HLS Therapeutics is a Top Pick, says Stifel

Ahead of third quarter earnings from specialty pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News TSX:HLS), Stifel GMP analyst Justin Keywood is maintaining his “Buy” rating and C$36.00 target price, saying in an earnings preview to clients on Tuesday that growth projections for Vascepa are still on track.

Specialty pharma company HLS Therapeutics focuses on drugs targeting the central nervous system and cardiovascular therapies by acquiring and commercializing branded pharmaceutical products either established or in the late-stage of development, including fatty acid drug Vascepa, for which HLS owned the Canadian rights.

The company is set to deliver Q3 2020 results next Thursday, November 5, before market open, with Keywood estimating sales to be $13.5 million and EBITDA at $5.4 million at about a 40 per cent margin. Those numbers would reflect flat year-over-year sales growth
for Clozaril in Canada and a modest decline in the US, with increased sequential input (but still relatively small) from Vascepa. (All figures in US dollars except where noted otherwise.)

“We are generally expecting a good quarter, especially in the context of COVID-19 with flat YoY growth but above average EBITDA margins of ~40 per cent and solid cash generation,” Keywood wrote.

On Vascepa, Keywood said the launch earlier this year was hindered by HLS having to pull its sales force off the field just one month into launch, although the company has since refined its marketing efforts, the analyst said, and has resumed selling to physicians
virtually. Keywood said while the progression curve has shifted for Vascepa’s rollout, patient growth is now on track and uptake momentum is building.

“We also anticipate an update for Vascepa, which was launched in Canada mid-February 2020, including progression of initial sales and commentary for private and public reimbursement. More broadly, we continue to see a compelling valuation case for HLS with C$10-$14/share ascribed to the foundational business and certain other smaller assets with Vascepa valued at C$18/share in our base case scenario or C$28-$32 in total and well above the current price. Q3 results could help illustrate the value proposition and de-risk growth estimates,” said Keywood, who with the new report continued to rate HLS as one of his Top Picks.

Looking further ahead, Keywood is estimating that HLS will generate fiscal 2020 revenue and EBITDA of $57.8 million and $24.3 million, respectively, and fiscal 2021 revenue and EBITDA of $83.3 million and $39.5 million, respectively. His C$36.00 target represented at press time a projected return of 128 per cent.

Last week HLS Therapeutics delivered a press release on recent research on icosapent ethyl, Vascepa’s generic name. The company said three poster presentations at the Canadian Cardiovascular Congress showed icosapent ethyl reduces cellular inflammation, may improve the activity of human blood vessels compared to omega-3 fatty acids and that icosapent ethyl and statins may work hand-in-hand to reduce
oxidative stress, inflammation and cholesterol removal from cells.

“The Vascepa story continues to unfold as we learn more about how icosapent ethyl acts on a cellular level,” said Gilbert Godin, President and CEO of HLS Therapeutics, in a press release. “The new in vitro data presented at CCC may help us to further understand the possible ways by which Vascepa works.”