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:

• Improved performance metrics: In 9MFY21, the company reported a higher revenue and profitability, which indicates improved performance metrics. For the nine months of FY21, the group reported its revenue of USD 44.3 million, higher than USD 39.6 million in pcp, supported by improved domestic sales led by steady gains from the Canadian Vascepa franchise. Notably, the company reported its Adjusted EBITDA of USD 20.1 million in 9MFY21, as compared to USD 15.4 million in pcp.

• Higher dividend payment: The company reported a higher dividend payment of USD 3.8 million in 9MFY21, as compared to USD 3.5 million in 9MFY20. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity.

• Stock hovering near oversold zone: On a daily chart, the 14-days RSI of the HLS stock is trading at 36.34, which is an oversold zone and indicates a possible upsurge in price from the current level. Moreover, the stock is trading near the lower band of its 20-days Bollinger band, which further suggests a possible price appreciation.

One-Year Technical Price Chart (as on February 14, 2022) Source: REFINITIV, Analysis by Kalkine Group 

Key Risk associted with Investment:

Future performance of the company is highly dependent on the performance of Vascepa. Any deviation from the forecasted performance may adversely affect the company’s cash flows. 

Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• In Q3FY21, the company reported its revenue of USD 15.0 million, as compared to USD 13.1 million in pcp. The growth was primarily due to increase revenue from Canada geography coupled with an inclusion of revenue from rest of world segment. This was partially offset by a lower revenue from United states.
• The quarter reported a lower general and administrative expense, while a higher cost of product sales and higher selling and marketing expense remains as a drag. Operating loss reduced to USD 0.3 million, as compared to a loss of USD 1.7 million in pcp.
• Net finance and related costs stood at USD 1.4 million, as compared to an income of USD 0.5 million in pcp. Net loss widens to USD 1.9 million in Q3FY21 from USD 1.7 million in pcp.
  

Valuation Methodolgy(Illustrative) : EV to Sales based 

Analysis by Kalkine Group 

Stock Recommendation:

During Q3FY21, the company has secured extensive private payer coverage for Vascepa in Canada and received a favorable recommendation for reimbursement from the public market health technology assessment organization. These factors are likely to contribute to the expansion of Vascepa product in the coming quarters. We have valued the stock using the price to EV to Sales-based valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers Hamilton Thorne Ltd, Knight Therapeutics Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of HLS at the closing price of CAD 13.87 on February 14, 2022.

One-Year Technical Price Chart (as on February 14, 2022) Source: REFINITIV, Analysis by Kalkine Group 

    Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

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