Mackie Research Maintains 10.50$ Price Target -Details BelowACTION – Maintaining BUY and Target Price Q2 Results: Prescription growth for the U.S. and Canada was solid but top line missed our estimate and consensus due to U.S. payors consolidating (they adopted the lowest Rasuvo price discount), the bottom line was below our estimates but ahead of consensus. We are maintaining our BUY rating and target price of C$10.50. Our valuation is based on applying a 4.5x EV/Sales to our new FY2020 total revenues estimate of C$66.2M.
DETAILS – Q2 Results Q2 Results (C$) – First Profitable Quarter Since the 3-way Merger: Total revenues were $16.4M – below our estimate and consensus of $18.1M mainly due to weaker Rasuvo sales as a result of net selling price reductions (Rasuvo faced pricing pressure as several U.S. payers consolidated and adopted the lowest price discount). Total revenues were $3.4M last year. MDP reported adj. EBITDA of $0.5M vs. our estimate of $2.4M compared to $0.5M last year. Net income (loss) was $0.7M or f.d. EPS of $0.04/share vs. our estimates of $1.3M or $0.05/share compared to consensus of ($0.0M) or ($0.05)/share. Net loss was ($3.6M) or ($0.04)/share last year. As of Q2 end (Sep. 2019), MDP had $25.4M in cash and $34.5M in convertible debentures on its balance sheet. We are increasing our SG&A estimates for Q3 and Q4, as well as, for our annual estimates.
The Methotrexate Franchise – Upside Momentum of Unit Sales Continues: As shown in Figures 3 & 4, Rasuvo TRx(s) continued to show an uptrend in the U.S. In Q2, Rasuvo unit market demand increased 15% compared to last year. In Canada, Metoject unit market demand increased by 115%. We believe the growth trajectory of Rasuvo and Metoject unit sales should continue going forward as originally expected. Due to the one-time net selling price reduction, we are lowering our Rasuvo sales estimates (Figure 8). In Canada, Rupall unit market demand showed 66% YoY growth in Q2.
A Solid Base Based on Three Pillars of Growth: Medexus has three pillars of growth: (i) organic growth of its existing drugs (ii) in-licensing/acquisition of new products - some of the these should come from Medac (MDP has first right of refusal) and (iii) developing a reformulated rheumatoid arthritis drug that should have a better safety profile.
IMPACT – A Must Own We believe MDP is a must own for investors investing in the Canadian specialty pharma space as the stock is highly undervalued and the company is in a strong position to deliver robust long-term growth. We are maintaining our BUY rating and TP of C$10.50.