Medexus could be a five-bagger, Raymond James says

An FDA approval could send one Canadian-listed stock flying, says Raymond James analysts Michael W. Freeman.

In a research update to clients January 7, the analyst upgraded Medexus Pharmaceuticals (Medexus Pharmaceuticals Stock Quote, Chart, News, Analysts, Financials TSX:MDP) from “Outpeform 2” to “Strong Buy 1”, while maintaining his one-year price target of $4.00 on the stock.

Freeman says the U.S. approval of treosulfan would be a game changer for MDP and its investors.

treosulfan is a chemotherapy agent and bone marrow conditioning drug that disrupts DNA in rapidly dividing cells, playing a crucial role in preparing patients for stem cell transplants with a favorable safety profile, especially in vulnerable populations. In Canada, Medexus holds the exclusive licensing rights to commercialize treosulfan. The drug was approved by Health Canada in June 2021 and is marketed under the brand name Trecondyv.

“Given our increasing confidence in treosulfan’s FDA approval in late Jan. and our conviction in significant pent-up demand for the drug in the US, we escalate our rating to SB1 (was OP2) and add MDP to our ACF list,” Freeman wrote. “We maintain our CA$4.00/sh PT as we do not yet incorporate US sales of treosulfan in our model, but our scenario analysis shows the potential for MDP’s share price to surpass CA$21.00 in 3-4 years’ time assuming treo’s approval and a strong sales ramp.”

The analyst said investors do not have long to wait to figure out if this thesis is activated.

MDP is awaiting approval of its largest pipeline asset, treosulfan, which is the standard of care in Europe and Canada for stem cell transplant procedure preparation, but has not yet been approved in the US. The FDA approval decision date for treosulfan is Jan. 30: ~20 days away. Given the tone of MDP/medac’s regulatory discussions with the FDA (who seem requesting information for the drug label vs. determining approvability), alongside strong demand from US doctors, we think this approval is materially derisked. If approved, we expect MDP to launch treo during 1H25.

So what would be the material effect? Freeman broke down the potentially significant impact.

“The company has forecasted (conservatively) that treo could drive peak sales of US$100 mln within 3-5 years, which would double company-wide revenue,” he noted. “Treo, a ~80% gross margin product, would also drive a tripling in EBITDA to >US$60 mln US at peak. MDP suggests that if the US treo launch tracks that seen in Canada (ca. 2021), we could see sales of US$60-80 mln after year 2, meaning US$100 mln in sales is quite possible around year 3 (not year 5). Given treosulfan would likely be designated an orphan drug, MDP would benefit from a minimum 7.5-year period of market exclusivity, commencing once the drug is approved.”