RevoluGROUP Canada Inc V.REVO

Not a very upbeat forcast for MPH by RBC

[MasterD]

RBC CAPITAL MARKETS EQUITY RESEARCH Price Target Revision | COMMENT October 3, 2007 Medicure Inc. TSX:MPH; AMEX: MCU Sector Perform Speculative Risk Lowering target to $1.25; high risk ahead. Priced as of prior trading day's market close, EST (unless otherwise stated). For required disclosures, please see Required Disclosures section at the end of this comment. RBC Dominion Securities Inc. Philippa Flint (Analyst) [phone]; [e-mail] Bernadine Leung, Ph.D., CFA (Associate) [phone]; [e-mail] Price: 1.10 Price Target: 1.25(prev:2.25) Shares O/S (MM): 130.2 Implied All-In Return: 13.6% Dividend: 0.00 Market Cap (MM): 143 Float (MM): 122.6 Yield: 0.0% Avg. Daily Volume (MM): 0.36 Strategic Ownership: A. Friesen 5.8% Shares o/s includes 13.9 mm from recent financing. ----------------------------------------------------------------------------- All values in CAD unless otherwise noted. FY May 2006A 2007A 2008E 2009E EPS (Op) - Basic (0.17) (0.30) (0.32) (0.12) Prev. (0.25) (0.25) P/E NM NM NM NM CFPS - Basic (0.17) (0.26) (0.30) (0.12) Prev. (0.22) (0.23) P/CFPS NM NM NM NM Revenue (MM) 0.1 7.1 11.9 20.6 Prev. 9.0 14.0 EPS (Op) - Basic Q1 Q2 Q3 Q4 2006 (0.06)A (0.05)A (0.04)A (0.03)A 2007 (0.03)A (0.06)A (0.08)A (0.12)A Prev. (0.08)E 2008 (0.12)E (0.10)E (0.06)E (0.04)E Prev. (0.08)E (0.06)E (0.05)E 2009 (0.03)E (0.03)E (0.03)E (0.03)E CFPS - Basic 2006 (0.06)A (0.05)A (0.03)A (0.03)A 2007 (0.03)A (0.05)A (0.07)A (0.11)A Prev. (0.07)E 2008 (0.11)E (0.10)E (0.06)E (0.03)E Prev. (0.08)E (0.05)E (0.05)E (0.05)E 2009 (0.03)E (0.03)E (0.03)E (0.03)E Revenue (MM) 2006 0.0A 0.0A 0.0A 0.1A 2007 1.0A 1.6A 3.1A 1.4A Prev. 3.2E 2008 2.1E 2.9E 3.1E 3.8E Prev. 3.3E 3.4E 3.4E 4.0E 2009 4.7E 5.0E 5.3E 5.7E ------------------------------------------------------------------------------- Event Update on Medicure after coming off restriction related to previous financing. Investment Opinion * Q4 F2007 EPS ($0.12). Medicure reported Q4 F2007 net loss of $14.0 million, compared to a net loss of $2.5 million or ($0.03) per share for Q4 F2006. The net loss for F2007 was $31.7 million or ($0.30) per share, compared to a net loss of $12.6 million or ($0.17) per share in F2006. The significant increase in y-o-y loss was due to much higher R&D expenses associated with the phase III MC-1 trial. * Aggrastat revenues disappointing. Product revenues were $1.7 million for the quarter, and $5.9 million for F2007. These results were disappointing and Medicure has taken over management of its own sales force and hired a consultant to improve future revenues. * Monetizing revenues and raising capital. Medicure issued shares to raise US$16 million, and entered into an agreement with Elliott Associates to monetize its current and potential future revenues of Aggrastat and potentially MC-1 to raise a further US$25 million. We see the agreement as having highly favourable terms for Elliott. As a result, MPH has had to alter the covenants associated with its existing credit agreement and now has to generate certain minimum Aggrastat sales levels to avoid defaulting. We believe it could be challenging for MPH to achieve the minimum Aggrastat levels established. With the financing, we estimate MPH has 12-18 months of cash. * Advise caution around release of Phase III results expected in calendar Q1/ 08. We believe there is at least a 50% chance of failure due to our view of a lack of meaningful phase II results. * We hesitate to recommend an investment in MPH stock given the high risk event ahead. Very few single-product, development-stage biopharma companies achieve phase III success. Combined with our opinion of a lack of meaningful phase II data, plus disappointing Aggrastat sales and more restrictive debt covenants that could be difficult to achieve, we are increasing our discount rate used in our valuation from 30% to 60%. * Valuation - Lowering target to $1.25. We value Medicure on F2011E discounted EPS of $0.11 (previously $0.16), using a 30x multiple and 60% discount rate over two years to arrive at a forecast target of $1.25. VALUATION Lowering target to $1.25. We value Medicure on F2011E discounted EPS of $0.11 (previously $0.16). We apply a 30x multiple and 60 % (previously 30%) discount rate over two years to arrive at a forecast share price of $1.25 (previously $2.25). We use a multiple of 30x as the company's valuation is based on revenues from both MC-1, for which we assume high growth in F2011, and Aggrastat, for which we assume much lower growth. The discount rate is much higher than what we use for other biotech/pharma companies at a similar stage of development as we are not optimistic on the outcome of the phase III MC-1 trial, and we have concerns that MPH may not be able to achieve minimum required Aggrastat sales revenues affecting its credit agreement. PRICE TARGET IMPEDIMENT Key impediments to reaching our price target include a failure in clinical trials, an inability to partner MC-1, difficulty growing product sales, and difficulty raising capital. COMPANY DESCRIPTION Medicure is a Canadian pharmaceutical company developing pharmaceuticals for cardiovascular and cerebrovascular medicine, particularly related to ischemia (lack of blood flow). The lead drug, MC-1, is being developed to treat ischemic reperfusion injury associated with angioplasty or coronary artery bypass surgery. MPH in-licensed Aggrastat, a marketed product, for the U.S. market. REQUIRED DISCLOSURES EXPLANATION OF RBC CAPITAL MARKETS RATING SYSTEM An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector. Ratings Top Pick (TP): Represents best in Outperform category; analyst's best ideas; expected to significantly outperform the sector over 12 months; provides best risk-reward ratio; approximately 10% of analyst's recommendations. Outperform (O): Expected to materially outperform sector average over 12 months. Sector Perform (SP): Returns expected to be in line with sector average over 12 months. Underperform (U): Returns expected to be materially below sector average over 12 months. Risk Qualifiers (any of the following criteria may be present): Average Risk (Avg): Volatility and risk expected to be comparable to sector; average revenue and earnings predictability; no significant cash flow/financing concerns over coming 12-24 months; fairly liquid. Above Average Risk (AA): Volatility and risk expected to be above sector; below average revenue and earnings predictability; may not be suitable for a significant class of individual equity investors; may have negative cash flow; low market cap or float. Speculative (Spec): Risk consistent with venture capital; low public float; potential balance sheet concerns; risk of being delisted. DISTRIBUTION OF RATINGS, FIRMWIDE For purposes of disclosing ratings distributions, regulatory rules require member firms to assign all rated stocks to one of three rating categories-- Buy, Hold/Neutral, or Sell--regardless of a firm's own rating categories. Although RBC Capital Markets' stock ratings of Top Pick/Outperform, Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above). Distribution of Ratings, Firmwide RBC Capital Markets Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent BUY(TP/O) 460 43.85 186 40.43 HOLD(SP) 505 48.14 159 31.49 SELL(U) 84 8.01 19 22.62 To view the relevant 2711 stock chart for the subject company(ies) of this report, clients should refer to https://www7.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?EntityID=1 ANALYST CERTIFICATION All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. DISSEMINATION OF RESEARCH