Despite a target drop, Chelsea Stellick of iA Capital Markets isn’t panicking about Valeo Pharma Inc. (Valeo Pharma Stock Quote, Chart, News, Analysts, Financials CSE:VPH), maintaining her “Buy” rating with a revised target price of $1.40/share (previously $1.60/share) for a projected return of 182.8 per cent in an update to clients on Wednesday. Montreal-based Valeo Pharma has engaged in the acquisition, in-licensing and commercialization of pharmaceutical products since 2003, with a primary focus on neurodegenerative diseases, oncology and supportive care and hospital products. Stellick’s latest analysis arrives after Valeo Pharma released its second quarter financial results for the 2022 fiscal year. “Q2/F22 was a disappointing quarter for the base business resulting in lower than anticipated product sales, although expenses were as expected,” Stellick said. “Management hinted at business development opportunities that could bring new products to the portfolio to make the most of VPH’s operating leverage.” Despite a 12 per cent sequential jump and 80 per cent year-over-year growth, Valeo’s second quarter revenue report of $4.8 million was a miss in relation to the consensus projection of $6.5 million, with Stellick partially attributing the miss to the company’s Enerzair and Atectura offerings still being early in the sales ramp, while also citing large M-Eslon orders coming through after the quarter ended. According to Stellick, the company has secured reimbursement for its Enerzair, Atectura and Redesca offerings in the province that were previously outstanding, with Redesca serving as the primary growth driver with 54 per cent market share while Enerzair and Atectura grew to encompass 8,247 prescriptions and 447 prescribers in the quarter. On the margins, Valeo reported a 134 per cent year-over-year increase in gross profit (18 per cent sequential gross margin increase) to $1.7 million, though that only slightly offset increased expenses to produce an adjusted EBITDA loss of $3.8 million in the quarter, which was a step back from the $1.1 million loss reported in the same quarter of 2021 despite being a 22 per cent sequential improvement. Overall, the company has $5.2 million in cash available, along with $9.6 million in working capital after issuing 2.8 million shares in the quarter for the early conversion of debentures and exercise of options. “Our base business has contributed lower than expected revenues and margins during the quarter due to timing issues,” said Luc Mainville, Senior Vice-President and Chief Financial Officer of Valeo Pharma in the company’s June 14 press release. “However, the continued strong sequential revenue growth of our three transformative products, Redesca, Enerzair and Atectura, has contributed to expand our margins and improve our operating results during Q2-22 over prior quarters. Already, the next quarter is evidencing continued growth of our lead products as we leverage our strong working capital position to support the execution of our plan.” With Redesca, Enerzair and Atectura serving as primary catalysts, Stellick forecasts Valeo to hit a solid probability-adjusted revenue ramp for the majority of the decade, moving from a projected $21 million in 2022 to a peak of $190 million in 2028, after which Stellick does not presently list Enerzair and Atectura as revenue drivers. From a valuation perspective, Stellick forecasts Valeo becoming a value investment in terms of EV/Revenue in 2022 as she projects a 1.8x multiple to serve as a discount to the 2.5x comparable average. The discount projects to become more apparent in 2023, with Stellick forecasting a multiple of 0.8x compared to the 2.1x peer group projection. Stellick’s modelling assumes a consistent 55 per cent gross margin, similarly peaking in 2028 at a projected $86 million worth of COGS. Meanwhile, after a $6.3 million loss projection for 2022, Stellick forecasts similar growth in the company’s EBITDA as it turns positive in 2023 ($15.6 million) before climbing to an estimated $72.3 million in 2027 and remaining there through 2028. In terms of multiples, Stellick introduces an EV/EBITDA multiple of 3.8x for Valeo in 2023, representing a significant discount to the peer group average of 15.4x. Despite the target drop with her sum of the parts valuation, Stellick still believes Valeo is poised to take steps forward. “We continue to emphasize improving gross margins, Redesca as the primary F2022 growth driver, and we are encouraged for the first time by trends that make us newly confident in Enerzair and Atectura growth outpacing Redesca in F2023 to ensure profitability in F2023,” Stellick said. “Having achieved national public and private reimbursement of its three largest products, we expect momentum to build in the balance of F2022 and continue through F2023.” Valeo Pharma’s stock price has fallen by 22.4 per cent since it began trading on the Toronto Stock Exchange on March 29. While it has rebounded by 13 per cent since its 2022 low of $0.46/share on May 26, the stock has not recaptured its initial high of $0.67/share.