HLS Therapeutics is still a buy, says Stifel

It’s been a rough ride these past two years for fans of specialty pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Charts, News, Analysts, Financials TSX:HLS), but investors with a little more patience are likely to be rewarded handsomely. That’s according to Stifel GMP analyst Justin Keywood, who provided a flash update to clients on Thursday where he reiterated a “Buy” rating on the stock.

Formed in 2014, HLS focuses on acquiring and commercializing late-stage and commercial-stage pharmaceuticals for the North American market, with a concentration on therapeutics related to the central nervous system and cardiovascular system.

HLS announced on Thursday an agreement with 20 per cent shareholder Polar Asset Management on changes to the board. Two directors will not be standing for re-election at the upcoming AGM and Board Chair Greg Gubitz will be retiring, with Polar to nominate one new director. In total, the moves will put HLS’ Board at eight members and continues the rearrangement after last month’s hiring of new CEO Craig Millian.

“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 read.

On the announcement, Keywood commented, “We see the business as being in a better position than the shake-up implies but communication challenges and a more gradual growth profile in Vascepa, have resulted in substantial share pressure.”

Keywood has set his 2023 forecast at US$67 million in sales, implying ten per cent organic growth, and about 35 per cent for adjusted EBITDA margins. The analyst estimates HLS to be currently trading at 7x his 2023 EV/EBITDA.

“We see the growth and margin profile, as leading to a rebound in valuation but further near-term investor patience may be required,” he said.

With his Buy rating, Keywood maintained a 12-month target price of C$18.00, which is based on a 12x multiple of 2024’s EB/EBITDA and represented at the time of publication a projected return of 323 per cent.

“We see HLS Therapeutics as a unique specialty pharma company with a strong but undervalued cash flow platform in place to leverage new growth. We have performed extensive due diligence on HLS’ current platform of products, including speaking to many medical contacts, including doctors and industry experts. From this due diligence, we believe there are certain benefits to the platform that are not reflected in the stock price,” Keywood said.