Knight Therapeutics Grupo Biotoscana acquisition is “transformational”, says GMP

The massive new acquisition of Grupo Biotoscana by Knight Therapeutics (Knight Therapeutics Stock Quote, Chart TSX:GUD) is a huge positive, says GMP Securities analyst Justin Keywood.

This morning, Knight Therapeutics announced it would acquire 51.21 per cent of Latin American specialty pharma company Grupo Biotoscana (GBT) from a controlling group of shareholders for C$189-million. The company said it also launch a mandatory tender offer to acquire the remaining 49% interest for an additional C$180-million while assuming some net debt, putting the entire pickup at about $418-million.

“This transformational acquisition establishes Knight as a premiere pan-American (ex-U.S.) specialty pharmaceutical company. With scale and a strong regional infrastructure, we will be well positioned as the pan-American (ex-U.S.) in-licensing partner of choice,” CEO Jonathan Ross Goodman said. “The combination of Knight and GBT creates a compelling platform in large, fast-growing markets. GBT is a natural strategic fit, with a similar business model to Knight and strong relationships with global partners.”

In a “Flash” update to clients this morning, Keywood dug into Grupo Biotoscana’s business model.

“GBT’s business model is similar to Knight, where it looks to in-license or acquire product rights for late stage clinical assets in valuable therapeutic areas,” the analyst said In addition, GBT also has a proprietary R&D product pipeline,along with generic assets, that would differ from Knight’s current approach. Geographically, GBT’s revenue comprises of the Brazil market at 49% of total, followed by Argentina at 21%, Columbia at 16%, Mexico at 2% and six other countries making up the remaining 12% of sales. By therapeutic area, Onco & Onco-Hematology represent 43% of sales with infectious diseases at 36%. Around 10 key products make up about 65% of GBT’s revenue but commercial sales prior to genericization lasts much longer in the LATAM region with less of a generic erosion as compared to certain other markets. Knight sees the LATAM market as having very attractive attributes, including good growth rates and more reasonable acquisition multiples. Knight will look to expand its LATAM presence with GBT, including the Mexico market and is expected to have over $250mm in cash after the transaction.

Overall, Keywood said this is a game changer for GUD shareholders.

“GBT is a transformational acquisition and we view it as a materially positive development for Knight, given the track record of management for M&A, along with scale benefits, exposure to new markets and with still plenty of cash to execute on other transactions,” he said. ” We view GBT as validating Knight’s strategy in replicating past success at Paladin Labs. Knight’s pace of
transactions has been similar and now with evidence of execution on a large transaction. We see GBT as adding strategic scale and entry into new markets, which can act as a platform for further growth. This particularly bodes well for GUD shareholders with still over $250mm in cash expected after closing. We continue to expect record revenues at GUD with further M&A and see an attractive entry point. Our $10.00 target is based on a multiple of 1.4x on Knight’s NAV. BUY.”