Medexus Pharmaceuticals (Vancouver: MDP) (OTC: MEDXF) — a Top Pick for 2021 — is the rare company that is cheap on its current financials today but has an incredible runway of growth ahead, suggests Rich Howe, editor of Stock Spin-Off Investing.
Medexus is a specialty pharma company focused on rheumatology, auto-immune disease, specialty oncology, allergy and pediatric diseases.
The company focuses on buying and licensing existing drugs. This is an interesting strategy because much of the risk of regulatory approval has been removed. Molecules that are acquired or licensed are well known and often have been launched in other territories. This significantly limits commercial risk.
I first learned of Medexus Pharma when it bought a drug called IXINITY from Aptevo Therapeutics (APVO). I had followed Aptevo closely for years and thought Aptevo was significantly undervalued mainly because it had a drug for hemophilia called IXINITY that was growing like crazy.
The beauty of the IXINITY acquisition is that Medexus acquired a drug for an upfront payment of $30 million that was/is growing at 40% annually and generating $14.0 million of gross profit on an annualized basis.
In February 2021, Medexus announced another very important deal. It entered into a licensing agreement with medac Gesellschaft für klinische Spezialpräparate m.b.H. (“medac”).
Medac has granted Medexus the right to sell treosulfan in the United State in exchange for a $5MM upfront payment, $45MM in regulatory milestone payments, and $40MM in sales based milestone payments.
Treosulfan is given to acute myeloid leukemia (“AML”) and myelodysplastic syndrome (“MDS”) patients prior to stem cell transplantation. Management believes its current drug portfolio (including Treosulfan) has peak sales potential of $350MM to $400MM CAD.
Assuming the company can trade at 3x this revenue estimate (the company will execute additional licensing deals so I expect revenue to ultimately grow even higher) in line with slower-growing peers, MEDXF would trade at ~24 per share, implying significant upside from here.
The stock has started to perk up after languishing for a couple months. It remains our highest conviction idea.
Medexus is my largest personal holding. Buy under $8.
