HLS Therapeutics is our Best Pick, says Raymond James

Look for a nice boost in second half revenues from pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:HLS), according to Raymond James analyst Rahul Sarugaser, who delivered an update to clients on the company on Wednesday. Sarugaser says the ramp up in physician adoption of HLS’ cardiovascular fish oil-based drug Vascepa.

HLS Therapeutics, with about a $400-million market cap, has been dropping over the past year-and-a-half, going from $21 per share to now around $13. But Sarugaser sees upside from here and is reiterating with his report an “Outperform 2” rating on the stock with a maintained $28.00 target price, which at the time of publication represented a projected one-year return of 123.6 per cent.

Founded in 2015, HLS is a Toronto-based pharmaceutical company with an acquire and commercialize platform for late-stage development, promoted and established drugs. The company acquired the rights to schizophrenia drug Clorazil for US$305 million and then acquired the marketing rights for acne treatment Absorica in 2016. Then in 2017 HLS made two in-licensing deals for Vascepa and Trinomia for the Canadian market, which was before the company’s debut as a pub-co in 2018.

On Monday, HLS announced that Vascepa is now reimbursed by Ontario’s Provincial Drug Plan, with the Product Licensing Agreement (PLA) with the Ontario Government marking public reimbursement in now Ontario, Quebec, New Brunswick, the Northwest Territories and under the NIHB program for First Nations and Inuit peoples.

“The public reimbursement agreements for Vascepa that have been signed so far represent more than 65 per cent of Canadians covered by a public plan, which brings us closer to universal access for the product since private coverage is already in excess of 95 per cent for those in-label,” said HLS CEO Gilbert Godin in a press release.

“This should accelerate the momentum already in place with physicians who, in increasing numbers, are turning to Vascepa to reduce the risk of major cardiac events for their patients. Cardiovascular disease is the number one killer worldwide and we continue to work with the remaining provinces and territories to secure reimbursement for Vascepa,” he said.

The uptake in Vascepa coverage will result in a rapid shift in HLS’ earnings profile, says Sarugaser, who pointed out that Vascepa sales grew by 12 per cent sequentially from the fourth quarter 2021 to Q1 2022, and that came at a time when cardiovascular drug sales were down five per cent nationwide.

That shows Vascepa is picking up steam, Sarugaser said.

“Now, with public reimbursement under its belt, combined with the supercharging factor of HLS’s co-marketing deal with Pfizer — particularly now that in-person physician visits are happening at a greater cadence versus mid-pandemic — we anticipate Vascepa sales beginning to take the reins in respect to HLS’s revenue profile,” Sarugaser wrote.

The analyst is calling for Vascepa peak sales of C$250-300 million during 2026, with sales of the drug making up about half of HLS’s total sales by mid-2023.

“We remind investors that, unlike Amarin — from which HLS licensed Vascepa for the Canadian market — HLS benefits from a full eight years of marketing exclusivity in Canada from the time of Vascepa’s approval (Dec. 2019), with patent protection potentially extending this into the mid-/late-2030s. So, the timeline for generic entrants to begin impacting HLS’s Vascepa sales in Canada would only begin in 2028: after HLS anticipates hitting peak annual sales,” Sarugaser wrote.

Ahead of second quarter 2022 results due from HLS in August, the company reported sales of $14.6 million and adjusted EBITDA of $6.3 million for the Q1 2022. Those numbers compared to a year earlier at $14.3 million and $6.7 million, respectively. The company’s net loss was $3.6 million or $0.11 per share compared to a loss of $4.8 million or $0.15 per share a year earlier, with HLS finishing the quarter with cash and equivalents of $22.7 million compared to $21.2 million at the end of the previous quarter. (All figures in US dollars except where noted otherwise.)

For his part, Sarugaser sees HLS’ revenue going from $14.6 million in Q1 to $16.7 million in Q2 and then to $18.6 million and $23.1 million, respectively, in Q3 and Q4. Further ahead, the analyst has total revenue for 2022 at $73.0 million compared to $60.0 million in 2021, followed by $118.9 million in 2023 and $218.2 million in 2024. 

On earnings, Sarugaser is expecting EBITDA of $29 million in 2022 compared to $26 million in 2021 and moving onto $41 million by 2023. EPS is expected to go from negative $0.41 in 2021 to negative $0.36 in 2022 to negative $0.04 per share by 2023.

Sarugaser noted that HLS Therapeutics received his “2022 Analyst Best Pick” status this year.