3M is now a “distant memory” to TSO3, says Byron Capital’s Loe

Byron Capital analyst Douglas Loe says healthcare giant 3M was already a “distant memory” to TSO3 (TSO3 Stock Quote, Chart, News: TSX:TOS), but it is still a positive that the relationship has wrapped up on reasonable terms.

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.

CEO Ric Rumble said the arrangement, which will see TSO3 pay a settlement fee of $2-million, was satisfactory, and that the company can move on with a different arrangement.

“We have maintained a close connection with the Canadian base of users and we have everything in place to maintain existing customers and provide additional support,” he said.

Loe says he was disappointed when TSO3 exercised its option to terminate the alliance with 3M, and he still questions the move. But the Byron Capital analyst says it was likely that neither side expected it would take so long to get the product to market.

Loe says a long wait for FDA approval was discouraging, but he was disappointed by 3M’s lack of effort in marketing Sterizone 125L+ in markets where the device was already approved, such as Latin America and certain Asia-Pacific regions. He says this lack of effort may result in a minor surprise positive for TSO3, because part of the $2-million settlement fee included the repurchase of unsold inventory, which could actually be a significant portion of the overall price.

Ultimately, Loe says today’s deal does little to impact the balance sheet of either company. In a research update to clients this morning Loe maintained his BUY rating and $1.50 target on TSO3.

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