Mr. Craig Millian reports

HLS THERAPEUTICS ANNOUNCES FISCAL 2023 FINANCIAL RESULTS

HLS Therapeutics Inc. has released its financial results for the three- and 12-month periods ended Dec. 31, 2023. All amounts are in thousands of United States dollars unless otherwise stated.

Key highlights:

• Fiscal 2023 revenue was $63.1-million, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $21.1-million and cash from operations was $15.8-million, compared with $61.5-million, $23.8-million and $16.9-million, respectively, in 2022.
• Fourth quarter 2023 revenue was $15.9-million, adjusted EBITDA was $5.3-million and cash from operations was $3.7-million, compared with $15.7-million, $5.3-million and $3.5-million, respectively, in Q4 2022.
• Q4 2023 and fiscal 2023 product sales in Canada increased 11 per cent and 10 per cent, respectively, in Canadian dollars, compared with the same periods in 2022.
• Introduced the updated Pfizer partnering model in primary care on Jan. 1, 2024.
• Completed a product listing agreement (PLA) on Feb. 6, 2024, with the Province of British Columbia, for the listing and public reimbursement of Vascepa.

"Two thousand twenty-three was a year of transition for HLS, with leadership changes and an increased focus on operational execution that has us entering 2024 well positioned for our next phase of growth," said Craig Millian, chief executive officer of HLS. "With Vascepa, we made important changes to our commercial strategy that included updating our primary care go-to-market model with Pfizer, along with renewed efforts to improve access and reimbursement, primarily in B.C. and Ontario. In 2024, we have already seen positive developments in each of these areas, which we believe will help us generate accelerated growth and a transition to profitability for Vascepa later this year.

"Clozaril continued to be a consistent performer and generator of cash flow in 2023. The number of patients on Clozaril in Canada grew by 1 per cent for the year, reflecting the underlying stability of Clozaril in the market. Along with maintaining strong margins, we think there are opportunities to drive modest growth for the product, and this will also be a focus of ours in 2024."

Q4 and fiscal 2023 other highlights:

• Mr. Millian appointed chief executive officer, Brian T. Walsh appointed senior vice-president, commercial, and John Hanna appointed interim chief financial officer;
• Reduced the size of the board of directors from 10 to eight members; John Welborn appointed chair;
• Vascepa total prescriptions in fiscal 2023 increased by 86 per cent from 2022;
• Q4 2023 Vascepa net revenue was $5.1-million (Canadian), up 42 per cent compared with $3.6-million (Canadian) in Q4 2022;
• The number of patients on Clozaril in Canada increased by more than 1 per cent in 2023 compared with 2022;
• Clozaril sales in Canada in Q4 2023 were essentially flat compared with Q4 2022.

Mr. Millian added: "Vascepa revenue for 2023 was $17.8-million (Canadian), just below the low end of our revenue target range of $18-million (Canadian) to $20-million (Canadian), but still up significantly over 2022. The uptake in public plans continued to outpace private plan growth in Q4, which was a common theme through much of 2023. While helping to build our growing base of patients and prescribers, this rapid increase in public claims impacted our gross-to-net and therefore impacted net revenue for the quarter and year. On a positive note, this uptick was due in part to a clearing of the backlog in the Ontario public plan, where turnaround times have improved considerably.

"Going forward, we will also provide our outlook for Vascepa in U.S. dollars in order to simplify our guidance presentation, as we are now providing a consolidated outlook for the company as well as an outlook by product."

Two thousand twenty-four outlook

HLS is targeting 2024 consolidated revenue of $63.5-million to $66.5-million, or 1-per-cent to 5-per-cent growth. This consists of revenue from its marketed products (Vascepa and Clozaril) of $60.5-million to $62.5-million, or 15-per-cent to 19-per-cent growth, and revenue from its royalty portfolio of $3-million to $4-million, a 60-per-cent to 70-per-cent decline. Top-line growth from the company's marketed products is therefore expected to more than offset the decline in royalty revenue.

Vascepa revenue is expected to be in a range of $20.5-million to $22.5-million ($27.5-million (Canadian) to $30-million (Canadian)), an increase of 55 per cent to 70 per cent over 2023, while Clozaril is expected to generate revenue of approximately $40-million, an increase of 1 per cent to 2 per cent over 2023. The company also expects Vascepa to make a positive contribution to adjusted EBITDA, starting in the fourth quarter of this year.

HLS is targeting 2024 consolidated adjusted EBITDA that is flat compared with 2023 as product-related adjusted EBITDA growth is projected to fully offset the significant decline in royalties. The company will pursue this goal through a combination of top-line growth and cost management. HLS expects non-royalty-related adjusted EBITDA, driven by its marketed products, to increase by approximately 60 per cent over 2023. The royalty portfolio is expected to contribute just $3-million to $4-million to adjusted EBITDA in 2024 compared with more than $10-million in 2023.

Mr. Millian added: "Our go-forward optimism for Vascepa is based on recent positive operational and reimbursement catalysts, combined with the ongoing strong prescription growth we experienced throughout 2023. We are excited about the projected growth in our promoted products, along with their significantly increased contribution to adjusted EBITDA in 2024. Looking ahead to 2025 and beyond, we expect consolidated revenue and adjusted EBITDA growth to improve considerably. This is driven by four key factors: (1) We expect to exit 2024 with two profitable products (Vascepa and Clozaril) and both are expected to be profitable for the entirety of 2025; (2) We have scale in our sales and marketing model such that operating margins for Vascepa will improve on a go-forward basis as the top-line grows; (3) The royalty portfolio is expected to grow again starting in 2025; and (4) Improved operating performance from our core portfolio and strengthening financials could support bringing in additional synergistic assets down the road."

Credit agreement

Subsequent to year-end, the company amended the terms of its credit agreement to modify certain covenant ratios. This was done to provide the company with operating flexibility while revenue for Vascepa continues to ramp up in fiscal 2024 and while quarterly royalty revenue are expected to grow sequentially after Q1 2024.

Under the amended agreement, the company's revolving facility has been reduced to $25-million from $30-million. Allowable restricted payments, which include normal course issuer bid (NCIB) purchases, are expected to be capped at approximately $2.5-million in fiscal 2024, providing flexibility this year to go beyond the $1.5-million returned to shareholders in the form of share buybacks in 2023. Interest on borrowings under the amended agreement accrues at a rate per month equal to the sum of the SOFR (secured overnight financing rate) plus a range of 2.75 per cent to 4.75 per cent, depending on the leverage ratio of the company at the time. The company's expansion facility of up to $70-million to support growth opportunities remains in place.

"These amendments provide HLS with added flexibility in the near term during a transition period with the royalty portfolio in 2024," said John Hanna, interim chief financial officer at HLS. "We continue to view the share buyback as an important and attractive aspect of our capital allocation strategy."

Q4 and fiscal 2023 financial review

The company's management's discussion and analysis (MD&A), and consolidated financial statements for the three- and 12-month periods ended Dec. 31, 2023, are available at the company's website and at its profile at SEDAR+.

Revenue

Q4 2023 and fiscal 2023 revenue increased 1 per cent and 3 per cent, respectively, compared with the same periods in 2022. Q4 2023 and fiscal 2023 revenue increased 1 per cent and 5 per cent, respectively, in constant currency terms, compared with the same periods in 2022, as the decline in the Canadian dollar had an impact on the reported values, which are in U.S. dollars. Excluding royalties, revenue for the company's marketed products (Vascepa and Clozaril) in Q4 2023 was $14.3-million, up 6 per cent from Q4 2022, and for the year was $52.7-million, up 2 per cent from 2022.

Product sales -- Canada

Q4 2023 and fiscal 2023 product sales in Canada increased 11 per cent and 10 per cent, respectively, in Canadian dollars, compared with the same periods in 2022. This was led by growth in Canadian-dollar sales of Vascepa, which increased 42 per cent in Q4 2023 and 44 per cent in fiscal 2023.

Q4 2023 and fiscal 2023 Clozaril revenue in Canada declined 1 per cent and 2 per cent, respectively, compared with the same periods in 2022. Clozaril revenue in Canada increased 2 per cent sequentially from Q3 2023. Clozaril remains the leading medication for treatment resistant schizophrenia in Canada and for fiscal 2023, the number of patients taking Clozaril increased 1 per cent.

Product sales -- United States

In the U.S., Q4 2023 and fiscal 2023 Clozaril net sales declined 4 per cent and 8 per cent, respectively, compared with the same periods in 2022. Key fundamentals remain in place as the year-over-year revenue declines were due to the release of provisions for expired returns in 2022 of $600,000 (Q4 2022) and $1.3-million (fiscal 2022). Clozaril revenue in the U.S. increased 17 per cent sequentially from Q3 2023.

Royalty revenue

Royalty revenue were $1.6-million in Q4 2023, down 30 per cent from Q4 2022, as the term for what was the largest royalty in the portfolio came to an end midway through the quarter. Royalty revenue was $10.3-million for fiscal 2023, up 6 per cent from 2022. The fiscal 2023 increase was primarily due to a one-time milestone receipt of $500,000 included in Q2 2023 related to the approval of Xenpozyme.

Operating expenses

Cost of product sales was up for the year due to higher sales volumes of Vascepa. In addition, Q4 2023 included a provision of $500,000 against inventory.

Selling and marketing expenses were up for the year due to increased promotional efforts related to Vascepa. However, selling and marketing expenses were lower in Q4 2023, and medical, regulatory and patient support expenses, as well as general and administrative expenses, were lower for both the quarter and the year due to the company's continuing cost management efforts.

Adjusted EBITDA

Q4 2023 adjusted EBITDA was $5.3-million, which was flat compared with Q4 2022. Fiscal 2023 adjusted EBITDA was $21.1-million compared with $23.8-million in 2022. The decrease for the year 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 generated strong adjusted EBITDA and cash flow for the business in both Q4 2023 and fiscal 2023.

For fiscal 2023, the direct brand contribution from Clozaril to adjusted EBITDA was $29.7-million, while the direct brand contribution from Vascepa to adjusted EBITDA was a loss of $9.2-million.

Net loss

Net loss for Q4 2023 was $5.4-million, or a loss of 17 cents per share, compared with a net loss of $6.4-million, or a loss of 20 cents per share, in Q4 2022. Net loss for fiscal 2023 was $27.5-million, or a loss of 85 cents per share, compared with a net loss of $23.6-million, or a loss of 73 cents per share, in 2022. For fiscal 2023, revenue growth was offset by the increase in cost of product sales, and selling and marketing expenses related to Vascepa, and higher finance and related costs, due to higher interest expense, as well as fair value adjustments for the contingent liability for a future milestone payment, and an interest rate swap that settled in the year. Other costs in Q4 2023 included a non-cash charge of $1.5-million related to ceasing commercialization of Trinomia.

Cash from operations and financial position

Cash generated from operations in Q4 2023 and fiscal 2023 was $3.7-million and $15.8-million, respectively, compared with $3.5-million and $16.9-million in the same periods last year. Cash was $22-million at Dec. 31, 2023, up from $20.7-million at Dec. 31, 2022.

Total borrowings under the credit agreement at Dec. 31, 2023, was $88.5-million compared with $97.3-million at Dec. 31, 2022.

Q4 fiscal 2023 conference call

HLS will hold a conference call today at 8:30 a.m. Eastern Time to discuss its Q4 and fiscal 2023 financial results. The call will be hosted by Mr. Millian, chief executive officer, and Mr. Hanna, interim chief financial officer. View the slides that accompany management's discussion on-line.

Conference ID:  51683499

Date:  Thursday, March 14, 2024

Time:  8:30 a.m. ET

Webcast:  access on-line

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

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

Replay code:  683499 followed by the 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 before the conference call to ensure enough time for any software download 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 that address unmet needs in the treatment of psychiatric disorders and cardiovascular diseases. HLS's management team comprises 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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