Akumin should hit $6.75/share, says Clarus

New results on an Alzheimer’s drug could mean more business for radiology and oncology company Akumin (Akumin Stock Quote, Charts, News, Analysts, Financials NASDAQ:AKU), according to Clarus Securities analyst Noel Atkinson. In an update to clients on Thursday, Atkinson maintained a “Buy” rating on the stock which rallied sharply over the summer.

Drug makers Biogen and Eisai announced on September 27 data from a Phase 3 study on Alzheimer’s disease involving amyloid beta drug lecanemab, with the results finding a 27 per cent slowing of cognitive decline at an 18 months follow-up period compared to placebo. The study hit its primary and key secondary endpoints and involved 1,795 patients.

The results should be good for radiology companies, Atkinson pointed out, saying that the US FDA approved aducanumab in June, 2021, for treating Alzheimer’s, a drug which is another amyloid beta plaque reduction drug, and the approval noted a requirement that patients get an MRI prior to use of aducanumab, along with more MRIs over the first 12 months of use to track performance and possible side effects.

This means the same MRI requirement is likely to come with lecanemab, which would be a positive for companies like Akumin, one of the largest providers of radiology imaging and oncology treatment services in the US, with operations in 46 states and a large mobile imaging fleet and over 200 imaging and oncology treatment centres.

“If FDA approval occurs and physician acceptance is strong, it is possible that hundreds of thousands of people could require two to three MRIs in their first year of prescription – boosting MRI volumes across the U.S. by perhaps a million scans/year or more (and theoretically driving perhaps $1 billion/year in new imaging revenue for hospitals and independent outpatient imaging centres),” Atkinson wrote. (All figures in US dollars.)

Shares of Biogen spiked by over 40 per cent on the announcement of the clinical trial data, as did shares of RadNet, the largest outpatient MRI imagining business in the US, which climbed over 16 per cent on Wednesday. 

But Atkinson said the same proportionate level positive market response didn’t come for Akumin, right now the second or third-largest standalone outpatient MRI imagining company in the country, Atkinson estimates, which saw only modest gains (three per cent).

“[L]ecanemab could be a positive driver to imaging revenues in 2023+ [for Akumin],” Atkinson wrote. “Our estimates are unchanged, so any lecanemab-related MRI volume in 2023 would be upside to our forecast.”

Akumin last reported earnings in early August where the company posted year-over-year rises in its MRI business (up 2.0 per cent), its PET/CT business (up 6.4 per cent) and Total Radiology Procedures (up 4.5 per cent), while Oncology Patient Starts dropped by 1.4 per cent.

Second quarter revenue was up substantially, as the numbers included contribution from major acquisition Alliance HealthCare Services. The topline of $192.1 million was up 176 per cent year-over-year, while the company’s Q2 net loss was $26.1 million compared to a loss of $6.9 million a year earlier. Adjusted EBITDA for the quarter was $38.2 million, up 212.7 per cent year-over-year and up 19.3 per cent sequentially.

Last month, Akumin announced an executive change and business update, with the company’s CFO William Larkin stepping down to be replaced with David Kretchmer. Akumin said the move was part of a transformation program which has been aimed at firming up operations, cutting costs and improving the company’s cash position. As a testament to the new approach, Akumin said it had recently sold certain accounts receivables to improve liquidity by the addition of $30 million, putting their cash at a pro forma $69 million at the end of the second quarter. 

“Our transformation efforts to date have already resulted in significant efficiencies to our operations and show a positive momentum for further efficiencies, as discussed in our second quarter results,” said Chairman and CEO Riadh Zine in an August 12 press release. “I am very excited to welcome David as our new Interim Chief Financial Officer. We are thrilled to have his expertise complement our team as we successfully execute our transformation program.”

Looking ahead, Atkinson thinks Akumin will generate full 2022 revenue of $762.7 million compared to 2021’s $421.1 million and adjusted EBITDA of $155.8 million compared to 2021’s $66.9 million. For 2023, the analyst is calling for $801.9 million in revenue and $203.8 million in EBITDA.

On valuation, Atkinson has AKU’s EV/Sales at 2.1x for 2022 and 2.0x for 2023 and the company’s EV/Adj. EBITDA at 10.5x for 2022 and 8.0x for 2023.

AKU shares fell through much of 2021 and the start of 2022, but a rally over the past three months has brought the stock back to even for the year-to-date. Along with his reiterated “Buy” rating, Atkinson has maintained in his new report a target price of $6.75 per share, which at press time represented a projected one-year return of 294.7 per cent.