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. The products are related to specialty central nervous system (“CNS”) and cardiovascular (“CV”) markets.

The company recently reported that primary endpoint of slowed coronary plaque progression reported of having been met with VASCEPA. The company reported final results, which showed a significant reduction in the primary endpoint; icosapent ethyl reduced LAP plaque volume by 17% from baseline to the 18-month scan, whereas there was a progression of LAP plaque volume in the placebo group.

Q2FY20 Financial Highlights: HLS Therapeutics announced its quarterly results, wherein the company posted revenue of USD 12.605 million as compared to USD 13.625 million in the previous corresponding period (pcp). The company generated USD 10.8 million of product sales which includes USD 6.9 million in product sales in Canada and USD 3.9 million in the U.S. market. Clozaril sales were up 2.5% on y-o-y basis across Canada amidst COVID-19 shut-down. However, within the U.S. markets, sales of Clozaril dropped 13% y-o-y basis. Operating loss widened to USD 4.302 million as compared to USD 0.469 million in pcp. The quarter was marked by a higher cost of product sales, significantly increase in selling and marketing expenses and a slight increase in medical, regulatory and patient support and general and administrative expense. Net loss stood at USD 6.474 million as compared to a net loss of USD 1.631 million in pcp. The company reported cash and cash equivalent of USD 33.662 million, while total assets stood at USD 291.833 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Key Risks: HLS is exposed to various risk factors, including risks related to the specialty pharmaceutical industry, economic factors, and many other factors beyond the control of HLS. Future growth of the company is highly dependent on the performance of VASCEPA. Any deviation from the forecasted performance may adversely affect the company.

Stock Recommendation: The stock corrected ~37% so far this year due to a free fall market scenario within the equity segment. The company has a decent presence across the central nervous system segment and cardiovascular markets. During the quarter, the company became an exclusive Canadian distributor for Saladax's MyCare™ Psychiatry Line including the Insite point-of-care device and its related line of diagnostic tests, which is a key positive and we expect that the recent development would in resulted in improved prospects for the company. Canadian Agency for Drugs and Technologies (CADT) recommended Vascepa for treating patients with established cardiovascular disease, which is a key positive. The group announced support for a trial in collaboration with Amarin Corporation to investigate the effects of Vascepa (icosapent ethyl) on inflammatory biomarkers in individuals with COVID-19. Furthermore, the company has increased its peak-year sales estimate for Vascepa to CAD 275 million to CAD 325 million, from earlier guidance of CAD 200 million to CAD 300 million. Also, HLS has a strong financial position with CAD 33.7 million of cash and cash equivalents, and CAD 25 million in a revolving facility that was undrawn at the end of the quarter. On the valuation front, the stock of HLS is available at EV to EBITDA of 18.2x on next twelve months (NTM) basis, as compared to the industry (Food & Drug Retailing) average of 20.3x. However, growth of the company is highly dependent on the performance of VASCEPA. Any deviation from the forecasted performance would adversely affect the company. Hence, considering aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 16.02 on 3 September 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.

Recently, the company informed that it has acquired 51% interest in Coastal Carolina Sedation Associates, LLC. The above company provides anesthesia services to a single ambulatory surgery center.

Q2FY20 Financial Highlights: CRH Medical declared its second quarter results, wherein the company posted its revenue at USD 13.584 million, significantly lower than USD 30.482 million in the previous corresponding period (pcp). The decline was primarily driven by the closures of sites on account of COVID-19 which took a toll on both anesthesia and product segments. The company posted an operating loss of USD 8.049 million, as compared to an operating profit of USD 4.587 million in pcp. However, the expense came in significantly lower than the previous corresponding quarter and stood at USD 21.634 million against USD 25.895 million in Q2FY19. The quarter was marked by a significantly lower net finance expense at USD 0.447 million, as compared to USD 2.178 million in pcp. The company reported a net loss of USD 3.428 million, as compared to a net profit of USD 2.618 million in pcp. The group ended the quarter with cash and cash equivalent of USD 5.237 million, while total assets stood at USD 193.935 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Further breakout of COVID-19 would result in deferring of non-emergent procedures, which would result in reduced patient volumes. Any such scenario would hamper the operating revenues and income of the group.

Stock Recommendation: Due to a weak macro scenario, the stock corrected 32% so far this year.  The performance has been highly impacted by the pandemic, which resulted in a net loss for the company. However, the company has reduced its workforces in order to align with the reduced demand, which has resulted in lower employee expenses. The company’s anesthesia service centers have resumed services in May and June 2020, which is a key positive and augurs well for improved income for the second half of FY20. The recent acquisition of Coastal Carolina Sedation Associates, LLC is likely to result in improved business prospects for the company. However, the demand for the group’s offerings has been dampened by the ongoing pandemic, and people are avoiding non-urgent medical procedures, which is a key negative for the group. We expect the trend to continue in the near future; hence, we remain skeptical about the demand drivers. The stock of CRH is trading at higher valuation as compared to the industry average. On an EV to EBITDA basis, the stock is available at 7.6x on the next twelve months (NTM) basis, as compared to the industry average of 3.7x. Considering the current trading level and valuations, we prefer to remain on the sidelines and recommend a ‘Watch’ stance on the stock at CAD 3.06 on September 3, 2020.

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.