• Ted Ohashi

Khiron (TSXV:KHRN) makes a significant acquisition

Khiron Life Sciences (TSXV: KHRN) has entered into a non-binding letter of intent (LOI) with the Latin American Institute of Neurology and the Nervous System (ILANS), one of the most respected, fastest growing, and largest health service provider networks in Colombia and Latin America. The ILANS network represents an estimated 100,000 patients and once closed will position Khiron with approximately $10.5 million of revenue and $1.8 million of EBITDA. The acquisition will be through wholly-owned subsidiary, Khiron Colombia (read full press release here).

Alvaro Torres, CEO of Khiron, comments, "This acquisition represents one of the most significant developments for Khiron to date. We will secure a significant revenue stream from patients within our target market and see multiple opportunities to further scale revenue and drive profitability from introducing medical cannabis to ILANS patients."

We agree and conclude this is a very important step for KHRN. Consider the following with respect to the ILANS transaction:

  • The ILANS patient base is perfectly aligned with KHRN’s objective of focussing on the target market conditions for medical cannabis. ILANS’ patient base suffers from conditions where medical cannabis treatment can be applicable including neurological, psychiatric, respiratory, urological and orthopedic diseases, among others.

  • It provides KHRN with a direct distribution channel to ILANS’ 100,000 existing clients, includes two 16,000 sq. ft. neurological clinics in Bogota as well as 46 physicians. Clinics are a key to KHRN’s strategy to create doctor/patient and brand loyalty.

  • It positions KHRN with approximately $10.5 million of revenue from neurological clinics, including pain and epilepsy treatments, in Colombia.

  • Providing medical cannabis products to ILANS’ patients will increase revenues and drive margins in the future.

  • Expands Khiron's internal medical team by adding some 46 physicians from various disciplines. This complements the team led by Dr. Maria Fernanda, Khiron's Medical Director.

  • Although we have been critical of the price some Canadian Licensed Producers have paid for acquisitions, the total consideration for 100% of ILANS is:

  1. $7.0 million of which 70% is in cash and 30% in KHRN shares.

  2. The cash payment of $4.9 million is 19.9% on closing and 81.1% over 24 months after closing.

  3. The $2.1 million in shares will be based on the 20 day volume weight average price on the TSXV and all shares so issued are subject to a 2-year lockup agreement.

  4. KHRN will provide additional cash consideration totalling a maximum of $5.0 million for the attainment of milestones pertaining to patient acquisition over a period of two (2) years after closing of the transaction. In other words, if the additional $5.0 million cash is paid, the accretive value to KHRN will be well in excess of this amount.

There are typical conditions to closing including execution of a definitive agreement, approval of both boards of directors and TSXV approval.

KHRN has a fully diluted market capitalization of approximately $63 million. We believe this makes it an attractive takeover target for any cannabis company that wants a superior entry into the Latin and South American regions. From our perspective, the risk is not in owning KHRN. It is in not owning it.

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