating cash flow in FY 2023/2024, following the launch of multiple pipeline products and the expected entrance into the Finnish market.

We value Newbury using a DCF valuation model based on several assumptions regarding sales growth, margins, etc. We reiterate our fair value range, which is set at SEK4-14 per share with a base case of SEK8.5. Accordingly, our base case valuation suggests an upside potential of +50% from current share price levels. Furthermore, our optimistic bull case valuation is SEK14, and our more pessimistic bear case valuation is SEK4.

Summary of the changes to our valuation of Newbury:

▪ Regulatory approvals
Newbury has more than 10 candidates expected to gain regulatory approvals in the coming 12 months. We believe that these approvals could act as minor short-term catalysts for the stock.
Timeframe: 3–12 months
Impact: Minor

▪ License deals
The company intends to expand its portfolio with further candidates continuously. We argue that potential announcements of favorable partnerships and licensing deals for exciting new products could affect the share price.
Timeframe: 3–18 months
Impact: Moderate

▪ Quarterly reports
We believe that increasing sales in quarterly reports could validate the Newbury business model in the eyes of investors. Quarterly reports are essential for our analysis of the company’s prospects, and we see sales development as a key catalyst for the share.
Time frame: 3–12 months
Impact: Moderate to major