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Patience should mean a big reward on HLS Therapeutics, says Stifel

The stock has pulled back significantly over the past few months but Stifel GMP analyst Justin Keywood is still bullish on HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News, Analysts, Financials TSX:HLS), reiterating his previous “Buy” rating and $36/share target price to indicate a 137.6 per cent projected return in an update to clients on Tuesday.

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

Keywood’s newest report comes with updated analysis on Canadian prescription data for Vascepa in January 2022, which indicated an annual net sales run rate of $26 million, producing ten per cent sequential growth and a 330 per cent year-over-year increase.

“Public reimbursement negotiations for Vascepa are still active, according to the pCPA website, where updates could be imminent,” Keywood said. “Achievement of public reimbursement could inflect the demand curve and represents approximately 60 per cent of the peak sales opportunity, where private reimbursement has already been achieved.”

On top of the sales component, Keywood also noted that the company began its partnership with Pfizer in late September, and appears to be contributing to increased demand at higher prescription volumes. All told, Keywood estimates there are just over 9,000 prescriptions for Vascepa patients in Canada, with a long way to go before fulfilling the potential for more than 100,000 prescriptions.

The demographics for Vascepa prescriptions have changed slightly, with graphs from Monthly Rx pointing to Quebec taking a much bigger piece of the pie in 2021 at 20 per cent of Canadian prescriptions compared to just ten per cent in 2020.

Ontario remains the biggest source of Vascepa prescriptions, though the allocation dropped from 62 per cent in 2020 to 57 per cent in 2021.

Total prescriptions in Canada grew exponentially from 2020 to 2021, with the number jumping from 4,921 to 23,287. Of the total prescription count in 2021, 6,378 of them, or 27.4 per cent, were new prescriptions.

However, HLS’s share price has not experienced a similar upward trajectory in line with Vascepa prescription counts, remaining relatively flat over a three-year reporting period.

“The long negotiation process for public reimbursement has required patience as the 24 month target from commercialization is in the current month,” Keywood said. “The health benefits for Vascepa have been clearly demonstrated with several de-risking elements, where the negotiations are centered on pricing.”

Keywood points to a few potential risks to HLS, namely product concentration as the majority of the company’s revenue comes from sales of clorazil; the concept of patent expirations, which is limited for HLS right now as it holds eight years of data protection on Vascepa from Health Canada; finally, Keywood notes the risk associated with potential acquisitions in the future, as HLS attempts to acquire rights to late stage, post-clinical and commercial stage branded pharmaceutical products, and their integration into the company is crucial to its overall success.

Despite the associated risks, Keywood forecasts an injection to the company’s financial future, projecting revenue of $62.5 million to wrap up 2021 for a potential year-over-year increase of 11.4 per cent. From there, Keywood forecasts an explosion in 2022, with the $149.9 million revenue forecast suggesting year-over-year growth of 139.9 per cent.

Accordingly, he also sees the company’s EV/Revenue multiple dropping from the reported 8.3x in 2020 to 7.4x in 2021, then plummeting to a projected 3.1x in 2022.

Meanwhile, Keywood also forecasts growth in the overall EBITDA and margin, projecting growth from $24.1 million and an implied 43 per cent margin in 2020 to an estimated $28.1 million and implied 45 per cent margin in 2021, followed by another forecasted jump to $66.8 million in EBITDA, though the implied margin dips slightly to 44.6 per cent.

Keywood’s EV/EBITDA multiple projections also takes a step forward, with the analyst forecasting a drop from 19.3x in 2020 to a projected 16.5x in 2021 before falling off to a projected 7x in 2023.

Overall, Keywood continues to view 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.

“We have performed extensive due diligence on HLS’ current platform of products, including speaking to many medical contacts, including doctors and industry experts,” Keywood said. “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.”

HLS’ stock momentum has halted with a ten per cent loss in the last 12 months, but it has yielded a 1.6 per cent return since the start of 2022. The stock’s 52-week high came on March 19 at $21.37/share, but dropped off to a 52-week low of $13.86/share on December 14.

About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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