HLS Therapeutics is undervalued, says Stifel

Specialty pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News TSX:HLS) just hit a couple of major milestones, says Stifel GMP analyst Justin Keywood, who updated clients on HLS in a report delivered Tuesday.

Keywood reasserted his “Buy” rating for the stock with the updated price target of C$36.00 (previously C$35.00), which at press time represented a projected one-year return of 115 per cent.

Toronto-based HLS, which focuses on drugs for the central nervous system and cardiovascular markets, announced on Monday recommendation by the Canadian Agency for Drugs and Technologies in Health (CADTH) that HLS’ cardiovascular drug Vascepa (approved last December by Health Canada) be reimbursed by public payors. At the same time, the company announced that the Patented Medicine Prices Review Board (PMPRB)
confirmed that the list pricing of Vascepa did not warrant investigation for excessive pricing.

On the CADTH recommendation, HLS CEO Greg Gubitz said, “We are very pleased to see Vascepa’s benefit be recognized as a relevant agent to reduce the risk of major adverse cardiovascular events for patients that have documented cardiovascular disease.

HLS, with the support of leading physicians, medical societies and other patient care advocates, is working to expand CADTH's recommendations in the future to address other groups of high-risk patients who have been shown to benefit from treatment with Vascepa, in particular those patients with diabetes and at least one risk factor, as approved by Health Canada.”

In terms of its share price, HLS finished 2019 up 74 per cent but is down 34 per cent in 2020.

In his update, Keywood said the two events are important for the stock but have yet to be registered by the wider market.

“These developments are major milestones in launching Vascepa in Canada and de-risk much higher value, where the market was pricing in a negative outcome in our view,” Keywood said.

HLS also reaffirmed its peak sales guidance for Vascepa in the range of $200 million to $300 million, estimated to occur in the fourth and fifth years of the drug’s launch.

Keywood wrote, “We estimate that Vascepa is worth $18 to $75 per share and maintain the value range. Vascepa would be incremental to Clozaril at about $10 per share and other assets that could be $5 per share, highlighting a compelling investment case. The regulatory reviews show solid execution by HLS in launching a new drug, as well, that we see as repeatable for new assets.”

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. (All figures in US dollars unless where noted otherwise.)

The analyst increased his target by a dollar based on his 21x 2021 EBITDA estimate, saying, “The higher target is based on a marginal increase in 2021pricing for Vascepa but also our continued confidence in management to execute well on both existing and new assets. HLS remains a top pick with what has been a widening disconnect in share price and fundamental value in our view.”