HLS Therapeutics Inc (TSX: HLS) is a Canada-based company specialized in the pharmaceutical industry. The Company acquires and distributes commercial stage and branded pharmaceutical drugs for the North American markets. It focuses mainly on treatment products for the central nervous system and cardiovascular specialties in Canada.

Key highlights 

• Growing prescription momentum: Despite the pandemic's influence on market reopening, Q3 2021, efforts resulted in a 30% increase in Vascepa prescribers and a 23% increase in Vascepa patients compared to Q2 2021, while Vascepa product sales grew 33% sequentially. During the tenure the company also went for a promotional agreement with Pfizer for the Canadian market. We anticipate that this arrangement will allow Vascepa to expand quickly, efficiently, and effectively to a primary care physician audience that is more than four times bigger than the HLS team currently serves.

Source: Company Filing

• Recorded elevated adjusted EBITDA: In Q3 2021, the company reported adjusted EBITDA of USD 6.9 million increased by USD 2.4 million or 53% from the same period in the prior year as a result of the USD 1.9 million increase in revenues on the back of higher products sales of Vascepa in Canada and higher royalty revenues from royalty interests.

Source: Company filing

• Garnered higher cash from operations: The company’s cash generated from operations stood at USD 3.6 million in Q3 2021, compared to USD 2.4 million in Q3 2020. While for the 2021 year-to-date period, its cash flow from operating activities stood at USD 12.5 million for the first three quarters of fiscal 2021 compared with USD 3.5 million for the first three quarters of fiscal 2020. The increase is attributable to a reduction in required non-cash working capital and the higher Adjusted EBITDA in fiscal 2021.

Risks associated with investment

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

Financial overview of Q3 2021 (in thousands of U.S. dollars)

Source: Company Filing

• The company generated revenue of USD 15.0 million in Q3 2021, against USD 13.1 million in the previous corresponding period. The rise in revenue was primarily due to higher Vascepa revenue, along growth in Royalty revenues.
• In Q3 2021, the company narrowed its operating loss at USD 0.3 million, against a loss of USD 1.7 million in pcp, the lower operating loss was primarily due to higher revenue and lower G&A cost.
• Net loss stood at USD 1.9 million, compared to USD 1.7 million in the previous corresponding period. Higher finance and related cost dragged the company towards net loss.
  

Valuation Methodology (Illustrative): EV to EBITDA

Analysis by Kalkine Group  

Stock recommendation 

In the third quarter, the company's revenue and adjusted EBITDA increased, mainly to the core products' strength and durability, as well as a growing contribution from Vascepa, which is a key positive. The number of patient-physician visits that take place in person is increasing again, which is encouraging, and top health authorities in Canada's largest province are publicly asking physicians to boost their face-to-face interactions. Furthermore, the company has enough cash on hand to consider expanding its product line in Canada and the United States through in-licensing or M&A deals. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 15.10 as on January 12, 2022. We have considered Hamilton Thorne Ltd, Quipt Home Medical Corp, Knight Therapeutics Inc, etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached

Technical Analysis Summary

One-Year Technical Price Chart (as on January 12, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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