A realignment of its drug development efforts has Paradigm Capital analyst Rahul Sarugaser remaining bullish on Tetra Bio-Pharma (Tetra Bio-Pharma Stock Quote, Chart TSXV:TBP)
On Thursday, TBP announced it would change it drug development plan priorities. The company, which earlier this week temporarily suspended its PPP001 program due to two mycotoxins, ochratoxin A and vomitoxin it found in clinical batches of PPP00, said it would move forward its clinical ophthalmology and dermatology assets from Panag, the Halifax-based Pharma company it recently acquired.
“The news on Tuesday is a reality in the world of drug development,” CEO Dr. Guy Chamberland said. “The safety and wellness of patients is always Tetra’s No. 1 priority. We also kept in mind the importance and responsibility of taking a first cannabinoid drug to the market. Our responsibility was to ensure timely and accurate disclosure of the events subsequent to the results of the mycotoxin analyses of the clinical trial lots which arrived on Jan. 22nd and Feb. 1st. Tetra and its executive team is engaged in a rapid transformational change with the Panag acquisition, which will enable Tetra to mitigate the risk that comes with developing a pharmaceutical drug while creating value for shareholders. As some of our peers have demonstrated, a single approved drug, even for a rare disease indication, can play a significant role in our valuation.”
Sarugaser says he sees big things in store for the company, which he likens to a US peer with a more than $50-billion market cap.
“While a six-month delay in TBP’s PPP001 clinical program is undesirable, TBP—in true Pharma fashion—is built to manage such challenges during the drug development process,” the analyst says. “Leaning on its deep pipeline of cannabinoid-containing drugs, which the company has been amassing over the last several years, allows TBP to nimbly shift clinical priorities to focus on developing its next-in-line, high-potential assets while managing its PPP001 refresh. The company is well funded and well equipped to pursue its new drug development ventures, which will shift its focus toward indications and markets that will likely be more valuable to TBP than those addressed by PPP001. All the while, TBP has been moving quickly to re-initiate its PPP001 clinical program. TBP’s position at the interface of Pharma and cannabis endows it with a clear view of both industries: TBP has highlighted key deficiencies in Canadian cannabis quality regulations and is operating in a mature, Pharma-oriented fashion, addressing key drug development challenges while pivoting to focus on new, lucrative opportunities. We think TBP could be the next GW Pharma, but with a deeper pipeline.
In a research update to clients today, Sarugaser maintained his “Buy” rating and $1.50 target on TBP, implying a return of 79 per cent at the time of publication.
Sarugaser thinks Tetra Bio-Pharma will generate EBITDA of negative $2.0-million on zero revenue in fiscal 2018. He expects those numbers will improve to an EBITDA loss of $1.2-million on zero revenue the following year.