HLS Therapeutics is still a buy, Stifel Canada says

Stifel GMP analyst Justin Keywood released on Monday a flash update to clients, saying a new Health Canada decision has reinforced the status of HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News TSX:HLS) drug Clozaril as critical medicine.

Keywood has maintained his “Buy” rating and C$35.00 price target for HLS, which at press time translated to a projected return of 87 per cent.

Toronto-based HLS Therapeutics is a specialty pharmaceutical company focused on developing products targeting the central nervous system and cardiovascular therapeutic areas.

On HLS’s stable of drugs, late last year, HLS received Health Canada approval for cardiovascular drug Vascepa for statin-treated patients with elevated triglycerides and at high risk of cardiovascular events.

Earlier this year, HLS launched Vascepa in the Canadian market. HLS also has Clozaril, a market-leading treatment for treatment-resistant schizophrenia.

Also earlier this year, HLS had New Drug Submissions accepted by Health Canada for Trinomia and PERSERIS.

The company reported its full-year 2019 results in March, showing revenue of $54.2 million, down from $61.4 million in 2018, and adjusted EBITDA of $31.6 million compared to $41.1 million in 2018. The company finished the year with cash and equivalents of $47.1 million.

On the year that was, CEO Greg Gubitz said that 2019 saw a number of milestones for HLS.

“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 bought-deal financing that expanded our institutional shareholder base and provided us with additional resources to support our organic and acquisitive growth initiatives,” Gubitz said.

In his update, Keywood reported that blood testing requirements for Clozaril had been relaxed by Health Canada to ensure patient compliance during COVID-19, now calling for quarterly versus the prior monthly testing for patients on the medication for more than one year.

That, along with what the analyst called ‘strong consensus language’ on the risks of discontinuing use of Clozaril, “speaks to the critical nature of the medicine, consistent with our own feedback from a major mental health institution,” Keywood said.

On Vascepa, Keywood admitted that launching a new drug during COVID-19 presents challenges, he is holding to his forecast for 2020 of around $10 million, calling Vascepa “an important cardiovascular drug for at-risk patients such as diabetics.

Earlier this year, HLS management increased its guidance for Vascepa to between $200 and $300 million
in annual peak sales, expected in years four and five from the launch (up from the prior $150 to $250 million range).

The analyst now estimates the target market for Vascepa in Canada at around $2 million patients, slightly better than his previous projections, and translating to between $18 and $75 per share, incremental to a base business of primarily Clozaril at $10 per share. Keywood’s $35.00 target is based on a 21x multiple of his 2021 EBITDA projection.