Buy Theratechnologies for its HIV franchise, Echelon Wealth says

Earlier this year, Endocrinology drug developer Theratechnologies (Theratechnologies Stock Quote, Chart TSX:TH) got a thumbs-up from Echelon Wealth Partners analyst Douglas Loe for its acquisition of Katana Biopharma.

Now, in a Thursday update to clients, the analyst reports that preclinical data from Katana-acquired technology should justify ongoing development, even as Loe has not yet ascribed any value to Katana’s assets.

Montreal-based Theratechnologies on Thursday announced that positive results from in vivo and in vitro research involving Katana’s Sortilin receptor platform were published online in two abstracts as part of the American Society of Clinical Oncology (ASCO) annual conference.

“Results from pre-clinical research are very encouraging and strongly suggest that this new technology using existing cytotoxic agents conjugated to Sortilin targeting peptides could provide significant advance, both from an efficacy and tolerability perspective, for many types of cancers,” said Dr. Christian Marsolais, Senior Vice President and Chief Medical Officer of Theratechnologies, in a press release.

Loe says that while he still endorses the Katana purchase for its opportunistic and scientific value, he’s less convinced about its strategic value to Theratechnologies’ HIV franchise, which continues to be where he places value in the company.

“While we stand by our view that the Katana acquisition was strategically ambiguous at the time and still is, we are certainly positive about updated preclinical performance just reported and equally positive about how the two sortilin receptor-targeted assets could generate value beyond Thera’s cumulative paid-in capital to develop them through Phase I testing (up to $8.1 million in cash and shares, plus cumulative R&D costs, see below) if either can show clinically-meaningful tumor response or survival impact in diseased patients,” says Loe.

The analyst suspects that recent price softness in TH is coming from caution concerning the US revenue ramp of its Trogarzo asset, yet he remains positive about the medical prospects for the drug.

“Our valuation still based predominantly on Egrifta/Trogarzo-driven revenue/EBITDA, and with our price target still derived from the average of three distinct methodologies: NPV (15 per cent discount rate), and multiples of our F2021 EBITDA/EPS forecasts of $73.6 million/$0.58 per share, respectively,” he says.

Loe sees TH generating fiscal 2019 revenue and EBITDA of $83.6 million and $16.7 million, respectively, and fiscal 2020 revenue and EBITDA of $131.1 million and $38.2 million, respectively.

The analyst is maintaining his “Buy” rating and $17.25 price target, which represented a projected return of 181 per cent at the time of publication.