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All is GUD with Knight Therapeutics, GMP says

Knight Therapeutics

Knight Therapeutics GUDAll’s well with Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News TSX:GUD) after the specialty pharma company’s latest quarterly numbers, according to GMP Securities analyst Justin Keywood who reviewed the results in an update to clients on Wednesday.

Shares of GUD dropped sharply on Wednesday as investors reacted to the company’s third quarter results. The company showed good growth in sales of $4.0 million, up 25 per cent year-over-year but also endured one-time costs of $2.5 million related to the recent acquisition of Latin American pharmaceutical company Grupo Biotoscana (GBT). As a result, Knight’s earnings per share was a loss of $0.02 per share.

“We delivered on the execution of our strategy to build a Canadian and ‘rest of world’ specialty pharmaceutical company with the transformational acquisition of GBT. This transaction will establish Knight as the pan-American (ex-US) in-licensing partner of choice,” said Jonathan Ross Goodman, CEO, in a press release.

“In addition, during the past quarter, we have advanced our Canadian product pipeline with Health Canada’s approval of NERLYNX, the submission of Joyesta for regulatory approval, and the listing of Probuphine for reimbursement through certain public insurance plans,” he wrote.


Knight’s Q3 sales of $4.0 million were above expectations of $3.3 million, said Keywood, whereas the EPS of negative $0.02 per share was below an expected $0.02 per share.

Keywood says the $418-million purchase of GBT becomes more of a focus for the company with the closing date of November 29, 2019, for a 51-per-cent stake, followed by the remaining 49 per cent to be acquired in 2020. The analyst says that GBT will add strategic scale and entry into new markets for Knight.

The analyst says that with the GBT purchase, Knight is replicating the tried and true path to success developed by Goodman with his previous business, Paladin Labs.

“We view GBT as validating Knight’s strategy in replicating past success at Paladin Labs. The expected transaction multiple paid of 8.5x LTM adj. EBITDA is also seen as very favourable and de-risking to a certain extent. Knight’s pace of transactions has been similar to Paladin and now with evidence of execution on a large transaction. Paladin Labs had 19 consecutive years of record revenues and another streak is in progress at Knight,” writes Keywood.

“We modelled in a one-month contribution of GBT in our 2019 estimates, leading to higher sales but also greater integration expenses and muted overall impact on near-term profit. Our target price edges up by $0.50 to $10.50, reflecting the strategic value of GBT through a slightly increased NAV and 1.4x multiple. As the GBT transaction progresses and strategic growth plans for the asset become clearer, our NAV estimate may increase,” he wrote.

For fiscal 2019, Keywood is expecting revenue of $24.0 million and an EBITDA loss of $5.6 million. With the update, the analyst is maintaining his “Buy” rating but upping his target to $10.50, which represented a projected 12-month return of 30 per cent at the time of publication.

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