GUD Times: Knight Therapeutics wins target raise at Raymond James

A new drug acquisition is cause for a target raise on Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News, Analysts, Financials TSX:GUD), according to Raymond James analyst David Novak. In a Company Comment to clients on Friday, Novak kept his “Outperform 2” rating and raised his target price from $8.00 to $8.50, which at the time of publication represented a projected 12-month return of 62 per cent.

Montreal-based specialty pharma company Knight Therapeutics announced on Friday a definitive agreement with Novartis to acquire Exelon (rivastigmine) for exclusive rights to manufacture, market and sell the dementia and Parkinson’s drug in Canada and Latin America and an exclusive license to Exelon’s intellectual property and trademark within the territory.

“The acquisition of Exelon leverages Knight’s pan-American (ex-US) platform and further validates our Rest-of-world strategy,” said Amal Khouri, Chief Business Officer of Knight, in a press release. “Exelon will be the first product that we will be selling across our entire territory.”

First approved in 1997 and now sold in about 90 countries worldwide, Exelon is a unique chlolinestrase inhibitor indicated for the symptomatic treatment of patients with mild to moderate dementia related to Alzheimer’s and Parkinson’s disease.

In Canada and LatAm, Exelon generated annual revenues of US$47 million in 2020, two-thirds of which came from Brazil and Columbia. The agreement will see Knight pay US$168 million in cash upon closing along with milestone payments of US$12 million, contingent on the achievement of certain conditions.

Knight said the deal will need to pass anti-trust regulations in Brazil, expected to take 45-90 days.

“We are excited to add Exelon to our portfolio of specialty CNS products and continue to support this well established and important therapy option in an area of such high unmet need as Alzheimer’s,” said Samira Sakhia, President and Chief Operating Officer of Knight, in a press release.

Novak adjusted his model to account for incremental revenues from Exelon in Canada and LatAm along with an update to GUD’s pro-forma net cash position, with the net result being the $0.50 bump to his target.

“We believe the addition of Exelon to Knight’s CNS portfolio strengthens the company’s pan-American operating profile and demonstrates its ability to continue to execute significant, accretive transactions on favourable terms,” Novak said.

Novak said Exelon is broadly genericized with branded generic patch competition available in Canada and Columbia.

“While the product does not currently face any branded generic competition in Brazil, management expects competition to rise with the arrival of new entrants. After accounting for varying rates of growth and revenue deceleration across LatAm and Canada, Knight expects aggregate product revenues to remain flat over the near-medium term. With our 2022 revenue estimates currently forecasting approximately $288.6 million, the addition of Exelon represents a fully integrated revenue accretion of 27 per cent,” Novak wrote.

With his updated model, Novak is now calling for GUD to generate 2021 revenue of $237 million (previously $237 million) and EPS of negative $0.03 per share (previously negative $0.14 per share). For 2022, he is expecting revenue of $289 million (previously $228 million) and EPS of $0.13 per share (previously negative $0.13 per share). (All figures in Canadian dollars except where noted otherwise.)

Knight’s share price finished 2020 down 29 per cent, while so far in 2021 the stock is even.

Knight last reported its financials on March 25, where its fourth quarter 2020 featured revenue up 48 per cent year-over-year to $55.2 million and adjusted EBITDA down to $1.8 million from $6.2 million a year earlier. For the 2020 year, revenue was up 320 per cent year-over-year to $199.5 million and adjusted EBITDA was $16.8 million compared to $2.8 million for 2019.

Knight’s 2020 featured drug launches for Cresemba in Brazil and Karfib in Argentina and a number of regulatory approvals: from Health Canada for Ibsrela, Imvexxy and Bijuva and approval for Lenvima and Halaven in Ecuador. The company also obtained exclusive rights in Canada for prostate cancer drug Trelstar and submitted an NDS for Nerlynx for HER2-positive metastatic breast cancer. GUD also signed an exclusive distribution agreement with Gilead for commercializing AmBisome in Brazil.

Since the start of 2021, Knight announced the launch of Ibsrela in Canada.

Commenting on the year that was, Sakhia said 2020 was transformative for Knight, in particular for the completion of the acquisition of LatAm biopharma company Grupo Biotoscana (GBT), which brought GUD into the LatAm ring.

“Despite the challenges due to COVID-19, we continue to progress on integration, while advancing on our product portfolio in both Canada and Latin America,” Sakhia said in the fourth quarter press release.

“We continue to focus on our mission to acquire, in-license, develop and commercialize innovative medicines and high-quality treatments to improve the health of patients in Latin America and Canada,” Sakhia said.