Knight Therapeutics strengthens its portfolio, Raymond James says

Raymond James analyst David Novak is firmly behind Knight Therapeutics (Knight Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:GUD), giving the company an “Outperform 2” rating in an update to clients on September 24.

Montreal-based Knight Therapeutics is a public specialty pharmaceutical company that acquires and in-licenses drugs for the Canadian and international markets. The company announced on September 23 a definitive agreement with Incyte Biosciences International Sàrl, the Swiss-based affiliate of US multinational pharma company Incyte. The deal is for the exclusive distribution rights to tafasitamab and pemigatinib in Latin America. Incyte will be responsible for the development, manufacturing, and supply of both therapeutics to Knight, who will be responsible for the regulatory approval processes and distribution of both therapeutics in Latin America.

“We are delighted to partner with Incyte, a leading global biopharmaceutical company, to bring tafasitamab and pemigatinib to patients in Latin America upon approval,” said Samira Sakhia, President and Chief Executive Officer of Knight Therapeutics in the company’s September 23 press release. “Both products will strengthen and complement our oncology portfolio and will play a key role in the management of diseases with high unmet need.”

Pemigatnib, which sells under the name Pemazyre, is a selective inhibitor of the FGFR family of receptor tyrosine kinases, which can act as oncogenic drivers in a number of liquid and solid tumor types. The drug initially gained approval from the U.S. Food and Drug Administration in 2020, with conditional approvals granted in Europe in January 2021, Japan in March 2021, and most recently in Canada this month.

The drug is approved for use in adults with previously treated, unresectable locally advanced/metastatic cholangiocarcinoma with a fibroblast growth factor receptor-2 (FGFR2) fusion.

Looking at the announced deal, Novak wrote in his report, “While not immediately accretive to Knight, the transaction is a return to form for Knight, doing what it does best: leveraging its infrastructure to in-license therapeutics for underserved jurisdictions, with significant forward-looking revenue potential, while putting minimal shareholder capital at risk.”

Novak notes that in Latin America, the estimated annual incidence of cholangiocarcinoma is between 4,000 and 6,000 people, with 10 to 16 per cent of patients estimated to have FGFR2 fusions or rearrangements, producing an annual overall eligible patient population of between 400 and 960 people for Knight’s territories and generating between $3 million and $5 million at its peak.

Meanwhile, tafasitamab (sold as Monjuvi in the United States and Minjuvi in Europe) is an anti-CD19 antibody being investigated as a therapeutic option in B cell malignancies in a number of ongoing and planned combination trials. Monjuvi was initially approved by the U.S. FDA in July 2020, to be used in combination with lenalidomide (which Knight has in its portfolio under the Lacevina brand) for the treatment of adult patients with r/r DLBCL who are not eligible for allogeneic stem cell transplantation (ASCT).

In Europe, Minjuvi had received approval in May 2020 for use as treatment in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of adult patients with r/r DLBCL who are not eligible for ASCT.

Novak projects continued modest growth for the company from a financial standpoint, forecasting revenue of $243 million in 2021 for a potential year-over-year increase of 21.5 per cent, followed by another jump to a projected $289 million for 2022, marking a potential year-over-year increase of 18.9 per cent.

Meanwhile, Novak’s EV/Revenue multiple projections show the company in a strong position, as he projects a drop from 2.6x in 2020 to 2.2x in 2021, then to 1.8x in 2022 compared to the EV/Net Revenue multiple projections of 2.3x in 2021 and 1.9x in 2022.

The earnings-per-share picture goes in the opposite direction, with Novak projecting a drop from the reported $0.32/share in 2020 to an estimated $0.25/share in 2021, then dropping again to $0.09/share in 2022, with the price-earnings ratio projections moving upward, shifting from 17.1x in 2020 to a projected 21.5x in 2021 to 59.3x in 2022.

With company management expecting to regionalize its regulatory dossiers over the next four to six months in preparation for document submissions, which Novak believes could pave the way for commercialization beginning in 2024.

“Regulatory costs are anticipated to be largely immaterial for Knight, punctuating the low risk, potentially high-reward opportunity presented by the current transaction,” Novak said.

Knight Therapeutics last reported its financials in August where the company’s second quarter featured revenue of $65.8 million, up 24 per cent year-over-year and a record for the company. Adjusted EBITDA was up 23 per cent to $9.4 million and net income was $29.0 million, up 87 per cent from a year earlier. Knight finished the quarter with cash and equivalents of $166.1 million, down 58 per cent from the end of the fourth quarter 2020, with the company attributing the drop to cash outflows related to the recent acquisition of Exelon, the shares repurchased through a normal course issuer bid (NCIB) and the repayments of bank offset by cash generated from operating activities.