Knight Therapeutics Inc.

Knight Therapeutics Inc. (TSX: GUD) is a specialty and generic drug manufacturing company. The company's principal business activity is focused on developing, acquiring, in-licensing, out-licensing, marketing, and distributing innovative pharmaceutical products, consumer health products, and medical devices in Canada and select international markets.

Key updates:

• Improved financial metrics: In the recent few years, the company reported a consistent growth in its revenue and profitability, which indicates improved operating performance and is a key positive. Notably, during the last eight quarters, the company reported its highest revenue and adjusted EBITDA. In 9MFY21, the company reported its adjusted EBITDA of CAD 32.309 million, significantly higher than CAD 15.065 million in pcp.

Source: Company Presentation

• Increase demand from infections disease products: In the recent past, the company reported improved demand for specific products and medicines which are used for the treatment of invasive fungal infections, as the above disease is associated with the COVID-19.

• Collaboration with Incyte Biosciences International Sàrl: During the third quarter, the company reported its collaboration with Incyte Biosciences International Sàrl, wherein the former would distribute tafasitamab and pemigatinib in Latin America. Tafasitamab is used for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma for the patients who are not eligible for autologous stem cell transplant. On the other hand, Pemigatinib is used for patients with locally advanced or metastatic cholangiocarcinoma with a fibroblast growth factor receptor 2. Notably, Incyte will be responsible for the development and manufacture of the above two medicines.

Q3FY21 Financial Highlights:

• GUD declared its quarterly result, wherein the company posted significant growth in revenue of CAD 73.340 million, significantly higher than CAD 45.239 million in pcp. The increase was driven by strong growth from Brazil, Colombia and Argentina.
• The group witnessed higher selling and marketing costs, coupled with an increase in the Research and development expense. The company reported its operating income of CAD 4.021 million, as compared to an operating loss of CAD 7.735 million in pcp.
• The company reported a gain in financial instruments amounting to CAD 21.301 million, as compared to a loss of CAD 12.873 million in pcp along with a foreign exchange gain of CAD 7.143 million, v/s a foreign exchange loss of CAD 0.703 million in pcp.
• Net loss for the period stood at CAD 8.586 million, as compared to a net profit of CAD 17.492 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The group reported a higher input cost, which is a reason for concern for the company, as it is dampening the company’s profitability. Continuation of the above trend would likely to hamper the overall operating performance. Moreover, the products of the company are subjected to regulatory approvals and might be time-consuming, which might further impact the product pipeline.

Valuation Methodology (Illustrative): EV to Sales based

Stock Recommendation:

The stock has closed at above its 13-days and 21-days simple moving average, indicating a possible price appreciation in the coming trading sessions. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Hamilton Thorne Ltd, Medexus Pharmaceuticals Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last traded price of CAD 5.26 on December 20, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on December 20, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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