NEW ISSUE: IGI Laboratories (IG) $125 million Convertible Senior Notes due 2019

This is a very small company looking to grow and diversify its business.  The $125 million new convertible gets an acceptable overall HOCS of 65, while scoring very well on growth but poorly on safety.  This is no surprise given the company's small size and aggressive growth plans.   

Our HOCS slash line measures 65 Overall / 84 Growth / 27 Safety.

 The overall score is reasonably good for a new issue, but comes with the caveat that the score is heavily biased toward growth. Thus we would not expect these bonds to hold up particularly well on a stock downturn.  That said, pricing seems entirely reasonable, and there should be a place in many portfolios for a modest helping of these bonds.

IGI Laboratories is a small specialty generic pharmaceutical company.  Historically the company has sold topical generic pharmaceutical products and provided contract manufacturing and formulation services to the pharmaceutical, OTC (over-the-counter), and cosmetics markets.  Management has initiated a growth initiative that includes expanding the generic portfolio to injectable, complex, and ophthalmic dosage forms as well as topical. 

IG has made two acquisitions this year, which included 18 ANDAs (abbreviated new drug applications) and NDAs (new drug applications) from AstraZeneca for $500 million cash and up to $6 million in future milestone payments.  These products were primarily injectable.  The second acquisition was ANDAs and NDAs from Valeant relating to two ophthalmic products for $1.5 million in cash. 

The company recently announced it had submitted its eighth ANDA application this year and currently has nineteen applications pending with the FDA.  IG expects to file at least one more ANDA this year and has six additional pending applications under joint development agreements with partners.   

The company bolstered its liquidity this year with a stock offering which raised $24.9 million.  IG has a $5 million secured bank line, with $2.9 million drawn at September 30, 2014.  The proceeds from the convertible deal will be used for general purposed including acquisitions, capital spending, and strategic transactions.  We expect the company to make additional acquisitions as part of its plan to grow and diversify the generic drug portfolio. 

Pro Forma Summary Statistics:

Cash: $144 million

Total Debt: $134 million

LTM EBITDA: $1.2 million

LTM Cash Flow: $(0.9) million

Total Market Cap: $505 million

Debt/EBITDA:  112x