TD maintains $10 target price From today's TD Morning Actions Notes:
Event
We recently discussed Knight's strategic priorities with President/CFO Samira
Sakhia. We did so in the context of the scrutiny triggered by the recent proxy
fight. Key takeaways from our discussion included management's confidence
in its Specialty Pharma strategy, and its continued commitment to lower-risk
pharmaceutical assets — i.e. late-stage development or commercial products. On
the business development/M&A front, we discerned a heightened focus on Latin
American targets.
To review, on May 7, 2019, shareholders voted in CEO Jonathan Goodman and his
slate of board members. Knight continues to hold a 28.3% equity interest in Medison,
while Medison and Jakobsohn together own ~7% of Knight's shares.
Impact: NEUTRAL
We expect Knight's medium-term expansion to be driven by a combination of: (i)
development of its commercial portfolio and (ii) M&A/business development activity.
We expect the company to maintain its strategic financing activity, but wind down the
funds investment strategy. We also expect Knight to return capital to shareholders,
primarily through normal course issuer bids, consistent with the recently announced
buyback.
A Credible Rx Strategy — We continue to view Knight's core product licensing/
acquisition strategy as fundamentally sound. To its credit, Knight has three
commercial products and over 20 candidates at different stages of development.
There has been a steady increase in licensing activity over the past 36 months.
Beyond the characteristic unpredictability of business development activity, we
believe that the crowded Canadian landscape has been a constraint.
Watching LATAM — We expect Knight to accelerate its M&A activity in the next
18 months, and Latin American targets appear to be a priority. Our preliminary
impression of this strategy is favourable for several reasons. Key positives include
the attractive size and growth profile of the key Latin American markets.
TD Investment Conclusion
We are maintaining our BUY rating and $10.00 target price. We anticipate
modest organic progress in the near term. However, a material acquisition in
the medium term could provide the long-awaited catalyst.