HLS Therapeutics Inc

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 

• Improving adjusted EBITDA: In Q2 2021, the company reported adjusted EBITDA of USD 6.6 million, which increased by USD 1.7 million or 36.3% from the same period in the prior year as a result of the USD 2.3 million increase in revenues on the back of higher products sales of Vascepa in Canada and higher royalty revenues from royalty interests.
• Higher cash from operations: Cash generated from operations in Q2 2021, stood at USD 1.7 million compared to cash used in operations of USD 4.2 million in Q2 2020. For the 2021 year-to-date period, cash from operations stood at USD 8.9 million compared to USD 1.1 million in the same period last year. The increase was attributable to a reduction in required non-cash working capital and the higher Adjusted EBITDA in fiscal 2021.
• "Vascepa" carrying blockbuster potential: Through focused business development activities, the company hopes to introduce more medicines in the central nervous system and cardiovascular therapeutic sectors, as well as in other therapeutic areas. The business anticipates a blockbuster potential with the "Vascepa," which may produce sales of USD 275-325 million and Adjusted EBITDA of USD 110-130 million by FY2025, while the total income for the same year is estimated to be about USD 325 million.
• Ample liquidity: As on June 31, 2021, the group had USD 21.3 million of cash and cash equivalents, along with unused revolving facility of USD 35.0 million. Moreover, the Company may also request to be provided with incremental loans, up to a maximum amount of USD 70.0 million, to support acquisitions and other growth opportunities. 

Financial overview of Q2 2021 (in thousands of U.S. dollars)

Source: Company 

• The company generated revenue of USD 14.9 million in Q2 2021, against USD 12.6 million in the previous corresponding period. The rise in revenue was primarily due to higher Vascepa revenue, along with growth in Royalty revenues.
• In Q2 2021, the company posted an operating loss of USD 0.5 million, against a loss of USD 4.3 million in pcp, the lower operating loss was primarily due to higher revenue and lower amortization and depreciation cost.
• Net loss reduced to USD 2.1 million, compared to a USD 6.4 million in the previous corresponding period. Lower finance and related cost helped the company to bring down its net loss.
  

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.

Valuation Methodology (Illustrative): EV to EBITDA 

1USD=1.28CAD 

Stock recommendation

Despite the continued problems faced by the COVID-19 pandemic, Q2 2021 was another profitable quarter, owing to Vascepa's growing contribution. Clozaril also continues to provide solid and dependable results, with the patient count for the product increasing by 3% yearly in Canada, fuelling market growth. Furthermore, the firm has plenty of cash on hand, allowing it to consider extending its product line in Canada and the United States through in-licensing or M&A agreements. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 18.04 as on September 21, 2021. We have considered Hamilton Thorne Ltd, Covetrus Inc, 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 September 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

Viemed Healthcare Inc

Viemed Healthcare Inc (TSX: VMD), provides equipment and home therapy to service patients with various respiratory diseases. The group is a high-level service provider using best in class technology and equipment to increase the quality of life in the homes of patients with respiratory conditions.

Key highlights 

• Increase in ventilator patient count: The Company grew its ventilator patient count by 5% to 8,103, over 7,733 ventilator patient count on March 31, 2021. The increase in ventilator patient count is a healthy sign from the company’s prospectus as it derives the majority of its revenue through the rental of non-invasive and invasive ventilators which represented 77.3% and 81.9% of the traditional revenue in Q2 2021.

Source: Company

• Revenue guidance for Q3 2021:The management is confident that its core business would generate net revenues of USD26.8 - USD27.8 million, with extra revenues of USD0.5 – USD0.8 million from sales and support connected to the COVID-19 pandemic. As a result, overall sales for Q3 2021 are expected to range between USD27.3 to USD28.6 million.
• Healthy balance sheet: In Q2 2021, the Company had a cash surplus of USD 31.2 million and a total working capital balance of USD 28.7 million, compared to USD 24.2 million on December 31, 2020. In addition, the company reduced its total long-term debt from USD 6.6 million on December 31, 2020, to USD 5.7 million on June 30, 2021.
• Industry Beating Margins: The resilient business of the company assisted in outperforming the industry median on many fronts of its operating margin profile, portraying the efficacy of the company. The matrix below gives a glimpse of this.

Financial overview of Q2 2021 (Expressed in thousands of U.S.D)

Source: Company

• In Q2 2021, the company posted lower revenue at USD 27.3 million compared to USD 42.8 million in the previous corresponding period. The revenue reduction was largely due to poor performance in the COVID-19 response sales and services sector, which saw revenue drop 94.2% to USD 1.1 million from USD 19.7 million in pcp.
• Gross profit stood at USD17.6 million compared to USD 25.9 million in the previous corresponding period.
• In Q2 20201, an operating income stood at USD 2.6 million against USD 12.8 million in pcp. The decrease in operating income was primarily due to lower gross profit and lower other income.
• Net income registered by the Company in the reported period, totalled USD 1.5 million, compared to USD 19.4 million in pcp, the decline in net income was primarily due to lower revenue and above stated reasons. 

Risks associated with investment

The company is susceptible to various risks, including the uncertainty from the general business, market and economic conditions, impact of the covid-19 pandemic, financial constraints, the company's ability to implement business strategies and pursue opportunities, etc.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Despite the problems it faced in March, the company grew its ventilator patient count by 5% to 8,103 allowing it to increase its core market, which is a key positive. As the group is continuously expanding geographically and further penetrating existing territories, it expects growth in its active ventilator patient base and ventilator rental revenue, as well as in the other growing respiratory offerings. Though in the short term the management anticipate growth to occur at a slightly slower rate than historically realized. Furthermore, the management anticipates net sales of USD27.3 - USD28.6 million in Q3 2021, which is a significant factor. Therefore, based on the above rationale and valuation, we recommend Speculative Buy rating on the stock at the closing price of CAD 7.56 on September 21, 2021.

*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 September 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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