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Byron Capital’s Loe says TS03 Faces Delays, but is Worth the Wait

This morning, TS03 announced that following last year’s announcement that the company had terminated its channel partner agreement with 3M for the exclusive supply, distribution, license and service of its Sterizone 125L+ sterilizer, which was branded as the 3M Optreoz 125-Z.

Yesterday, TSO3 (TSX:TOS) announced that the US Regulatory Agency requested more information about its ozone-based hospital sterilization platform Optreoz.

Ric Rumble, the company’s President and CEO, worked at calming the nerves of skittish investors, who have already faced frequent delays waiting for Optreoz.

“We believe this to be a timing issue and not one that concerns the inherent science of our technology…” he said. “…however it causes us to resubmit our file when the new data is ready and respond with the full data set requested by the agency. Based on the performance of the product and all other data available to the company, we remain extremely confident in our ability to meet the regulatory agency’s requirements.”

Byron Capital Healthcare & Biotechnology analyst Douglas Loe says the news is “is less impactful than it sounds”, noting that the FDA is “creating an environment where all sterilization and disinfection platforms also experienced regulatory challenges”. Loe doubts whether the real science behind Optreoz is in question, concluding that the “Optreoz business risk only impacts timelines to FDA approval and not underlying approvability of the device itself.”

Founded in 1998, Quebec City’s TS03 got its start developing a sterilization process that used ozone as its sole agent. In 2008, with an injection of new talent, the company set about producing a next-generation sterilizer that would be compatible with a wider range of expensive and high-demand complex medical devices, as TS03’s original ozone product, which had limited device-compatibility and a long sterilization cycle, was a poor seller. The company’s more recent efforts have attracted a major partner in 3M, and the new 3M™ Optreoz™ 125-Z Sterilizer, is being received well in Canada and other markets. The United States, however, remains a major target for the company.

Loe says that while he core investment thesis about TS03 is unchanged and he is maintaining his BUY target on the stock, the delays have forced him to push back his underlying metrics and lower his twelve month target price on the stock to $3 from his prior target of $3.50. Loe notes the target is based on twenty times his estimate of TS03’s fiscal 2014 fully-taxed fully-diluted EPS of $0.13 cents a share.

Shares of TS03 closed today down 4.4% to $1.53.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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