With its COVID-19 clinical trial now a go, Cardiol Therapeutics (Cardiol Therapeutics Stock Quote, Chart, News, Analysts, Financials TSX:CRDL) is deserving of a rating boost, says Rahul Sarugaser, analyst for Raymond James. In a report to clients on Wednesday, Sarugaser went from \u201cMarket Perform 3\u201d to \u201cOutperform 2\u201d while keeping his $4.25 target price. Cardiol Therapeutics is a biopharmaceutical company focused on pharmaceutical CBD (cannabidiol) products and on developing therapies for heart disease. The company announced on Wednesday it has enrolled the first patient in its Phase 2\/3 trial investigating the cardio-protective properties of CardiolRx, the company\u2019s lead product, an oral CBD formulation. The LANCER trial is a randomized, double-blind and placebo-controlled study involving 422 hospitalized patients with confirmed diagnosis of COVID-19 and with pre-existing or significant risk factors for cardiovascular disease (CVD). Patients are being enrolled at nine major hospital centres in the US under an Investigational New Drug (IND) application approved by the US FDA. In the press release, Cardiol said COVID-19 patients primarily present with respiratory symptoms which can progress to bilateral pneumonia and serious pulmonary complications, with patients with pre-existing CVD risk factors are at significant risk of developing CVD complications which are frequently fatal. \u201cThere is compelling evidence that inflammation plays a fundamental role in the development and progression of heart disease,\u201d said Dr. Andrew Hamer, Chief Medical Officer of Cardiol Therapeutics, in the press release. \u201cI am excited to see the initiation of the LANCER trial which will provide a unique opportunity to explore the anti-inflammatory and cardioprotective properties of CardiolRx in COVID-19 patients who are at high risk for major cardiovascular complications.\u201d Cardiol finished 2020 down 39 per cent, while so far in 2021 the stock is up 35 per cent. Sarugaser sees more upside, considering the COVID-19\/CVD market opportunity, which he estimates at $4.1 billion. As for Cardiol\u2019s share, he sees the company starting at two per cent and growing to ten per cent of 2027\u2019s $1-billion market. \u201cWe value CRDL as the sum of two parts: (1) DCF of Canadian medical cannabis revenues (ten per cent discount; two per cent terminal rate); plus (2) Risk-adjusted net present value (rNPV) of its clinical assets in acute myocarditis ($69.6 million) and COVID-19\/CVD ($25.3 million).,\u201d Sarugaser wrote. \u201cThis analysis implies a present sum-of-the-parts valuation of $4.27 per share, which we round and maintain our Target Price of $4.25\/sh. Note: should CRDL see a clear positive signal from LANCER, we calculate that the value of this asset would escalate to $280 million, implying a per share value of $12.84. As such, now that the clinical program is clearly underway, we raise our rating on CRDL to Outperform,\u201d Sarugaser said. On the LANCER trial, given the strong safety data from the Phase 1 trial readout, Sarugaser sees a \u201crelatively low risk for CardiolRx-derived serious adverse events.\u201d At the same time, the analyst said the LANCER data could also serve to derisk Cardiol\u2019s parallel clinical program in acute myocarditis. Cardiol is planning to file an IND application for a Phase 2 international trial looking at the anti-inflammatory and anti-fibrotic properties of CardiolRx in patients with acute myocarditis, currently the most common cause of sudden cardiac death in people under 35 years of age. Typically caused by the flu, Sarugaser said acute myocarditis is seeing material escalations in incident rates worldwide due to COVID-19. The analyst expects LANCER to be fully enrolled by this summer, with data lock around the third quarter and topline data around the fourth quarter\/first quarter 2022. \u201cLANCER is designed to support the registration of CardiolRx, meaning that if the trial data produce a strong enough efficacy signal, it could support FDA approval and\/or emergency use authorization (EUA) in this COVID-19+CVD indication,\u201d Sarugaser wrote. \u201cWhile CRDL has produced very strong preclinical data suggesting CardiolRx's cardioprotective efficacy, this Phase 2\/3 clinical trial will be the first real test of the drug's efficacy in a human population, so we are unable as yet to resolve this trial's probability of success,\u201d he said. By the numbers, Sarugaser thinks Cardiol will generate 2021, 2022 and 2023 revenue of $1.1 million, $4.1 million and $9.6 million, respectively, and 2021, 2022 and 2023 EBITDA of negative $18 million, negative $14 million and negative $13 million, respectively. Cardiol Therapeutics has a supplier agreement with Shoppers Drug in Canada to provide its pharmaceutically produced CBD, with Cortalex, a THC-free extra-strength oral CBD formulation made first available at Medical Cannabis by Shoppers in October, 2020. Cardiol says the Shoppers deal gives the company an opportunity to address poorly served segments of the $575-million medical cannabinoid market in Canada, particularly in patients who should not take THC.