Robert McWhirter Merus Labs International MSL-T COMMENT Oct 16, 2015

(A Top Pick July 27/15. Down 45.05%.) This is by far the cheapest Canadian health care stock. They have business in Europe, not in the US or Canada, but the debt is hedged. They announced that the change in the EBITDA would be less than 1%. He is holding on.

(Market Call Minute.) This buys specialty drugs, which is a tougher environment to do that in the post-Valeant and Concordia world.

This has gone nowhere in 5 years. There is an overhead supply in 2014-2015, and as a result these investors are caught Long, and are selling and pushing it down. He doesn’t see any strong buying here, and as a result would not recommend holding. It is making lower highs and lower lows.

They did not take on all the debt of some others. It is in Europe. When US drugs come off patent, it is a patent cliff. In Europe it is different. It tends to be about 30-40% because it is more highly regulated to begin with. Their earnings are more stable. He likes the management team who have been buying stock recently. They changed from just buying legacy drugs to buying growth drugs. He thinks this growth strategy will cause a re-rating of the stock.

There has been no good news in the last couple of quarters. He got out when he saw no growth coming through. Regulatory things going on in Europe have hurt them. This is not one of the top twenty names you want to own.

This has been a Top Pick in the past, and he has been wrong, but with the end of tax loss selling there should be a change. They are getting the benefit of a technology transfer for manufacturing of one of their main drugs, Sintrom, from the US in US$ costs into Europe in Euro costs. That is going to take place over the next 2-3 quarters and will save them about $8 million a year. They can reinvest those savings. Their next targeted acquisitions are for drugs with an organic growth profile, something they have lacked in the past. Trading at 3X cash flow, and their closest competitor trades at 10X cash flow. There has been recent insider buying by both the CEO and a couple of board members. (Analysts’ price target is $1.84.)

This entire space has been pretty difficult in the last year. This has been beaten up fairly hard. In his ranking system, he looks at things both fundamentally and technically. He is not seeing a lot from an earnings growth rate, and at the same time he is not seen too much strength technically. He is really not looking at this one. He would have to see a quarter or 2 of cash flow and earnings growth before looking at it.

We have a downtrend in place. It had to hold the $1.40 level and which it did for almost 2 years and then broke it. This is a lower risk place to come in here. It is starting to base here again. You might get a nice upside breakout move here.

Sold his holdings at around $2 about 1.5 years ago. The whole sector was extremely hot, and then they all came down at the same time. This company hasn’t hit any of its targets. Has stayed away from this whole sector because there has been too much regulatory stuff. If you own, this might be a chance to get out.

(A Top Pick March 29/16. Down 10%.) This is being taken over by an Italian private pharmaceutical company.