Is Knight Therapeutics stock a buy?

Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News, Analysts, Financials TSXV:GUD) is shifting its focus back to Canada with a $41-million deal for domestic assets from Japan’s Sumitomo, a move Stifel analyst Justin Keywood called a positive step toward re-rating the stock in a June 5 note, maintaining a “Buy” rating and C$7.45 target price.

Knight, a specialty pharma company operating in Canada and Latin America, announced a June 5 deal with Japan’s Sumitomo to acquire Canadian assets. Knight focuses on acquiring and licensing late-stage drug assets, and its earlier acquisition of GBT added key generic and branded drugs in oncology, hematology, and infectious diseases.

The $41-million Sumitomo deal includes $25.4-million in upfront cash and $15.8-million in future contingent payments for mature products that generate $11.4-million in sales, along with six new launch assets.

“The assets span women’s health, urology and prostate cancer,” Keywood said. “Knight is to finance the transaction with cash on hand and potentially new debt. Knight last reported $141.5mm in cash but is also in the process of closing the $120mm Paladin transaction.”

Keywood said pro-forma leverage is expected to remain manageable at around 1x, with management comfortable going up to 2–3x as the company continues to pursue M&A, particularly in Canada.

“We see the transaction and renewed M&A focus as positive for the stock, given limited investor interest for the LATAM exposure,” the analyst said. “Growth quarters ahead and potentially additional M&A could continue to re-rate shares higher.”

Keywood said Knight’s 29-year streak of record revenues, dating back to its Paladin days, and consistent performance against guidance suggest a strong value setup. He also noted the company has repurchased about 40% of its float over the past five years at prices near current levels.

“Knight started in 2014 after its predecessor company, Paladin, was sold to Endo Pharma in a $3b transaction and 100x IPO return,” Keywood said. “Knight is now buying back Paladin at a fraction of the value ($120mm). Paladin today generates $70mm in sales, with mostly mature assets but some new launches and has contributed steady revenue for two years prior to inflection. Our forecasts model in Paladin and current guidance, suggesting a two-year, 8% revenue CAGR and an embedded growth outlook beyond with 18 new products to be launched over five years.”

Keywood expects Knight to generate C$51.0-million in Adjusted EBITDA on C$398.0-million in revenue for fiscal 2025. He forecasts those figures to improve to C$59.5-million in EBITDA on C$434.3-million in revenue in fiscal 2026.

Keywood said the stock has struggled partly because about 90% of Knight’s business is tied to the Latin American market through its $500-million GBT acquisition in 2018–2019. Despite five-year growth of 50% in sales and 128% in EBITDA, the heavy LATAM exposure has kept the stock undervalued and limited Canadian investor interest.

“We see GBT as a solid, diversified business with +130 assets, where Knight is an ethical partner of choice to big Pharma in certain markets with historical corruption,” he said. “We expect GBT to continue contributing solid results, but the business composition is now to shift back to Canada.

“We estimate Canada to represent 25% of pro-forma sales and to continue edging higher with new product launches. M&A can also accelerate greater exposure, and we expect the mix-shift change in geographies to re-ignite investor interest and lead to better valuation. Knight’s pro-forma leverage is ~1x with +$100mm in near-term capacity for M&A.”

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