Medexus Pharma will head even higher, says Raymond James

It’s been a wild ride for Medexus Pharmaceuticals (Medexus Pharmaceuticals Stock Quote, Charts, News, Analysts, Financials TSX:MDP) over the past couple of months, as the stock has more than doubled since June. But the fun ain’t over yet, according to Raymond James analyst Rahul Sarugaser, who in a Thursday report kept an “Outperform” rating on the stock, saying that once a debt overhang is cleared up this fall, the stock will rerate higher.

Québec-based Medexus is a specialty pharma company focusing on oncology, hematology, rheumatology and autoimmune diseases. The company reported its first quarter fiscal 2024 on Wednesday for the period ended June 30, 2023, featuring record revenue of $31.6 million, up 37 per cent year-over-year, and record adjusted EBITDA of $6.6 million compared to $4.7 million a year earlier. (All figures in US dollars except where noted otherwise.)

Operationally, Medexus said IXINITY sales in the US remained strong over the quarter, while Rasuvo maintained its market-leading position in the methotrexate market, although competition in the US market is affecting sales. On Gleolan, the company said it’s continuing to execute on a post-transition commercial plan, with new sales and marketing initiatives.

“We are very pleased to report another great quarter, with continued strength and stability across the company’s base business, and notably strong Rupall performance driving this latest quarter’s record revenue,” said CEO Ken d’Entremont in a press release.

On the quarterly results, Sarugaser said the company’s $31.6 million topline was a big beat of both his estimate at $29.0 million and the consensus forecast at $29.5 million, and adjusted EBITDA at $6.6 million was a similar big beat of the Raymond James call at $5.6 million and the Street at $4.8 million. 

Sarugaser said the 14 per cent revenue growth was impressive considering that its last 12 months revenue had already grown by 41 per cent over the previous year-period. 

“This steady sales ramp is supported by MDP’s enviable situation of having not one power-product in its bag, but (at least) four. During 1Q24, sales were led by IXINITY (US), Rupall (CAN), Rasuvo (US)/Metoject (CAN), and Gleolan. Each product has carved out, or is in the beginning stages of carving out, solid niches in their respective jurisdictions, and many of these have material upside relating to further market capture or indication expansion,” Sarugaser wrote.

“Net-net, we see MDP building a very stable sales platform with plenty of upside built into its on- market assets, and inherent in its pre-approval assets,” he said.

On the debt overhang, something Sarugaser called the elephant in the room, MDP’s convertible debt is coming due in mid-October (US$38 million), and Sarugaser said given MDP’s ability to generate cash, management estimates it should be able to gather about $20 million by September 30, which along with access to a $20 million accordion facility should “just” manage to settle the entire debt plus premium, Sarugaser said.

“Come mid-Oct., however, once the convertible debt question is settled, we expect MDP’s stock will be unshackled, and—given its strong ability to generate EBITDA and cash—should then right-size its valuation closer to its comps,” he wrote.

Sarugaser reiterated a target price of $4.00, which at press time represented a projected one-year return of 38 per cent.