Valeo Pharma is at a tipping point, says Paradigm

Paradigm Capital analyst Scott McAuley is still excited about Valeo Pharma Inc. (Valeo Pharma Stock Quote, Chart, News, Analysts, Financials CSE:VPH), maintaining a “Buy” rating and target price of $2.60/share for a projected return of 277 per cent in an update to clients on September 24.

Founded in 2003 and based in Montreal, Valeo Pharma is a growth stage pharmaceutical company specializing in the commercialization of branded products in the Canadian market, currently with a portfolio of 11 commercial-stage products across respiratory, hospital, neurology, oncology and other product sectors.

McAuley’s latest analysis comes after Valeo Pharma released its third quarter financial results, which McAuley noted to be above expectations.

“This quarter demonstrates that VPH is at the tipping point of its growth trajectory and is on track to be EBITDA and cash flow positive in FY22,” McAuley said. “We continue to see VPH as an opportunity for investors to gain exposure to a high-growth healthcare name without the related clinical development risk.”

The results were headlined by revenue of $5.7 million in the quarter to register 114 per cent growth from quarter to quarter, with McAuley noting the increased figure, which came in above Paradigm Capital’s expectation of $5 million in revenue for the quarter, to be driven by growth in sales of the company’s Yondelis oncology product and Ametop Gel spec product, as well as the launch of three transformative products, Redesca which is used primarily to treat and prevent deep vein thrombosis and pulmonary embolism, as well as Enerzair and Atectura, the company’s entries into the respiratory market.

Redesca’s sales were bolstered by the announcement in July that it is now covered for public reimbursement in 80 per cent of privately insured lives in Canada for private payer health plans reimbursement, as well as within coverage plans in seven Canadian provinces and territories, with the expectation that full coverage will also be achieved in British Columbia and Quebec by the end of the year.

The company also posted a record gross profit of $2.2 million in the quarter compared to the Paradigm projection of $2.1 million, while the company’s adjusted EBITDA came in at a loss of $900,000, which McAuley noted to be in line with Paradigm’s expectation of a $1 million EBITDA loss for the quarter.

The company has been busy throughout 2021 from a hiring perspective, growing its staff from 35 to 100, with 75 people dedicated to sales, medical affairs and support. Valeo also announced a shift in its corporate structure in August to accompany the launch of its Enerzair and Atectura Breezhaler products, as it now boasts Respiratory and Specialty units, led by industry veterans Howard Wiseman and Jean-Charles Leathead, respectively.

Valeo’s profile also received a boost earlier this year after it signed an agreement with Novartis for the commercial rights to Enerzair and Atectura.

“We will look back at the third quarter of 2021 and the implementation of our new corporate structure as a pivotal moment for Valeo. Valeo’s two business units are now fully staffed with a dedicated national sales force supported by head office functions, powerful data management and communication technological tools. Both units are now led by industry veterans that will drive maximum market share gains”, said Frederic Fasano, President and COO of Valeo Pharma in the company’s September 22 press release. “We are very pleased to have successfully met the challenge of assembling a solid team in 2021. We are already seeing the benefits of our new structure and look forward to leveraging its commercial potential.”

On top of the company’s success with Redesca, Enerzair and Atectura, Valeo also recently completed a 216-patient trial with the Montreal Heart Institute for another potentially transformative product, Hesperco, to potentially reduce symptoms and prevent hospitalization owing to COVID-19. Hesperco is currently approved in both Canada and the U.S. for general immune support, but positive results of this trial could allow for additional claims around reducing symptoms of COVID-19.

The updated reports have prompted McAuley to revise some of his financial projections, maintaining a projection of $18.1 million in revenue for 2021 despite lowering his fourth quarter projection to $7.9 million from $8.6 million, while still anticipating a 235 per cent year-over-year growth projection to $60.6 million for 2022.

McAuley also lowered his EBITDA projections to a $3.5 million loss in 2021 (previously a $2.9 million loss projection), then going positive in 2022 at a projected $4 million (previously $4.8 million), though those projections still better the consensus projections of a $5.9 million loss in 2021 and $1.5 million positive EBITDA in 2022. 

With a solid executive and a viable pathway for growth firmly in place, McAuley is confident in the company’s continued execution of its plans.

“The company has a highly motivated management team with significant insider ownership (62 per cent, or 52 per cent fully diluted),’ McAuley said. “With the eight-year Novartis deal for Enerzair and Atectura just signed earlier this year, it has a long runway to grow its revenue without any additional product acquisitions.”

Overall, Valeo Pharma’s stock price is down 38.2 per cent for the year to date, with its high point coming on January 25, when it reached $1.46/share.