Buy Theratechnologies for a double, Echelon Wealth says

Echelon Wealth Partners analyst Douglas Loe says the new acquisition by drug developer Theratechnologies (Theratechnologies Stock Quote, Chart TSX:TH) looks to be a good deal, although there’s limited impact on valuation until clinical testing on Katana Biopharma’s targeted therapeutics begins.

In an update to clients Monday, Loe reiterated his “Buy” rating and C$17.25 target price for TH, representing a projected 12-month return of 109 per cent at the time of publication.

On Monday, Montreal-based Theratechnologies announced the acquisition of private, pre-clinical-stage cancer platform company Katana Biopharma in a $5.3-million deal. (All figures in US dollars unless noted otherwise.)

Theratechnologies CEO Luc Tanguay said the Katana acquisition is part of his company’s long-term growth strategy. “The fact that this is a platform we can develop and market ourselves is also a key feature of this transaction. This morning’s announcement is completely in line with our vision of where we want to take Theratechnologies,” said Tanguay in a press release.

Loe says the acquisition adds moderate clinical risk into TH’s up until this point exclusively commercial and regulatory risk product portfolio but that Katana’s pipeline has “some intriguing potential already demonstrated in at least one published AACR abstract and it has potential in multiple cancer forms where sortilin is demonstrably over-expressed,” says Loe.

“It is far too early to assess with precision just how impactful Katana and its doxorubicin (or docetaxel)-peptide conjugate drugs could be on our Thera revenue/EBITDA forecasts down the road, and candidly, much of Katana’s impact on our medium-term forecasts will be through elevating our previous R&D expense forecasts in F2019-F2021,” he says.

“But that said, if Thera’s cumulative investment in Katana –projected to be up to $16.2 million, including cumulative increase in F2019- F2021 R&D expense plus up to $6.2 million in cash and shares for acquiring Katana itself – eventually leads to positive Phase I/II data in one or more cancer forms (probably ovarian cancer or triple-negative breast cancer as initial focus markets), we would expect resulting data to be recognized by potential partners as being more valuable than the paid-in capital just described,” Loe says.

The analyst states that upcoming milestones for TH include an EU review for the company’s Trogarzo EMA filing, which will likely conclude roughly sometime over the next quarter, as well as Phase II data from a clinician-sponsored 61-patient Phase II liver fat reduction trial for which efficacy data is expected by mid-2019.