Huge upside to HLS Therapeutics, says Stifel GMP

With the stock currently valued at less than half of what it was a year ago, something’s gotta give with HLS Therapeutics (HLS Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:HLS), according to Stifel GMP analyst Justin Keywood, who provided an update to clients on Tuesday on the company’s sales of cardiovascular drug Vascepa. Keywood maintained a “Buy” rating on the stock, saying the market is not taking into account the full value of HLS’ recession-resilient business.

Specialty pharma company HLS acquires and commercializes late development and commercial-stage promoted drugs for the North American market, and it’s currently marketing schizophrenia drug Clorazil, acne treatment drug Absorica and cardiovascular drugs Vascepa and Trinomia, both for which the company acquired the Canadian rights in 2017.

Looking at the latest data on Vascepa Canada prescriptions, Keywood said the month of October started off with a record week of 145,266 pills dispensed, with the uptick a result of the drug’s penetration in the Ontario market.

That’s good news for HLS and should also eventually be of benefit to shareholders, Keywood said, even as HLS’ share price continues to struggle at around the $9 range, a far cry from the $20 level it was at a year and a half ago.

“Our forecasts show a hockey stick-like inflection curve with public reimbursement, contrary to the retreating stock price, and supports a valid investment case. HLS has secured public reimbursement for 70 per cent of Canada and private insurance for 95 per cent, with its sales supported by a strong Pfizer partnership. It is trading at 11x LTM with an immaterial contribution from Vascepa and highlighting a re-rating path,” Keywood wrote.

Keywood said HLS is in growth mode and that its business, with demand for schizophrenia and heart health medicine not seen as being impacted by economic factors, is recession-resilient. As well, HLS’ dividend (yield at 2.3 per cent currently) reflects the strong free cash flow nature of the business, a rarity for specialty pharma companies, Keywood added.

By the numbers, Keywood is forecasting full 2022 revenue and EBITDA from HLS of $64.4 million and $25.9 million, respectively, and 2023 revenue and EBITDA of $132.7 million and $62.3 million, respectively.

Keywood said he sees a constructive investment case in HLS. Along with his “Buy” rating, the analyst maintained a $32.00 target price, which at press time represented a projected one-year return of 256 per cent.

“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,” he said.