Is Knight Therapeutics worth owning?

Specialty pharma company Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News TSX:GUD) saw its share price spike in October on news of a major acquisition, but the stock has now dropped to its previous level. What gives?

It’s all part of the company’s long-term vision, says portfolio manager Stephen Takacsy, who advises investors not interested in ten-year holds to look elsewhere.

“We’ve met with the company many times before, with [CEO] Jonathan Goodman, and he made no secret that all of that cash was going to be deployed in a patient and diversified fashion and responsibly, which has been the case,” said Takacsy, president, CEO and chief investment officer at Lester Asset Management, to BNN Bloomberg on Wednesday.

“It’s a bit of a different animal. It’s not investable for us only in the sense that it’s not like one or two operating businesses that we can analyze. It’s more like a venture fund investing in many, many different businesses and many different stages, all within the healthcare sector,” Takacsy said.

It appeared as if the long wait was over. A couple of months ago now, Knight made a splash and calmed a lot of disgruntled investors who had been waiting with growing impatience for Knight to do something with its cash resources other than just sitting on them. The purchase turned out to be Latin American pharmaceutical company Grupo Biotoscana (GBT) in a $418-million deal that Goodman called “transformational” for Knight.

“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,” said Goodman in a press release.

GUD immediately shot up 18 per cent on the news but had trouble keeping those gains and was further hobbled by a not-too-well-received quarter that saw Knight post a loss of $0.02 per share on sales up 25 per cent to $4.0 million. Analysts had been expecting an EPS of positive $0.02 per share.

As a result, Knight is back where it started: down a couple of percentage points for the year and, at $7.56 per share, well below a high of $11.03 set back in 2016.

In the end, Takascy says the slow pace of growth makes GUD a bit of a conundrum among publicly-listed companies.

“Goodman has always said, if you buy this stock, put it away for your grandchildren. So, it’s really for the patient,” he said. “I’m sure that it’ll do well over the long run, but people want that instant gratification and they’re not necessarily going to get it from this company. It’s a very, very long-term bet.”

“It’s like being in a private equity fund and have horizons of seven to ten years. So, should this be a public company? I guess you could debate that, but it doesn’t meet our investment criteria from that point of view,” he said.