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Raymond James cuts price target on Cardiol Therapeutics

Cardiol Therapeutics

Cardiol TherapeuticsRaymond James analyst Rahul Sarugaser has dropped his target and rating on cannabis biopharmaceutical name Cardiol Therapeutics (Cardiol Therapeutics Stock Quote, Chart, News TSX:CRDL), saying continued delay in the commercial launch of lead product CardiolRx on a longer-looking road to material sales.

Sarugaser updated clients on the company in a July 31 report where he lowered his rating from “Outperform 2” to “Market Perform 3” and moved his target from $4.50 to $3.50 per share.

Cardiol makes pharmaceutical-grade cannabidiol (CBD) products and has a clinical program for CardiolRx for acute myocarditis. The Oakville, Ontario-based company announced in March of this year a supply agreement with Shoppers Drug, Canada’s largest pharmacy chain, where Shoppers is slated to be the exclusive retailer of CardiolRx products in Canada, with Dalton Pharma Services, Cardiol’s manufacturer, to supply Shoppers with finished products.

In his update, Sarugaser said even though Cardiol closed on June 4 and equity financing for gross proceeds of $17.25 million, which was a derisking event for the company, the slower-than-expected commercialization via Shoppers prompted a revisit of the name.

“While the delayed commercialization of CardiolRx is the primary motivation for our present rating and price target changes, we recognize that commercial launch could really come at any time. We are pleased to give credit where credit is due: we may revisit our rating once commercialization of CardiolRx has been announced, and we see evidence of material sales precipitating,” Sarugaser wrote.

The analyst values Cardiol through a sum-of-the-parts approach, including a discounted cash flow analysis of its medical cannabis revenues and a risk-adjusted net present value analysis of its acute myocarditis clinical asset.

In May, Cardiol announced the filing of a patent application covering the use of cannabidiol to improve the outcome of patients with COVID-19. On the potential therein, Sarugaser is in a wait-and-see mode.

“Clearly, CRDL is focusing resources on the launch of a clinical trial among COVID-19 patients, and we do acknowledge the evolving clinical evidence suggesting that COVID-19 may be, centrally, a vascular disease (CRDL's area of expertise). A green light from a regulator like Health Canada or the U.S. FDA would likely be catalytic for CRDL's stock given the current market backdrop, and may motivate us to revisit our target and rating. Until we gain further clarity, we do not attribute value to this proposed program,” Sarugaser wrote.

So far in 2020, CRDL is down 89 per cent while for the past 12-months the stock is down 102 per cent.

Sarugaser’s forecasts call for 2020 revenue and EBITDA of $1 million and negative $9 million, respectively, and 2021 revenue and EBITDA of $7 million and negative $10 million, respectively. At press time, Sarugaser’s $3.50 target represented a projected 12-month return of 42.9 per cent.

Cardiol on June 29 announced on the appointment of CNBC analyst and “Fast Money” regular Steven Grasso as Business Advisor to the company, saying Grasso’s high profile in financial media will help with the “broad recognition of Cardiol’s market potential.”

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