Cardiol Therapeutics has tremendous upside, AltaCorp Capital says

AltaCorp Capital analyst David Kideckel issued an update to clients on Cardiol Therapeutics (Cardiol Therapeutics Stock Quote, Chart, News TSX:CRDL) on Tuesday, detailing the gist of a recent investor call with management.

Kideckel’s update featured the reiteration of his “Speculative Buy” rating and one-year target of $8.15 for CRDL, which at press time represented a projected return of 234 per cent.

Oakville, Ontario’s Cardiol is a biopharm company in the CBD field with lead product CardiolRx aiming for clinical trials for acute myocarditis.

The company said in the conference call that operations are mostly unaffected by the ongoing COVID-19 crisis, since Cardiol’s status as a pharma company puts it in the essential services category.

Notably, as Kideckel related, management said COVID-19 won’t impact the launch of CardiolRx through Medical Cannabis by Shoppers Drug Mart, as social distancing norms won’t apply to medical cannabis sales that are conducted online, such as Shoppers’ platform.

Cardiol management said the commercialization of CardiolRx is now imminent and will initially involve a highest dosage format of 100 mg/mL.

Kideckel said Cardiol’s acute myocarditis clinical program could get fast tracked to orphan drug status by the US Food and Drug Administration as there is a COVID-19 link: research so far shows that COVID-19 may induce or exacerbate cardiovascular diseases due to inflammatory physiology.

The analyst said potential orphan drug status for acute myocarditis is “highly attractive” for Cardiol and if successful represents an unmet medical need.

“As COVID-19 treatment options are being researched across the globe, Cardiol stated that it might consider a potential expansion of its clinical trials’ criteria to include COVID-19 cardiac impacts and treatment,” Kideckel wrote.

As for the company’s capital position, Cardiol ended the fourth quarter with net cash of $7.0 million and working capital of about $6.7 million, with management relating on the call that it thinks it has sufficient liquidity until Q1 of 2021. Kideckel judged the capital position as strong.

“We believe that sales from CardiolRx de-risks Cardiol’s clinical pipeline, as Cardiol can generate near-term revenue while developing clinical trials. We believe the Company is well-positioned through agreements with Purisys LLC (private, NR), a spin-out from Noramco (private, NR), a leading specialty API provider, and Dalton Pharma Services (private, NR). Cardiol continues to progress through its clinical pipeline and expected to commence the clinical trial program in acute myocarditis in H2/20,” Kideckel wrote.

Looking ahead, Kideckel said that the uncertainty surrounding Canada’s cannabis industry combined with the COVID-19 crisis makes for tricky predicting. As such, the analyst has developed three revenue scenarios for CRDL to reflect variations in sales from CardiolRx.

“Our bear-case scenario assumes that revenue from CardiolRx will be lower in 2020e and 2021e due to the negative effects of the COVID-19 crisis. Our bull-case scenario assumes that CardiolRx sales will not be affected by the COVID-19 crisis and will ramp-up sales faster than in our base-case scenario. Our base-case scenario assumes sales from CardiolRx will be somewhat impacted by the COVID-19 crisis in 2020e, but will recover from 2021e onwards,” he said.

For the bear case, base case and bull case, Kideckel has 2020 revenue at $5.3 million, $11.6 million and $17.3 million, respectively, and 2021 revenue at $24.7 million, $35.3 million and $45.9 million, respectively.