HLS Therapeutics has a 164 per cent upside, says Clarus

Clarus Securities analyst Noel Atkinson is sticking with a “Buy” rating on specialty pharma name HLS Therapeutics (HLS Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:HLS), saying in a Friday report that HLS offers investors a stock with solid organic revenue growth and significant cash flow.

Toronto-based HLS Therapeutics acquires and commercializes late-stage and commercial-stage established, branded pharma products for the North American market. The company announced on Thursday an agreement with its largest shareholder, Polar Asset Management, to revise HLS’ Board. 

HLS said two of its directors will not be standing for re-election and Board Chair, co-founder and original CEO Greg Gubitz will retire, while Polar is expected to nominate a new director to the Board. The result will be HLS’ Board will drop to eight members, while the board shake-up comes a month after new CEO Craig Millian took the helm.

“Pursuant to the Agreement, Polar has agreed to support the election of all remaining director nominees at the AGM and to vote in favour of the resolution to approve certain amendments to HLS’s stock option plan, the ratification of certain grants thereunder and the approval of the unallocated options thereunder (the ‘Option Plan Resolution’),” a statement from HLS said.

Commenting on the moves, Atkinson said HLS’ activist shareholders in Polar at 20 per cent and Stadium Capital at 18 per cent look to be in support of Millian, given that they will likely vote in favour of the new option pool that will be likely weighted towards issuance for Millian.

Atkinson has left his estimates unchanged and is calling for HLS to grow its revenue from $61.5 million in 2022 to $67.2 million in 2023 and onto $91.2 million in 2024. Adjusted EBITDA is forecasted to go from $23.8 million in 2022 to $23.4 million in 2023 to $37.4 million in 2024. (All figures in US dollars except where noted otherwise.)

The analyst said that if HLS can achieve even modest success in Canada with Vascepa, an omega-3 fatty acid, the company should be poised for a solid increase in earnings and free cash flow over the next several years. 

“We still consider HLS to have one of the largest Canadian-market organic revenue growth opportunities of any Canadian small-cap pharmaceutical stock, thanks to the recent achievement of public and private drug plan reimbursement for Vascepa. HLS also continues to have a solid balance sheet and significant free cash flow from the rest of its portfolio. We maintain our Buy rating,” Atkinson wrote.

With his “Buy” rating, Atkinson also reiterated a 12-month target of C$12.50 per share, which represented at press time a projected return of 164 per cent.