Laboratorios Rovi is facing turbulent times after announcing on Friday a profit warning, leading to significant declines in its stock market performance. The Spanish pharmaceutical company revealed it expects its EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2024 to fall between 10% and 15% below market consensus estimates. This unexpected update has rattled investors, causing Rovi’s shares to plummet by up to 20% shortly after the market opened, with trading stabilizing later at around 15% down.
According to Rovi’s communication to the Comisión Nacional del Mercado de Valores (CNMV), this adjustment primarily stems from "a lower-than-expected activity" within its Contract Development and Manufacturing Organization (CDMO) during the fourth quarter of 2024. The anticipated EBITDA for the year is expected to be around €236 million, as estimated by Bloomberg, leading to substantial investor concerns about the company's financial health moving forward.
Rovi’s CEO, Juan López-Belmonte Encina, said, "This review of market consensus on EBITDA is fundamentally motivated by lower-than-expected activity in the CDMO business during the fourth quarter of closed 2024.” The stock price fell severely as sales surged, causing volatility and initially halting trading due to unsuccessful matching of buy and sell orders. After trading resumed, the shares dropped to about €53.20, reflecting a serious backlash from the market.
This profit warning not only highlights weaknesses within Rovi's operations but also casts doubt over its CDMO division, which has been the most significant segment of the company, contributing more than 40% of total sales. Analysts from Sabadell noted prior to the market's opening, "We expect negative reaction because the EBITDA impact is significant," underscoring the fear surrounding the firm's prospects.
Rovi has previously enjoyed considerable success, with its stock spiking over 50% during the first half of 2024, driven by optimistic business developments including discussions around selling its CDMO segment for approximately €3 billion. Such discussions, though abandoned after careful consideration, indicated the company's strong position and stakeholders' interest. The recent stock performance tells another story, with shares previously reaching highs of €94.80 before the recent downturn.
The company is now hard at work to regain investor trust, announcing plans to hold their Capital Markets Day (CMD) in the early part of 2025, where they aim to substantiate their long-term forecasts and strategic outlook. Rovi is directing its focus on sustaining and developing its CDMO operations internally following the halt of negotiations concerning external investors.
While Rovi navigates these turbulent waters, the fallout from Moderna’s recent earnings forecast has compounded difficulties. This past January, Moderna indicated their anticipated revenues would be between $1.5 billion and $2.5 billion—significantly lower than previous estimates. This downward revision was linked to Rovi, as they have been collaborating for the production of mRNA-based vaccines and therapies under long-term agreements.
Jefferies analysts attributed the overall decline in Rovi's forecasted performance directly to Moderna's reduced expectations, highlighting the close ties between the two companies. They also suggested upcoming events, including the CMD on March 25, will be pivotal for cementing market confidence. This upcoming meeting is expected to detail investment levels and recovery outlooks for the CDMO division.
For the first nine months of 2024, Rovi reported net profits of €113.5 million, marking a 4% dip compared to the prior year. EBITDA also saw modest declines, leading some analysts to undermine future prospects. Despite some resilience, with sales from their CDMO segment increasing by 16% year-on-year during Q3, the lofty share prices earlier witnessed seem to be far behind, with fears of repeated downturns contributing to investor hesitance.
With results for the entire 2024 fiscal year set to be announced on February 25, the attention remains fixed on how Rovi will manage these setbacks and what strategic paths they will outline to restore investor confidence. Any detailed strategies presented could significantly influence whether investor interest is rekindled or whether the company lumbers toward more market woes.
Rovi’s current scenario serves as both cautionary and informative, highlighting how quickly market sentiment can shift based on performance forecasts and operational realities within the pharmaceutical industry.