Correvio Pharma shareholders should take the Advanz offer: Mackie

In a note to clients on Monday, Mackie Research analyst André Uddin changed his rating on Correvio Pharma (Correvio Pharma Stock Quote, Chart, News NASDAQ:CORV) to “Tender” after a takeover by international specialty pharma company Advanz Pharma was announced. Uddin said that while the offered deal seems a little light, it looks to be nonetheless in CORV’s best interest to take it.

Commercial-stage specialty pharmaceutical company Correvio, which specializes in cardiology with a key marketing focus on European markets, announced the proposed deal on Monday morning, saying that Advanz would be paying $0.42 per share, which values CORV at $28 million and represents a 35.5 percent premium to Correvio’s share price at its most recent close. The total purchase of $76-million will include Correvio’s debt and the deal has been unanimously approved by the boards of directors for both
companies. (All figures in US dollars.)

In the press release, Advanz Pharma said the purchase lines up with its own growth strategy in Europe while Correvio CEO Mark Corrigan said the deal represents a growth opportunity for his company as well.

“Since announcing our intent to explore strategic alternatives in December 2019, we have diligently evaluated a number of opportunities and concluded that a partnership with ADVANZ PHARMA represents the best outcome for our stakeholders and employees. We believe that bringing the highly skilled and talented employees from the two organizations together will deliver increased scale, depth of commercial capability, breadth of geographical reach and complementary business models to bring important medicines to patients across the globe,” wrote Corrigan.

Shares of Correvio were up sharply in trading on Monday, as investors reacted positively to news of the proposed acquisition. In his update, Uddin said given that Advanz would be taking on Correvio’s outstanding debt of about $48 million and that CORV had $20 million in cash as of the end of its fiscal third quarter, the deal represents an enterprise value of $56 million for CORV. The analyst said the deal represents a 0.9x P/S multiple based on Correvio’s last 12 month sales, which compares to Canadian pharma companies currently trading on average between 3.2x and 4.0x 2019 P/Sales.

“Given the company has been losing money and has a cash runway into mid 2020 only, we believe CORV is facing serious balance sheet risk with its current cash and debt position, which would require the company to conduct financings in the near term –a major overhang to the stock,” wrote Uddin. “CORV’s share price has reflected this- posing serious dilution risk.”

“Additionally, United Therapeutics on February 26 disclosed the FDA approval of Trevyent is likely going to be delayed due to several deficiencies in the Trevyent NDA package. We view this development as negative to CORV as the company would also rely on the same package for an MAA in Europe – we view Trevyent as a potential major revenue driver for the company,” he wrote.

“While the price multiple looks somewhat low for this takeover transaction, we believe the deal should represent a favourable risk benefit position for CORV shareholders given the risks the company is currently facing,” Uddin concluded.