Valeo Pharma is a clear Buy right now, says Paradigm

Investors looking for growth-oriented stocks in the Canadian pharmaceutical space should be thinking about Valeo Pharma (Valeo Pharma Stock Quote, Charts, News, Analysts, Financials TSX:VPH). That’s according to Paradigm Capital analyst Scott McAuley, who reviewed Valeo’s latest quarterly results in a client update on Monday.

Quebec-based Valeo concentrates on commercializing respirology/allergy, ophthalmology and specialty products including asthma drugs Atectura and Enerzair and anticoagulant Redesca.

The company reported third quarter fiscal 2022 results last week for the period ended July 31, 2022, featuring record revenue of $6.1 million, which represented a year-over-year increase of 34 per cent and a sequential rise of $27 per cent. Fiscal-year-to-date, Valeo is also on a record pace at $15.1 million, up 48 per cent from the previous year. What’s more, the company is predicting a big jump with its upcoming Q4, as the quarter will include significant revenue contributions from Xiidra, Simbrinza and Allerject. Management is projecting fiscal Q4 revenue to rise above $11 million.

“Our quarterly revenues increased to record levels as a result of the continued commercial progress of our lead products,” said CEO Steve Saviuk in a press release. “We are also very proud to have added three core commercial assets during this third quarter that will help more than double our annual revenues over the coming year.”

“Our product portfolio now includes 6 core products that are strongly positioned to contribute significantly to our revenue growth. Given the immediate impact of our acquisitions and the organic growth of our existing products, we expect fourth quarter revenues to exceed $11.0 million,” he said.

McAuley said the Q3 was in-line or better than he forecasted, with the $6.1 million topline comparing to McAuley’s estimate at $6.0 million, while adjusted EBITDA of negative $2.9 million was above the analyst’s estimate at negative $3.5 million.

McAuley noted that the number of physicians prescribing Enerzair and Atectura has increased by 28 per cent month-over-month this year, going from about 200 in January to about 700 in June. McAuley said asthma medication Enerzair has consistently led its only competitor Trelegy in monthly new patient scripts by 2-3x since February, while Atectura for respiratory obstructive diseases is now the fastest-growing product in its class.

Valeo shares have dropped a fair ways over the last two years, moving from a high of about $1.40 in early 2021 to now around the $0.60 mark. But McAuley said he’s staying bullish on Valeo.

“We believe the market is giving VPH only marginal value for its portfolio of Health Canada approved drugs, especially the asthma drugs Atectura and Enerzair and LMWH biosimilar Redesca,” McAuley said. 

“The products are superior to competitors and supported by a recently expanded experienced commercial team. From a macro perspective, VPH’s drug products are resilient to market cycles and gives investors exposure to the inelastic healthcare sector without the risks of drug development,” he wrote.

Also last week, Valeo announced a Commercial Services Agreement with Veru Inc for novel anti-viral and anti-inflammatory drug sabizabulin, used to treat moderate to severe COVID-19 patients at high risk for acute respiratory distress syndrome and death.

Vaelo said a phase 3 study showed sabizabulin to have a “statistically significant and clinically meaningful” 55.2 per cent reduction in deaths compared to placebo and a significant reduction of days in ICU, days on mechanical ventilation and days in hospital.

“Veru plans to pursue an expedited review process with the Canadian healthcare authorities with the objective of making sabizabulin available in Canada at the earliest time possible,” said Saviuk.

Commenting on the news, McAuley said he has yet to add sabizabulin to his model, representing potential upside.

“Sabizabulin demonstrated a 24.9 per cent reduction in absolute 60-day mortality versus placebo in hospitalized patients with moderate-severe COVID-19 (NEJM). An FDA Ad Comm meeting has been scheduled for October 6 and Health Canada submission is expected soon as part of global submissions,” McAuley said.

“This demonstrates VPH’s ability to sign significant Canadian commercial deals, but given the uncertainty of approval and the future of COVID-19 hospitalizations, we are not yet including this in our estimates or valuation,” he said.

On his projections, McAuley is now calling for Valeo to hit full fiscal 2022 revenue of $26.1 million (previously $31.4 million), compared to fiscal 2021’s $13.6 million and moving onto $66.7 million for fiscal 2023. On EBITDA, he is now calling for 2022’s earnings to be negative $13.9 million (previously $13.2 million) and moving to negative $3.8 million in 2023.

“With six growth products across its portfolio, we see VPH as the strongest and most diversified Canadian commercial pharma growth opportunity. We maintain our Buy rating,” McAuley said.