HLS Therapeutics is undervalued, Stifel says

In an update to clients last Friday, Stifel GMP analyst Justin Keywood said cardiovascular and central nervous system drug developer HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News TSX:HLS) is not only undervalued but a newly launched COVID-19 trial shows the importance of its cardiovascular drug Vascepa.

Toronto-based HLS last Thursday announced support for a trial to be conducted by HLS and Amarin into the effects of Vascepa in the treatment of COVID-19. The trial will include 100 patients, is sponsored by the Canadian Medical and Surgical Knowledge Translation Group and will be led by cardiovascular experts in both the United States and Canada and will be looking at the effects of Vascepa on inflammatory biomarkers including the effects in pulmonary and lung tissue along with potential antiviral and
antimicrobial benefits.

“We are pleased to support a study that could bring relief to those suffering from COVID-19 and to help those in the healthcare community seeking treatment options to the virus,” said Greg Gubitz, CEO of HLS, in a press release. “In the current situation, it will be necessary to gather data from many such trials in order to understand what those best treatment options are for patients.”

Keywood said that while the outcome of the trial is highly uncertain —and the analyst has not factored in any incremental value from the COVID trial into HLS’ valuation at this point— it nonetheless “highlights the importance of Vascepa as a medicine for at-risk patients and in preventative healthcare, expected to provide benefits beyond COVID-19,” Keywood wrote.

Along with Vascepa, which last year received Health Canada approval to market the drug for statin-treated patients with elevated triglycerides and at high risk of cardiovascular events, HLS also has schizophrenia drug Clozaril and more recently received acceptance in Canada for New Drug Submissions for both Trinomia and PERSERIS.

HLS reported its fiscal first quarter 2020 results earlier in May which featured revenue of $13.9 million compared to $13.2 million a year earlier and adjusted EBITDA of $6.1 million compared to $8.3 million last year. HLS ended the quarter with cash and equivalents of $41.6 million, debt of $92.4 million and had cash from operations of $5.3 million. (All numbers in US dollars except where noted otherwise.)

On the quarter, Keywood said the $13.9 million in revenue beat his and the Street’s estimate of $13 million, with Clozaril sales in Canada up 11.5 per cent year-over-year. EBITDA of $6.1 million was also above Keywood’s $4.4 million estimate and the consensus $5.1 million, with the analyst noting that the strong earnings came despite the fact that HLS had added 22 sales representatives over the quarter.

Keywood said HLS is undervalued.

“We maintain a BUY and C$35.00 target based on 21x 2021 EBITDA. Our target is also equivalent to a value of $25/share for Vascepa in addition to $10 for Clozaril, supporting our methodology. Vascepa is currently being valued as having a ~2% penetration rate of the target market in Canada and well below our base case scenario of $18/share or 6% penetration rate. Our upside scenario for Vascepa is $75/share or a ~30% penetration rate,” Keywood wrote.

At press time, the analyst’s C$35.00 target represented a projected 12-month return of 83 per cent.