HLS Therapeutics is a double, says Clarus Securities

Noel Atkinson of Clarus Securities is staying bullish on HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News, Analysts, Financials TSX:HLS), reiterating his “Buy” rating while increasing his target price to C$33.00/share from C$32.50 for a 100 per cent projected return in an update to clients on Monday.

Toronto-based specialty pharma company HLS Therapeutics focuses on acquiring and commercializing late-stage development, commercial-stage promoted and established pharmaceutical products for the North American market.

Atkinson’s most recent update comes after HLS Therapeutics announced a promotional agreement with Pfizer to promote HLS drug Vascepa, a treatment designed to reduce the risk of major adverse cardiac events (cardiovascular death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization or hospitalization for unstable angina) in statin-treated patients, to family doctors across Canada.

“Pfizer appears to be a very attractive choice for a comarketing partner,” Atkinson said. “It owns and markets the largest branded statin drug on the market (Lipitor, now off patent), has national reach and a strong reputation, and Vascepa is labeled to be taken in conjunction with a statin. Vascepa should be a natural drug for Pfizer reps to discuss with family physicians, as Vascepa can be a method for those reps to also promote Lipitor.”

The agreement will see at least 60 Pfizer representatives marketing Vascepa to between 6,000 and 10,000 family doctors in Canada (out of approximately 45,000), who are responsible for between 70 and 80 per cent of CV script volume within its target cohort, while HLS will continue to leverage its its in-house salesforce of roughly 30 people to market Vascepa to over 2,500 cardiologists and other specialists across Canada.

“We believe Vascepa has the potential to improve the lives of the many Canadians suffering from, or at risk of, cardiovascular disease and we look forward to collaborating with Pfizer to bring this innovative therapy to those in need,” said Gilbert Godin, CEO of HLS in the company’s August 16 press release.

“While our cardiovascular sales team will continue to focus on specialists such as cardiologists and endocrinologists, this partnership will enable us to educate and efficiently expand interactions with a general physician audience that is 3-4 times larger. Ultimately, we believe this collaboration will benefit patients and physicians while at the same time strengthening the economic potential for the product and expanding the benefit to society,” Godin said.

HLS also released its second quarter financial results on August 5, reporting revenue of $14.9 million with an adjusted EBITDA of $6.6 million, representing year-over-year increases of 19 and 36 per cent, respectively.

Vascepa played a key role in HLS’s gains, with HLS reporting a 42 per cent sequential revenue gain from the first quarter of 2021 from the drug, along with a growing number of Vascepa prescriptions as the company reporting 4,100 patients and 1,050 prescribers at end of the quarter, which mark quarterly increases of 41 and 44 per cent, respectively.

The recent developments have prompted Atkinson to revise some of his financial metrics, as he now projects HLS to reach $61 million in revenue in 2021, up from his initial $60.7 million projection, while he has slightly downshifted his adjusted EBITDA projections for the year to $25.4 million from $25.6 million, leading to a projected EBITDA margin of 41.8 per cent.

With in-person marketing from Pfizer regarding Vascepa potentially beginning in the second half of 2021, Atkinson has also revised his projections for the 2022 fiscal year, as he now projects HLS to reach $104.8 million in revenue, up from the initial $96 million projection, with an adjusted EBITDA of $38.1 million (up from $35.1 million) to produce a potential 36.4 per cent margin.

From a valuation standpoint, Atkinson’s modelling projects the Price/Sales multiple to be 6.9x for 2021 before dropping to 4x for 2022, while he forecasts the EV/Adjusted EBITDA multiple to drop from a projected 19.9x in 2021 to 13.3x in 2022.

“We expect that Pfizer can hit the ground running to market Vascepa to family physicians more broadly than HLS could with a brand-new in-house sales force. We also expect the ability to tag-team Lipitor and Vascepa in meetings with physicians should keep the Pfizer reps motivated for the first year or so – and the level of success will likely determine the size and timeline of peak sales for Vascepa in Canada,” Atkinson said.

Overall, Atkinson is still firmly behind HLS given the strength of its balance sheet and cash flow throughout its overall portfolio.

“We remain bullish on the potential for Vascepa to become a blockbuster drug in Canada,” he said. “There remains significant potential for further increases in management’s Vascepa peak sales outlook, especially if family physicians (driven by broad and rapid deployment of marketing by Pfizer) embrace the drug as a ‘top-of-mind’ complement to statins for CV risk reduction and in turn drive stronger patient adoption.”

HLS shares have risen about four per cent since January 1, reaching a high point of C$21.37/share on March 19.