HLS Therapeutics is practically a double from here, says Clarus

Canadian specialty pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News, Analysts, Financials TSX:HLS) has taken a big step forward in its revenue ramp on cardiovascular drug Vascepa. That’s according to Noel Atkinson of Clarus Securities who in a report on Wednesday reiterated his “Buy” rating and C$26.50/share target price for a 96.6 per cent projected return at the time of publication.

Toronto-based HLS Therapeutics focuses on acquiring and commercializing late-stage development, commercial-stage promoted and established pharmaceutical products for the North American market. The company announced on Tuesday a Product Listing Agreement with the Quebec provincial health insurance plan RAMQ to have reimbursement coverage for its cardiovascular (CV) risk reduction drug Vascepa.

“We continue to expect a sharp ramp in Vascepa prescription volumes across Canada as provincial drug plans add Vascepa to their formularies,” Atkinson said.

The Quebec agreement is the first major provincial plan to add Vascepa since the pCPA letter of intent was achieved in late April, with 44 per cent of Quebecois covered by the plan to make it a significant add. According to Atkinson, company management continues to expect most of the major provincial drug plans to begin reimbursing for Vascepa prescriptions by the end of summer.

“This is an important milestone in the commercialization of Vascepa as Quebec is the first province to provide public coverage for the product and it has one of Canada’s largest publicly funded drug plans,” said Gilbert Godin, CEO of HLS in a May 24 press release. “Vascepa represents a significant innovation in cardiovascular prevention, and we are pleased to bring this potentially life-saving medication to the people in the province of Quebec who are battling cardiovascular disease, which is the number one killer worldwide. We are working with other provinces and territories to secure coverage for Vascepa from their publicly funded drug plans and will provide further updates on our progress as they occur.”

The RAMQ announcement was followed up by news that Bill Wells, Executive Chairman and co-founder of HLS, was stepping down from his role on the HLS board. With Wells’ resignation, Godin will assume much of the executive functions, while fellow co-founder and longtime CEO Greg Gubitz will assume Chairman responsibilities.

According to Atkinson, Wells owns approximately 900,000 HLS shares as well as 442,000 options and 91,000 RSUs.

“I look back on co-founding HLS with great pride and I am honored to have worked with HLS co-founders Greg Gubitz, Gilbert Godin, Joe Maclean and the Board from the very beginning as Executive Chair,” Mr. Wells said on May 24. “HLS has a bright future as a dynamic North American pharmaceutical company with an enviable product portfolio. I also want to thank my fellow directors for our many collaborations and I wish HLS great success.”

Atkinson’s primary financial projections remain unchanged, maintaining a 2022 revenue goal of $70 million for a potential year-over-year increase of 16.7 per cent. Looking ahead to 2023, Atkinson forecasts a jump to $127.2 million in revenue, suggesting a year-over-year increase of 81.7 per cent. (All figures are in US dollars except where noted otherwise.)

From a valuation standpoint, Atkinson forecasts the company’s Price/Sales multiple to come in at 5.4x in 2022, then dipping to a projected 3x in 2023.

“Our Vascepa peak sales forecast of C$270MM in 2026 (basically at the mid-point of HLS’s outlook) is unchanged,” Atkinson said. “It assumes 10 per cent uptake of the 1.5 million target population across Canada and an average price of C$150 per month. We still see significant potential upside to the peak sales forecast if physicians and patients experience positive preventative effects to CV health.”

Meanwhile, Atkinson maintains an adjusted EBITDA projection of $26.8 million for an implied margin of 38.3 per cent. For 2023, Atkinson forecasts a jump to $48.2 million in adjusted EBITDA, with a slight margin compression to an implied 37.9 per cent.

In terms of valuation, Atkinson forecasts the company’s EV/adjusted EBITDA multiple to be 16.9x in 2022, then dropping to a projected 9.4x in 2023.

For investors, Atkinson projects a negative diluted EPS of $0.46/share in 2022 before taking a positive turn in 2023 at a projected $0.15/share, with Atkinson introducing a P/E multiple of 87.8x in 2023.

Going forward, Atkinson continues to remain bullish in regards to HLS’ potential.

“We expect Vascepa revenues to accelerate meaningfully in H2/22e, particularly given that the large provincial drug plans appear to be adding Vascepa drug reimbursement coverage as quickly as management anticipated,” Atkinson said.

HLS Therapeutics has experienced a 4.8 per cent loss in its share value over the course of 2022, though it has gone up by 15.3 per cent since dropping to a 2022 low of C$12.19/share on May 12.