HLS Therapeutics Inc. (TSX: HLS) is a specialty pharmaceutical company, which is engaged in the acquisition and commercialization of branded pharmaceutical products within North America. The company is focused on several treatment products used for the central nervous system (CNS) and cardiovascular specialties.

Key Updates:

• Increase in dividend payment amidst economic jolt: In FY21, the company reported a higher distribution of USD 5.1 million, as compared to USD 4.7 million in FY20, supported by improved cash flows. This is impressive as most of the companies are lowering their dividend distribution in order to retain liquidity. On March 16, 2022, the Board of Directors declared a quarterly dividend of CAD 0.05 per share with a payment June 15, 2022.

• Surge in product sales: In both Q4FY21 and FY21, the company reported a higher income from its sales of Vascepa and Clozaril products at USD 13.2 million and USD 50.6 million, respectively, reflecting a growth of 12% and 11%, respectively, on y-o-y basis. This was supported by a higher traction for Vascepa and Clozaril across the North American market due to growing acceptance of the products, which is encouraging.

                   Source: Company Report

• Growth from Clozaril and CSAN Pronto: In FY21, the company’s leading product Clozaril was marked as the market-leading treatment for treatment-resistant schizophrenia, driven by a growing number of patients along with a higher market share. Additionally, the company also witnessed a higher implementation of CSAN services at key mental health institutions across Canada, which is encouraging. Notably, CSAN service was designed to enhance and simplify the mandatory safety blood monitoring process for patients that are prescribed Clozaril.

    FY21 Financial Highlights:

• In FY21, the company reported its revenue of USD 60.0 million, as compared to USD 56.1 million in pcp. The growth was primarily due to increase revenue was driven by a 18% growth in product sales in Canada.
• The quarter was marked a surge in cost of sales, increase in selling & marketing costs coupled with a higher Medical, regulatory and patient support costs. This was partially offset by lower general & administrative costs along with a lower stock-based compensation and amortization & depreciation expense. Operating loss reduced to USD 6.2 million from USD 12.0 million in FY20.
• Net loss for the year was recorded at USD 13.1 million, as compared to USD 15.3 million in FY20, due to a lower operating loss, partially offset by increase in the net finance & related costs.

Risks Associated with the Investment:

The company’s operations are highly dependend one product i.e. Clozaril, used for the treatment of treatment-resistant schizophrenia, and hence loss of market share due to new arrival products, regulatory changes etc.

      Valuation Methodology (Illustrative): EV to EBITDA Based

Analysis By Kaline Group

Stock Recommendation:

The company came up with a decent performance in FY21 and witnessed impressive performance from the Company’s Clozaril franchises located in Canada and the United States. Moreover, continued expansion of the Vascepa in Canada also supported the growth. These are key positives for the company and are expected to support the company’s upcoming operations. We have valued the stock using the EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Hamilton Thorne Ltd, Knight Therapeutics Inc and Medexus Pharmaceuticals Inc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock on the last closing price of CAD 14.80 on March 30, 2022.

One-Year Technical Price Chart (as on March 30, 2022). Analysis by Kalkine Group

  Technical Analysis Summary:

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