Take a pass on Theratechnologies, Mackie Research says

Mackie Research analyst André Uddin says that the new acquisition by specialty pharma company Theratechnologies (Theratechnologies Stock Quote, Chart TSX:TH) will help diversify the company’s portfolio but will add to TH’s R&D expenses for the foreseeable future.

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.)

“Being involved in research and development and building a pipeline are essential to any specialty pharmaceutical company. The acquisition of Katana is part of our long-term growth strategy,” said Luc Tanguay, President and CEO of Theratechnologies, in a press release. “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.”

Uddin says that while it looks to be a fair deal structure, purchasing Katana will increase TH’s R&D, saying that a total of $5.0 million will be required to fund proof of concept trials for Katana’s two preclinical candidates.

The analyst says TH’s R&D expenses now go from $10.3 million in fiscal 2019 to $12.1 million and from $10.4 million in fiscal 2020 to $14.5 million.

“Today’s transaction marks TH’s branching out into the cancer field – which should diversify the company’s portfolio. TH’s short/middle-term goal is still focused on commercializing its HIV products – Trogarzo and Egrifta,” says Uddin in a client update on Monday.

The analyst’s target price is derived using a 12x EV/EBITDA multiple of his 2020 Adjusted EBITDA estimate and discounting back by 20 per cent. He is maintaining his “Hold” rating and dropping his price target from C$10.20 to C$9.60, representing a projected return of 17 per cent at the time of publication.