2016 may be Knight Therapeutics’ time to shine, says Paradigm

A quarter that was essentially in-line with expectations isn’t changing Paradigm Capital analyst Christopher Lam’s view that Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News: TSX:GUD) still has upside.

Last Thursday, Knight reported its fourth quarter and fiscal 2015 results. In the fourth quarter, the company posted an EBITDA loss of $1.8-million on revenue of $343,000.

“In 2015, we deployed or committed over $70-million in low-risk, fair-return opportunities while making substantial progress towards selling innovative products that touch the lives of patients,” said CEO Jonathan Goodman. “To that end, Knight now has secured the rights to a basket of over 20 products in various stages of development for Canada. In the year ahead, we will continue to focus on acquiring new product rights that improve the health of Canadians and work toward bringing our pipeline to market.”

Lam says the quarter contained no real surprises, but notes that the macro backdrop to the company’s business has changed and may offer some opportunities. He says there may be a shakeout of assets from several highly levered specialty pharmas that could present Knight with the opportunity to acquire revenue generating assets a a discount. With a balance sheet that features $470-million in cash and no debt, the analyst thinks the company is well positioned.

“This may be Knight’s year to shine amidst a challenged specialty pharmaceutical industry laden with debt and limited organic growth prospects,” says Lam. “While sitting out of the recent acquisition frenzy, Knight’s lending strategy has yielded 20 growth assets with ATyrn, AzaSite and TULSA-PRO, potentially approved and launched over the next 12–18 months. With cash on hand, Knight also remains well capitalized to opportunistically transact for revenue-generating assets once valuations come down.”

In a research update to clients today, Lam maintained his “Buy” rating and one-year price target of $9.00 on Knight Therapeutics, implying a return of 19 per cent at the time of publication (including dividend).