Take a pass on BioSyent, says Raymond James

After mixed quarterly results, Raymond James analyst David Novak is staying on the sidelines with BioSyent (BioSyent Stock Quote, Chart, News: TSXV:RX). In an update to clients on August 25, Novak maintained his “Market Perform 3” rating with a target price of $7.50/share, which at press time represented a projected return of zero per cent.

Founded in 1947 with its headquarters in Mississauga, BioSyent is a specialty pharmaceutical company focused on establishing and building out pharmaceutical brands in the Canadian market with an emerging international footprint.

On the company’s second quarter 2021 results, Novak said the topline was better than expected but the bottom line was under his estimate.

“We believe [BioSyent] remains a proficiently managed company with a strong balance sheet,” Novak said. “However, with the loss of a number of growth opportunities in recent years, further execution to secure long term growth is needed.”

BioSyent reported net revenue of $7.3 million in the quarter, beating the Raymond James projection of $6.7 million, with Novak attributing the difference to an additional $500,000 in sales from the company’s legacy agriculture business, while $6.7 million in sales in the quarter came within the Canadian pharmaceutical industry, driven largely by a 51 per cent year-over-year growth in sales of FeraMAX, the company’s oral iron supplement created to cure iron deficiency anemia. The topline represented a 52.8 per cent year-over-year increase in revenue.

Meanwhile, the company’s EBITDA was reported at $1.5 million for the quarter, slightly below the Raymond James estimate of $1.8 million while still representing a 40.6 per cent year-over-year increase. Net income was $1 million, below the Raymond James estimate of $1.3 million while still marking a 41 per cent year-over-year increase.

In July, Biosyent announced it had signed an agreement to license a unique technology application to support better treatment outcomes for patients with iron deficiencies in Canada and BioSyent’s international markets.

However, the company also announced separate agreements to return the rights and discontinue sale of the Aguettant System for pre-filled Syringes and Cysview (hexaminolevulinate hydrochloride) to their respective owners effective December 31.

“While our launch brands, Tibella and Combogesic, contributed to growth during the quarter, COVID-19-related access restrictions to healthcare professionals and persistently low patient traffic through the offices of these healthcare professionals have delayed the expected rate of uptake of these two brands,” said René Goehrum, President and CEO of BioSyent in the company’s August 25 press release. “Although we are encouraged by the lifting of some COVID-19-related restrictions across Canada, the future impact of COVID-19 on the launch trajectory of these two brands remains uncertain.”

Novak projects modest growth for BioSyent over the next three years, projecting revenue of $27.7 million in 2021 for a 23.9 per cent year-over-year increase, followed by a projected $33.1 million in 2022 (19.6 per cent projected year-over-year increase), and $37.9 million in 2023 (14.6 per cent projected year-over-year increase).

The EBITDA projections follow a similar track, with Novak forecasting $6.2 million in EBITDA for 2021 (22.3 per cent margin), $8.2 million for 2022 (24.9 per cent margin), and $8.6 million in 2023 (22.6 per cent margin).

Novak has made some slight changes to the company’s valuation data and returns, shifting his EPS projection for 2021 to $0.30/share while maintaining a $0.45/share outlook for 2022. The EV/Revenue multiple projections remain unchanged, dropping from 3.1x in 2020 to a projected 2.5x in 2021 and a projected 2.1x for 2022. However, the EV/Net Revenue multiple has been slightly lowered, with Novak modifying the 2020 figure to 3.2x from 3.1x, then dropping the 2021 multiple to 2.5x from 2.6x, and 2022 is now forecast to be at 2.1x instead of 2.2x.

The company’s EV/EBITDA multiple features more fluctuation, with 2020 now set at 12.7x compared to 12.9x, 2021 raised to 11.4x from 10.1x before falling to a projected 8.5x in 2022.

Though BioSyent did show robust growth compared to a year ago, Novak believes there’s more room for the company to develop.

“While the company is showing encouraging signs of growth relative to the comparator quarter, longer term portfolio growth could benefit from an increased cadence of business development activity, particularly considering the recent setbacks of a number of growth stage assets including the Agguetant System, Cysview and the Cardiovascular portfolio,” he said. “The loss of these assets may very well be offset by recent launches of Tibella and Combogesic. However, with BioSyent’s strong balance sheet, we believe further portfolio expansion could help provide the market with increased confidence in long-term growth prospects for the company.”

BioSyent’s share price has dropped 1.7 per cent (13 cents) for the year to date, though its value has come back down to Earth since hitting its high point of $9.41/share on June 24.