Canaccord Ups Price Target to $4.00Canaccord Genuity Corp. (Canada) 24 May 2015: Raising Target Price to $4 (from $3.50): We believe that this is a solid first deal for CEO Barry Fishman, as he has demonstrated that he can execute on an M&A transaction. As confidence builds in Mr. Fishman’s ability as a deal-maker, we expect that the multiple re-rating for Merus will accelerate. Given the weakness in the stock after this announcement, we believe that this presents a significant buying opportunity. *Investment Highlights • Diversifies the top line and nicely accretive to EBITDA. The two acquired drugs had combined sales of ~US$10 million last year, and we estimate their inclusion into Merus’ existing portfolio will add at least C$6 million of annual EBITDA going forward. While not a large acquisition, we believe that these products diversify Merus’ product mix, reducing dependence on key drugs Sintrom and Enablex. • Merus still has plenty of dry powder. Prior to the acquisition of Salagen and Estraderm MX, Merus had been in active discussions on more than fifteen potential acquisition targets, totaling more than $200 million in EBITDA. We believe Merus still has the capacity to acquire an additional >$15 million of EBITDA without having to raise additional equity. • Considerable upside to our forecasts, with limited downside risks. We believe we have taken a very conservative stance on Enablex when modelling both a German reimbursement cap scenario and the introduction of generics in late-2016; however, we believe that there is substantial upside to our forecasts if a reimbursement cap is delayed (or not implemented at all) and/or if Merus’ SPC can ward off generics until 2019.