Valeo Pharma Inc. (VPH:TSX; VPHIF:OTCQB) gained coverage by Echelon Capital Markets, which initiated it with a Speculative Buy rating, reported analyst Stefan Quenneville in a March 8 research note.
"With stable core assets and a scaled sales infrastructure, recent and future product additions are set to meaningfully grow the company's top line and drive significant operating leverage," Quenneville wrote.
What the Company Does
Valeo Pharma acquires, licenses, and sells pharmaceutical products in Canada, with a focus on respiratory, allergy, ophthalmology, specialty, and hospital products, Quenneville noted. The company does not develop or manufacture drugs.
Currently, Valeo has 13 commercial assets. In the past two years, it added to its portfolio six drugs "that we expect to comprise about 90% of the company's revenues by the end of the fiscal year 2024 (FY24)," noted Quenneville.
These newer growth drivers are: Redesca, Canada's first low molecular weight heparin biosimilar; Enerzair and Atectura Breezhalers, asthma drugs; Allerject, a next-generation, single-use epinephrine autoinjector; and Xiidra and Simbrinza, ophthalmology drugs.
Valuation is Justified
Echelon assigned Valeo a CA$1 per share target price, which implies an 82% upside from where the Canadian specialty pharma is currently trading, at about CA$0.55 per share.
Quenneville explained that the target reflects "a premium to the average of Valeo's Canadian specialty pharma peers but a discount to larger, better-capitalized U.S. peers." He indicated the target is warranted, given the pharma's "high expected sales growth, clear line of sight to adjusted EBITDA-positive operations and access to attractive new products stemming from its strong sales force in key therapeutic areas."
Important Points to Know
Quenneville presented the elements of Echelon's investment thesis on Valeo.
First, the Quebec-based company's current and projected sales growth are "industry-leading," as described by Quenneville. Of note, Valeo increased revenues from CA$7.5 million ($7.5M) in FY20 to CA$28M in FY22. They are expected to be CA$63M in FY23, reflecting 125% year-over-year growth.
"Together, the top six growth products have potential peak revenues of CA$200M-plus and should drive Valeo's topline above this level in FY28," wrote Quenneville.
Second, this sextet of drugs comprises another revenue stream in addition to Valeo's existing, stable, cash-flowing base of established products.
Third, Valeo has an 85-person sales team and has largely built the operating infrastructure needed to allow for and support further growth, Quenneville pointed out, ultimately resulting in "meaningful operational leverage going forward."
Fourth, as Valeo continues to scale up, so do the potential opportunities available to it for licensing "more impactful products," Quenneville wrote. Specifically, the pharma might be able to in-license more ophthalmology drugs from Novartis, which owns 21 approved and six pipeline products, given the latter plans to sell this line of business.
"Potential accretive product additions using [its] CA$22.5M cash balance and/or US$10M from unused credit facility could provide upside to our [Valeo] estimates," added the analyst.
Given its current trajectory, Quenneville noted, the Canadian pharma is on track to achieve adjusted EBITDA-positive operations by early FY24.
Company insiders, including members of management and the board of directors, own the majority of Valeo stock, at 60.3%. Of that total, CEO and Vice Chairman Steve Saviuk has a 31.9% stake. Chairman of the Board Richard Mackay's interest is 14.6%.
|Want to be the first to know about interesting Biotechnology / Pharmaceuticals investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter.||Subscribe|
1) Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with: None. Please click here for more information.
4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
5) This article does not constitute medical advice. Officers, employees and contributors to Streetwise Reports are not licensed medical professionals. Readers should always contact their healthcare professionals for medical advice.
Disclosures For Echelon Capital Markets, Valeo Pharma Inc., March 8, 2023
Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed.
Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value, and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients. Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
Research Dissemination Policy: All final research reports are disseminated to existing and potential clients of Echelon Wealth Partners Inc. simultaneously in electronic form. Hard copies will be disseminated to any client that has requested to be on the distribution list of Echelon Wealth Partners Inc. Clients may also receive Echelon Wealth Partners Inc. research via third party vendors. To receive Echelon Wealth Partners Inc. research reports, please contact your Registered Representative.
Reproduction of any research report in whole or in part without permission is prohibited. Canadian Disclosures: To make further inquiry related to this report, Canadian residents should contact their Echelon Wealth Partners professional representative. To effect any transaction, Canadian residents should contact their Echelon Wealth Partners Investment advisor.
U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.
Company: Valeo Pharma Inc. | TSX:VPH
I, Stefan Quenneville, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.