Thoughts on Medexus Heading into Earnings Next Week
Last week, we received some news that Medexus (MEDXF) received a complete response letter from the FDA which will delay ultimate approval for Treosulfan.
At the time, I published an update arguing that Medexus still looks compelling, and I still believe that over the long term.
But in the near term, I’m a little cautious.
I think Medexus is a screaming BUY as long as the current portfolio is growing. Management has guided that the current portfolio should be able to grow from $100MM CAD this year to $150MM to $200MM CAD over the next several years.
The problem is that revenue last quarter declined sequential. At the time, I wasn’t too worried given Treo was on the verge of being approved (huge growth) and because management said that the miss was due to inventory building for IXINITY.
But Treo has been delayed.
And I don’t have 100% confidence that the existing portfolio will return to strong growth this quarter.
On the one hand, the CEO recently mentioned that IXINITY (~40% of company revenue) recently had its second-best month ever, but on the other hand, the CEO’s tone on the last conference call didn’t seem to indicate to me that the IXINITY hiccup would be a one-quarter issue.
So I’m concerned that quarterly revenue might not rebound sequentially in which case the stock may trade down given less confidence in the underlying growth of the existing portfolio.
Consensus calls for quarterly revenue of $22MM (USD) which would be flat y/y. I would be happy with that. If you annualize $22MM, it implies ~10% growth for the year. This wouldn’t be crazy growth, but I would be encouraged that the portfolio is growing. Further, I have confidence that longer-term growth will accelerate once IXINITY is approved for pediatrics (2023). Plus, Medexus will add additional licensing deals.
But if revenue is flat sequentially at $17.6MM, I would be worried.
Given this is a rather large position for me (my second largest), I’m likely going to trim my position ahead of earnings to manage my risk.
If my concerns are for naught and Medexus crushes it next week, I might even add back to my position as I do believe that over the long term, the stock could be a five or 10 bagger.
Sell Half