Knight Therapeutics has price target lowered by Mackie Research

It’s still early innings for specialty pharma company Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News TSX:GUD) but a dimmer revenue forecast has Mackie Research’s André Uddin lowering his target for Knight from $8.90 to $7.80. In an update to clients on Friday, Uddin reviewed the company’s latest quarterly earnings and argued that Knight’s trajectory is looking similar to that of CEO Jonathan Goodman’s previous company, Paladin Labs.

Montreal-headquartered Knight Therapeutics is a commercial-stage specialty pharmaceutical company in the Canadian market as well as in Latin American via recent acquisition Grupo Biotoscana (GBT). Knight reported its third quarter financials on Friday featuring revenues of $45.2 million compared to just $4.0 million last year without GBT and adjusted earnings of $6.6 million, up 18 per cent year-over-year. Net income was $17.5 million compared to a loss of $3.0 million a year ago.

Over the quarter, Knight bought back 797,952 common shares at a cost of about $4.7 million, while on the drug front GUD obtained regulatory approval for anti-cancer drugs Lenvima and Halaven in Ecuador, received regulatory approval from Health Canada for female hormone drugs Imvexxy and Bijuva and submitted a supplement to a New Drug Submission of breast cancer drug Nerlynx.

“We are pleased to have completed the GBT acquisition and are knee deep in needed integration work which is complicated by COVID-19. In addition, we remain focused on execution of business development initiatives to in-license and acquire innovative pharmaceuticals for the Canadian and Latin American markets,” said Goodman in a press release.

For his part, Uddin deemed the Q3 revenues of $45.2 million weaker than expected, where the analyst was calling for $52.1 million and the consensus estimate was $51.5 million. GUD’s net income loss of $0.13 per share was also heavier than Uddin’s estimated loss of $0.03 per share and the Street’s estimated $0.00 per share.

On GBT, the business generated Q3 sales of $40.6 million versus Uddin’s estimate at $48 million. The analyst said there are a number of headwinds currently facing GBT: rising COVID-19 cases in Latin America, the appreciating Brazilian dollar/Canadian dollar and inventory reductions by wholesalers, together which are cause for a reduction in outlook, Uddin said.

On GUD’s Canadian segment, things are moving steadily forward, according to Uddin, although he has also lowered Cdn sales estimates on later-than-expected launch timing for Imvexxy and Bijuva.

After a flat 2019, GUD’s share price has headed lower in 2020, currently trading down 29 per cent year-to-date.

On the stock’s state of affairs, Uddin wrote, “We believe there are three key reasons why GUD has been trading down: (i) increased commercial risk in LATAM due to COVID-19; (ii) cash not being deployed for BD; and (iii) GUD trading more in-line with the specialty pharma sector.”

Nevertheless, Uddin reiterated his “Buy” recommendation with the now-lowered target of $7.80, which at the time of publication represented a projected 12-month return of 44 per cent.

Patience is still a virtue when it comes to Knight, says Uddin, who compared GUD’s path with that of Goodman’s former company Paladin, which prior to be acquired by Endo International in 2014 had 19 years of consecutive record revenues. Goodman took Paladin from $1.50 per share to $142.00 and saw the company’s market cap go from $6 million to $3.2 billion, with Knight Therapeutics emerging out of the Endo transaction as a separate company.

On Goodman’s history, Uddin wrote, “We believe Mr. Goodman’s successful experience at Paladin is one of the main reasons why investors are interested in GUD. We also expect Mr. Goodman to replicate his success at GUD. 2020 represents the seventh year of the GUD business. Compared to Paladin’s growth trajectory, we believe GUD is still in the early innings. With a fat war chest, we believe GUD should be very resourceful to obtain products down the road which would fit into the company’s pan-American (ex-U.S.) sales platform. We believe GUD patience should pay off eventually.”

By the numbers, Uddin thinks Knight will generate 2020 revenue and fully diluted EPS of $196.2 million and $0.31 per share, respectively, and 2021 revenue and f.d. EPS of $217.7 million, respectively.

Last month, Knight announced the signing of a new exclusive distribution agreement with US biopharmaceutical company Gilead Sciences for the Brazilian rights to AmBisome, an anti-fungal which has been a key drug for GBT, according to Uddin. The new agreement is effective starting January 1, 2021.

“We’re excited to renew this established partnership and we’re grateful for Gilead’s continued confidence in the Knight team,” said Samira Sakhia, Knight’s President and COO, in a press release. “Our Brazilian team launched AmBisome in Brazil over 20 years ago and we look forward to continuing the great work they have been doing with patients and physicians.”