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:

• Recent approval updates: In the recent past, the company received two important approval which are discussed below.

1. On January 06, 2022, the company received INVIMA approval for Halaven (eribulin) injection, which is focused for the treatment of adult patients with locally advanced or metastatic breast cancer which has continued to spread after at least two previous treatments for advanced cancer.
2. Earlier, on January 04, 2022, the group also received INVIMA approval for Lenvima (lenvatinib), which is an orally available multiple receptor tyrosine kinase inhibitor developed by Eisai and is used for the treatment of radioiodine refractory differentiated thyroid cancer (RR-DTC) and unresectable hepatocellular carcinoma (u-HCC).

• Positive cash flows: The company reported cash flows from operations of CAD 39.937 million in 9MFY21, as compared to a cash outflow CAD 16.502 million in pcp. This is encouraging and would support to the company’s liquidity.

• Growing revenue and profitability: In the recent few years, the company reported a consistent growth in its revenue and profitability, which indicates higher operating performance and is a key positive. Notably, in Q3FY21, the company reported its revenue and EBITDA of CAD 71.613 million and CAD 17.334 million, respectively, which is highest in the last eight quarters. The performance was supported by the strong traction from its recent launches such Cresemba, Lenvima , Halaven , Nerlynx , Trelstar  and certain BGx products.

Source: Company Presentation

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 any delay in the approvals would impact the company’s product pipeline.

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, v/s 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 came at CAD 8.586 million, as compared to a net profit of CAD 17.492 million in pcp due to higher foreign exchange loss as mentioned earlier.

Q3FY21 Income Statement Highlights (Source: Company Report) 

  Valuation Methodology (Illustrative): EV to Sales based

Analysis By Kaline Group

Stock Recommendation:

With the recent launches in FY21 along with the recent approvals, the company has developed a strong product pipeline and is highly poised to cater to the growing demand for the specialty and generic drugs across the regions in which it operates. 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 5.31 on January 13, 2022.

*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 January 13, 2022). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.