HLS Therapeutics has a big upside, says Stifel

Stifel GMP analyst Justin Keywood provided an update to clients on Monday where he argued there’s currently little value being attributed by the market to Vascepa in the share price of HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News, Analysts, Financials TSX:HLS). That’s a mistake, Keywood thinks, as the cardiovascular drug should be worth upwards of $300 million per year at peak sales.

Toronto-based specialty pharma company HLS Therapeutics, which focuses on acquiring and commercializing late-stage development, commercial-stage promoted and established pharmaceutical products for the North American market, announced on Monday that the Canadian Cardiovascular Society has added Vascepa to its 2021 Guidelines for the Management of Dyslipidermia for the Prevention of Cardiovascular Disease in the Adult, published in the Canadian Journal of Cardiology.

Vascepa (or icosapent ethyl) capsules are comprised of active ingredient icosapent ethyl (IPE) and were approved by Health Canada, with HLS having in-licensed the exclusive rights to Vascepa for the Canadian market from Amarin Corp.

HLS says the new recommendation makes it now 14 major medical associations internationally that have included Vascepa in their treatment guidelines, which further shows the drug as a treatment option beyond cholesterol management for patients at risk for a cardiovascular event.

“By including Vascepa in the guidelines, the CCS is indicating its focus on improving patient care by reducing the risk of atherosclerotic cardiovascular disease,” said LHS CEO Gilbert Godin in a press release. “To have this highly credible medical society recognize the benefit of Vascepa as a new treatment option for Canadians on statins with elevated triglycerides who are at risk of cardiovascular events such as Heart Attack, Stroke, Revascularization or Death is a tremendous development for those eligible patients.”

Keywood said the announcement represents another milestone in support of HLS’ REDUCE-IT trial findings, one which could help gain wider support for Vascepa in the medical establishment including with physicians, key opinion leaders and patients.

“The recommendation also re-affirms our confidence in management’s peak sales target for Vascepa of $275-$325 million and our growth forecasts,” Keywood wrote. “With another important box checked, we continue to believe there is little value for Vascepa priced into HLS’ shares and see an opportunity to accumulate at these levels.”

Keywood said after an initially slow uptake related to COVID-19, momentum “is clearly building” with regard to Vascepa in Canada, with the analyst estimating, based on Canada-wide prescription data, Vascepa’s current net sales run rate at about $7 million and growing rapidly.

“Reimbursement is also expanding, with +90-per-cent of private Canadian lives covered and public negotiations ongoing which could result in step function changes in Rx trends. Recall that at peak sales, we expect the mix to be roughly split 50/50 for private/public reimbursement. With 7 years of data exclusivity and other distinct patents that could extend into the 2030s, we believe HLS has a clear runway for many years to generate significant profit and cash flow,” Keywood said.

HLS’ share price took off in late 2019 with the US FDA approving Vascepa for an expanded and broad label to reduce the risk of cardiovascular events, the result being a 10x expansion of the drug’s market in the US for Amarin, followed by Health Canada approval in late December 2019 and the launch of Vascepa in Canada in early 2020. HLS has pulled back since, finishing 2020 down 42 per cent. So far in 2021, the stock is up 13 per cent.

Keywood sees more upside, saying by a sum-of-the-parts model, his base case has Clozaril valued at $15, royalties at $3 and Vascepa at $18 per share. With the update, Keywood has maintained his “Buy” rating for HLS and target price of $36.00, which at the time of publication represented a projected 12-month return of 75.6 per cent. “Our C$36 target is based on 13x 2022e EBITDA and we see valuation re-rating higher as growth from Vascepa contributes to a greater extent,” Keywood said.

“We see HLS Therapeutics as a unique specialty pharma company with a solid management team and strong but undervalued cash flow platform in-place to leverage new growth,” Keywood wrote.

“We have performed extensive due diligence on HLS’ current platform of products, including speaking to many medical contacts, comprising doctors and industry experts. From this due diligence, we believe there are certain benefits to the platform that are not reflected in the stock price and also think management will be successful in executing on new value creating transactions,” he said.

HLS released its fourth quarter and full year 2020 financials in mid-March, reporting Q4 revenue of $16.5 million compared to $13.9 million a year earlier and adjusted EBITDA of $8.7 million compared to $7.2 million a year earlier. For the full 2020 year, HLS had $56.1 million in revenue compared to $54.2 million in 2019. Fiscal 2020 adjusted EBITDA was $24.1 million compared to $31.6 million for 2019, with the company attributing the drop to investment in the launch of Vascepa.