New deal for Knight Therapeutics doesn’t move the needle, says Mackie Research

Commercial-stage specialty pharma company Knight Therapeutics (Knight Therapeutics Stock Quote, Chart TSX:GUD) has entered into a licensing agreement with Puma Biotechnology for the exclusive right to commercialize Puma’s cancer drug Nerlynx (neratinib) in Canada.

The deal moves up GUD’s top and bottom lines going forward but is not enough to make the stock a Buy, says analyst André Uddin with Mackie Research, who on Friday maintained his “Hold” rating with the raised target price of $8.20 (previously $8.00).

Approved by the FDA in July of 2017 and by the EMA in September of 2018, Nerlynx is an extended adjuvant treatment for early-stage HER2-breast cancer patients following adjuvant Herceptin-based therapy. Puma filed a new drug submission with Health Canada in July of 2018 and Uddin says that the product should be launched in Canada by Q4 of this year if approved.

“We are conservative and cautious about our sales estimates for Nerlynx for three reasons: (i) Nerlynx demonstrated in the Phase III study a marginal efficacy improvement; (ii) the drug has a relatively severe side effect of diarrhea which now requires users to take anti-diarrhea drugs simultaneously; and (iii) the HER2 breast cancer market is competitive,” says Uddin.

The analyst estimates that Nerlynx will generate $2 million in annual sales in Canada in 2019, which would ramp up to $25 million in 2023.

“We believe Nerlynx would become GUD’s the first cancer product on the market, which should help the company’s top-line and earnings growth,” he says.

Uddin estimates GUD’s revenue and fully diluted EPS for 2019 at $12.5 million and $0.12 per share, respectively, and for 2020 at $46.0 million and $0.27 per share, respectively. His $8.20 target price represents a projected return of seven per cent at the time of publication