Below the clean FY2025 operating margin (57.5%, i.e. as-reported 33.6% adding back $284.9m acquired IPR&D and $48.7m impairment), below the FY2026 implied (~55%), and above the clean Q1-2026 (49.0%) - deliberately, because the royalty step-down removes near-100%-margin revenue and the Hypercon/Surf Bio investment (~$60m in 2026) is an ongoing operating cost. The screen used the contaminated as-reported 33.6%; the correction is worth 9.3pp of required CAGR, the single largest input change.
Risk & exit
Four distinct questions, one field each. A price is not a thesis: the trigger below forces a re-underwrite and freezes further purchases — it is never an automatic sell.
Risk trigger 12% below the memo price
$73.59
Forward E[R] vs a 0% floor
+28.6%
A daily close below $73.59 triggers a mandatory re-underwrite and freezes further purchases. It is not an automatic sell unless a separate fundamental invalidation condition has been breached.
Thesis-invalidation conditions
Fundamental and falsifiable, never price-based. If one is satisfied the thesis is marked dead and the position is retained only by explicit decision.
The magnitude of the post-2027 rHuPH20 royalty rate reduction is disclosed and is severe. This is the number the whole terminal value turns on and it has never been published. FY2026 10-K; 2027 guidance; any 8-K · most likely Jan–Feb 2027, as the 2027 US expiry enters the guidance window
An adverse USPTO post-grant review decision on the MDASE patents. Removes the Merck optionality and the 2032–2034 estate at once. USPTO PTAB decision; 8-K · no date disclosed
FY2026 total revenue lands below the guided $1,710m. Q1 delivered $376.7m, about 21% of the midpoint — the ramp is second-half weighted and untested. Q2, Q3, Q4-2026 earnings · quarterly through Feb-2027
Bulk rHuPH20 sales decline sequentially for two consecutive quarters. This is the forward indicator of partner manufacturing demand; it grew 172% year on year in Q1-2026. A reversal would lead a royalty slowdown by two to three quarters. quarterly revenue disaggregation footnote · quarterly
A partner terminates. Agreements are terminable *"for any reason … generally upon 90 days prior written notice."* With Partner A at 41% of revenue, this is a live contractual risk, not a theoretical one. 8-K · any time
The $400m 2026 buyback is not executed. It is the most reliable component of the 12-month EPS bridge, and it is projected rather than committed. quarterly cash-flow statement and share count · quarterly
Impairment case
USPTO post-grant review invalidates the MDASE estate; the German injunction against Keytruda SC is lifted; competing recombinant hyaluronidases (Alteogen is named in the 10-K's competition section) enter across the partner base; and the DARZALEX royalty rate step-down from the 2027 US / 2029 EU rHuPH20 expiry lands at the harsher end. Royalties plateau near $1.2bn instead of compounding, and the market reprices the stream from a growth multiple to a run-off multiple of roughly 4.0–4.5x sales.