Biotech, more than any other sector, is a game of longshots. Most great investors in the space own a basket of ten or more stocks. They’re not looking for a tidy ten per cent gain, they’re looking for a life-changing fifty bagger.
So how do you find great candidates? Look no further, by following us here at Cantech Letter (sign up for our newsletter here) you will get scores of recommendations each year.
Let’s look at two stocks that were recently recommended by analysts whose work we carry.
Québec-based specialty pharma company Medexus Pharmaceuticals (Medexus Pharmaceuticals Stock Quote, Charts, News, Analysts, Financials TSX:MDP) received a target price increase from Raymond James recently. Analyst Rahul Sarugaser kept an “Outperform” rating on the stock while lifting his target from $3.50 to $4.00, saying that new bank debt provides a clearer path to minimizing potential share dilution from the company’s convertible debt.
Medexus is a rare disease-focused pharma company that licenses, acquires and promotes near-market and on-market drugs and products in the US and Canada, with a concentration on oncology, hematology, rheumatology and auto-immune diseases
Sarugaser says recent moves make the path ahead clearer for Medexus, which had a record quarter for revenue and earnings in its latest release, the company’s fiscal third quarter 2023, delivered in early February.
“We adjust our potential dilution analysis using a 50 per cent likelihood MDP will secure the US$20 million accordion, which in turn would settle 50 per cent of the convertible debt. As such, we reduce our estimate of potential dilution to 75 per cent (was 100 per cent) of the 9.9 million potentially dilutive shares, deriving a revised pro-forma share count of 28.9 million. From this, we calculate a per-share value of $4.06 (rounded to $4), and maintain our Outperform rating,” Sarugaser wrote in a recent update to clients.
At press time, Sarugaser’s $4.00 target represented a projected one-year return of 231 per cent.
It’s been a great recovery over the past few months for medical device company Profound Medical (Profound Medical Stock Quote, Charts, News, Analysts, Financials NASDAQ:PROF), with the stock more than doubling since the start of December. But there’s more room to grow, according to Leede Jones Gable analyst Douglas W. Loe, who reviewed Profound’s latest quarterly results in a Wednesday report to clients.
Profound Medical, which is based in Ontario, is commercializing a magnetic resonance-guided prostate cancer-targeting ultrasound ablation technology, the TULSA-PRO, and its uterine fibroid-targeting Sonalleve, reported its fourth quarter and full 2022 financials recently.
The company recorded $1.3 million in revenue, which was up 26 per cent year-over-year. Total operating expenses were $9.4 million, down from $10.2 million a year earlier. (All figures in US dollars.)
Loe said the Q4 revenue of $1.3 million was “clearly softer” than the third quarter’s $2.0 million, which itself was soft compared to past quarters. But the analyst also added that these are essentially inconsequential compared to the much bigger unit sales for both the TULSA and Sonalleve expected in the future.
Loe noted that despite the challenges in 2022 with TULSA installations, including pandemic restrictions in Asia, Profound did ultimately meet its 2022 systems placement goal with 35 confirmed installations.
“Although the firm did experience delays to its install base over the course of the pandemic, the firm expects that timelines to installation should shorten over time as hospital environments become normalized again,” the analyst said.
“So far, timelines have now been reduced from six months to three months, and with the firm aiming to cut it down to its target of ~60 days. Ahead in 2023/2024, the firm expects that it could be feasible to achieve 50 systems by end-of-F2023 and increasing it substantially to 75 systems by 2024. For comparison, EDAP sold fifteen Focal One systems last year, up from seven in F2021. Device-specific US reimbursement codes once achieved should greatly facilitate growth beyond these threshold levels,” he wrote.
With this most recent update, Loe maintained a “Buy” rating on PROF and price target of $14.00 per share, implying a one-year return at the time of publication of 22.6 per cent.
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