TS03 Inc Trust Units TSTIF

Canaccord Reiterates $5.25 Target!

[echo2]

Maruoka from Canaccord was quite positive following the Investor Day. His only negative was the lack of clarity regarding actual Getinge installs, which he attributes to Getinge not wanting the competition to know how well the VP4 is taking market share and interest from the established systems. Note, TSO3 can announce Strategic Installs as these centres are or will be involved in academic studies directly with TSO3 to further validate and support the efficacy and efficiency of the VP4, and a number more of these Strategic Partners are apparently coming according to GoPats, 

My take on this lack of colour from Getinge is that it relates very definitely to them not wanting the competition to have visibility on their VP4 success. And, this also relates to my perception that Getinge executives, as witnessed by their prominent presence and enthousiastic support of TSO3's game changing "disruptive technology" at the Investor Day continue to see incredible value in TSO3 going forward, and they don't want much larger companies, particularly JnJ ( - with wads of cash already set aside for strategic acquisitions -), to be making an offer now or in the near future to buy TSO3 for $5-6 CDN at a time when Getinge (due to their internal restructuring) would have difficulty competing in the bidding process for TOS.

From Canaccord:

"Company Update

Growing confidence in TSO3’s potential

TSO3 hosted its Analyst Day yesterday, providing a substantive overview of the US launch of VP4, its partnership with Getinge, and the factors driving the acceptance of the company’s disruptive technology. TSO3 also announced the shipment of 30 VP4 sterilizers in Q4, slightly below our forecast of 34 units. Nonetheless, despite another quarter of steady shipments, we believe there remains some uncertainty about the growth of the installed base and market traction during the early stages of product launch. Although we had been expecting an update on the installed base (which we believe provides a better indication of the progress of its US launch), the company declined to provide additional details, likely for competitive reasons. While somewhat disappointing, the investor update highlighted the strong value proposition for VP4 and the commitment from its partner, and we nonetheless came away from the Analyst Day with increased confidence in VP4’s potential to dominate the low-temperature sterilizer market.

Investment Highlights

• TSO3 building evidence of VP4’s advantages. TSO3 continues to generate new data supporting the economic and risk-reduction advantages compared to offerings from incumbents. We believe the addition of The University of Rochester Medical Center as a reference site further establishes a KOL network that is likely to generate new near- term purchase orders for VP4.

• Strong presence of Getinge re-emphasizes commitment. Senior management of Getinge was well-represented and highlighted TSO3’s partner’s commitment to the successful launch of VP4. We come away from the Analyst Day with greater confidence that the US launch of VP4 is approaching an inflection point and that we should see an acceleration into the second year of commercialization.

• The potential to be the dominant low-temperature sterilizer on the market. As a larger proportion of medical devices needs to be processed using low-temperature sterilization, we believe TSO3 is best positioned to ultimately replace legacy technologies like steam sterilization. This advantage is due to VP4’s larger capacity and ability to process mixed loads relative to competitors, in our view.

• Extended claims for ERCP scopes would open a massive opportunity. We
believe that extended claims covering ERCP scopes (and, particularly, the Olympus duodenoscope) presents an opportunity to differentiate its technology. TSO3 hopes to file for extended claims with the FDA in the first half of the year and we expect could receive approval in 2018.

Valuation

We value TSO3 based on a DCF model, using an unchanged 13.5% discount rate and 3.0% terminal growth. Based on this analysis, our target remains at C$5.25, which represents an annualized return of 87.5% and continues to support our BUY recommendation. "