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Author Topic: Prometic (T.PLI) on the TSX
stockmaster88
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Trading +-.20 in this market, price target 2.75$, this will move up soon, they dont need any financing.

Paradigm Capital Inc, IIROC/TSX member 1

Claude Camiré, Analyst 416.360.1322

Alisa Beach, Associate 416.360.3579

September 5, 2008

Financial Summary (C$)

(end-Dec) Rev EPS EV/Rev P/E

FY07 $8.4 ($0.09) 13.1x Nmf

FY08e $24.8 ($0.06) 4.4x nmf

FY09e $55.2 $0.01 2.0x 33x

FY10e $99.2 0.08 1.1x 4.1x

All figures in C$ unless otherwise noted

* ProMetic has announced a licensing agreement with Abraxis

Bioscience (ABII-N) that could be worth up to $295m in

development and sales milestones, for the development of 4

protein therapeutics.

* License and service fees could reach a total of $34m in the

next 3 years, with $10m expected before the end of 2008. This

eliminates the need to come back to the market for financing.

* We have arrived at a deal NPV of $0.75, and thus are raising

our target price from $2.00 to $2.75. Maintain Buy.

Major Technology License Financially Rewarding

This deal is worth up to $295m in development and sales milestones. However,

when including resin sales and sales royalties, PLI revenues could exceed $600m

in the next 8 years. Financial details include an upfront payment of $7m, made as

an equity investment at $0.47/sh (34% premium), $8m in license fees and $287m

in sales milestones payments. License and service fees could reach a total of

$34m in the next 3 years, with $10m expected to occur before the end of 2008.

Financial Details Beyond the Announcement

In addition to the $295m potential revenues mentioned in the press release,

ProMetic should receive royalties on Abraxis sales plus manufacturing revenues

that would approximate 15-20% of Abraxis sales. Royalties are expected to start

by 2011 and are expected to be mid-single royalties. We expect significant

revenues from manufacturing starting in 2009 from the production of clinical

supplies, ramping up at industrial scale by 2010-2011. Taking into account all

sources of revenues and using a 30% discount, we derive a $0.75/share net

present value. The discount reflects the lower risk associated to develop protein

drugs and the shorter time to reach commercial status.

Stock Rating:

Buy

12- target (C$) ??$2.75

Potential ROR 733%

Company Profile

Sector Health Care

Ticker PLI-T

Average S/O (m) 300

Free float (m) 285

Mkt cap (C$m) 99.0

Mkt float (C$m) 94.1

Key Metrics

Enterprise Value (C$m) 110

Research Team

Claude Camiré

Analyst 416.360.1322

Ccamire*paradigmcap.com

Alisa Beach

Associate 416.360.3579

Abeach*paradigmcap.com

SaleroMetic Life Sciences IncLI-T $0.33)gest Deal in ProMetic History – Raisinggece

Paradigm Capital Inc, IIROC/TSX member 2

Claude Camiré, Analyst 416.360.1322

Alisa Beach, Associate 416.360.3579

September 5, 2008

Abraxis BioScience- Experienced Partner with Proteins based Drugs

Abraxis BioScience, Inc. (ABII-Q) is a mid-size biotech company focused on the

development of novel formulations of proteins and is a strategic fit for this reason..

It is an integrated company with dedicated manufacturing capabilities including

discovery, clinical drug development, sales and marketing. Abraxis’ main product

is the first solvent-free taxane that was approved by the FDA, in January 2005 for

its initial indication in the treatment of metastatic breast cancer. Abraxane has

been a huge success in oncology and competes directly with Taxotere and Taxol,

a US$3b market. Abraxis generated $340m in revenues in the last 12 months and

has a market cap of US$3b.

Filling the Template Around the World

This is the fifth licensing agreement for “Cascade” in the last 18 months. Other

license partners include Biotest (acquired Nabi Pharmaceuticals), Kedrion, Blue

Blood and CNBG. We expect additional partners to develop other ODs. Current

agreements include:

Company Products Est Market Size Territory

Blue Blood (Taiwan) Hyperimmune CMV + 2

undisclosed

$75-100m Taiwan and

Southern Asia

Kedrion (Italy) Hep B + one drug

undisclosed

$200-300m Europe or Italy

China National

Biotec Group (China)

7 proteins: FVIII,

thrombin, fibrinogen,

a1PI, IVIG,

hyperimmunes and

albumin.

$300-500m China

Biotest (Germany) 3 proteins $100-150m US

Current science has not fully identified the number of proteins existent in plasma;

however most estimates place the number in the hundreds. Additionally, pricing of

these drugs is usually at a premium to traditional chemical drugs. The other main

advantage resides in a longer market cycle because generics are usually unable to

reproduce the drugs, therefore significantly increasing the return on investment.

This is the reason why the pharmaceutical industry has shifted its product

development to proteins. The huge shift in investment is reflected by the value of

new manufacturing facilities for biologics, which has exceeded more than $20b in

the last 2 years.

Advantages of Developing Orphan Drugs (ODs)

While most proteins are marketed for large population markets such as cancer or

autoimmune diseases, other proteins target specific genetic diseases. Because

they are tailored for smaller populations, the FDA has created an Orphan Drug

Diseases Designation (ODs’). ODs target rare diseases or conditions that affect

fewer than 200,000 people in the U.S. The Orphan Drug Act provides a seven-year

period (10 years in Europe) of exclusive marketing to the first company who

obtains marketing approval for a designated OD. ODs are developed in a shorter

time than traditional drugs, as the FDA grants a faster review process and less

stringent clinical trials. Commercially, ODs can fetch much higher prices than other

drugs as they serve much smaller populations, and thus higher prices are required

to recoup costs. While many patients depend on these new drugs, patients must

face steep costs that usually exceed $50,000/patient/year.

Paradigm Capital Inc, IIROC/TSX member 3

Claude Camiré, Analyst 416.360.1322

Alisa Beach, Associate 416.360.3579

September 5, 2008

Revenue Outlook – Strong Revenue Growth from Protein Technologies

We are revising our revenue estimates for FY08 upwards based on revenue

recognition of the expected $10m in FY08. We have increased the revenues from

Protein Technologies to $25m in FY08 versus our previous forecast of $21m. Even

though we expect $10-20m in revenues in FY09 from this new deal, we have only

conservatively increased our forecast from $45m to $55m. Because most deals

are back-ended, we expect revenues to sharply increase staring in FY10. Blood

bag filters remain an important short-term catalyst. We will revise our forecast

when we have better visibility. Blood bags remain the wild card potential for this

business application as they could reach peak potential revenues between $100-

200m within three years, generating a 60% EBITDA.

Summary of Changes

2008e 2009e 2010e

Revenues

Prior $21 $45 $83

New $25 $55 $99

Variance $4 $10 $16

EPS

Prior -$0.06 $0.00 $0.06

New -$0.06 $0.01 $0.08

Variance $0.00 $0.01 $0.02

Source: Paradigm Capital

Stronger Financially

With this new agreement, PLI gets a $7m equity injection, and license and

development fees that will total $10m in FY08. Given the increase in revenues and

the decrease in burn rate, PLI funds its daily operations and eliminates the risk for

outside financing. We believe the combination of the five plasma deals signed in

the last 2 years, the sale of blood bags in Europe and the sale of resins to

customers gives us increased confidence for significantly increased revenues. We

also remain highly optimistic about other deals in the short term, either from other

plasma deals or PBI-1402, which would be materially more financially attractive.

Multiple Near-Term Events to Drive the Stock Higher

We expect near-term catalysts to include the following:

• More licensing deals for the “Cascade” technology

• Clinical trials results for PBI-1402 Phase Ib/II expected by Q4/FY08 for

Chronic Kidney Dialysis patients

• PBI-1402 licensing partnership for at least one indication

Facing an Even Brighter Future

With this agreement, PLI significantly increases revenues for Protein Technologies

and solidifies its credibility in the protein industry as a significant technology

provider. As such, the visibility of the company makes it attractive for other protein

companies seeking to expand manufacturing services. We emphasize that the

beauty of PLI’s technology is in its ability to keep giving. ProMetic designs a resin

specifically for each protein to be developed, and this is why many companies that

hope to develop a plasma protein therapeutic require PLI’s technology in order to

Paradigm Capital Inc, IIROC/TSX member 4

Claude Camiré, Analyst 416.360.1322

Alisa Beach, Associate 416.360.3579

September 5, 2008

so (because otherwise they can be very difficult to separate from the rest of the

plasma). Therefore, this deal is not necessarily a one-shot deal, and many similar

deals could be signed with numerous companies.

Interestingly, revenues from protein technologies are the recurring type with a

higher mix of royalties; therefore generating a high EBITDA. Taking into account

all sources of revenue and using a 30% discount, we derive at a $0.75/share net

present value. We are maintaining our Buy recommendation and increasing our

target price from $2.00 to $2.75 based on discounted cash flow.

ProMetic held a conference call to discuss this deal today at 8:30am. The replay

is available on its website.

Table 1: ProMetic Life Sciences – Income Statement C$000’s

2005 2006 2007 2008e 2009e 2010e

Plasma Proteins 4,000 2,500 10,250 20,461 36,793

Blood Bags Filters 3,250 4,000 10,000 20,000

Resins 4,050 2,647 2,675 6,800 8,840 10,608

Protein technologies 8,050 2,647 8,425 21,050 39,301 67,401

PBI-1402 Anemia 3,750 15,888 31,775

Therapeutics 3,750 15,888 31,775

Total Revenues 8,050 2,647 8,425 24,800 55,188 99,176

Operating Margin 6,550 2,647 5,047 10,388 28,848 54,728

General Admin 6,742 8,001 5,894 6,483 7,132 7,845

Research & development 13,338 15,288 19,293 16,000 14,400 15,840

Depreciation & Amortization 2,892 2,244 2,297 2,412 2,532 2,659

Operating Expenses 22,972 25,533 27,483 24,895 24,064 26,344

EBITDA (13,530) (20,642) (20,139) (12,096) 7,316 31,044

EBIT (16,422) (22,886) (22,436) (14,508) 4,784 28,384

Other Revenue

Other Items (5,182) (7,573) (3,000) (2,000) (2,000)

EBT (21,604) (30,459) (22,436) (17,508) 2,784 26,384

Income Taxes

Net Earnings (21,604) (30,459) (22,436) (17,508) 2,784 26,384

EPS Basic ($0.19) ($0.21) ($0.09) ($0.06) $0.01 $0.08

Avg Shares Out. 115,717 148,261 242,603 315,000 325,000 325,000

Source: Paradigm Capital

Paradigm Capital Inc, IIROC/TSX member 5

Claude Camiré, Analyst 416.360.1322

Alisa Beach, Associate 416.360.3579

September 5, 2008

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