Mr. Craig Millian reports

HLS THERAPEUTICS ANNOUNCES Q3 FISCAL 2023 FINANCIAL RESULTS AND RENEWAL OF NORMAL COURSE ISSUER BID

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

Recent highlights:

• Q3 2023 revenue was $16-million, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $5.1-million and cash from operations was $5.4-million, compared with $15.7-million, $6-million and $4.2-million, respectively, in Q3 2022.
• Updated the Vascepa promotional services agreement with Pfizer which should increase sales force productivity in primary care and reduce costs starting in 2024.
• Re-entered discussions with British Columbia on a path forward to a Vascepa product listing agreement. HLS is currently working through coverage implementation with the province.
• Amended credit agreement to extend term and increase borrowing capacity.

"Growth from Vascepa and ongoing consistent performance from Clozaril drove product sales of $13.4-million in Q3, which is the most ever for HLS in a quarter," said Craig Millian, chief executive officer of HLS. "We also made significant progress on our key commercial imperatives to drive greater sales force effectiveness and to improve access and reimbursement. We recently amended our promotional services agreement with Pfizer and will implement by year-end what we believe is an improved primary care go-to-market model for Vascepa. In addition, we are seeing some improvement with access and reimbursement in Ontario as well as making progress in finalizing a product listing agreement for British Columbia."

Q3 and year-to-date (YTD) 2023 financial and operational highlights:

• Q3 2023 Vascepa net revenue was $4.7-million (Canadian), up 44 per cent compared with $3.2-million (Canadian) in Q3 2022.
• Vascepa total prescriptions in Q3 2023 increased by 89 per cent year-over-year from Q3 2022.
• Vascepa prescribers in Q3 2023 increased 86 per cent year-over-year from Q3 2022.
• Vascepa consistent prescribers in Q3 2023 increased by 97 per cent year-over-year from Q3 2022.
• Clozaril YTD 2023 Canadian net revenue was $26-million (Canadian), down 2 per cent compared with $26.6-million (Canadian) in the same period last year.
• Clozaril's YTD 2023 patient growth rate was 1 per cent.

Mr. Millian added: "We continue to see strong growth in Vascepa prescribing along with an increase in the base of total prescribers and consistent prescribers. While Q3 includes some seasonality during the slower summer months, we saw a strong uptick in new and total prescriptions in September -- reaching 2,000 prescriptions per week for the first time."

Outlook

Vascepa

Supported by progress against its key commercial imperatives and positive prescribing trends, HLS believes that it is on track to achieve its fiscal 2023 revenue guidance for Vascepa of $18-million (Canadian) to $20-million (Canadian). The company is also taking necessary actions to achieve the goal of Vascepa making a positive contribution to adjusted EBITDA starting in the second half of 2024.

Royalty portfolio

The royalties related to Boston Scientific's Emblem S-ICD, currently the largest royalty interest in the company's portfolio, will complete its contracted term during Q4 2023. This impact will be partially offset by the expected growth of royalties from Sanofi's Xenpozyme, which had its commercial launch in the second half of 2022. The net effect of the transition from four to three products is that revenue from the royalty portfolio will be lower in fiscal 2024. The company expects royalty revenue to grow in subsequent years.

Q3 and YTD 2023 financial review

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

Revenue

Q3 2023 revenue increased 2 per cent compared with Q3 2022. Q3 2023 revenue increased 4 per cent in constant currency terms, compared with Q3 2022, as the decline in the Canadian dollar had an impact on the reported values, which are in U.S. dollars.

Product sales -- Canada

Q3 2023 product sales in Canada increased 9 per cent in Canadian dollars, compared with Q3 2022, led by increased sales of Vascepa, which grew 44 per cent in Q3 2023 in Canadian dollars compared with Q3 2022. 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 3 per cent in Q3 2023 in Canadian dollars, compared with Q3 2022, but increased 3 per cent sequentially from Q2 2023. Clozaril remains the leading medication for treatment-resistant schizophrenia in Canada and for the nine-month period ended Sept. 30, 2023, the number of patients taking Clozaril increased 1 per cent.

In the United States, Q3 2023 Clozaril net sales increased 3 per cent sequentially from Q2 2023 but decreased $300,000 compared with Q3 2022. The year-over-year decline in unit volumes was partially offset by small annual price increases.

Royalty revenues

Royalty revenues were $2.6-million in Q3 2023, up 2 per cent from Q3 2022, reflecting contribution from all four products in the portfolio. The year-to-date results include a one-time milestone receipt of $600,000 included in Q2 2023 related to the approval of Xenpozyme in 2022.

Operating expenses

Q3 2023 operating expenses increased 13 per cent compared with Q3 2022. This was driven by an increase in cost of product sales due to the growth in shipments and sales of Vascepa, as well as higher selling and marketing costs for Vascepa related to increased selling activity in primary care. General and administrative expenses decreased 8 per cent in Q3 2023 compared with Q3 2022 as the company maintains prudent management of expenses.

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

Adjusted EBITDA

Q3 2023 adjusted EBITDA was $5.1-million compared with $6-million in Q3 2022. The decrease was due primarily to the increase in operating expenses for Vascepa and was partially offset by the growth in sales of Vascepa. Clozaril and royalty revenues continue to generate strong adjusted EBITDA and cash flow for the business.

For the nine-month period ended Sept. 30, 2023, the direct contribution to adjusted EBITDA from the Clozaril franchise was $21.7-million, while the direct contribution of Vascepa to adjusted EBITDA was a loss of $7-million.

Net loss

Net loss for Q3 2023 was ($6.9-million), or (21 cents) per share, compared with a net loss of ($4.4-million), or (14 cents) per share, in Q3 2022. Revenue growth was offset by the increase in cost of product sales and selling and marketing expenses related to the selling and marketing of Vascepa, and higher finance and related costs, net, including fair value adjustments on financial instruments and the effect of higher interest rates, including fair value adjustments on the interest rate swap, resulting in higher net loss for the quarter and year-to-date period.

Cash from operations and financial position

Cash generated from operations was $5.4-million in Q3 2023, compared with $4.2-million in Q3 2022. Cash was $21.8-million at Sept. 30, 2023, up from $20.7-million at Dec. 31, 2022.

Credit agreement amendment

On Aug. 14, 2023, HLS announced an extension to its credit agreement, which comprises a senior secured term loan, a revolver facility and an expansion facility with a syndicate of bank lenders led by JPMorgan Chase Bank NA.

Under the terms of the amended agreement, the maturity date has been extended to Aug. 11, 2026. The balance on the revolver facility at the time of the amendment was combined with the principal amount remaining on the existing senior secured term loan for a new senior secured term loan balance of $93.8-million. In addition, there is a new revolving facility of $30-million and an expansion facility of up to $70-million to support acquisitions and other growth opportunities.

As a result, at Sept. 30, 2023, HLS had a strong financial position consisting of $21.8-million in cash, a $30-million undrawn revolving facility and a $70-million expansion facility. The principal amount of the senior secured term loan outstanding at Sept. 30, 2023, was $91.7-million.

Renewal of normal course issuer bid

HLS has filed with the Toronto Stock Exchange (TSX), and the TSX has accepted, the company's notice of intention to renew its normal course issuer bid (NCIB) for its issued and outstanding common shares. Pursuant to the NCIB, HLS may, if considered advisable, purchase for cancellation through the facilities of the TSX and/or alternative Canadian trading systems, from time to time over the next 12 months, up to an aggregate of 1,607,892 common shares, representing 5 per cent of the 32,157,854 issued and outstanding common shares as of Oct. 31, 2023.

HLS may commence purchases of common shares under the NCIB on Nov. 14, 2023, and the NCIB will remain in effect until the earliest of: (i) the close of trading on Nov. 13, 2024; (ii) the date upon which HLS acquires the maximum number of common shares permitted under the NCIB; and (iii) the date upon which HLS provides written notice of termination of the NCIB to the TSX. Daily purchases pursuant to the NCIB will be limited to 5,307 common shares, other than purchases made pursuant to the block purchase exception, based on the applicable average daily trading volume on the TSX for six months ending Oct. 31, 2023, of 21,229 common shares.

Purchases of common shares under the NCIB will be made by Haywood Securities Inc. based on the parameters prescribed by the TSX, the provisions of the company's credit agreement and applicable Canadian securities laws at a price per common share equal to the market price at the time of acquisition. All common shares acquired by the company under the NCIB will be cancelled.

The company also intends to renew the automatic share purchase plan (ASPP) with Haywood to allow for the purchase of common shares under the NCIB at times when the company would ordinarily not be permitted to purchase shares due to regulatory restrictions or self-imposed blackout periods.

HLS believes that any purchases pursuant to the NCIB, if considered advisable, will be in the best interests of the company and will be a desirable use of corporate funds. HLS previously sought and received approval of the TSX to purchase up to 1,620,365 common shares in a normal course issuer bid that commenced on Nov. 14, 2022, and will expire on Nov. 13, 2023. As of Oct. 31, 2023, HLS had purchased 334,869 common shares on the open market at an average purchase price of $5.96 (Canadian) per common share under the previous bid.

Q3 fiscal 2023 conference call

HLS will hold a conference call today at 8:30 a.m. Eastern Time to discuss its Q3 2023 financial results. The call will be hosted by Mr. Millian, CEO, and Tim Hendrickson, chief financial officer.

Conference ID: 52567994

Date: Thursday, Nov. 9, 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: 864357 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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