Paradigm Capital lowers price target on Valeo Pharma

Montreal-based Valeo Pharma (Valeo Pharma Stock Quote, Chart, News, Analysts, Financials CSE:VPH) remained in line with growth expectations in releasing its Q2 financial reports, but Paradigm Capital analyst Scott McAuley has reduced the stock’s target price by over 25 per cent.

However, the stock is still considered a buy at Paradigm, as McAuley’s target price dropping from $3.50 to $2.60 can be primarily attributed to the dilution in the company’s recent $11.5M bought financing on account of new shares and warrants due in the next 15 months, with the organization’s results providing the base for significant growth in Q3 2021 and beyond.

“Prior to the financing, insiders held 73% of the shares outstanding (65% on a fully diluted basis). Insiders now hold 62% of the shares outstanding (52% on a fully diluted basis),” McAuley noted. “This diversification will come into play as the company looks to list on the TSX later this year while maintaining significant alignment between management and investors.”

Founded in 2003, Valeo Pharma Inc. specializes in commercializing branded pharmaceutical products in the Canadian market, featuring a robust portfolio of 11 commercial-stage products across respiratory, hospital, neurology, oncology, and other product sectors.

The reduction comes amidst a record second-quarter in which Valeo posted $2.6 million in revenue, marking a 27 per cent year-over-year increase. The jump is primarily attributed to sales of Yondelis, a treatment for the tissue-based cancer leiomyosarcoma, the AMETOP Gel numbing agent, and Redesca, which launched toward the end of the second quarter to help treat deep vein thrombosis and pulmonary embolisms.

The company’s growth is expected to gain further traction thanks to an agreement with Novartis to produce a pair of asthma drugs, Enerzair and Atectura, which contribute to McAuley’s growth projection seeing Valeo’s net revenue climb to $130 million by 2025, contrasted with their net revenues of $8.2 million in 2020.

“Public and private reimbursement coverage for Redesca, Enerzair and Atectura is on track and is a key component to ensure patients have access to these important medications,” said Steve Saviuk, CEO of Valeo Pharma, in the June 29 press release accompanying the financial results. “We are making significant additions to our corporate and commercial structure in order to accelerate our growth and properly support the potential of our world class products.

“With senior talent joining our leadership team and the expansion of our medical and field commercial teams, Valeo is fast positioning itself as a Canadian leader in our defined therapeutic areas.”
Luc Mainville, Valeo Pharma’s Senior Vice-President and Chief Financial Officer, was equally positive about the quarter’s results and their significance moving forward.

“Our net results reflected the addition of head office positions from the creation of our 2 distinct Business Units, Respiratory and Specialty products as well as the ongoing integration of our growing national sales force dedicated to the significant market potential of Redesca, Enerzair® Breezhaler® and Atectura® Breezhaler® products,” Mainville said. “We expect these three transformative products to fuel our growth over the coming years as we continue adding strategic assets to our portfolio to take full advantage of our new corporate structure and commercial platform.”

Looking ahead to the rest of 2021 and beyond, Paradigm Capital expects Valeo to continue its growth as more provinces sign on with reimbursement coverage for its products. Currently, Redesca is covered under Ontario Drug Benefit coverage plans, as well as in multiple hospitals nationwide, while 80 percent of national drug plans cover Enerzair and Atectura, though more provincial agreements on all three products are expected to drive sales and increase Valeo’s market going forward.

Another potentially critical addition to the forecast could come as the Montreal Heart Institute is in the final stages of clinical trial testing for Hesperco, Valeo Pharma’s hesperidin-based product, as a potential option to reduce symptoms and hospitalizations occurring from COVID-19.

“The natural health product is currently approved in both Canada and the U.S. for general immune support, but positive results ocolfff this trial could allow for additional claims around reducing symptoms of COVID-19,” McAuley said. “The trial has completed enrollment and the company expects the institute to release results in July. We currently do not include this potential expansion in our $10M peak sales assumptions, but as a comparison, ColdFX had annual revenue of $40M before it was sold to Bausch Health (BHC-USA) for $76M in 2011.”

The organization’s push forward has also led to a significant hiring push, with the salesforce nearly doubling to 75 employees in the second quarter and an expectation of a further increase to 100 employees by the end of July, with positions being filled across the organization.

At the time of publication, McAuley’s new price target represented a return of 210 per cent, including dividend. VPH closed Wednesday at $0.81.