Mindset Pharma is undervalued, says Echelon

Echelon Capital Markets analyst Stefan Quenneville reiterated a “Speculative Buy” rating and $1.25 target price on Mindset Pharma (Mindset Pharma Stock Quote, Charts, News, Analysts, Financials CSE:MSET) in a Wednesday report to clients, saying a recent lawsuit against the neuropharmaceutical drug company appears to be baseless.

Mindset Pharma, which develops psychedelic compounds for treatment-resistant neurological and psychiatric disorders, filed its third quarter fiscal 2023 financials on Tuesday for the period ended March 31, 2023. 

Revenue was $1.9 million compared to $2.3 million a year earlier and the net loss was $2.9 million compared to a net loss of $1.4 million a year ago.

The topline was below Quenneville’s estimate at $4.3 million, with the entirety of revenue coming from a collaboration with Otsuka Pharma to cover preclinincal R&D related with the company’s Family 2 and 4 compounds. Operating loss at $2.9 million compared to Quenneville’s forecast at negative $2.7 million, with the per share loss of $0.03 coming in-line with the analyst’s negative $0.03 per share estimate.

In other news, Mindset completed its first sale into the Australian market of pharmaceutical-grade psilocybin in March, while also that month the company announced it was defending against a lawsuit from Reunion Neurosciences which has argued that it is the inventor and co-owner of some of Mindset’s patents.

“Mindset disagrees with and denies the allegations set forth from Reunion. The Company plans to vigorously defend itself against this lawsuit,” Mindset said in a statement.

Reunion claims that Mindset copied its lead compound RE104, isoprucin glutarate in Mindset’s patent application and it is claiming $25 million in damages along with seeking to have Reunion’s Chief Scientific Officer included as an investor of the Mindset patent so that Reunion would have the ability to operate with the compound.

Commenting, Quenneville said responses from industry IP experts point towards the idea that the lawsuit is largely baseless, as the Mindset patent was approved before Reunion’s. Quenneville added that the Reunion proposal of an agreement to acquire licensing rights from Mindset is telling as it indicates at least tacit acceptance that Mindset’s claim is “strong and defensible,” Quenneville said.

“While a lawsuit from Reunion Neuroscience Inc generated headlines, we view the suit as largely baseless and, in fact, further proof of the strength and strategic value of Mindset’s IP portfolio. Indeed, we expect that the potential signing of a partnership deal for its lead compound, MSP-1014, could be a catalyst for the stock in the coming months and we continue to view Mindset as meaningfully undervalued and reiterate our Speculative Buy rating and $1.25 target price,” Quenneville wrote.

At the time of publication, Quenneville’s $1.25 target represented a projected return of 291 per cent.