May 6, 2016
The Donville Kent (DKAM) investment team recently attended the Bloom Burton & Co. Healthcare Investor Conference. Jason Donville, President and CEO of Donville Kent describes the annual Bloom Burton conference as the best “idea generation” conference in Canada. From the DKAM team’s perspective, four companies in particular stood out from the rest and Donville Kent currently owns positions in all four.
CRH Medical Corporation (TSX:CRH)
CRH is a very promising company that has been transformed over the last 18 months to add a complementary anesthesia services business to its legacy O’Regan product business. The product business provides 55% margins and effectively acts as a “conduit” for further deal flow to the service business due to the relationships that have been built over the last decade. CRH is unique in that it uses certified surgeons for sales and training as opposed to salespeople. We believe this is a critical differentiator that will help the company grow the services business.
The anesthesia market in the U.S. consists of 9,000 private gastrointestinal surgeons performing over 15 million colonoscopies per year. CRH has closed 5 deals since starting the service business in late 2014 with none of these deals going through a competitive process, which further supports the strong positioning of the company. Since CRH only has 2% market share of the highly fragmented market we believe the company has a long runway for growth.
Nobilis Health Corp (TSX:NHC)
Nobilis focuses on providing service and procedures through ambulatory surgical centres in the United States. Much like a real estate investor purchasing houses in foreclosure, Nobilis targets centres with poor operational economics that can benefit from their unique direct-to-patient marketing model and proprietary technology. Nobilis provided an example of increasing annual revenues of an ambulatory surgical centre from $22 MM to $85 MM through the adoption of their technology.
Nobilis has been so successful that it has never had a physician leave a centre that Nobilis has partnered with. Additionally, these existing teams of physicians are starting to provide inbound opportunities. Nobilis provided guidance of $290 MM in organic revenues with $50 MM in organic EBITDA that is net of controlling interests. Although it is difficult to project, the company believes it can add an additional $50-60 MM through the acquisition of new facilities.
Biosyent continues to strategically source and commercialize niche drugs. The top drug in the portfolio is Feramax which continued to have significant growth in 2015. The base capsule form of the drug grew by 17% while the powder grew at 43% and the international growth was 132%. Additionally, Feramax was recognized as the #1 recommended brand by pharmacies and doctors.
The company provided some exciting updates including the planned commercialization of its latest product, Cysview next quarter and a new subsidiary in Barbados which will effectively reduce taxes by 25%-30%. Management is very conservative but have been looking at multiple products to add to their portfolio. We believe that the company will push toward 30% net margins over the next two years.
Aralez Pharmaceuticals (TSX:ARZ)
Aralez is a specialty pharmaceutical company with a focus on growing their European and North American cardiovascular and pain platforms. The CEO, Adrian Adams, has an impressive track record of building and selling pharmaceutical companies.
Aralez has multiple drugs in their portfolio but the most exciting may be Yosprala. Yosprala is a pH-sensitive, enteric-coated aspirin that will provide the benefits of traditional aspirin while preventing stomach ulcers. The company is ready to commercialize the drug in the fourth quarter of 2016 pending FDA approval.
The company has provided 2016 guidance for revenues between $48-58 MM with a target of profitability by 2018 on $150 MM in revenues. We believe an investment in Aralez is more speculative than CRH, Nobilis or Biosyent but feel the previous success of Adrian Adams makes it a company that is hard to ignore.
A few other names to watch!
Donville Kent does not yet own the following companies but likes the progress management has made in developing their business models. These companies include Nuvo Pharma, Knight Therapeutics, and Cipher Pharmaceuticals.
About Jason Donville
Jason has had an illustrious career as an award-winning analyst in both Asia and Canada. Prior to founding DKAM, Mr. Donville was consistently ranked as one of the top financial services analysts in the country. In 2004 and 2005, Mr. Donville was ranked in all three financial services research categories (banks, insurance and diversified financial services) in the annual Brendan Woods surveys. Mr. Donville was also recognized as the Top Stock Picker in Diversified Financial Services in the 2004 and 2005 National Post/Starmine surveys, and ranked number 3 for forecast accuracy in 2004 in the same survey.
[The author and his immediate family members may have long or short positions in the shares of some companies mentioned in or assessed during the preparation of this blog. Past share price performance may not be an indicator of future share price performance. This blog does not consider the investment objectives, financial situation or particular needs of any particular person. Investors should obtain professional advice based on their own individual circumstances before making an investment decision.]
As with all our posts, please see our full legal disclaimer.