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.
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
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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.
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