If you are like me and health sciences is your sector of choice when it comes to investing in the markets, you’d better be very patient, love doing research – and a willingness to see it through!!! A sector famous for its high-risk-high-reward characteristics is definitely not recommended for the faint of heart.
Lucky for all of us and the democratization of health sciences investments, there are companies in this sector like Medexus Pharmaceuticals (MDP). Medexus provides the opportunities to get exposure to the health sciences sector of investing, without having to frantically do daily research on what each clinical trial means.
Medexus Pharmaceuticals (MDP.V) is a specialty pharmaceuticals company that delivers innovative medicines to underserved segments of the market. Medexus adds value by offering a unique opportunity to existing firms that would benefit from a market entry into North America. Medexus has established infrastructure and partnerships in navigating the North American landscape of drug commercialization, so it also provides major synergies for drug companies that don’t have the sufficient experience or money to waste, to enter their domain.
Some Highlights:
- The company announced that it has submitted its application to list on The Nasdaq Capital Market® (the “Nasdaq”), Jan 21, 2021.
- Established North American (Canada and USA) sales and marketing platform
- Diversified product portfolio and expanding product pipeline
- 92% of current revenue from products in growth phase
- Only 2% of current revenue from products launched recently
- $51.1M in revenue and $27.8M in gross profit in H1 2020 (57% growth)
- And that’s revenue growth despite a $3M value order delayed due to a one off delay at one of the manufacturing facilities.
- EBITDA $3M (13% margins) vs. near zero last year
- MDP’s record results during COVID-19 are evidence of this resilience and LTM growth has averaged 60% Y/Y.
Here is our own Jody Vance talking to Ken d’Entremont, who counts among his many accomplishments the title of CEO of Medexus, being a chemist by trade, and having been the former VP of business development at Big Pharma company Sanofi, where he led the in-licensing initiatives for Sanofi Canada. If you’re new to the industry and not avidly following all pharma/vaccine news because of the Great Unmentionable – Sanofi is in the top 10 globally in revenue for pharmaceutical companies. It doesn’t get much more credible than that.
According to Stifel’s latest update, “Medexus Pharmaceuticals (MDP) announced that it submitted an application to list on the NASDAQ. MDP derives ~75% of sales from the U.S. and a Tier 1 exchange listing could help bridge the valuation disconnect…”
To explain the disconnect in valuation, Paul Andreola of small cap discoveries tweeted the following: “Medexus is too pricey for retail investors and too illiquid for institutional investors. Stock is falling between the cracks and creating an opportunity for sophisticated retail investors. Small investors do have advantages over institutions if they know what to look for”.
Consequently, with just a bit of attention, MDP has been soaring to new all time highs over the past month and seeing unprecedented average daily volumes. It seems the secret is out of the bag and the investors have begun to realize the potential that exists in MDP – a revelation that’s proving itself to be worth the relative higher cost, and subsequently improving the liquidity that draws in the institutions.
Good moves, undisputedly.
Of course, the next question you might ask is who’s right – what is the correct valuation?
Mackie Research recently put out an updated report which gave MDP a “SPECULATIVE BUY rating and raising [their] target price from $6.30 to $9.00” – and that’s without any more recent MDP financials than Q2 2020*.
*MDP’s fiscal year ended March 2020
Additionally, we can expect the 2020 Q3 results (which should be released sometime in February 2021) to reflect impressive revenues close to $31M for the quarter alone. That is based on the fact that $3 million dollars of revenue was missing from Q2 projections, due to shipment delays caused by due to a one off delay at one of the manufacturing facilities. That delay effected all of their customers, not just Medexus and is not expected to be recurring.
As MDP continues to post up numbers like that, the conservative target price presented by Mackie seems easily achievable.
The company is poised to continue its growth trajectory by signing effective new deals. The latest of said deals was a December 2020 exclusive license agreement with Ethypharm (“Ethypharm”), to register and commercialize Triamcinolone Hexacetonide Injectable Suspension 20 mg/mL (“TH”) in the United States.
The next step is for the company to file for FDA approval of TH – an admittedly typically long and arduous process. However, with the FDA, listing TH as a drug in shortage on its website, we suspect this process will be take a lot less time than usual.
In conclusion:
Look, when you cut out all the chaff, Medexus is an easy pick for newbies in the health science sector. It removes all the technical research needed to make a reasonable decision with its business model, building synergies with companies that have already proven their science. Cutting out that high cost has enabled MDP to report great numbers for revenue – and that’s even having failed to meet their projected Q2 2020 numbers.
With Mackie projecting a share price of $9.00, Medexus’s current share price of $7.20 hardly seems the sticking point it may once have been.
Yes, it’s steeper than the usual fare we deal with, especially given the glut within the penny-stock-filled Canadian markets. However, we would argue that when we taken into account all the numbers, Medexus is still severely undervalued at its current share price, and offers a compelling investment opportunity.
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