Knight won’t rest til it bests Paladin

“It is entirely the goal of Knight Therapeutics (TSX:GUD) to duplicate the success of Paladin Labs,” says president and CEO, Jonathan Ross Goodman, who turned Paladin into a premier distributor of specialty drugs. “Knight is Paladin 2.0,” he adds.

Asked why he is so confident, Mr. Goodman says because “I did it before. I started Paladin by myself. Mark Beaudet joined me a few months later. I did all the business development, and Mark did all the sales and marketing from the start.”

In an interview with, Mr. Goodman adds, “I know I can do it again. I have better contacts and 20 years more experience than when I started Paladin at 26. I am so confident in Knight that of the $255-million that we’ve raised in the past six weeks or so, $65-million is my own money.”

David Dean, an analyst at Cormark Securities, agrees. “Our belief is that management will repeat the success it had at Paladin with Knight,” he wrote in a new report last month. He expects Knight will build its business “through active and insightful business development activities, just as management did at Paladin Labs.”

Mr. Dean initiated coverage of Knight with a “buy” rating and 12-month price target of $6. Shares of Knight closed at $5.50 on Friday.

Mr. Beaudet, a director of Montreal-based Knight, became president and interim CEO of Paladin in August 2011 after Mr. Goodman’s cycling accident. Mr. Beaudet is now president of Paladin, which was acquired by Endo Health Solutions at the end of February for $3.2-billion in cash and stock.

At Paladin, Mr. Goodman delivered 19 years of consecutive revenue growth, with its stock price climbing to $142 from $1.50. In the process, Paladin’s market capitalization soared to $3.2-billion from $6-million. Mr. Goodman also expanded Paladin geographically. For example, it has become the seventh largest drug company in South Africa.

Knight’s first day of operations was February 28, the day the sale to Endo closed. Currently, Knight has two full-time employees: Mr. Goodman and Jeffrey Kadanoff, who is CFO. Mr. Goodman says the company will be adding a director of business development this year.

Knight was created as a carve-out during the Endo acquisition of Paladin and was initially owned by Paladin shareholders. The transaction gave Knight ownership of Impavido, a treatment for cutaneous and visceral leishmaniasis. Impavido, which is licensed to Paladin for worldwide distribution, excluding the U.S., generating Knight a royalty stream of 22.5% of Paladin’s gross sales of Impavido. In addition, Knight recently received FDA approval for Impavido, which came with a priority review voucher that analysts say could be worth more than $100-million.

Like Paladin, Mr. Goodman says Knight’s growth strategy will involve licensing innovative pharmaceuticals from Big Pharma that are mature or under-promoted. It also plans to source products from emerging specialty pharmaceutical companies with no Canadian presence and from biotech companies with products in late-stage trials that may need cash in exchange for non-strategic marketing rights to their products.

“I’m most comfortable taking regulatory and marketing risk but less comfortable taking clinical risk, and I stay away from preclinical risk entirely,” he points out.

“Like Paladin, opportunology is our core specialty,” Mr. Goodman says, referring to any therapeutic area “where we can make money.” He says Knight will have its own sales force after it has something to sell. “I am looking at potential products now.”

When asked, Mr. Goodman says that investors would see evidence of Knight’s strategy before the end of the year. “I have $255-million, and I will invest it wisely.” If necessary, he intends to go head-to-head with Paladin. He has not signed any non-compete agreements as part of the sale to End

However, he does not plan to hire any employees from Paladin as he thinks it is wrong to sell a business for $3-billion and then poach its second most valuable asset—its people.

Earlier this month, Knight engaged Genesys Capital Management to assist it with business development. The mandate includes lending money on a secured basis to emerging biotechnology and specialty pharmaceutical companies in order to gain access to innovative products for the Canadian market

“The relationship with Genesys is expected to generate incremental product opportunities for Knight within the first six months,” Mr. Goodman says.

Outside the U.S., Impavido, which has been approved for sale in 15 countries, has been licensed to Paladin to sell for 10 years. Mr. Goodman says Knight expects annual royalties from Impavido of $200,000 to $400,000. “But make no mistake. This is not the key value driver for Knight,” he adds.

Last month, the FDA cleared Impavido for sale in the U.S. for the treatment of cutaneous, visceral and mucosal leishmaniasis. “We have a commercialization plan in development, but it will likely take three-to-six months to go into effect,” Mr. Goodman says. “We’ll either hire one or two sales reps in the U.S. or license the rights to another company.”

Mr. Goodman figures Knight has the potential to realize annual revenue of $200,000-plus from U.S. sales of the drug.

Leishmaniasis is a tropical disease, spread by the bite of certain types of sandflies. The disease has three forms, of which the most severe can be fatal. Between 20,000 and 50,000 deaths a year are attributed to leishmaniasis. The drug is sold mainly to governments in Asia, Africa, South and Central America and southern Europe.

Knight’s U.S. priority review voucher could pave the way for a big payday down the road.

Under legislation signed by President Bush in 2007, any drug company that develops a new treatment for a neglected tropical disease, such as malaria or tuberculosis, can get a priority review voucher from the FDA for another product they’ve made. The voucher, which is transferable, is designed to reduce the FDA’s review time frame by four-to-six months. Only four vouchers exist, and none has been sold.

“Frankly, we don’t know what the value is of having a faster review time of four-to-six months or first-mover advantage of a drug in the market for the owner of a voucher,” Mr. Goodman admits.

Nevertheless, he points to a speech that Bill Gates made at the World Economic Forum in Davos in 2008, in which he said priority review could be worth hundreds of millions of dollars.

Mr. Goodman says Knight has been in touch with the Gates Foundation about the voucher. “We’re not transferring the voucher to Bill Gates, but our incentives are potentially aligned as having a voucher sold for a large value would spur others to perform research and development on neglected tropical diseases.”