Medexus Pharmaceuticals is poised for rapid growth, Mackie Research says

Specialty pharma company Medexus Pharmaceuticals (Medexus Pharmaceuticals Stock Quote, Chart: TSXV:MDP) had a strong third quarter and beat the estimates from analyst André Uddin of Mackie Research. On Tuesday, Uddin reiterated his “Buy” recommendation and $10.50 target price.

Medexus (formerly Pediapharm Inc) released its Q3 financials for the quarter ended December 31, 2018, producing a revenue increase of 512 per cent to $14.4 million compared to $2.4 million a year prior.

CEO Ken d’Entremont called the quarter a period of significant transformation for Medexus.

“That transformation resulted in a six-fold increase in revenue, reflecting both the merger of Pediapharm Inc with Medexus Inc and Medac Pharma, Inc, as well as strong organic growth across much of the product portfolio, along with an equally impressive five-fold improvement in Adjusted EBITDA to $2.2 million,” said d’Entremont in a press release on Monday.

“The integration is progressing as planned, and we are just now beginning to see the synergies of the combination, which should contribute to improved profitability going forward. We also have $28.9 million of cash and cash equivalents, a working capital surplus of approximately $34.6 million and shareholders’ equity of $57.2 million,” he writes.

As the first quarter after the Pediapharm/Medexus/Medac merger, Uddin says that it looks to be going well. The $14.4 million in revenue was ahead of his $12.5 million estimate, while the Q3 net loss of $1.3 million was better than his estimate of a $5.0 million loss. MDP reported Adj. EBITDA of $2.2 million, which also beat Uddin’s estimate of $0.0 million.

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Uddin says the stock currently presents a great buying opportunity.

“We expect MDP’s Canadian business (including former Medexus’ and Pediapharm’s products) to grow at a steady pace. MDP is actively looking to in-license/acquire additional products – we expect more transactions to be forged in the near future,” says Uddin in a client update.

“We believe MDP should remain on track to turn profitable in CY2020. We believe MDP’s current share price is undervalued relative to peer companies in Canada,” he says.

Uddin expects MDP to generate Adjusted EBITDA in fiscal 2019 of $2.5 million on revenue of $34.3 million and Adjusted EBITDA in fiscal 2020 of $11.9 million on a top line of $76.5 million. His $10.50 target represents a projected return of 141 per cent at the time of publication.