Earlier this month, MediPharm Labs Corp. (TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ) plunged lower after it reported quarterly earnings that showed a large decline in revenue when compared to the same quarter last year.
We believe the response from the market was an overreaction and will monitor the trend from here. MediPharm represents a differentiated growth opportunity that is executing on a multi-national expansion and we find the valuation to be attractive at current levels.
One of the most exciting aspects of the MediPharm story is related to work that it is doing on the biotech side of the industry. A few weeks ago, the company initiated a clinical trial to research and evaluate the effectiveness of its proprietary cannabis-derived medical products and formulations on the treatment of end-stage renal disease or chronic kidney disease (CKD).
In the coming months, we expect to learn more about the study and MediPharm plans to expand its portfolio of clinical trials in the near future. We believe that the market does not understand the significance of the clinical trial on the treatment of end-stage renal disease or CKD and want to explain the importance of it.
The complications that are associated with CKD are beyond challenging and patients that have the disease are considered to be one of the sickest cohorts of people that are hospitalized. Many of these patients are considered to be near death and we are favorable on MediPharm’s focus on this indication.
Based on our conversations with medical experts, patients that are diagnosed with CKD tend to suffer from a wide variety of complications. This means that if a treatment can work on a patient that has been diagnosed with CKD, it could work for additional rare diseases or cancer. Positive data from MediPharm’s clinical trial would have a significant impact on how the treatment is looked at by the medical community.
By conducting clinical trials on patients with compromised immune systems, we could learn about the impact that MediPharm’s treatment has on other illnesses. CKD patients often suffer from a wide variety of issues and we could learn if MediPharm’s proprietary product is beneficial in the treatment of other serious or rare illnesses.
By focusing on the development of a treatment for an illness like CKD, the company will be able to learn more about the potential to treat other serious medical issues and we find this to be a key aspect of the story. Over the next year, we expect MediPharm to learn more about the clinical trial opportunity and are bullish on the potential value that is associated with it.
MediPharm is well capitalized and has the resources that are needed to execute on the clinical trial growth opportunity. If the initial data is positive, the company could either sell the data to a large pharmaceutical company or partner with a strategic biotech firm on the opportunity.
We are favorable on the potential that is associated with the opportunity and believe the recent decline is excessive. At current levels, MediPharm is trading for less than 3x cash and we are favorable on the risk-reward profile that is associated with the operation.
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