There’s too much negativity built into HLS Therapeutics share price: Stifel

A potential catalyst is coming up for HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News TSX:HLS), according to Stifel GMP analyst Justin Keywood, who on Wednesday provided clients with an update on the company.

Keywood is maintaining his “Buy” recommendation and $35.00 per share target, which as of publication date reflected a return of 75 per cent.

Toronto-based HLS Therapeutics is a drug developer focused on the cardiovascular and central nervous systems. The company announced on Monday that it will be the exclusive Canadian distributor for the MyCare Insite point-of-care device, which has received FDA clearance for rapid testing (in less than ten minutes) of blood levels related to the most common antipsychotic drugs, including HLS’ clozapine.

The device would be used to check whether or not patients are taking their medications, for example, or whether drug concentrations are optimal for that patient, with a response from Health Canada on the device expected sometime in the second half of 2020 (with distribution, if approved, proceeding shortly afterwards).

“No point-of-care test to measure clozapine or other broadly used anti-psychotic levels is on the market today,” said Greg Gubitz, CEO of HLS, in a press release. “We believe that if approved, the MyCare Insite device could serve to support practitioners contending with a range of schizophrenic and bi-polar conditions and who prescribe six of the most common antipsychotic drugs for their patients.”

In his update, Keywood said the result could be more patients being prescribed Clozaril in Canada, where currently there is a significant underutilization, according to the analyst, with a rate of seven to eight per cent of the schizophrenia population versus 25 to 30 per cent usage in other countries.

In other news, Keywood reported the CADTH (Canadian Agency for Drugs and Technologies) met on May 20 to review public reimbursement for Vascepa, the company’s cardiovascular drug approved this past December by Health Canada.

Keywood said although HLS’ current share price seems to be factoring a negative recommendation from the CADTH, he thinks the odds are in HLS’ favour for Vascepa being either reimbursed or reimbursed with the condition of a lower price.

We see the REDUCE-IT trial, expedited reviews, 16-0 FDA AdCom meeting and already solid U.S. payer coverage for Vascepa as supporting our view,” Keywood wrote. With a second meeting scheduled for June 17, Keywood said this essentially makes the CADTH decision a potential positive catalyst for the stock.

“We maintain a BUY and $35.00 target based on 21×2021 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 per cent penetration rate of the target market in Canada and well below our base case scenario of $18/share or 6 per cent penetration rate. Our upside scenario for Vascepa is $75/share or a ~30 per cent penetration rate,” said Keywood.

Keywood thinks HLS will generate fiscal 2020 revenue and EBITDA of $61.0 million and $26.8 million, respectively, and fiscal 2021 revenue and EBITDA of $74.9 million and $39.2 million, respectively.