Medexus Pharmaceuticals has a 66 per cent upside, says Research Capital

Research Capital analyst André Uddin has upped his target price on Medexus Pharmaceuticals (Medexus Pharmaceuticals Stock Quote, Charts, News, Analysts, Financials TSX:MDP) after the company announced a new in-licensing asset, one that will be accretive to Medexus’s topline going forward. Uddin reiterated a “Speculative Buy” rating on MDP in a report to clients on Tuesday while raising his target from C$5.10 to C$5.50 per share for an implied one-year return of 66 per cent.

Specialty pharma company Medexus announced on Tuesday that it has acquired exclusive rights to commercialize Gleolan in the United States, an optical imaging agent currently indicated in the US in patients with glioma tumours. Already holding the rights to Gleolan in Canada, Medexus is acquiring US rights from NX Development Corp, which has said Gleolan sales in the US were in the $3-$4 million range for the fourth quarter 2021.

Medexus said it should see strong sales and institutional uptake in the US and Canada. The company has not disclosed the financial terms of the deal but has said it paid an upfront amount and will pay milestones and tiered royalties going forward, with the milestone payments in the low to mid single-digit million range. MDP is also entitled to extend the rights over Gleolan to cover one additional indication, meningioma, currently in development by Photonamic. 

“We are thrilled to license Gleolan in the United States and continue to drive our business forward,” said Ken d’Entremont, Medexus’s CEO, in a press release. “We believe Gleolan has a bright future and testing is currently underway for its use for meningioma, which would be a new indication.”

“This product fits extremely well into our portfolio. We are already very familiar with Gleolan given our successful launch of the product in Canada early last year. Extending our Gleolan distribution rights into the United States will allow us to continue developing our U.S. operations. We expect this product will both grow our U.S. revenues and allow us to put in place an infrastructure that will also support our U.S. launch of Treosulfan planned for later this year, assuming FDA approvals have been obtained,” he said.

Uddin said acquiring the US rights to Gleolan checks a box on Medexus’ shopping list.

“Adding Gleolan to the product portfolio is financially accretive to MDP as the product generated $3-$4 million net U.S. sales in Q4/CY2021 (launched in the U.S. in Oct. 2018). Gleolan has the FDA’s Orphan Drug indication, which can potentially help MDP break into a new market,” Uddin wrote.

“In terms of marketing, Gleolan should be complementary to Treosulfan as both drugs target cancers,” he said. “MDP has already been marketing Gleolan in Canada, which should give the company experience in how to market the drug.”

Uddin has incorporated the new product into his model, calling for Gleolan to generate $8 million in sales in fiscal 2023 and modest sales growth thereafter. which was cause for the target lift, with his valuation based on applying a 2.1x EV/Sales multiple to his new fiscal 2023 revenue estimate, discounted by 15 per cent.

In terms of his projections, the analyst is calling for MDP to generate full fiscal 2022 (year end March 31) revenue and fully diluted EPS of $77.5 million and $0.03 per share, respectively, fiscal 2023 revenue and EPS of $100.7 million and negative $0.53 per share, respectively, fiscal 2024 revenue and EPS of $142.1 million and $0.28 per share, respectively, and fiscal 2025 revenue and EPS of $167.8 million and $0.67 per share, respectively.

As for the road ahead for MDP, Uddin said the FDA’s regulatory decision on treosulfan is a key catalyst expected to come up sometime this calendar year.

The $66-million market cap Medexus delivered its third quarter fiscal 2022 earnings last month, showing revenue of $21.3 million, which was up 19 per cent sequentially but down 12 per cent year-over-year. The company chalked up the sequential growth to higher IXINITY sales over the fiscal third. Adjusted EBITDA was $1.9 million compared to $3.9 million a year ago while the company’s net loss was $1.2 million. 

“We are encouraged to see sequential quarter-over-quarter growth in revenue and adjusted EBITDA this past quarter,” said d’Entremont in a press release. “In particular, IXINITY saw improved sales in Q3 versus Q2 of fiscal 2022 aided by supply chain improvements. We plan to build on this momentum by continuing to pursue opportunities to complement our existing product portfolio, while also preparing for the commercial launch of Treosulfan in the United States later this year, assuming approval by the FDA.” 

Along with stronger IXINITY sales, the company said antihistamine Rupall saw 20 per cent year-over-year sales growth over the trailing 12 months, while the NDA resubmission on treosulfan should take place in the second quarter of the calendar year.