Liquidia Corporation (NASDAQ:LQDA) is not generating returns that cover its cost of capital, indicating it’s not creating value for shareholders with a ROIC/WACC ratio of -25.89.
Compared to peers, Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) shows the highest growth potential despite negative ratios, suggesting closer to generating shareholder value.
The biopharmaceutical sector presents varying degrees of financial health and growth opportunities, with companies like Kezar Life Sciences, Inc. (NASDAQ:KZR) and Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) also not creating shareholder value but at different extents.
Liquidia Corporation (NASDAQ:LQDA) is a biopharmaceutical company that stands out for its focus on addressing unmet patient needs in the United States, particularly with its product YUTREPIA for pulmonary arterial hypertension. Despite its innovative approach, the financial metrics reveal a concerning picture. With a stock price of $9.10, a weighted average cost of capital (WACC) of 5.67%, and a return on invested capital (ROIC) of -146.76%, the ROIC/WACC ratio sits at a significantly negative -25.89. This ratio is crucial as it indicates that Liquidia Corporation is currently not generating returns on its investments that would cover its cost of capital, essentially not creating value for its shareholders.
Comparing Liquidia Corporation to its peers, we see a range of financial health within the biopharmaceutical sector. For instance, Kezar Life Sciences, Inc. (NASDAQ:KZR) has a slightly better WACC of 5.59% and a less negative ROIC of -60.22%, resulting in a ROIC/WACC ratio of -10.77. This suggests that, although Kezar Life Sciences is also not creating value for its shareholders, it is in a relatively better position than Liquidia Corporation.
On the other end, Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) presents a more challenging scenario with a WACC of 9.99% and an ROIC of -257.28%, leading to a ROIC/WACC ratio of -25.75, almost mirroring Liquidia’s position. This indicates that Verrica Pharmaceuticals faces significant hurdles in generating returns above its capital costs, similar to Liquidia Corporation.
Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), however, stands out among the peers with the highest (least negative) ROIC/WACC ratio of -4.77, despite it still being negative. This suggests that Crinetics Pharmaceuticals is closer to generating value for its shareholders compared to Liquidia Corporation and the other peers. The company’s WACC of 6.62% and ROIC of -31.55% indicate that, while it is still not achieving positive returns over its cost of capital, it has the highest growth potential among the compared companies.
This analysis highlights the financial challenges and potential growth opportunities within the biopharmaceutical sector. While Liquidia Corporation and its peers are currently not creating value for their shareholders, as indicated by their negative ROIC/WACC ratios, there are varying degrees of financial health and potential for growth among them. Investors should carefully consider these metrics, alongside other financial and strategic factors, when evaluating investment opportunities in these companies.
