Knight Therapeutics keeps “Buy” rating at Stifel GMP

Stifel GMP Analyst Justin Keywood is still riding high with Knight Therapeutics (Knight Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:GUD), maintaining a “Buy” rating and $7/share target price to project a return of 23.9 per cent in an update to clients on Monday.

Founded in 2014 and headquartered in Montreal, Knight Therapeutics is a public specialty pharmaceutical company that focuses on acquiring or in-licensing pharmaceutical products for the Canadian and select international markets, with Knight coming to life as a product of Paladin Labs after it was acquired by Endo Pharmaceuticals.

Keywood’s analysis comes as a preview to the company’s financial results for both the fourth quarter and the overall 2021 fiscal year, which are to be released before the market opens on Thursday.

“Overall, we see an opportunity for a defensive business that is trading at only 7x FCF, where half of the market capitalization is reflected in the balance sheet that includes about $100 million in cash,” Keywood said.

Keywood is expecting good results for the company, as he forecasts $63 million in sales (consensus expectation is $62 million), good for a 15 per cent year-over-year increase, though the figure would be a sequential decrease from the $73.3 million the company reported in the previous quarter.

Meanwhile, from an EBITDA perspective, Keywood forecasts $13 million and a 21 per cent margin, coming in slightly ahead of the consensus estimates of $11 million and an 18 per cent margin. However, the projection would be down from the $17.3 million in EBITDA the company reported in the previous quarter.

In making his forecast, Keywood noted that the business has improved substantially with GBT, an approximately $400 million acquisition in Latin America, now almost fully integrated. Keywood also points to the company’s interest income from strategic loans that contribute coupons of 11 to 14 per cent, while capital expenditures have been minimal.

Knight Therapeutics got out of the blocks quickly in 2022, particularly in Colombia, where the company’s Biotoscana Farma affiliate received INVIMA approval for the injection of Halaven in patients with locally advanced or metastatic breast cancer which has continued to spread after at least two previous treatment for advanced cancer.

Biotoscana Farma also got INVIMA approval for Lenvima, which is administered orally for patients with radioiodine refractory differentiated thyroid cancer (RR-DTC) and unresectable hepatocellular carcinoma (u-HCC).

Knight Therapeutics has an exclusivity agreement with Eisai, the developer of both drugs, to commercialize both Lenvima and Halaven throughout Latin America with the exception of Mexico, where Eisai will handle the commercialization of Halaven.

“We’re pleased to announce the approval of Halaven® (eribulin) injection in Colombia as it provides a new treatment option for metastatic breast cancer and liposarcoma,” said Samira Sakhia, President and Chief Executive Officer of Knight Therapeutics in a January 6 press release. “Our Colombian team is focused on our oncology launches with the approval of Halaven® (eribulin) injection and Lenvima® (lenvatinib) and will be coordinating launch efforts with our teams throughout the region.”

From a year-to-date perspective, Knight’s revenue mix has slightly shifted from 2020 to 2021, with the infectious diseases vertical having accounted for 44.5 per cent ($81.4 million) of the company’s revenue mix through September 30, compared to the 38.3 per cent portion from the same period in 2020.

The company’s other specialties have also taken a significant step forward at 19.6 per cent ($35.9 million) of the company’s revenue mix through September 30, up from the 14.9 per cent portion ($21.7 million) it produced through the same period of 2020.

While the company’s oncology/hematology year-to-date revenue for 2021 is around the same level as 2020 ($68.2 million in 2020, $65.5 million in 2021), the revenue diversification in the other areas means the oncology/hematology portion of the revenue mix is down from the reported 46.8 per cent in 2020 to a new figure of 35.8 per cent through September 30.

Keywood has been impressed with the company’s turnaround since reporting an EBITDA loss in 2019, with an expectation of $45 million in EBITDA for 2021 and $54 million next year, though he notes that the share price has not caught up to the progression.

“We see a good opportunity to accumulate shares at the current levels with downside support from an active share buy-back at the $5 level,” Keywood said.

Investors in Knight Therapeutics have experienced a 9.8 per cent return over the last 12 months, as well as a 6.4 per cent return since the start of 2022. The stock has steadily climbed since hitting a 52-week low of $4.99/share on March 24, getting up to a 52-week high of $5.65/share on May 18, most recently matching that peak on March 18.