Knight Therapeutics is still a pass, says Paradigm

Despite strong first quarter results, the growth runway for Canadian specialty pharma company Knight Therapeutics (Knight Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:GUD) still looks a little spotty, according to Paradigm Capital analyst Scott McAuley. The analyst provided an update to clients on Monday where he maintained a “Hold” rating on the stock, saying it’s still a waiting game on when and where the company will find new growth opportunities.

Montreal-based Knight Therapeutics, which focuses on acquiring, in-licensing, selling and marketing pharma products in Canada and Latin America, announced its first quarter 2023 results on May 11, featuring revenue up 29 per cent year-over-year to $82.6 million and adjusted EBITDA up 37 per cent to $18.2 million.

Over the quarter, Knight said it submitted a marketing authorization for tafasitamab in combination with lenalidomide for the treatment of relapsed or refractory diffuse large B-cell lymphoma, it launched palbociclib in Argentina and it obtained regulatory approval for palbociclib in Chile. 

Since the quarter’s end, GUD bought back about 1.1 million shares through its NCIB program.

“This strong performance is a testament to the hard work and dedication of our team and the continued success of our portfolio and recent launches. I am also proud to announce that we acquired $16 million of shares under the Normal Course Issuer Bid this year, further demonstrating our commitment to delivering value to our shareholders,” said Samira Sakhia, President and Chief Executive Officer of Knight Therapeutics, in a press release.

On the Q1 numbers, McAuley said the $82.6 million in revenue was a beat of his estimate at $77.0 million and the consensus at $75.5 million, while EBITDA at $18.2 million was also better than his forecast at $12.0 million and the Street at $11.7 million. 

McAuley said the revenue beat came from higher-than-expected Other Specialty product revenue, which included advanced purchases of Exelon from certain customers as the rights transition from Novartis to Knight. He noted that while management did raise its 2023 revenue guidance by $20 million to $300-$320 million, the lift was mainly due to a one-time contract for the company’s anti-fungal product, with the guidance growth coming from currency improvements and the same non-renewing contract.

McAuley said with cash on the balance sheet ($160.5 million in cash and equivalents and $164.8 million in other financial assets), Knight has ample opportunity to continue in-licensing new products and executing on M&A.

“GUD’s benefits from an active NCIB, a significant balance sheet and positive cash flow; however, it has low EBITDA margins relative to Canadian peers and limited visible growth opportunities. We have adjusted our 2023 estimates to include the added revenue and maintained our 2024 estimates,” McAuley wrote.

“Given the lack of upside to the current share price, we maintain our Hold rating,” he said.

McAuley maintained a 12-month target of $5.30 per share, which at press time translated to a projected return of nine per cent.