HLS Therapeutics should go a lot higher, says Stifel GMP

The trend lines are looking good for cardiovascular drug Vascepa, which should push shares higher for HLS Therapeutics (HLS Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:HLS). That’s according to Stifel GMP analyst Justin Keywood, who provided an update to clients on the drug company on Wednesday where he reiterated a “Buy” rating on HLS and target price of $32.00.

Toronto-based pharma company HLS focuses on acquiring and commercializing late-stage development and commercial-stage promoted drugs for the North American market. The company is marketing the schizophremia drug Clorazil, acne treatment Absorica and Vascepa and Trinomia, both for which HLS acquired the Canadian rights in 2017, ahead of the company’s public listing in 2018.

Keywood said the August 2022 results on Vascepa in Canada show solid progression, with prescriptions dispensed up 127 per cent year-over-year to 4,651 and new prescriptions up 98 per cent to 980. The Ontario market, where Vascepa received approval for public reimbursement through the province’s drug plan in July, continues to be the biggest at 48 per cent of all Vascepa prescriptions in Canada. 

Keywood said August Vascepa sales in Ontario were flat sequentially although up 91 per cent year-over-year. 

“We are not that concerned with a bit of a lag for a looming inflection in Ontario as Pfizer, HLS’ selling partner, continues efforts in reaching doctors,” Keywood wrote. “For context, Quebec Rx jumped 35 per cent month-over-month and 250 per cent year-over-year in the month following the achievement of public reimbursement. More broadly, HLS has now secured public reimbursement for 70 per cent of Canada and private insurance for 95 per cent. The elements are essentially in-place to execute on HLS’ ~$300 million peak sales target.”

Keywood said HLS’ business is recession-resilient because demand for schizophrenia and heart health medicine are not seen as impacted by economic factors. Further, the company’s dividend at a 2.0 per cent yield “reflects the strong FCF nature of the business as well; this 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 and ahead of a looming inflection for Ontario Rx,” he said.

The analyst’s forecast pegs HLS at 2022 revenue of $71.3 million compared to $60.2 million in 2021 and rising to $133.4 million in s2023. On earnings, EBITDA is expected to rise from $26.5 million in 2021 to $29.8 million in 2022 and to $62.9 million in 2023.

On valuation, Keywood has put HLS’ EV/EBITDA at 15.8x in 2021 and moving to 14.0x in 2022 and to 6.7x in 2023.

With a market cap of about $325 million, HLS share price has been moving downwards for a number of years, going from a high of about $25 at the end of 2019 to now touching on $10 per share. 

Speaking to the pressure on shares, Keywood said there’s a disconnect between the company’s fundamentals and the market picture on HLS, with some insider selling last month a possible factor in the recent slide.

“Investors continue to be on the sidelines amid the current unfavourable market conditions, and with low liquidity in HLS’ shares, the fundamental value of the business is not nearly reflected, in our view,” Keywood wrote. 

“We also note a recent insider sale at the end of August, which may be contributing to some selling pressure. The sale is contrary to our thesis and Vascepa data trends, as well as what appears to be a recently activated NCIB. HLS repurchased 7,300 shares in August at an average price of ~$12.50 for $92k,” he said.

At the time of his report’s publication, Keywood’s $32.00 target represented a projected one-year return of 219 per cent.

HLS Therapeutics last reported its financials in mid-August where its second quarter featured revenue of $15.5 million compared to $14.9 million a year earlier and adjusted EBITDA of $6.2 million compared to $6.6 million a year earlier. The Q2 net loss was $9.1 million or $0.28 per share compared to a loss of $2.2 million or $0.07 per share a year ago, while the company finished the quarter with cash and equivalents of $21.2 million, essentially unchanged from six months prior.

“In Q2 we delivered a solid quarter and signed an LOI with the pCPA paving the way for public reimbursement of Vascepa, which we believe will be the single greatest catalyst to realize the growth potential of the product,” said Gilbert Godin, CEO of HLS, in an August 11 press release.

“[W]ith five months to go in the second half of 2022 we have public reimbursement for Vascepa for approximately 70 per cent of Canadians on public plans, as well as for more than 95 per cent of Canadians on private plans who are in-label,” he said.