Buy HLS Therapeutics for a double, Stifel Canada says

This morning, HLS reported its Q4 and fiscal 2019 results. In the fourth quarter, the company posted a loss of (US) $2.96-million on revenue of $13.94-million, a topline that was down 16.8 per cent over the same period last year.

“Two thousand nineteen was a pivotal year for HLS in which we achieved important milestones that we believe strengthen the core foundation of the business and position the company for transformative growth,” CEO Greg Gubitz said. “Regarding our financial performance, this year we invested in the business to prepare for the launch of Vascepa, while continuing to generate strong operating margins and significant cash flow. Our financial position was further strengthened with the completion of a $50-million (Canadian) bought-deal financing that expanded our institutional shareholder base and provided us with additional resources to support our organic and acquisitive growth initiatives.”

Keywood says this was a good quarter for HLS.

“HLS reported good and in-line Q4 results,” he said. “Total sales of US$14mm met our US$14mm estimate. Adj. EBITDA of US$7.2mm (52% margin) was slightly higher than our US$6.8mm (47% margin) estimateand well above average for a specialty pharma company.Q4 cash from ops was US$2.5mm, better than our US$1.4mm estimate but did reflect some working capital investment. For 2019, revenue was US$52mm, adjusted EBITDA was US$32mm (62% margin) with US$26mm in CFO and FCF of US$11mm. This reflects the solid foundational, positive FCF business already in-place but with pre-launch costs for Vascepa and milestone payments.HLS hired 30 new sales professionals subsequent to Q4 results to support the launch of Vascepa as a blockbuster drug, where guidance of $200-$300mm in peak sales was reiterated. We modeled in some higher costs to account for the expanded salesforce but still expect the business to generate positive FCF in 2020 and setting up for subsequent robust cash flow afterwards. We continue to have high conviction in HLS as a recession resistant business in healthcare. ”

In a research update to clients today, Keywood maintained his “Buy” rating and one-year price target of $35.00 on HLS Therapeutics, which implied a return of 105 per cent at the time of publication. The analyst thinks the company will post EBITDA of $25.8-million on revenue of $63.9-million in fiscal 2020. He expects those numbers will improve to EBITDA of $39.4-million on a topline of $75.4-million the following year.

“We maintain a $35.00target based on 21x 2021 EBITDA.Our $35 target is equivalent to $25.00/share for Vascepa in addition to $10.00 for Clozaril, supporting our methodology.We see HLS as a recession resistant business with a solid foundational platform with positive FCF.HLS is launching an important heart health drug for at-risk patients and our conviction remains high,” the analyst added.