Knight Therapeutics set up for "transformative transactions", says Paradigm

A new financing will allow Knight Therapeutics (Knight Therapeutics Stock Quote Chart, News: TSX:GUD) to make acquisitions that could transform the company, says Paradigm Capital analyst Christopher Lam.

This morning, Knight announced it had closed a bought deal financing for $100.05-million.

“We will deploy this additional capital in low-risk, fair-return opportunities with the goal of creating a specialty pharmaceutical company we can all be proud of,” said CEO Jonathan Goodman. “Thank you for the trust which we will never take for granted.”

Lam says Knight is sitting on a “heap” of cash but is still aligned with shareholder interest, noting that Goodman bought 25,000 of the offered shares. The analyst says things are just getting going for the Quebec-based pharma.

“Knight remains in the very early phase of the business cycle and the additional cash signals a company positioning itself for transformative transactions,” he says. “Movantik is Knight’s first commercial pharmaceutical product in Canada and the build-out of a specialized sales team marks the transition to a true pharmaceutical company. We now expect Knight to accelerate the pace of deals for new revenue-generating products to increase utilization and efficiency of its sales force. Additionally, we are encouraged by the prospects that a fruitful relationship with AstraZeneca may yield additional products for Knight’s strategic geographies. Near-term revenue is largely immaterial to valuation as the market remains focused on balance sheet cash and acquisition potential. As such, we maintain our valuation perspective that reflects eventual deployment of the current cash for drugs (at 6x EBITDA) and rerating of the stock to an EBITDA multiple.”

In a research update to clients today, Lam maintained his “Buy” rating and one-year price target of $11.50 on Knight Therapeutics, implying a return of 15 per cent at the time of publication, including dividend.

Lam believes Knight will post EBITDA of negative $6.3-million on revenue of $5.7-million in fiscal 2016. He expects these numbers will improve to EBITDA of negative $6.1-million on a topline of $7.1-million the following year.