Medicure Inc (MCUJF)

[drbio45]

Medicure, Inc. (MCU)

An Undervalued Late-Stage Cardiovascular Biotechnology Company; Initiating Coverage at Buy

Initiating Coverage at Buy
Price: $1.20
Market Cap (M): $139.4M

FY07 Revenue Estimate (M):
Previous: N/A
Current: C$7.8

FY07 EPS Estimate:
Previous: N/A
Current: (C$0.24)

FY08 Revenue Estimate (M):
Previous: N/A
Current: C$13.0

FY08 EPS Estimate:
Previous: N/A
Current: (C$0.24)

· Unmet need for a cardioprotectant. Ischemic reperfusion injury (IRI) is thought to be responsible for the myocardial damage that can occur following a coronary artery bypass graft (CABG). IRI is associated with a high risk of death, MI, heart failure, arrhythmia, renal insufficiency, and stroke after CABG surgery. All of these can add up to a 20% incidence of major vascular events following CABG surgery.

· Unique technology. We believe MC-1 blocks the signaling cascade that ultimately causes ischemic reperfusion injury. It is has shown very promising results in multiple Phase II trials, and is currently in the midst of a pivotal Phase III trial. This trial is being conducted under the auspices of an SPA agreement with the FDA, which reduces the regulatory risk of the product, in our view. The upside to this product may be its eventual use in percutaneous coronary intervention (PCI). We believe this product has a high probability of being partnered within the next three years.

· AGGRASTAT is an undervalued asset, in our view. Medicure acquired AGGRASTAT in late 2006 from MGI Pharma (MOGN $23.91, Not Rated). Despite offering better efficacy in diabetics at a lower cost, AGGRASTAT sales have floundered due to lack of a coherent commercialization effort. We believe Medicure’s re-growth of this brand can generate solid revenues and provide a commercial platform for the eventual launch of MC-1.

· Significant potential market opportunities. AGGRASTAT operates in the US$500 million U.S. platelet inhibitor market. We believe that the market for MC-1 in the CABG setting is worth US$185 million in the U.S. alone. The use of MC-1 in coronary artery stenting procedures provides another US$750 million in potential market opportunities.

· Initiating coverage at Buy. We are valuing the company on a modified sum-of-the-parts basis. We are projecting that the company will re-grow the AGGRASTAT brand to C$23 million in three years. For MC-1, we are using a risk-adjusted probability model of success. We are conservatively assuming a CY2009 launch using a co-promotion model in which Medicure earns 40% of the revenue generated by the partnership/joint venture in the U.S. We are assuming 30% penetration of the market in the first year, which we believe is reasonable given that there is no product in the market for use as a cardioprotectant. We are also only assuming a probability of 60% success to the trial, despite the fact that it is a pivotal study being conducted under an SPA. We believe the stock can trade toward the US$2.00-2.20 in 12 months, and we are therefore initiating coverage with a Buy rating.

-- Jose J. Haresco, Ph.D. [phone] [e-mail]