Merus Labs International (MSL.TO)

Raising $21 million for purchase opportunities. On a price to cash flow, it is trading around 6.3X on a trailing basis, which is quite attractive. Earnings are expected to be $.14 in 2015, and then grow to $.22 in 2016. Kind of a “grow by acquisition” business. Thinks there is good opportunity going forward. Ranks in the top 3^rd of his database.

They want to build out a portfolio of mature drugs and eventually will institute a dividend and grow like that. Recently did an equity financing at about $1.70. He has bought more since then. Likely going to use the money for another acquisition to broaden out their portfolio which will help the stock to re-rate. Currently around 5-6 times EBITDA. He can see a double on this once they start to broaden out.

Interesting company. He knows the space fairly well. Thinks there is a lot of potential in that sector and a Top Pick today is in that sector.

He has added on recently. Since Paladin Labs (PLB-T) has been taken out there is a real need for investors to find other areas in the pharma space that don’t have the development risk of a biotech. We have seen others doing very well and this one has more potential. They need to do more deals as they only have 3 drugs and thinks that will double this year and again in 2015 at which point you will see accretive growth and a re-rating of the multiple. This is where you get a real home run on the stock.

The best thing to buy in the royalty space in Canada. Very cheap based on its current business. They fixed the balance sheet and now have the firepower to buy and do more royalty deals and he is expecting some soon. Near-term target of about $1.75 a share.

His third favourite out of the 5 in this group. Issues with the management team.

Junior Paladin of the space. Take non-core generic drug assets from majors. Shored up balance sheet to pave the way for the next drug acquisition. Cost of debt was brought down from 14% to 6%.

Loves business model. It is effectively a miniature Paladin labs. They license mature drugs that are sold globally and then take the Canadian part and market it here. There is a big multiple gap with its peers. As they diversify their drug portfolio you will see their multiple expand. He really likes management. There is a lot of momentum to come.