The pending acquisition of Telesta Therapeutics by ProMetic Life Sciences (TSX:PLI) will add more than just the obvious cash and tax loss benefits, says Echelon Wealth Partners analyst Doug Loe.
Yesterday, ProMetic announced it intended to acquire Telesta Therapeutics for 14 cents per share, payable in ProMetic common shares.
“This acquisition opportunity is strategic for ProMetic in many ways, with immediate, midterm and long-term financial and operational benefits,” said ProMetic CEO Pierre Laurin. “It allows ProMetic to secure flexibility in its continued objectives of seeking vertical integration from raw material sourcing to distributing finished biopharmaceuticals in North America and abroad. The addition of a Central Canada location also fits well with our strategy of facilitating the pursuit of Canadian national self-sufficiency for plasma-derived therapeutic products.”
Loe says the marriage of the two companies might seem like an odd fit, but a little scratching the surface reveals some real benefits for ProMetic.
“At first glance, the purchase of Telesta might seem unusual given the minimal overlap between the respective medical markets that Telesta and ProMetic were/are targeting, but then, Telesta is not really an oncology drug developer any more even though its lead oncology asset MCNA has performed well in published Phase III bladder cancer studies already (as we described in prior Telesta research),” says Loe. “But digging deeper, the acquisition makes strategic sense for ProMetic even after considering the obvious value embedded in Telesta’s cash/tax losses. Excluding Telesta’s expected cash balance at closure of $34M, residual enterprise value of $8.3M (Telesta has no LT debt to speak of, and legacy conditionally repayable government assistance was essentially removed from the balance sheet after MCNA approval was denied) represents reasonable value in our view for Telesta’s cumulative tax losses (about $50M as stated) and for its two manufacturing facilities in Pointe Claire (which ProMetic will probably sell) and in Belleville (which ProMetic described at length as being useful for plasma products fill/finish activities once IVIG, plasminogen, or other pipeline plasma products are FDA approved and commercial scale-up ensues, which we predict could commence as early as F2018).”
In a research update to clients today, Loe maintained his “Buy” rating and one-year price target of $4.00 on ProMetic Life Sciences, implying a return off 38.9 per cent at the time of publication.
Loe believes ProMetic will report EBITDA of negative $56.3-million on revenue of $29.7-million in fiscal 2016.