Acquisitions and Collaborations to Aid Business Growth: Knight Therapeutics Inc (TSX: GUD) is a specialty pharmaceutical company. Th company focused on in-licensing, acquisition, marketing and distribution of pharmaceuticals, consumer health products and medical devices across the markets of Canada and Latin America. 

• Recently, the company acquired a 51.2% stake at Biotoscana Investments S.A for a price consideration of CAD 189,024. 

• The company purchased 9,418,527 common shares for an aggregate cost of CAD 68,148 through the NCIB till March 2020.

• Health Canada has approved the use of the group’s product NERLYNX® for the treatment of HER2-positive breast cancer. The group entered into a marketing agreement with Puma Biotechnology, Inc. for the distribution of the same product.

• During the period, the company collaborated with Debiopharm to commercialize Trelstar®, which is used for the treatment of advanced prostate cancer, in Canada. Knight expects to commence its commercial activities in early 2020.

Financial Highlights: For the period ended December 31, 2019, GUD posted revenue of CAD 47.46 million, as compared to CAD 12.50 million in FY18. The increase was majorly driven by the contribution from the recent acquisition of Biotoscana Investments S.A. (GTB). Selling and marketing, and general and administrative expense increased abruptly due to commercial activities and launch of new products followed by legal, consulting and advisory fees related to the acquisition. Adjusted operating income stood at CAD 26.41, reflecting an increase of 52% on a year-on-year basis, thanks to the revenue contribution from GTB, which was partially offset by higher operating expenses. The group reported a net profit of CAD 18.03 million, decreased from CAD 24.08 million due to higher interest expense and foreign exchange loss.

FY19 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology: EV/ Sales Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: The stock of GUD is trading at CAD 6.31 with a market capitalization of CAD 858.41 million. The stock corrected by 18.26% and 15.42% in the last three months and one year, respectively. However, the stock made a sharp recovery and generated a 5.34% return in the last five trading sessions, outperforming the index and sector by 3.3% and 17.33%, respectively. The company has an impressive product-line, and the recent approval for its NERLYNX® is likely to enhance its revenue growth. With the recent acquisition and collaborations, we expect improved performance form GUD in the coming days. Considering the aforesaid fact, we have valued the company using EV/Sales based relative valuation methodology and used F12 months industry (Pharmaceuticals) median and arrived at a target price of double-digit upside (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 6.31 as on April 3, 2020.

GUD One-Year Daily Price Chart (Source: Thomson Reuters)

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