Byron Capital’s Loe raises target on Acasti Pharma to $3.25

Acasti Pharma EVP Harlan Waksal. Although Acasti generates next to no revenue at present, Byron Capital analyst Douglas Loe says he expects that will change dramatically by fiscal 2018, when he is projecting total revenue, including milestones from future partners, will hit $85.0 million.Yesterday, Acasti Pharma (TSXV:APO) announced it had entered into a royalty prepayment agreement with its controlling shareholder, Neptune Technologies (TSX:NTB).

Acasti says it will exercise an option in its 2008 technology license agreement that will pay Neptune, in advance, all future royalties due under the agreement. The value of this prepayment will approximately $15.5-million, says the company.

Acasti CFO Xavier Harland explained the motivation to make the deal: “The burden of the royalties payment had become too substantial for a lean operation like Acasti, ” he said. “The timing for the prepayment was optimal, since minimum royalties requirements became fully loaded since August, 2012.”

Byron Capital analyst Douglas Loe says the move is both creative and positive. He says Acasti has reduced its short-term risk while enhancing is ability to engage with future commercial partners. In a research update to clients yesterday Loe maintained his BUY rating and increased his one-year price target to $3.25, from his previous $2.60.

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Quebec-based Acasti was founded in 2008 as a subsidiary of Neptune Technologies. The company’s primary asset is the exclusive worldwide license to research and develop new active pharmaceutical ingredients based on Neptune’s proprietary marine-based omega3 phospholipid technology. Acasti went public on the TSXV in March, 2011.

The agreement will provide some financial relief to Neptune. On November 8th, tragedy struck when an explosion at a plant it owned in Sherbrooke exploded, killing three people and injuring eighteen more. The blast destroyed Neptune’s entire stock of krill oil.

Although Acasti generates next to no revenue at present, Loe says he expects that will change dramatically by fiscal 2018, when he is projecting total revenue, including milestones from future partners, will hit $85-million. What’s more, says Loe, is that Acasti should generate EBITDA of $77.8-million on that topline because it has virtually no cost of goods, and its sales and marketing expenses are assumed by its partners.

At press time, shares of Acasti Pharma were up .7% to $2.74.

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