On Tuesday, Barclays reiterated an Underweight rating on shares of WW International Inc (NASDAQ:WW), with a steady price target of $0.75. The firm's stance comes as WW announced the launch of its compounded semaglutide offering, which is expected to provide a near-term growth opportunity. Despite a 5% rise in WW shares today, Barclays remains cautious about the sustainability of the compounding business model.
WW is introducing the new offering through its WW Clinical platform, with prices starting at $129. This move aims to address the high demand for compounded GLP-1s and to extend the company’s cash runway. Barclays noted that the market has previously rewarded similar strategic moves by other companies. However, it also highlighted the risks associated with such a move, including regulatory concerns expressed by the FDA and potential friction with WW's employer channel.
The compounded GLP-1 offering is expected to have a lower gross margin profile due to its partnership with an FDA-registered facility for compounding. WW's average gross margin is around 68%, but the outsourcing arrangement for the new offering may result in a lower margin. The company has assured that WW members will receive the therapy within 1-3 business days, complete with safety guidance and telehealth clinician support.
Barclays points out that while the compounded GLP-1 offering addresses the current shortage of semaglutide, the model may not be viable in the long term. With tirzepatide coming off shortage last week, the scope for large batch compounding, also known as 503B compounding, is limited. Once a drug is no longer in shortage, 503A compounding becomes the only option, which allows for more personalized medication but restricts large-scale production and requires intensive documentation.
In conclusion, Barclays maintains its Underweight rating on WW International Inc, emphasizing the potential near-term benefits but also the medium to long-term risks associated with the company's move into GLP-1 compounding.
In other recent news, WeightWatchers has made significant strides in its services and leadership. The company introduced compounded semaglutide to its weight management program, offering an accessible and affordable alternative for weight loss support. This move comes amid persistent shortages of name-brand GLP-1 medications, with the new medication expected to be more readily available.
In leadership changes, CEO Sima Sistani stepped down, with board member Tara Comonte stepping in as interim CEO. Additionally, Scott Honken and Phillip Picardi were appointed as Chief Commercial Officer and Chief Impact Officer respectively.
Financially, the company reported a 6% decline in subscribers year-over-year, and a decrease in revenue for the second quarter of 2024. However, it has maintained its full-year 2024 forecast for both revenue and adjusted operating income.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on WW International's financial situation, providing context to Barclays' cautious stance. The company's market capitalization stands at a modest $80.45 million, reflecting the significant challenges it faces. WW's revenue for the last twelve months as of Q2 2024 was $829.45 million, with a concerning revenue decline of 11.89% over the same period.
Despite these headwinds, WW maintains an impressive gross profit margin of 65.82%, aligning closely with the 68% average margin mentioned in the article. This strength in margin could potentially support the company's new compounded semaglutide offering, even if it operates at a lower margin as suggested.
InvestingPro Tips highlight additional concerns. The company operates with a significant debt burden, and short-term obligations exceed liquid assets, which may explain WW's urgency in launching new revenue streams. Moreover, the stock price has fallen significantly over the last year, with a staggering 92.44% decline.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for WW International, providing a deeper understanding of the company's financial health and market position.
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