Knight Therapeutics Inc

Knight Therapeutics Inc (TSX: GUD) is a specialty and generic drug manufacturing company. Its 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 Highlights:

• Expanding product portfolio: The company expects to expand its product portfolio within existing therapeutic fields in Canada and Latin America (LATAM); and intends to leverage its expertise in specialty sales and marketing, branded generic development, product acquisition and in-licensing to gain a competitive advantage in delivering pharmaceutical products to the marketplace, thereby it would further decrease scientific risks, long development timelines and high development costs.
  

• Developing branded generic products: Through the GBT acquisition, the Company is concentrating on developing branded generics for Argentina and other LATAM markets. The Company is focusing on expanding the geographic reach of currently developed branded generics. Besides, it is working on optimizing development efforts and capabilities to access more enormous opportunities for LATAM.
  

• Acquired regional rights of Exelon: The corporation recently paid USD 180 million to Novartis for the exclusive rights to produce, market, and distribute “Exelon” in Canada and Latin America, as well as an exclusive license to use the intellectual property and the Exelon trademark within the Territory. Exelon had annual sales of around USD 47 million for Canada and Latin America in 2020, so the firm is pleased to add it to its portfolio of niche CNS products.

• Reduced debt burden:The corporation was able to reduce its debt load, which is commendable. Bank loans amounted at CAD 38.1 million on March 31, 2021, down CAD 13.5 million from the previous period, owing mostly to CAD 8.8 million in loan repayments and a further CAD 4.8 million due to foreign exchange revaluation.

Financial overview of Q1 2021 (In thousands of CAD)

Source: Company

• In Q1 2021, the company’s revenues increased to CAD 46.0 million, against CAD 45.8 million in the previous corresponding period. The increase in revenue was mainly due to higher sales from new product launches.
• Primarily on the back of higher revenues and lower cost of goods sold, the company clocked gross income of CAD 20.5 million against CAD 19.8 million in pcp.
• The company witnessed lower operating expenses, which helped the company to minimize its operating loss, which stood at CAD 2.2 million against a loss of CAD 7.4 million in pcp.
• The company recorded a gain on financial instruments, which helped it to clock a net income of CAD 3.5 million in the reported period against a loss of CAD 9.4 million in the previous corresponding period.

Risks associated with investment

The Company's products are subjected to regulatory approvals and might be time-consuming, which might further impact the product pipeline. Furthermore, after the GBT transaction, the Company is exposed to additional risks related to investing and operating in international locations, including emerging markets. Operating in such markets carry substantial inherent financial, legal and political risks.

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The company made a turnaround in Q1 2021, thanks to controlled operating expenses and gain on financial instruments. On the operations front, it is progressing on integration while advancing its product portfolio in Canada and Latin America. The Company has many products in the process of being submitted for regulatory approval, in pre-commercialization and the early stages of commercialization. Based on technical analysis, the stock has support at CAD 4.4 level. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 5.25 on July 05, 2021. We have considered Greenbrook TMS Inc, Medexus Pharmaceuticals Inc, etc. as the peer group for the comparison. 

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

One-Year Technical Price Chart (as on July 05, 2021). Source: REFINITIV, Analysis by Kalkine Group 

HLS Therapeutics Inc

HLS Therapeutics Inc (TSX: HLS) is a Canada-based company specialized in the pharmaceutical industry. The Company acquires and distributes commercial stage and branded pharmaceutical drugs for the North American markets. The Company focuses mainly on treatment products for the central nervous system and cardiovascular specialties in Canada.

Key highlights

• A growth story in the making:Through focused business development activities, the company hopes to introduce more medicines in the central nervous system and cardiovascular therapeutic sectors, as well as in other therapeutic areas. The business anticipates a blockbuster potential with the "Vascepa," which may produce sales of USD 275-325 million and Adjusted EBITDA of USD 110-130 million by FY2025. The total income for the year is estimated to be about USD 430 million.

Source: Company

• Increase in cash from operations: The agile management and prudent steps helps the company to increase its Cash generated from operations, which stood at USD 7.2 million in Q1 2021, compared to USD 5.3 million in Q1 2020.
• Growing prescription momentum: Despite ongoing COVID-19 interruptions, the firm delivered robust Vascepa prescription growth, reaching 2,900 patients and 730 prescribers at the end of Q1 2021, up 40% and 33%, respectively, from the end of Q4 2020, which is a key positive.

Source: Company

• Launching new products: The business hopes to offer “PERSERIS” and the MyCare Psychiatry Lab Assays into the CNS market in the second half of the year, providing new and creative therapeutic choices for patients and practitioners coping with difficult medical situations.

Financial overview (in thousands of U.S. dollars)

Source: Company

• The company generated revenue of USD 14.3 million in Q1 2021, against USD 13.8 million in the previous corresponding period. The rise in revenue was primarily due to higher Vascepa revenue, along with growth in Royalty revenues.
• In Q1 2021, the company posted an operating loss of USD 3.0 million, against a loss of USD 2.3 million in Q1 2020, primarily due to higher G&A expenses and higher stock-based compensation of USD 2.3 million.
• Net loss stood at USD 4.7 million, compared to a profit of USD 154K in the previous corresponding period. The loss was primarily due to the above rationales discussed coupled with higher finance and related cost.
  

Risks associated with investment

The company is exposed to various risks factors, including risks related to the specialty pharmaceutical industry, economic factors, and many other factors which are beyond the management control. Future growth of the company is highly dependent on the performance of VASCEPA. Any deviation from the forecasted performance may adversely affect the company.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

Despite tight COVID-19 lockdowns in effect during the period, the group delivered good financial results in Q1 and reached critical milestones in the Vascepa rollout. In addition, the inclusion of icosapent ethyl (Vascepa) to the Canadian Cardiovascular Society's cholesterol therapy guidelines for all patients in-label is a huge advantage. The company has plenty of cash on hand, allowing it to look at expanding its product range through in-licensing or M&A deals in Canada and the United States. Based on technical analysis, the stock has support at CAD 14.1 level. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 17.22 as on July 05, 2021. We have considered Hamilton Thorne Ltd, Covetrus Inc, Knight Therapeutics Inc, etc. as the peer group for the comparison. 

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

One-Year Technical Price Chart (as on July 05, 2021). Source: REFINITIV, 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.