Mr. Craig Millian reports

HLS THERAPEUTICS ANNOUNCES Q2 FISCAL 2023 FINANCIAL RESULTS

HLS Therapeutics Inc. has released its financial results for the three- and six-month periods ended June 30, 2023. All amounts are in thousands of United States dollars unless otherwise stated.

Key highlights:

• Q2 2023 revenue was $16.4-million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $5.5-million, compared with $15.5-million and $6.2-million, respectively, in Q2 2022.
• New leadership with the appointment of Craig Millian as chief executive officer and Brian Walsh as senior vice-president, commercial.
• Board changes with John Welborn named chair; Christian Roy, Mr. Millian and John Hanna joining the board; and a reduction in the size of the board from 10 to eight members.

"Q2 revenue and adjusted EBITDA results were largely in line with expectations with top-line growth driven by the increase in Canadian product revenue and strong royalty revenue," said Mr. Millian, CEO of HLS. "The quarter was one of significant transition for HLS. We made important structural and leadership changes to drive our company forward and ensure strong alignment with shareholders. We are making necessary adjustments to our operating model to build a solid foundation for sustainable and profitable growth moving forward."

Q2 and year-to-date (YTD) 2023 financial and operational highlights:

• Q2 2023 Vascepa net revenue was $4.5-million (Canadian), up 49 per cent compared with $3-million (Canadian) in Q2 2022.
• Vascepa total prescriptions in Q2 2023 increased by 91 per cent year-over-year from Q2 2022.
• Vascepa prescribers in Q2 2023 increased by 20 per cent sequentially from Q1 2023 and 96 per cent year-over-year from Q2 2022.
• Vascepa consistent prescribers in Q2 2023 increased by 30 per cent sequentially from Q1 2023 and 139 per cent year-over-year from Q2 2022.
• Clozaril YTD 2023 Canadian net revenue was $17.1-million (Canadian), down 1.5 per cent compared with $17.3-million (Canadian) in the same period last year.
• Clozaril's YTD 2023 patient growth rate was 1 per cent.

"Vascepa generated 49-per-cent year-over-year net sales growth in Q2 with 91-per-cent growth in prescribing driven by increases in new prescribers, new patients and more prescribing by current writers," Mr. Millian added. "We are excited about the continued adoption of Vascepa and opportunities for future growth, while also acknowledging that the current growth trajectory is not as rapid as originally projected. Our goal moving forward is to invest where we can drive continued growth but with an accelerated time frame to brand profitability."

Due to payer mix dynamics, public plan reimbursement delays and slower-than-expected uptake with general practitioners, HLS is guiding to a 2023 Vascepa revenue range of $18-million (Canadian)to $20-million (Canadian) compared with the low end of its previously issued $22-million (Canadian) to $28-million (Canadian) revenue range. The company remains confident in the potential for Vascepa and is putting plans in place so that Vascepa begins to make a positive contribution to adjusted EBITDA in the second half of 2024.

Q2 and YTD 2023 financial review

The company's management's discussion and analysis and consolidated financial statements for the three- and six-month periods ended June 30, 2023, are available at the company's website and at its profile at SEDAR+.

Revenue

Q2 2023 revenue increased 6 per cent compared with Q2 2022. Q2 2023 revenue increased 9 per cent in constant currency terms, compared with Q2 2022, as the decline in the Canadian dollar had an impact on the reported values, which are in U.S. dollars.

Q2 2023 product sales in Canada increased 3 per cent compared with Q2 2022. Q2 2023 product sales in Canada grew 8 per cent in constant currency, compared with Q2 2022, led by increased sales of Vascepa, which grew 49 per cent in Q2 2023 in constant currency compared with Q2 2022, and grew by $1-million (Canadian), or 28 per cent sequentially, from Q1 2023. The Vascepa net revenue growth rate trails the growth rate in prescriptions as net pricing adjusts to increased public sector volumes.

Clozaril revenue in Canada declined 5 per cent in Q2 2023 in constant currency, compared with Q2 2022, impacted by the timing of wholesaler ordering. For the six-month period ended June 30, 2023, the number of patients taking Clozaril increased 1 per cent while revenue decreased 1.5 per cent compared with the same period in the prior year. The variance between the increase in patients and decrease in revenue is due to the order timing issues mentioned above. Clozaril continues to be the leading medication for treatment-resistant schizophrenia in Canada.

In the United States, Q2 2023 Clozaril net sales decreased $500,000 compared with Q2 2022. While gross sales remain steady year-over-year, the decrease was primarily due to a $500,000 benefit in Q2 2022 related to expired product returns while public rebates and co-pay assistance programs have increased moderately in the current year.

Royalty revenues

Royalty revenues were $3.4-million in Q2 2023, up 51 per cent from Q2 2022, reflecting contribution from all four products in the portfolio. Of the year-over-year increase, $500,000 is due to receipt of a one-time milestone payment related to the approval of Xenpozyme.

Operating expenses

Q2 2023 operating expenses increased 16 per cent compared with Q2 2022, which was driven by an increase in cost of sales due to the growth in shipments and sales of Vascepa, and an increase in selling and marketing costs for Vascepa related to increased selling activity in primary care. Selling and marketing costs are expected to remain steady for the remainder of 2023 and then to decrease in 2024 as the company drives toward profitability for Vascepa in the second half of 2024.

Support costs and strong gross margins remain stable across the company's key Clozaril franchises in Canada and the United States.

Q2 2023 adjusted EBITDA was $5.5-million compared with $6.2-million in Q2 2022. The decrease is due primarily to the increase in operating expenses for Vascepa. Clozaril and royalty revenues continue to generate strong adjusted EBITDA and cash flow for the business.

For the six-month period ended June 30, 2023, the direct contribution to adjusted EBITDA from the Clozaril franchise was $14.4-million, while the direct contribution of Vascepa and other products was a loss of $4.7-million and $400,000, respectively.

Net loss

Net loss for Q2 2023 was ($9.4-million), or (29 cents) per share, compared with a net loss of ($9.1-million), or (28 cents) per share, in Q2 2022. Net loss increased as revenue growth was offset by higher cost of product sales and selling and marketing expenses related to the expansion of Vascepa, and Q2 2023 had other costs of $3.9-million which included $2.4-million related to the discontinuation of Perseris and $1.5-million of reorganization costs.

Cash from operations and financial position

Cash generated from operations was $2.7-million in Q2 2023, compared with $3.5-million in Q2 2022. Cash was $20.9-million at June 30, 2023, up from $20.7-million at Dec. 31, 2022.

As at June 30, 2023, HLS has a strong financial position with $20.9-million of cash, $26.5-million of undrawn revolving facility, and the company may also request to be provided with incremental loans, up to a maximum amount of $70-million, to support acquisitions and other growth opportunities.

Q2 fiscal 2023 conference call

HLS will hold a conference call today at 8:30 a.m. Eastern Time to discuss its Q2 2023 financial results. The call will be hosted by Mr. Millian, CEO, and Tim Hendrickson, chief financial officer.

Conference ID: 52567994

Date: Thursday, Aug. 10, 2023

Time: 8:30 a.m. ET

Traditional dial-in number: 1-888-664-6392 or 416-764-8659

Taped replay: 1-888-390-0541 or 416-764-8677

Replay code: 567994 followed by pound key

The taped replay will be available for 14 days and the archived webcast will be available for 365 days.

A link to the live audio webcast of the conference call will also be available on the events page of the investors section of HLS Therapeutics' website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to hear the webcast.

About HLS Therapeutics Inc.

Formed in 2015, HLS is a pharmaceutical company focused on the acquisition and commercialization of late-stage development, commercial-stage promoted and established branded pharmaceutical products in the North American markets. HLS's focus is on products targeting the central nervous system and cardiovascular therapeutic areas. HLS's management team is composed of seasoned pharmaceutical executives with a strong record of success in these therapeutic areas and at managing products in each of these life cycle stages.

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