Tetra Bio-Pharma is a buy despite toxin scare, Paradigm Capital says

A new development that will temporarily suspend Tetra Bio-Pharma’s (Tetra Bio-Pharma Stock Quote, Chart TSXV:TBP) Phase 3 clinical program has Paradigm Capital analyst Rahul Sarugaser lowering his price target on the stock, though the analyst is maintaining his “Buy” rating.

This morning, Tetra announced that it would temporarily suspend it PPP001 program due to two impurities it found in its investigational drug. The company found two mycotoxins, ochratoxin A and vomitoxin, in clinical batches of PPP001.

“This unexpected development will result in a six-month delay in the submission of the Canadian new drug submission or drug identification number (DIN) application for PPP001,” CEO Guy Chamberland said. “Tetra strongly believes that this delay will lead to a safer and higher quality drug for patients with advanced cancer. Through our research and development efforts, Tetra’s intention is to create higher quality for all cannabis-derived medicinal products. This is Tetra’s commitment to patient safety. We will continue to provide reports to Health Canada so that the Canadian government receives Tetra’s data in a timely manner so that regulators can ensure the safety and wellness of all Canadians consuming recreational and medical cannabis.”

Sarugaser says this news is actually mixed, because Tetra Bio-Pharma is demonstrating leadership by adhering to a higher standard than is required of it.

“While a six-month delay in TBP’s clinical program is no doubt disappointing, this event re-emphasizes TBP’s leadership in the Canadian cannabis industry: TBP’s position at the interface of Pharma and cannabis is highlighting deficiencies in current cannabis quality regulations,” the analyst says. “That two well-known toxins—already regulated by Health Canada’s drug development division and the CFIA—are not screened for under the Cannabis Act is a critical oversight that will likely be addressed by Health Canada in short order. Retroactive screening for these and other contaminants, in a worst-case scenario, could result in industry-wide product recalls. In the short term, however, companies that adhere to stricter quality criteria, such as TBP, are well positioned to meet any
new rules that Health Canada sets out.

Sarugaser says that, owing to the delays in TBP’s clinical program, he has reduced his one-year price target on the stock from $1.75 to $1.50, while maintaining his “Buy” rating.

The analyst thinks Tetra will post EBITDA of negative $2.0-million on zero revenue in fiscal 2018. In 2019, he expects the same zero revenue with an EBITDA loss of $1.2-million.