Acasti Pharma still has more upside, Echelon Wealth says

Does Acasti Pharma still have upside?

Echelon Wealth Partners analyst Douglas Loe could be forgiven for picking up his ball and going home, seeing as Acasti Pharma (Acasti Pharma News, Stock Quote, Chart TSX:ACST) has already shot past his target price, returning 169 per cent year-to-date,

But with clinical trial data on the horizon for lead drug CaPre (and likely to be both positive and approvable once reported, says Loe), the stock deserves another target raise. On Thursday, the analyst maintained his “Speculative Buy” rating and raised his target from $2.50 to $4.00 per share, representing a projected 12-month return of 30 per cent at the time of publication.

Loe is justifying his target raise through revisions of his revenue model and valuation.

The analyst still believes CaPre can be FDA-approved in the first half of 2022 and US-launched during the second half of 2022, with his revenue model still based on a royalty revenue model for which a 30-per-cent royalty rate is reasonable but potentially a bit conservative. On the royalty ramp, Loe now sees his previous estimate to be overly conservative and is now projected fiscal 2022 royalty revenue of $29.3 million and $60.9 million for 2023 and $95.1 million in 2024. That difference lifts Loe’s adjusted EBITDA forecasts accordingly.

Loe is still assuming that CaPre will sell through US retail pharmacies and that it will be mostly indicated for patients with severe hypertriglyceridemia but his longer-term thesis assumes that CaPre could be increasingly indicated for milder forms of the disease as well.

Finally, Loe thinks that the stock’s discount rate in his NPV valuation should go from 20 per cent to 25 per cent, based on his assumption that the drug’s TRILOGY clinical risk is low as well as highly probable to demonstrate statistically significant reductions in serum triglycerides from baseline.

All told, Loe is calling for fiscal 2021 revenue and EBITDA of $5.0 million and negative $3.3 million, respectively, and fiscal 2022 revenue and EBITDA of $36.8 million and $27.2 million, respectively.

“We believe that our revised price target represents a credible valuation that ACST could achieve and that Astra’s valuation ascribed toOmthera back in 2013 provides credible evidence on this theme,” writes Loe. “At Omthera’s upfront take-out valuation of US$323 million and assuming comparisons to that valuation would be justified once TRILOGY data are in the public realm, ACST could be values on that comparison alone at US$4.13 per share (basic) or US$3.04 per share (fully diluted), both near our current price target.”