HLS Therapeutics Inc.

HLS Therapeutics Inc. (TSX: HLS) is a specialty pharmaceutical company, which is focused on the acquisition and commercialization of branded pharmaceutical products in the North American markets. As on 14 May 2020, the market capitalization of the company stood at CAD599.87 million.

Quarterly Performance (For the Period Ended 31 March 2020): During the quarter ended 31 March 2020, revenue of the company witnessed a slight increase over the pcp and stood at USD13.9 million up from USD13.2 million in Q1 2019. In the same time span, adjusted EBITDA of the company stood at USD6.1 million, and net income was USD0.2 million. The company also reported a strong balance sheet with a cash balance of USD41.6 million. Decent growth in revenue, positive adjusted EBITDA and positive cash flow from operations reflect the steady and reliable performance of Clozaril®. The company has also launched Vascepa in the Canadian market, which is likely to drive growth in its business. The Board has declared a dividend of CAD0.05 per outstanding common share to be paid on 15 September 2020.   

Quarterly EBITDA Performance (Source: Company Reports)

What to Expect: The company is taking proactive measures to minimize the impact of COVID-19. HLS is positive about its long-term outlook and is focusing on digital-based strategies to connect and interact with physicians. HLS is optimistic about its Vascepa product and believes that it has enormous potential to drive the growth of the business. The company has increased its peak-year sales forecast for the product to CAD200-300 million.

Stock Recommendation: HLS has a strong financial position and is well-placed for further growth. The stock is trading on average levels of the 52-week band of CAD25.92-12.91. The stock of HLS gave a return of 16.59% in the past one month. During FY19, gross margin of the company stood at 96.4%, higher than the industry median of 31.4%. In the same time span, EBITDA margin of the company was 51.5% as compared to the industry median of 12.5%. On the TTM basis, the stock of HLS is trading at a price to book value multiple of 2.5x, lower than the industry average (Food & Drug Retailing) of 2.6X. It is also trading at an EV/EBITDA multiple of 15.8x, lower than the industry average (Consumer Non-Cyclicals) of 17x. Considering the trading levels, decent financial performance, returns in the past one month and positive outlook, we recommend a ‘Speculative Buy’ rating on the stock at $18.9, down by 0.2639 % on 14 May 2020.

HLS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

CRH Medical Corporation

CRH Medical Corporation (TSX: CRH) is a healthcare products and services company which provides anesthesiology services to gastroenterologists across the United States. The Company also concentrates in the treatment of hemorrhoids using its treatment protocol and patented proprietary technology.

Q1FY20 Financial Highlights: CRH announced its quarterly results, wherein the company reported a 13% y-o-y plunge in the revenue to US$ 25.45 million. The decline was majorly attributable to lower revenue volume, due to closures of sites as a result of COVID19 pandemic, which took a toll on the anesthesia and product segments. The Group reported an operating loss of US$ 2.60 million, as compared to an operating income of US$ 3.82 million in the previous corresponding quarter, due to a decline in top line and an 11% increase in total operating expenses. CRH posted a net loss of US$ 2.13 million, as compared to a net profit of US$ 1.39 million in pcp, which was due to an operating loss and a loss from equity investment. The Company exited the quarter with cash and cash equivalents of U$$ 13.32 million and total assets amounting to US$ 199.34 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The Company is an industry leader in the delivery of GI-focused anesthesia services and ancillary products across the United States. The sector is witnessing favorable secular trends, which resulted in s shift toward anesthesia-assisted sedation, ageing demographics, low-cost settings, and augers well for the growth story of the Company. However, CRH’s operations were impacted during the latter half of March 2020 due to the closure of ambulatory surgery centers and are continued to close throughout the first half of Q2FY20. Patients across the United States have cancelled or deferred non-emergent procedures and avoided medical treatment, resulting in reduced patient volumes and operating income from both segments. The company expects Anesthesia Service Centers to open in the near-term with the easing of coronavirus restrictions. However, we are maintaining a skeptical view on it and expect a slide in the Company’s top line till the situation normalizes. The stock was hammered in the recent past and declined ~40% in the last nine months. Considering the current macro scenario, lower patients’ volumes due to existing closures of centers and the recent correction in the stock, we prefer to remain on the sidelines due to the lack of demand drivers. Hence, we recommend a ‘Watch’ stance on the stock at the closing price of CAD 2.58 as on May 14, 2020.

CRH One Year Daily Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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