Take a pass on Medicure, says Mackie Research

Weaker than expected quarterly results are cause for a downgrade of specialty pharma company Medicure (Medicure Stock Quote, Chart TSXV:MPH) from Mackie Research analyst André Uddin. In an update to clients on Tuesday, Uddin dropped his rating from “Buy” to “Hold” and lowered his target price from $7.60 to $6.50.

Medicure reported its first quarter ended March 31, 2019, on Monday, coming in with revenues of $4.9 million, well below Uddin’s $7.3 million estimate and down from $6.1 million a year ago. The company posted an EBITDA loss of $1.7 million, also lower than Uddin’s $0.4 million estimate.

The analyst writes that while Q1 is usually a weak season for specialty pharma, he notes slow sales growth for Zypitamag, MPH’s key long-term growth driver, according to Uddin. He also notes that pricing pressure is heavily weighing down Aggrastat sales.

At the same time, Uddin is optimistic, saying that the company is in solid financial shape.

“MPH has a stronger balance sheet than the majority of Canadian specialty pharma companies. Therefore, we believe MPH should be in a good position to conduct additional BD transactions, which would further diversify the company’s revenue base. Management previously stated they are still looking for low-risk, low-cost products,” says Uddin.

“MPH has been trading sideways for the past two years — after the company sold its Apicore business in October 2017. We expect the trend to continue until MPH’s profitability (cash flow) starts improving. With $3.58 cash per share, downside risk of MPH should be limited,” he writes.

Uddin is now calling for 2019 revenue and fully diluted EPS of $25.9 million and negative $0.21 per share, respectively. His new target of $6.50 represents a projected return of nine per cent at the time of publication.