HLS Therapeutics is heading to $36.00, says Stifel GMP

The trend lines are looking good for Canadian specialty pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:HLS), according to Stifel GMP analyst Justin Keywood who provided clients with an update on Tuesday. Keywood said HLS’ prescription counts for cardiovascular drug Vascepa have been heading up and should continue to grow meaningfully going forward.

Toronto-based HLS Therapeutics focuses on the acquisition and commercialization of late-stage development, commercial-stage promoted and established pharma products for the North American markets. The stock has been under pressure recently, coming in with a year-to-date return of about negative 24 per cent and a 12-month return of about negative 34 per cent.

But Keywood sees much better times ahead, reiterating with his report a “Buy” rating on the stock and $36.00 target price, which at press time represented a projected 12-month return of 216 per cent.

“Investors appear to be on the sidelines in the current unfavourable market conditions, and with low liquidity in HLS’ shares the fundamental value of the business is not nearly reflected. We will also point out the recession resilient nature of HLS’ business but still in a growth mode as demand for Schizophrenia and Heart Health medicine is not seen as being impacted by economic factors,” Keywood wrote.

“HLS’ dividend (yield of 1.8 per cent) reflects the strong free cash flow nature of the business, as well, and is very unusual for specialty Pharma companies where cash burn is more common. We see these factors as suggesting an opportunity for investors to accumulate shares at depressed price levels,” he said.

Keywood pointed to HLS’ prescription trend for Vascepa ending June 2022 where new Canadian scripts were at 934, up 84 per cent year-over-year and boosted by Quebec (up 253 per cent year-over-year) which now has a public listing in place. June Vascepa prescriptions dispensed across Canada were also up 102 per cent to 3,594. 

“Ontario continues to represent HLS’ best-selling province for Vascepa at 49 per cent of all scrips but versus 60 per cent last month. This shows the early impact of public access, where Quebec was 32 per cent of all scrips in June despite representing only 15 per cent of the target population,” Keywood wrote. “We would expect scrip levels to skew back towards Ontario after a listing agreement is in-place.”

After achieving public reimbursement for Vascepa in Quebec in May, last month, HLS announced public reimbursement in New Brunswick, Northwest Territories and with the Non-Insured Health Benefits (NIHB) program for First Nations and Inuit peoples. Under the terms of the agreements, Vascepa will be reimbursed for the secondary prevention of cardiovascular events in statin-treated patients with established cardiovascular disease and elevated triglycerides.

“We are pleased to build on our agreement with the province of Quebec to add three additional public listings as we work to bring Vascepa to Canadians who are battling cardiovascular disease, the number one killer worldwide,” said Gilbert Godin, CEO of HLS, in a press release. “We continue to work 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.”

Keywood said the trend on Vascepa scripts ending in June is encouraging as public access is just starting to occur with only about 20 per cent of the Canadian population covered. Private reimbursement for Canadians is above 90 per cent but only covers about 40 per cent of the target population, with Keywood stressing that many doctors hold back on prescribing without public access. 

“More provinces are to list Vascepa over the summer with Ontario (~40 per cent of the population) as a looming near- term addition that should inflect the Rx curve meaningfully,” he said. “To be clear, the listing process is largely administrative to our knowledge as the major negotiations for Vascepa have already concluded with a positive outcome through the pCPA in late April.”

“ We continue to highlight HLS as a defensive name with already a high margin base business, consisting primarily of Clozaril and pent up torque with Vascepa,” Keywood wrote.

Looking to his forecast, Keywood is calling for HLS to hit revenue of $75.9 million in 2022 compared to $62.5 million last year and then rising to $147.3 million for 2023. On earnings, the analyst is estimating $32.4 million in EBITDA for 2022, rising to $63.5 million in 2023, and EPS of $0.01 per share for 2022 and $1.06 per share for 2023. Keywood sees HLS’ EV/Revenue going from 5.9x for 2021 to 4.8x in 2022 to 2.5x in 2023, while on EV/EBITDA he is calling for the multiple to move from 13.1x for 2021 to 11.3x in 2022 to 5.8x in 2023.