RE:A little more insight Voyageur Pharmaceuticals has a bold strategy to use its expertise in natural resources to create an integrated value chain in radiology contrast agents in North America (NA). The contrast business is big, over US$1.7bln in NA, dominated by a few large companies and constrained by raw material supplies. Voyageur as a cost-efficient, vertically integrated new entrant aims to gain significant market share in two key sectors with C$157mln/US$117mln of sales by 2032 with profit and cash flow positivity from 2028. Funding is planned to come from C$120mln of loans backed by valuable raw material extraction NA assets.
Contrast media come in three main product types: barium sulfate for gastrointestinal (GI) X-ray and CT; iodine for CT and X-ray; and other agents, e.g. for MRI. Voyageur management assesses that both barium and iodine agents are required to interest distributors and to tender for hospital supply. In the final phase, Voyageur aims to develop “green” fullerene agents for MRI.
The NA barium market is dominated by Bracco. Voyageur plans to develop a high-quality barite quarry in Western Canada to manufacture and sell a generic barium “smoothie” plus other formulations with regulatory approval. Products will be sold in NA though standard distribution wholesalers. The NA market is worth US$70-100mln according to market research. We assume extra international sales.
The second phase is to bottle in Canada a generic iodine agent (from Asia) and sell it alongside the barium products from 2025. From 2028, Voyageur aims to have its own US iodine extraction and pharmaceutical manufacturing facility. Iodine agents are about a US$1bln current NA market limited by global iodine supply. A deal with the technology innovator, Rain Cage, has been signed to develop and manufacture nanocarbon/fullerene-based contrast agents for medical imaging. These agents will use Rain Cage’s EDEN system, which captures and transforms CO2 emissions into advanced engineered carbon material. These can be used to develop advanced imaging agents.
Voyageur aims to borrow about C$60mln by late 2023 to develop the barium quarry and facility, to install an iodine agent bottling line and cover costs. Barium and iodine agents could be sold from 2025. Voyageur then plans to borrow a further C$60mln by 2026 to develop the fully integrated iodine agent production from extraction to final pharmaceutical with sales from 2028 taking Voyageur into positive cash flow and profit.
Voyageur is currently pre-revenue. In FY22, it posted a loss of C$1.8mln. In FY23 to date, Voyageur has raised C$1.2mln with an immediate capital need for C$4mln. Year-end FY22 cash was C$0.2mln.
We value Voyageur based on barium and iodine agents assuming fully integrated production from 2028 with a 25% tax rate post 2030. At a 25% discount rate and assuming a 2032 continuing Enterprise Value we estimate a C$60mln indicative value. With 133mmln shares currently in issue, this equates to C$0.45/share. A major advantage of using loan finance is that this indicative value should not suffer massive future dilution.