Merus Labs gets price target raise to $4.00 at Euro Pacific

A “transformative” product acquisition has Euro Pacific Canada analyst Doug Loe feeling bullish about Merus Labs (Merus Labs Stock Quote, Chart, News: TSX:MSL).

Yesterday, Merus Labs announced it had entered into an agreement with UCB to acquire rights to Elantan, Isoket and Deponit, products used to treat acute and chronic coronary artery disease, in Europe and select other markets.

“This transformational acquisition is a major step forward in our strategy to acquire important established medicines and leverage our scalable commercial platform,” said Merus CEO Barry Fishman, “These essential products expand our presence in the cardiovascular market, materially increase our revenues and significantly improve our cash flow.”

Loe notes that the products Merus has acquired are long-ago genericized but revenue-stable and will begin to contribute to the company’s bottom line immediately. In a research update to clients today, Loe maintained his “Buy” rating on Merus Labs, but raised his one-year target price on the stock from $3.00 to $4.00, implying a return of 77.8 per cent at the time of publication.

“(This) fairly valued transaction accretively diversifies Merus’ EU pharma portfolio while preserving financial flexibility for future transactions,” says Loe. “We are quite positive on the financial terms ascribed to the UCB transaction, with our model assuming that new annualized EBITDA contribution of $21.9M in F2017 corresponds to an EBITDA/interest coverage ratio of 4.9x, well within a comfortable range that minimally impacts Merus’ overall financial risk.”

Loe says he is now modeling on the assumption that Elantan, Isoket, and Deponit can contribute up to 43 per cent of Merus’s gross product sales in fiscal 2017/18, while preserving EBITDA margin near historic adjusted levels. He is now projecting that Merus will generate EBITDA of $45.0-million on revenue of $105.5-million in fiscal 2016.

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