RBC have a $54.00 price target. GLTA
Company Profile
Paladin was originally incorporated in 1993, completed an IPO in 1995, and has grown strongly over
the last 15 years as a unique Canadian specialty pharma company focused on the in-licensing and
acquisition of products for the Canadian marketplace.
Investment Rationale
We believe Paladin Labs will outperform its peer group for the following reasons:(i) Growth Story
Through In-Licensing and Acquisition. Paladin has a long track record of successfully identifying
products for in-licensing and acquisition. Based on continued big pharma consolidation and its cash
resources and no debt, we believe the company remains well positioned to in-license/acquire products
to maintain its attractive growth profile.(ii) Significant Free Cash Flow Generation - FCF Yield of >16%
Estimated on 2013 Year-End EV. Paladin is structured to maximize free cash flow. We estimate a 14%
free cash flow yield on enterprise value by year-end 2013.
Valuation
At current levels, PLB is trading at ~7.0x our 2014 EBITDA estimate ($80.2MM) vs. peers at 8.4x. We
value Paladin Labs using a combination of DCF analysis and EV/EBITDA multiples. Our $54.00/sh
(previously $50.00/sh) price target is based on the rounded average of the DCF valuation of $52.07
(previously $50.27) and an EV/EBITDA based valuation of $54.03 (previously $49.23) using a 8.5x
(previously 7.5x) multiple on our 2014 estimates, which is in line with its peers despite the significant
cash position and opportunities available to PLB in the near future. We increased our multiple this
quarter as two new products are launching in Canada and a second quarter of the Litha acquisition
gives us further confidence in management's ability to integrate/expand the South African operations.
Price Target Impediments
While Paladin has assembled a diversified portfolio of products and we believe its balance sheet is
sound, all drug development and marketing companies face a number of key risks and price target
impediments. These include but are not restricted to acquisition-related risk, the introduction of generic
drugs by competitors, the usual risks related to drug development, potential drug reimbursement
issues, its relationship with Pharmascience, and potential tax liabilities