Valeo Pharma wins target raise from Research Capital

Research Capital Corp analyst André Uddin likes the new move by Canadian specialty pharma company Valeo Pharma (Valeo Pharma Stock Quote, Charts, News, Analysts, Financials CSE:VPH), one which helps build up the company’s stable of offerings and expand business into new markets. Uddin delivered an update to clients on Valeo on Tuesday where he maintained his “Speculative Buy” rating while raising his target price from $0.70 to $1.00 per share, which at the time of publication represented a projected one-year return of 56.3 per cent.

Headquartered in Kirkland, Quebec, Valeo is focused on the commercialization of drugs for the Canadian market with concentrations on the neurodegenerative, oncology, supportive care and hospital products categories. 

Valeo announced on Tuesday the closing of a US$40-million non-dilutive financing from Sagard Healthcare Partners, with the funds intended towards the licensing and acquisition of three new drugs. The deal involves a senior secured term loan of up to US$40 million, made up of US$30 million fully funded and an added US$10 million available for future in-licensing or acquisitions, with a maturing of five years hence.

Valeo said it intends to use the proceeds to fund the acquisition of Canadian license rights to Xiidra and Simbrinza from Novartis and for the Canadian license rights to Alleject from Kaléo.

“We are thrilled to have the financial support of Sagard Healthcare Partners, a sophisticated and knowledgeable healthcare investor. Their support is a testament to the quality of our commercial assets, the soundness of our business model and the talented team we have at Valeo,” said Steve Saviuk, Valeo CEO, in a press release. “This non-dilutive financing provides us with the necessary financial flexibility to accelerate our growth, deliver on defined value creation milestones and execute on our ambitious corporate objectives”.

With the Allerject licensing rights, Valeo is entering the allergy market, as the Allerject auto-injector is used for the treatment of serious allergic reactions. Remarking on the deal, Uddin noted the Canadian market for epinephrine auto-injectors currently exceeds $80 million. (All figures in Canadian dollars except where noted otherwise.)

“The current run rate for Allerject was $4 million. We expect this product to grow as it was not promoted. Pfizer’s EpiPen currently has about 80 per cent of the market, with Allerject currently at a five per cent share,” Uddin wrote.

Xiidra is a prescription eye drop solution indicated for the treatment of the signs and symptoms of dry eye disease, while Simbrinza is a prescription eye drop solution indicated for the reduction of intraocular pressure (IOP) in adult patient with open-angle glaucoma or ocular hypertension. Uddin said about 21 per cent of Canadians experience symptoms of dry eye while about 400,000 Canadians suffer from glaucoma, with open angle glaucoma accounting for 95 per cent of the cases. Uddin said that together Xiidra and Simbrinza had a 2021 revenue run rate of $23 million and were not being promoted, saying he expects the two drugs to grow with promotion.

“Today’s transactions diversify Valeo’s revenue base, add significant growth to the company’s current sales trajectory, add two new therapeutic fields (ophthalmology and allergy) and bring the company one step closer to turning cash flow positive. VPH has 60 reps currently and will add 12 ophthalmology reps. The new products added were not being promoted – so growth is expected. VPH should turn cash flow positive in H2 FY2023,” Uddin wrote.

By the numbers, Uddin is calling for Valeo to hit 2022 and 2023 revenue of $27 million and $73 million, respectively, and for EPS to go from negative $0.20 per share in 2021 to negative $0.23 per share in 2022 to negative $0.01 per share in 2023.

Uddin noted that Canadian specialty pharma valuations have continued to drop and that the sector is currently trading at 2.5x 2022 EV/Sales compared to 3.0x earlier this year. 

“Our target price of $1.00 is based on applying a 2.5x EV/Sales multiple to our new 2023 VPH revenue estimate. Management continues to build upon its business by adding new products despite the current market environment,” Uddin wrote.