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Valeo Pharma gets a target drop, still a Buy from Research Capital

There’s still good long-term growth prospects to the name but Research Capital Corporation analyst Andre Uddin has dropped his target slightly on Valeo Pharma Inc. (Valeo Pharma Stock Quote, Chart, News, Analysts, Financials CSE:VPH). In an update to clients on Tuesday, Uddin maintained a “Speculative Buy” rating and taken his target from $1.40/share to $1.20/share for a projected return of 85 per cent.

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

Uddin’s latest analysis comes after Valeo reported its financial results for the fourth quarter of its 2021 fiscal year. Valeo’s quarterly report was headlined by $3.4 million in revenue for a 53 per cent year-over-year increase, though the number was a miss on the Research Capital estimate of $6.3 million in the quarter, with Uddin speculating the difference could be due to lumpiness in sales orders for the company’s Redesca offering. Adjusted EBITDA came in at a loss of $5.4 million, also missing on the Research Capital estimate of a $3.6 million loss.

As of the end of the fourth quarter, the company had $2 million in cash on hand, as well as $4.9 million in nonconvertible debt and $1.6 million in convertible debt on the balance sheet, according to Uddin.

“In 2021 we made major investments to expand our commercial team and broaden our infrastructure,” said Steve Saviuk, CEO of Valeo Pharma in the company’s February 28 press release. “These upfront investments, while increasing our loss in the short term, are now providing commercial momentum to our recent product launches and driving revenue growth at a rate that will place us amongst the leaders in our industry in 2022 and beyond. Q1-22 revenues will demonstrate important top line and margin growth over the prior quarter and we expect continued sequential quarterly growth as Valeo transitions to positive cash flow  by the end of the year.”

One of the factors in Uddin’s target price reduction was the company closing a $25 million convertible debt financing in December at $1,000 per debenture. The three-year debentures carry an annual interest rate of 12 per cent payable quarterly with a conversion price of $1.15/share, with the intent of using the proceeds to support commercialization of key product launches and repaying its debts.

Looking ahead, Valeo is in the process of launching a trio of key products, including Enerzair, Atectura and Redesca, with the first two being the company’s long-term revenue drivers. From a reimbursement perspective, approximately 90 per cent of privately insured lives now have access to Enerzair and Atectura, public coverage is secured in key provinces like Alberta, New Brunswick, Nova Scotia, Ontario and Quebec, along with various federal plans.

Uddin said he’s still expecting long-term growth buoyed by the three product launches.

“VPH has a sales team to 65 professionals to support the launches of Enerzair, Atectura and Redesca in Canada – combined sales of the three products should quickly enlarge and diversify the company’s revenue base, as well as, help the company turn cash flow positive by the end of CY2023,” Uddin said.

After finishing 2021 with revenue of $13.6 million, Uddin has lowered the majority of his forward-looking financial projections, lowering his 2022 estimate from $49.7 million to $37.4 million, though the new figure still implies a year-over-year increase of 175 per cent. Uddin then forecasts a double to $75 million (previously $91.2 million) in 2023 before moving into nine figure projections in 2024 at $108.3 million (previously $117.3) million for a year-over-year jump of 44.4 per cent, then rounding out his forecast with a projection of $126.4 million (previously $131.4 million) in 2025.

Uddin expects the company’s P/Sales multiple to drop significantly from the reported 4.5x in 2021 to a projected 1.6x in 2022, then halved to a projected 0.8x in 2023 before dipping to 0.6x in 2024 and 0.5x in 2025.

Meanwhile, Uddin now projects an even greater adjusted EBITDA loss of $7.2 million in 2022 (previously a $1.8 million loss), before turning positive in 2023 at a projected $9.1 million and an implied margin of 12.1 per cent (previously $15.8 million and an implied margin of 17.3 per cent), with the estimates growing in 2024 ($24.9 million and an implied margin of 23 per cent) and 2025 ($32.3 million and an implied margin of 25.6 per cent).

Valeo’s stock price has dropped off by 42.4 per cent over the last 12 months, while also producing a loss of 6.9 per cent since trading began in 2022. At present, Valeo is near its 52-week low of $0.60/share from July 22, a long way off its 52-week high of $1.25/share, which was set on April 26.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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