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 

• Acquire 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. 

• 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. 

• Rich pipeline of new products: The Company has many products in the process of being submitted for regulatory approval, in pre-commercialization and the early stages of commercialization. 

Financial overview of FY 2020 (In thousands of CAD)

Source: Company 

• In FY 2020, the company’s revenues increased by CAD 152.0 million or 320% to CAD 199.5 million, against CAD 47.4 million in the previous corresponding period. The consolidation of GBT’s results aided the higher revenue.
• Primarily on the back of higher revenues, the company clocked gross income of CAD 81.6 million against CAD 26.9 million in pcp.
• The company witnessed higher S&A expenses, G&A expenses, R&D expenses, and higher amortization of intangibles, which resulted rise in operating expenses and an operating loss of CAD 30.6 million against CAD 16.8 million in pcp.
• The company recorded a gain on financial instruments for CAD 48.0 million in the reported period, resulting in a net profit of CAD 31.7 million V/s CAD 18.0 million in pcp. 

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 

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

Stock recommendation

FY2020 was a transformative year for the Company with the completion of the acquisition of GBT. Despite the challenges due to COVID-19, the Company is progressing on integration while advancing its product portfolio in Canada and Latin America. It received regulatory approvals from Health Canada for many of its products, which is positive. Furthermore, the Company is focusing on expanding the geographic reach of currently developed branded generics. Besides this recently the company acquired the rights to manufacture, market and sell “Exelon” in Canada and Latin America, which is a key positive. Based on technical analysis, the stock has support at CAD 4.4 level. Therefore, based on the above rationale and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 5.32 on May 7, 2021. We have considered Hamilton Thorne Ltd, 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.

1-Year Price Chart (as on May 7, 2021). Source: Refinitiv (Thomson Reuters)

HLS Therapeutics Inc

HLS Therapeutics Inc (TSX: HLS) is a Canada-based company operating 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

• Growing prescription momentum: The company generated strong Vascepa prescription growth, amid persistent COVID-19 disruptions, achieving 2,900 patients and 730 prescribers at end of Q1 2021, which increased by 40% and 33%, respectively, from the end of Q4 2020.

Source: Company

• Launching new products: In the second half of the year, the company is planning to launch “PERSERIS” and the MyCare Psychiatry Lab Assays into the CNS market, bringing new and novel therapeutic options for patients and practitioners dealing with challenging medical conditions.  

• A growth story in the making:The company is pursuing to launch additional products in the central nervous system and cardiovascular therapeutic markets, and in other therapeutic areas through targeted business development efforts. With the help of the “Vascepa”, the company expects a blockbuster potential, which could generate the revenue of CAD 275-325 million with an Adjusted EBITDA ranging between CAD 110-130 million by FY2025. The consolidated revenues are expected to be around CAD 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.

• Ample liquidity: As on March 31, 2021 the group had USD 23.2 million of cash and cash equivalents, along with unused revolving facility of USD 35.0 million. Moreover, the Company may also request to be provided with incremental loans, up to a maximum amount of USD 70.0 million, to support acquisitions and other growth opportunities. 

Q1 2021 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

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

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. Furthermore, the addition of icosapent ethyl (Vascepa) to the Canadian Cardiovascular Society's lipid treatment recommendations to minimize cardiovascular risk for all patients in-label is a major plus. The group hold an ample liquidity which would support it to explore opportunities to expand its product portfolio through other in-licensing or M&A transactions in Canada and the U.S. Based on technical analysis, the stock has support at CAD 15.2 level. Therefore, based on the above rationale and valuation, we suggest a "Speculative Buy" recommendation at the closing price of CAD 18.57 on May 7, 2021. We have considered Knight Therapeutics Inc, Joint Corp, 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.

1-Year Price Chart (as on May 7, 2021). Source: Refinitiv (Thomson Reuters)

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.