Byron Capital’s Loe maintains $3 target on Merus Labs

Sales of Merus Labs’ (Merus Labs Stock Quote, Chart, News: TSX:MSL) Enablex-Emselex product were down quarter over quarter, but the stock is still undervalued, says Byron Capital Healthcare and Biotech analyst Douglas Loe.

Yesterday, after market, Merus reported its Q2, 2013 financial results. The company lost $2.29-million on revenue of $5.84-million.

Loe notes that sales of urinary continence drug Enablex-Emselex in Canada and in Europe were down quarter over quarter, but remained the dominant revenue/EBITDA/margin driver, with gross sales of $5.7 million. Although this was down quarter over quarter from Q1’s $6.6 million topline, it was above Loe’s $5.3 million forecast. In a research update to clients this morning. Loe maintained his BUY rating and $3 target on Merus Labs.

Vancouver-based Merus Labs, which was founded in 2011, is a specialty pharma hopeful focused on commercializing mature assets in niche medical markets. The company’s lead product, marketed under the names Enablex and Emselex, is a prescription medicine used in adults to treat symptoms of overactive bladder. The product works by blocking the nerve signals that cause the bladder to involuntarily contract. Merus acquired the marketing rights to the product from from Novartis in July of last year. The company has two other products; Vancocin, a C.difficile treatment, and Factive, which treats chronic bronchitis and pneumonia.

Loe says that at $50.8-million, Merus Lab’s debt level is still high, and he is watching the company’s debt refinancing initiatives closely. He says sustainably strong cash flow could gradually reduce the debt, noting that Q2 cash flow was $2.6 million, up from $1.6 million in Q1.

Shares of Merus Labs on the TSX closed today up 4.2% to $0.50.

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