Liminal BioSciences Inc. PFSCF

Canaccord: Buy rating and $3.00 target for ProMetic Life

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According to Canaccord Genuity:

https://personal.crocodoc.com/AXwZSiD

ProMetic Life Sciences Inc.

RATING: BUY

PRICE TARGET: C$3.00

Q4 results: value-enhancing deals on the docket for 2015

Investment Recommendation

ProMetic reported Q4 financial results that were below our expectations on lower milestone revenue. This is not a concern for us, as it highlights the inherent lumpiness of the resins business, and we believe that the focus should be on the significant growth potential from the plasma-derived therapeutics, which are expected to come on line by next year. We anticipate that 2015 will be a year of catalysts, as ProMetic creates value by building out its plasma-derived therapeutics pipeline, bringing on additional manufacturing capacity, advancing biotech product PBI-4050 through its first efficacy trials, and most importantly, announces the first data from the clinical trial for plasminogen. We believe that this last milestone will underscore the low risk and abbreviated timelines of ProMetic’s lead products.

Investment Highlights

• New manufacturing capacity adds cash flow. We believe that, at its core, ProMetic is a manufacturing story. Peak revenue for the plasma-derived therapeutics are constrained by manufacturing capacity, therefore, the addition of new capacity could present significant upside to our forecasts.

• Renewable pipeline of products. ProMetic’s PPPS technology is an extremely powerful platform when applied to plasma-derived therapeutics, presenting a renewable pipeline of products that can be extracted from human blood plasma with limited incremental costs. We believe that the expected announcement of two new orphan drugs should provide upside to our valuation.

• Advancing the late-stage pipeline. ProMetic expects to have several plasma-derived therapies in the clinic by the middle of the year, including orphan drug plasminogen and IVIG. These drugs represent major growth drivers for the company, with an ever expanding pipeline generated from ProMetic's proprietary PPPS manufacturing technology.

• A possible glimpse at 4050's efficacy in 2015. We believe that PBI-4050 presents biotech-like optionality for investors. As ProMetic expands the possible indications into IPF and metabolic syndrome, we believe that we may get a glimpse into the efficacy of this drug in coming months.

Valuation

We value PLI based on a sum-of-the-parts. We value the resin business using a DCF analysis (9.4% WACC and 2.0% terminal growth), plasma-derived therapeutics with an explicit NPV, and the small molecule pipeline with a pNPV. Following the quarter, we have made only minor changes to our model and maintain our C$3.00 target price. This target implies a 16.7% return and continues to support our BUY recommendation.