Medexus Pharmaceuticals Inc. (TSXV:MDP) has $25 million in cash and pent up operating leverage in the business to support much greater sales
Capital Ideas Media | April 9, 2020 | SmallCapPower: Capital Ideas Media Publisher Mark Bunting wrote: Time to revisit Medexus Pharmaceuticals Inc. (TSXV:MDP) now that Stifel GMP has become the third notable brokerage house, along with Canaccord Genuity and Mackie Research, to start analyst coverage of the company.
(Originally published on Capital Ideas Media on February 18, 2020)
Stifel is starting MDP with a “buy” rating and a price target of $6, which implies about 70% upside from the current price.
You may recall we looked at MDP about six months ago based on research from Mackie Research. The stock is back to the $3.75 per share level after a run to about $4.40, but Stifel GMP, which does not have an investment banking relationship with MDP, believes the company continues to fly under the radar of investors and has impressive growth in front of it.
And, with MDP sitting on about $25 million in cash, a transformational acquisition could act as a major catalyst, which founder and CEO Ken d’Entremont hinted in our interview last October:
MEDEXUS: GROWING FAST, EBITDA POSITIVE, $27 MILLION CASH
Here are the highlights from Stifel GMP’s report on Medexus Pharmaceuticals:
We see MDP as a specialty pharmaceutical company with solid offerings of Rasuvo and Metoject in Rheumatoid Arthritis (RA), a fast growing new allergy medicine, Rupall, along with the business being at a point of inflection for operating leverage with the infrastructure in-place to support much greater sales.
As scale is achieved, profit is expected to ramp, leading to a re-rating in valuation and a much higher share price. We breakdown the key components of our thesis:
HEALTHY JOINT, OSTEOARTHRITIS AND RHEUMATOID ARTHRITIS
Source: MAYO Clinic
- RA products: About 70% of MDP’ sales is tied to injectable RA solutions, including Rasuvo (U.S.) and Metoject (Canada).
- We like the RA market as the disease cannot be ignored, worsens over time and there is a small number of Rheumatologists to target, resulting in good sales efficiency.
RASUVO AUTO INJECTOR PRODUCT
Sources: Rasuvo/ Medexus Pharmaceuticals Inc
- We expect Rasuvo to grow at low-double digits for the next two years from continued industry growth but also market share gains.
RASUVO RX TRENDS VS. OTREXUP
Sources: Medexus Pharmaceuticals Inc., Symphony Health Solutions
- Metoject is expected to have about 20% growth in Canada with similar competitive dynamics but driven higher by public reimbursement recently achieved.
METOJECT PRE-FILLED SYRINGE (LEFT) VS. NEEDLE AND VIAL (RIGHT)
Sources: Rasuvo/ Medexus Pharmaceuticals Inc.
METOJECT UNIT SALES 2017-2019
Sources: Medexus Pharmaceuticals Inc., IQVIA, Stifel GMP
Rasuvo (U.S. RA product) shows a strong trend
Sources: Bloomberg, Stifel GMP
Metoject (Canadian RA product) shows a similar trend
Sources: Medexus Pharmaceuticals Inc., IQVIA, Stifel GMP
- Rupall: Around 15% of MDP’s sales is from Rupall, an allergy medicine launched in 2017 with data exclusivity granted from Health Canada until 2025.
- Rupall has a dual mode of action for seasonal and perennial or year-round allergies with possibly fewer side effects, including drowsiness than competitor
- Sales for Rupall have been growing sharply, including 100% year-over-year growthin the second year of launch.
- We expect continued momentum for Rupall with 30-40% growth in the next two years.
Rupall (Rx allergy medicine) diversifies revenue
Sources: Medexus Pharmaceuticals Inc., IQVIA, Stifel GMP
And we forecast solid operating leverage on higher sales
Sources: Stifel GMP
- Diversified Canadian solutions: MDP has about a dozen other products outside of RA and Rupall that includes both Rx and non-Rx solutions.
- Combined, this portfolio (15% of sales) is growing at low-double digits, primarily from greater distribution at pharmacies across Canada.
- Within this group, NYDA (lice treatment), Relaxa (constipation product) and Tricovel (hair loss treatment) represent the majority of sales. There are also some product rights within this group that could become more meaningful contributors to the overall business.
As an example, Gliolan was recently granted priority review status by Health Canada in Nov. 2019, where the solution assists neurosurgeons for procedures by causing gliomas (malignant brain tumours) to glow a florescent colour to assist in surgery.
We simplify our estimates for this portfolio but expect continued traction ahead and see diversification benefits to MDP from these products.
MDP’S COMBINED PORTFOLIO OF PRODUCTS IN THE U.S. AND CANADA
Source: Medexus Pharmaceuticals Inc.
- Business development: MDP has $25 million in cashand pent up operating leverage in the business to support much greater sales.
- As a result, MDP continues to have active business development pursuits, where the U.S. is likely a near-term focus.
- MDP also has a first right of refusal for ~20 products from Medac GmbH, a private company based in Germany with over 1,000 employees and the prior owner of Medexus
- How the business scales: We expect MDP to generate $65 million in fiscal 2020 sales with $3 million in EBITDA (4.5% margin) and forecast fiscal 2021 sales of$77 million (+20% YoY) with EBITDA of $10 million (13% margin).
- We believe our thesis will be successful on hitting these targets alone but EBITDA could improve further on greater As an example of this torque, we estimate MDP can generate 20-25% EBITDA margins on $100 million in sales.
- Valuation: MDP trades at 7.5x EBITDA peers at~12x. We expect valuation to re-rate with greater profit from scale. Our $6 target is based on 11.5x estimated fiscal 2021 EBITDA.
TOP SHAREHOLDERS
Source: S&P Capital IQ, Medexus Pharmaceuticals Inc., Stifel GMP
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