Jonathan Goodman has finally gone shopping.
Knight Therapeutics Inc., the pharmaceutical company Mr. Goodman founded and leads as chief executive, announced Monday it will buy Latin American oncology drug specialist Grupo Biotoscana Investments in a deal worth $369-million. It is Knight’s first major acquisition and puts to work the bulk of a cash pile that topped $600-million at the end of June.
“We’ve been looking for an acquisition like this one for some time,” Mr. Goodman told analysts and investors on a conference call Monday. “This is transformational.”
Mr. Goodman is trying to reassure shareholders the best is yet to come for Knight after rebuffing an activist campaign by one of its biggest shareholders, Israel’s Medison Biotech Ltd., earlier this year. In the proxy fight, Medison sought to take control of Knight by voting in its own slate of directors.
Knight makes money by buying late-stage specialty pharmaceuticals and obtaining the licence rights to sell those products in secondary markets outside the United States, Western Europe, China and Japan – basically countries such as Canada that are too small to be worth the trouble for larger drug makers. The company attracted significant interest when it went public in 2014 based on Mr. Goodman’s prior success with Paladin Labs. But the stock price has stagnated over the past two years as some investors became impatient for the founder and his team to make a needle-moving deal.
Knight shares jumped 14 per cent to close at $8.55 on Monday on the Toronto Stock Exchange.
Knight is doing the takeover in two steps. First, it has struck a deal with a group of investors controlling GBT, including private equity firms Advent International and Essex Woodlands, to buy their 51.2-per-cent interest. It is offering them a premium of 22 per cent to GBT’s 30-day volume-weighted share price as of Oct.18. Then it will launch a tender offer, on the same terms, for the remaining publicly held shares.
Knight is paying the equivalent of 8.5-times GBT’s adjusted earnings before interest, taxes, depreciation and amortization for the past 12 months, which is “both an attractive and a fair entry point for such a highly strategic asset,” Knight finance chief Samira Sakhia said. Total enterprise value for the deal, including debt, is $418-million.
Mr. Goodman and his management team are betting big on Latin America, which they say is a large pharmaceutical market that is growing fast. With a big presence in Brazil and Argentina, and operations in eight other countries, GBT’s scale gives Knight the ability to offer companies it licenses products from a “one-stop shop” for the region, Ms. Sakhia said.
“On the surface it looks good because finally they’re … putting money to work,” said Sebastian van Berkom, whose Montreal investment firm owns Knight shares. But he said questions about the deal remain, including whether Knight overpaid.
The GBT takeover validates Mr. Goodman’s strategy in replicating his past success with Paladin Labs, GMP Securities analyst Justin Keywood said in a research note. “We see GBT as adding strategic scale and entry into new markets, which can act as a platform for further growth,” he said. “This particularly bodes well for Knight shareholders with still over $250-million in cash expected after [the deal closes].”
Medison has remained vocal since losing its proxy fight, most recently criticizing Knight’s company’s second quarter results in August. But its tone could change after this deal, said Mackie Research analyst André Uddin.
“We believe this transaction should appease Medison,” Mr. Uddin said in a note.
A spokesman for Medison did not immediately respond to a request for comment Monday.