A deal that will see Getinge become the exclusive agent for TSO3’s (TSO3 Stock Quote, Chart, News: TSX:TOS) core product heightens the possibility that the former may buy the latter, says Laurentian Bank Securities analyst Nick Agostino.
Yesterday, TSO3 announced it had granted Getinge Infection Control AB the exclusive global rights to distribute its Sterizone VP4 sterilizer for (U.S.) $7.5-million, plus performance minimums. The agreement contains a shipment requirements that require Gentinge to reach 10 per cent of the annual global replacement market, which TSO3 estimates at $450-million annually, or 3000 units.
“This exclusive partnership with a top global provider of infection control devices and services represents a phenomenal endorsement of the unmatched ability our Sterizone sterilization system to sterilize the most challenging loads and complex devices used in health care today,” said CEO R.M. (Ric) Rumble. “It comes after Getinge has established a strong sales pipeline in the United States over the last several months, which resulted in the first shipments being recorded in the third quarter of 2015.”
Late last year, after a four year wait, TSO3 received FDA 510(k) clearance for its Sterizone VP4 Sterilizer, a product designed for terminal sterilization of heat and moisture sensitive medical devices.
Agostino says this is a sign that the courtship between the two companies has advanced to the next stage.
“Agreement drives a takeout potential even closer,” says the analyst. “We believe no “formal” takeout offer for TSO3 was made by Getinge, however this type of agreement may set the stage. We understand this agreement does not prevent another party from stepping in and submitting a bid, but it does provide Getinge with certain rights to be considered in that process. We believe with Getinge witnessing solid interest in VP4 ($15M RFQ pipeline) and having bolstered its salesforce for the product, this could suggest they are one step closer to a takeout.”
Agostino notes that the cash injection from Getinge brings TSO3’s cash position to more than $20-million, a figure he thinks obviates the need for a financing in the near term because it will allow the company to produce more than 250 units. The analyst also notes that TSO3 could reap a windfall of $16.6-million from the 9.2-million warrants related to its March financing. This possibility will come into play it the company’s stock closes above $2 for 10 consecutive trading days. Shares of TSO3 closed Wednesday at $2.03.
In a research update to clients today, Agostino maintained his “Buy” (Speculative) rating but raised his one-year target price on TSO3 from $2.75 to $3.25, implying a a return of 60.1 per cent at the time of publication.