Based on its strong growth profile for both sales and EBITDA, Stifel Canada analyst Justin Keywood on Tuesday raised his target price for HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News TSX:HLS).
Shares of Toronto-based specialty pharma company HLS Therapeutics spiked on Tuesday as the market reacted to news that Health Canada had approved the use of Vascepa for the reduction of the risk of cardiovascular events. The Health Canada approval comes after the US FDA approved Vascepa on December 13, 2019. HLS had in-licensed the exclusive rights to Vascepa for the Canadian market from Amarin Corporation in 2017.
HLS CEO Greg Gubitz said that the company is now in the final phase of preparing for the Canadian commercial launch of Vascepa, expected in mid-February 2020.
“Vascepa is intended to address a serious, life-threatening condition for which no drug is currently marketed in Canada, and for which there is substantial evidence of clinical effectiveness of the treatment. These factors led to Health Canada’s priority review of the product and now serve as the foundation for Vascepa to be a transformative product for HLS,” said Gubitz in a press release on Tuesday.
In an update to clients, Keywood is now estimating the target market for Vascepa in Canada at about 2 million patients, a tenfold increase which by his calculations puts Vascepa’s own value at between $16 and $75 per share, incremental to a base business of primarily HLS’ schizophremia drug Clozoril which Keywood pegs at $10 per share.
The analyst said the Health Canada approval is further validation of HLS management’s ability to execute well, something he sees as repeatable with its other drug assets.
“In conjunction with the approval announcement, AMRN increased its 2019 sales guidance for VASCEPA from US$400 million at the midpoint to $410 million-$425 million and issued guidance for 2020 in the range of $650 million-$700 million, representing growth rates of +82 per cent and +62 per cent year-over-year at the midpoint. Beyond 2020, AMRN believes that VASCEPA will ‘reach multiple billions of dollars’ in sales but without specific guidance. We also note the unique aspect of AMRN ramping up sales and marketing efforts of VASCEPA in the U.S. that is anticipated to coincide with the launch in Canada, leading to spillover benefits,” Keywood wrote.
With the Tuesday update, Keywood has reiterated his “Buy” rating and upped his price target from $30.00 to $32.00, reflecting his now 20x 2021 EBITDA estimate versus the prior 18x.
“The higher target multiple reflects the risk reduction from the regulatory approvals and our increased conviction, along with the growth profile ahead in both sales and EBITDA. HLS may also market other CV assets alongside VASCEPA with strong synergy implications,” Keywood said.
Looking ahead, the analyst thinks HLS will generate fiscal 2020 revenue and EBITDA of $65.2 million and $29.0 million, respectively, and fiscal 2021 revenue and EBITDA of $74.7 million and $39.0 million, respectively.
His $32.00 target represented a projected 12-month return of 29 per cent at the time of publication.