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Coverage Launched on Drug Co. With 140% Upside
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The Canadian specialty pharma, with a proven track record of in-licensing and acquiring late-stage assets, is "poised to grow meaningfully in the coming years," noted an Echelon Capital Markets report.

Medexus Pharmaceuticals Inc. (MDP:TSX; MEDXF:OTCQX) attracted the attention of Echelon Capital Markets, which just initiated coverage on the specialty pharma with a Speculative Buy rating, reported analyst Stefan Quenneville in a March 24 research note. Medexus is a rare disease pharma concentrating on rheumatology, autoimmune disease, specialty oncology, allergy, and pediatric diseases and operating in the U.S. and Canada.

"With a stable core portfolio of commercial assets, the company's topline is poised to grow meaningfully in the coming years via successful growth product launches and label expansions," Quenneville wrote.

Echelon assigned Medexus a CA$3 per share target price, and this reflects potential 140% gains for investors from the current share price of CA$1.25, noted Quenneville. Also of note, the Canadian firm is trading below its peers.

Quenneville presented the information prospective investors should know about this drug company.

Successful Strategy

Now with 17 commercial-stage medicines, Medexus has proven its business model of in-licensing or acquiring drugs for rare diseases to be successful. These higher-priced products afford the company "particularly wide moats and sticky revenues," Quenneville noted.

With this approach, the pharma increased its revenue per salesperson by about 80% over the last four years. With ongoing capital and sales infrastructure growth, Medexus can add to its portfolio products with increasingly greater market potential.

Solid Product Base

The pharma has both a stable core portfolio of drugs and high-growth launch products. The mature drugs in it, Metoject and Rupall, for instance, should continue providing growth and cash flows over the coming years. Currently, they comprise about 88% of revenues. More recently added leading products, such as IXINITY and Gleolan, should provide topline growth, increasing to an estimated 35%-plus of revenues by 2029 and enhancing profitability.

"The aggregate gross margin is expected to be pulled up significantly over this horizon," added Quenneville. "Similarly, the company expects to leverage its existing salesforce in the launches of Gleolan and Treosulfan to drive down sales, general and administrative expense as a percentage of revenues."

Optionality With Treosulfan

Medexus has an investigative drug, Treosulfan, that could launch commercially in the U.S. next year for pre-transplant immune conditioning, and Echelon expects it will be approved. It is already approved in Canada and Europe for this indication. The U.S. Food and Drug Administration has requested additional information, and resubmission of the new drug application (NDA) is expected to be done in early 2024.

U.S. approval of Treosulfan would increase Echelon's target price on Medexus to CA$5.20, for a 316% upside. Even if Treosulfan does not get approved, Quenneville wrote, "We believe the potential upside for investors meaningfully outweighs the potential downside."

Events To Watch For

Medexus has several potential catalysts happening in the near term. One is the Treosulfan NDA refiling. Others are updates on re-launch updates on Gleolan in the U.S. and a label expansion of IXINITY to include pediatrics. What's more, there is always the potential for additional drug acquisitions or in-licensings.

Significant Insider Ownership

Medexus insiders, including management, the board of directors members, and others, together own 13% of the company's shares. CEO and director Ken d'Entremont owns the biggest chunk, 7%.

"Given Medexus' growth by acquisition strategy, we believe meaningful insider ownership by management is important for the creation of value for shareholders," Quenneville commented.

Capital Structure, Finances

Medexus has 20 million (20M) common shares and 17.1M potentially dilutive securities, Quenneville reported.

In the last report, the company had US$9.3M in cash and US$71M in debt. It still owes and is making payments for the acquisitions of medac Pharma and Aptevo.

Earlier this month, the company entered a three-year senior secured credit agreement for a US$35 million (US$35M) term loan facility, a US$3.5M revolving loan facility for working capital, and an additional US$20M uncommitted accordion feature.

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Disclosures for Echelon Capital Markets, Medexus Pharmaceuticals Inc., March 24, 2023

Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value, and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients. Echelon Wealth Partners compensates its Research Analysts from a variety of sources.

The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking. Research Dissemination Policy: All final research reports are disseminated to existing and potential clients of Echelon Wealth Partners Inc. simultaneously in electronic form. Hard copies will be disseminated to any client that has requested to be on the distribution list of Echelon Wealth Partners Inc. Clients may also receive Echelon Wealth Partners Inc. research via third party vendors. To receive Echelon Wealth Partners Inc. research reports, please contact your Registered Representative.

Reproduction of any research report in whole or in part without permission is prohibited.

Canadian Disclosures: To make further inquiry related to this report, Canadian residents should contact their Echelon Wealth Partners professional representative. To effect any transaction, Canadian residents should contact their Echelon Wealth Partners Investment advisor.

U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.

U.K. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. ECHELON WEALTH PARTNERS INC. IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS. The contents hereof are intended solely for the use of and may only be issued or passed onto persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein.

Company: Medexus Pharmaceuticals Inc. | TSX:MDP

I, Stefan Quenneville, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report. 

During the last 12 months, Echelon Wealth Partners Inc. has provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer. During the last 12 months, Echelon Wealth Partners Inc. has received compensation for having provided investment banking or related services to this Issuer.

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