Yahoo Finance
Filing
Feb. 09, 2017
Q3 2017 Data
Price: US$9.25, Shares: 27m. Cap: $313m?
1.Basic Information
(1) History
It was created by the former management of Biovail in 2015. HLS raised US$385m(USD$200m from stock offering of US$10/share and US$185m debt) and acquired the North American rights to Clozaril, a medicine for resistant schizophrenia for US$305m from Novartis. At Dec. 2017, it entered an agreement with Automodular (CVE:AM.H), a shell company to do a reverse merger at US$9.25/share valuation. The vote is scheduled at Mar. 6 and expect to close shortly after it.
(2) Business-related:
Colozaril: Acquired in August 2015 for $305m. It generated $46m and $36m revenue for 2016 and 3Q of 2017.
It also acquired rights to market Absorica in the US from Galephar Pharmaceutical for $17m payment plus future royalty, Absorica is an oral pill to treat nodular acne. In the first 3Q, the company received US19m in revenue which seems well-exceeded expectation. Partially it was because one of its competitors called back a product since early 2017.
The company also acquired distribution right of Vascepa in Canada at Sept. 2017 with $5m up-front payment and following payments. Vascepa is an omega 3 prescription drug by Amarin Corporation plc (NASDAQ:AMRN). It generated revenue in US about $46 in Sept. 2017 quarter.
(3) Management.
Biovail Filing
Most of the management previously were worked for Biovail. Biovail is a public Canadian drug company which had committed accounting fraud at around 2001 to 2003 time. At 2010, it merged with Valeant. In 2015, Valeant was also criticized for price hiking of its drugs and the stock dropped by 90% since then. However, based on the below information. The management team of HLS was not part of the troubled period for both companies.
Chairman Bill Wells: He joined Biovail in 2005 as an independent director. At that time he was the CFO of Loblaws. After former CEO Eugene Melnyk left Biovail in 2017, he became the CEO of Biovail from 2008 and 2010. He led the turnaround and the merger with Valeant. I think he did a good job on that. He left the company right after the merge.
CEO Gregory Gubitz: SVP of Biovail from 2006 to 2010.
COO Gilbert Godin: SVP, COO of Biovail from 2006 to 2011.
Chief Scientific Advisor Chris Fibiger: CSA of Biovail from 2008 to 2010.
VP Integration Management Carmel Daughtery: VP Integration Management of Biovail from 2005 to 2010
VP Intellectual Property Rochelle K. Seide: VP Intellectual Property of Biovail from 2009 to 2011
(4) Debt and Credit Facility.
Currently, there is US$150m?? debt outstanding. Currently, it has US35.7m in cash. After the merger, it should have around US$55m in cash.
(5) Insider holding, options, Insider trading info, share buyback.
Joe Maclean(Director): 1.9m shares +250k options +260k PSU. 7.5%.
Gregory Gubitz: 667k shares + 250k options + 260k PSU. 3.7%
Gilbert Godin: 900k shares + 250k options + 260 PSU. 4.4%.
(6) Employee numbers
(7) Industry comparison.
(8) Major events
2. Financial data.
3. Valuation
(1)Currently, it has US$180m in equity and US$30m in losses. It has 25,277,997 in total shares. For 2016 and 3Q 2017, it generated US38m and US$40m in EBITDA. By estimate, it might generate US$55m in EBIDTA at 2017. It has cash of US$35.7m and has a debt balance of around US$156m.
(1) . If using US$55m as annual EBITDA, US$9.25 as current price, its EV=9.25*25.3+156-35.7=$354m. EV/EBITDA = 354/55=6.5. Not that high actually. If adding AM's new equity and cash, the EV will still be the same since the Cash and added equity will be even out.
4. Risk
(1) The public reception of any person related to Biovail and Valeant is pretty bad. The company might be precepted as a replica of Biovail or Valeant which is not good for a public company. However, since the management is not involved in the bad deed of both companies. Eventually, the financial number will speak for itself.
(2) The good Absorica performance is partly due to competitor's callback. Once it is back, Absorica revenue might down significantly.
(3) All the drugs might subject to competition from new drug from generics.
5. Conclusion
Although this is a new stock, it generates steady cash and EV/EBITDA. If it can keep business stable, the price is acceptable. If it can acquire more drugs, then this could a very good one.
6.Links
Current Price $11.5, shares 27.3m. Cap: $314m
1. The new HLS share started trading at Mar. 14. Current price equals roughly US$8.84 which is lower than the $9.25/share price and all previous private placement.
2. Assuming US$60m EBITDA at 2020, 10 EV/EBITDA, US$100m net debt, 1.3 USD/CAD rate. 28m shares. Its price can be (60*10-100)*1.3/28=CAD$23.2.
