A N A L I T I K A Focus on Healthcare Medicure Inc. (MCU)
Biotechnology
Quote: $1.35 // Price Target: $6.00 (+344%)
Research Alert
Erik Danielsen
July 10th, 2007
e.danielsen@analitika.com
this was posted by balistic 117 on the yahoo message board
w w w . a n a l i t i k a . c o m
MARKET DATA
Mkt. Cap.: $157.0MM
Enterprise Value: $134.M
52Wk Hi-Low: $1.70 -$0.91
Outst. Shares: 116.26M
Fully Dil. Shares: 131.0M
Float: 105.3M
Daily Volume: 109,000
Short Position: n/a
VARIOUS METRICS
Cash : $43.4M
Cash Burn ‘07: $27.0M
LTD (MM): $11.5M
Short Position: 107,000
Insider buying: None
Insider Ownership: ~10%
Institutional
holdings: 24%
EARNINGS DATA
FY – 05/31 2006 2007E 2008E
Q1 (0.06) (0.03) (0.06)
Q2 (0.05) (0.06) (0.04)
Q3 (0.04) (0.08) (0.04)
Q4 (0.03) (0.08)E (0.04)
FY EPS (0.17) (0.17)E (0.09)
Revenue 0.3M 9.5M 20.0
VALUATION METRICS
FY – 12/31 2006 2007E 2008E
P/E NM NM NM
PEG NM NM NM
Sales Mult. NM NM NM
Medicure’s shares have continued to trend downwards since the shares set a high in February 2006, which, in our view, is in sharp contrast to the underlying fundamentals at the company. The company has implemented its business plan, reported highly positive
clinical data for both of its lead compounds and thereby built significant tangible share-holder value. Consequently, we strongly encourage investors to take advantage of the current price weakness and either build or add to their positions.
Key Investment Considerations:
•Strong Management: Medicure has a strong, proven management team that consis-tently delivers on all major corporate milestones.
•Late-Stage Product Candidates: Medicure clearly has one of the clinically most ad-vanced cardiovascular product pipelines of any biotech companies in our 900+ companies database. The company’s lead product, MC-1, is being developed as a cardioprotective agent and entered a 3000 patient Phase III registration study in December 2006. Top-line results are expected by the end of Q1-2008 and the product could be on the market by H1-2009. Medicure’s second product candidate, MC-4232 for diabetics with concomitant hypertension, has successfully concluded Phase IIb clinical testing and is now ready to enter pivotal Phase III clinical testing. These two products alone have by our estimate a combined market potential in excess of $1.5BN in the U.S. alone. Currently, Medicure own 100% worldwide rights to its product candidates.
•Near-Term Growth Opportunity: The August 2006 acquisition of Aggrastat, an FDA approved platelet aggregation inhibitor used to treat acute coronary syndromes, has catapulted the company into an exclusive, small group of biotech companies with significant near-term, sales-growth potential. Aggrastat was re-launched in the United States in late October 2006 with a 15 person dedicated sales-force. At the time of launch, Aggrastat generated ~$8M in annualized revenues equivalent to less than a 2% market share of a an estimated $450M annual market in the U.S. Aggrastat had not been actively marketed in the U.S. for some 3-4 years. By contrast, in Europe, where the product has been marketed actively in recent years, Aggrastat is the market leader of the three competing products in the therapeutic class with an estimated 35% market share. Aggrastat is not only a near-term, sales-growth opportunity, but importantly, it also allows the company to build and train a sales-force in anticipation of the approval of MC-1.
•Additional Licensing Opportunities Could Provide Near-Term Upside: We believe there is an excellent probability that the company will be announcing additional commercial initiatives over the next year that would be immediately incremental to
its revenue base. We look for either additional co-promotion and/or out-right product licensing agreements. •Significantly Undervalued: At current valuation levels, we believe Medicure’s common stock is significantly undervalued. We expect the stock to appreciate sharply in value, as the company continues to execute its business plan that we expect will result
in a strong news-flow over the next 9 months. We believe Medicure’s stock should be valued at $600-$900M today, implying a 12-18 months price target of $6-9.
Medicure Is Grossly Undervalued Relative To Other Small Cap Biotech Companies
We strongly believe that Medicure, at current valuation levels of ~US$157M (and enterprise value of less than $134M), continues to represent an extraordinary investment opportunity. The company is significantly undervalued by any valuation parameter that we use. In particular, Medicure is trading at an unjustified discount to a group of cardiovascular biotech companies, as highlighted by the table:
Company Ticker Quote Mkt Cap
Alexion Pharma ALXN $47.95 $1.774,0M
Cardiome CRME $9.20 $581.0M
CV Therapeutics CVTX $12.57 $746.2M
Average: $1.033,8
Median: $746.0
Medicure MCU $1.35 $157,0
Discount to median: 79%
We actually believe that Medicure’s commercial potential is much larger than any of the companies indicated in the table above. Furthermore, we have reviewed, not only the companies highlighted in the table, but also a number of other biotech companies in our database, in particular
with regard to:
• Management’s track record of delivering on corporate milestones in a timely fashion.
• Near-term sales-growth potential.
• Breadth, depth and clinically advanced stage of product pipeline.
• Long-term market potential of late-stage product pipeline.
• Anticipated news flow over the next 12 months.
* Current market cap in relation to the above parameters.
Based on our review, we feel very comfortable stating that Medicure ranks among the most attractively valued companies for all of the parameters reviewed. As the table above indicates, the company trades at a 79% discount to companies we feel are comparable, but at the same time have weaker fundamentals. One of the companies highlighted above is Alexion. Alexion once enjoyed a market cap of approximately $1Bn prior to reporting disappointing Phase III results for its heart-protective agent, Pexelizumab. Pexelizumab was being developed basically for the same indications Medicure is pursuing with MC-1. We mention this because we believe Alexion’s valuation at the time based entirely on the prospects of Pexelizumab.
However, in the meantime, Alexion gained FDA approval for another of its product candidates, Soliris, for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), which one leading Wall Street analyst recently estimated has a peak sales potential of approximately $400M annually. This is virtually the same as Medicure’s Aggrastat’s market opportunity in the U.S. Alexion’s market cap has despite the disappointment with Pexelizumab soared from $1Bn to $1.77Bn based on the prospects of Soliris. Considering that Medicure in addition to Aggrastat has two products with blockbuster sales potential in late-stage clinical development, and that MC-1 could reach the market within the next 18 months, we conclude that Medicure must be grossly undervalued.
Medicure is currently enjoying a market cap equivalent to about 8.8% (!) of Alexion’s current market cap
Medicure Consistently Delivers Tangible Value To Shareholders
Medicure has had an impressive news flow over the past twenty four months; including the publication of two highly successful phase IIb clinical trials for MC-1 and MC-4232 and, most recently, the acquisition of Aggrastat, which we estimate has the potential to grow at least 5 times over the next 2-3 years. Aggrastat was purchased at a very reasonable price of roughly 2x its trailing twelve
months revenues.
Since Alexion’s Pexulizumab failed to show efficacy in Phase III as a cardio-protective agent, Medicure has now emerged as the leader in the field. This statement is shared by leading clinical investigators we have spoken to at the most prestigious hospitals in the U.S.
We Expect A Strong News Flow Through 2008
The next 12 months will be extremely exiting to Medicure’s shareholders as we expect the company to report top-line date from its confirmatory Phase III trial for MC-1 in CABG in early 2008. This will clearly be a crucial time in the company’s history. We believe the probability of success in the MC-1 Phase III trial is high and thus a significant revaluation of the stock is likely to occur at the latest by the end of Q1-2008.
The following table summarizes some of the value-driving events we expect to occur over the next 18 months.
Milestone Event Timing
~ Completion of patient enrollment in confirmatory Phase III trial for MC-1 in CABG Oct-2007
~ In-licensing of new commercial products H1-2008
~ Report accelerating sales growth of Aggrastat Dec-2007
~ Report Top-Line Results from MC-1 Phase III Trial Q1-2008
~ File NDA for MC-1 H1-2008
~ FDA Clearance and launch of MC-1 End-2008
~ Announce corporate partner for MC-1 H1-2008
Conclusion
We believe Medicure is significantly undervalued at current valuation levels. We believe Medicure is a “quality small-cap biotech stock” that has a broad product portfolio and a proven management team, lead by Dr. Albert Friesen. Consequently, we strongly recommend growth-oriented investors, familiar with inherent risks of investing in biotech companies, to either add to or take
new positions in Medicure at current price levels.
For more information: www.analitika.com
The author is compensated by Medicure through a consulting agreement for his business develpment services.
ANALITI KA Identifying Investment Opportunities In Healthcare
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