Mr. Craig Millian reports

HLS THERAPEUTICS ANNOUNCES Q1 2024 FINANCIAL RESULTS

HLS Therapeutics Inc. has released its financial results for the three-month period ended March 31, 2024 (Q1 2024). All amounts are in thousands of United States dollars unless otherwise stated.

Key highlights:

• Q1 2024 revenue was $12.5-million, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $2.7-million and cash from operations was $800,000, compared with $14.8-million, $5.1-million and $4-million, respectively, in Q1 2023.
• Canadian product sales grew 4 per cent from $8.8-million to $9.2-million, however, royalty revenues declined 75 per cent from $2.7-million to $700,000.
• Completed a product listing agreement (PLA) with the province of British Columbia, for the listing and public reimbursement of Vascepa.
• On May 1, 2024, HLS provided Pfizer with a notice of termination of the promotional services agreement for the commercialization of Vascepa in primary care.

"We made progress on several fronts in Q1, but financial results for Vascepa and Clozaril were below expectations as ex-factory orders typically placed at quarter-end were pushed into April due to the early Easter holiday. As expected, the large decline in royalty-related revenue had the greatest impact on revenue and adjusted EBITDA," said Craig Millian, chief executive officer of HLS. "Subsequent to quarter-end, we saw a pickup in activity as Canadian ex-factory sales for Vascepa and Clozaril grew 25 per cent year-over-year in April as compared to March, which had a 3-per-cent year-over-year decline."

Q1 2024 other highlights:

• Vascepa unit demand increased by 54 per cent compared with Q1 2023;
• The number of consistent prescribers for Vascepa increased 112 per cent compared with Q1 2023;
• Vascepa net revenue was $4.5-million, up 27 per cent compared with $3.5-million in Q1 2023;
• The number of patients on Clozaril in Canada increased by 1.4 per cent compared with Q1 2023.

Mr. Millian added: "Following a solid start to the year for Vascepa in January and February, March unit demand and sales activity fell short of expectations. Although sales growth picked up in April, unit demand is still tracking below the 70 per cent full-year target that is needed to get us back to plan. While we are confident that several catalysts will help drive demand growth this year, including the public listing in B.C., we have concluded that Vascepa is unlikely to achieve its full-year sales goal. Therefore, bold action is required to meet our objective of getting Vascepa to profitability by year-end.

"We have been closely examining the performance of our go-to-market model in primary care. We have concluded that the ROI [return on investment] for this model remains unprofitable and, despite best efforts, there are not enough signs of improvement to justify continuing at our current level of investment. As a result, we have provided Pfizer with a notice of termination of the agreement between the two companies. We are working with them on an orderly wind down and transition back to HLS of all primary-care-related activities, which we expect will be completed during the second half of 2024. We thank Pfizer for the commitment and effort that they have made towards trying to make this go-to-market model successful.

"We believe in the promise and long-term revenue potential of Vascepa, and are confident we can effectively support both specialists and the growing base of primary care prescribers with our HLS sales team while retaining the flexibility to scale the team as demand grows. We are excited about this opportunity to bring both specialty and primary care in-house, and to take an even greater role in ensuring this important medicine reaches its potential. Furthermore, the termination of the agreement with Pfizer, once fully executed, could result in as much as $5-million in annual opex [operating expenditures] savings. Ultimately, we are committed to getting Vascepa to profitability by year-end and are confident we can continue to drive growth at a reasonable cost. Positioning Vascepa to be a positive contributor to adjusted EBITDA by year-end sets up well for long-term profitable growth given that its patent estate extends into the 2030s, with the last patent set to expire in 2039."

Two thousand twenty-four updated outlook

For both Vascepa and Clozaril, HLS expects to positively impact demand for the remainder of the year with the actions it is taking. However, based on year-to-date trends for Vascepa and some potential adjustments from the sales force transition, the company is lowering its full-year consolidated revenue guidance to a range of $60-million to $62-million from $63.5-million to $66.5-million.

Vascepa revenue is now expected to be in a range of $17-million to $18-million ($22.5-million (Canadian) to $24.5-million (Canadian)), compared with the prior range of $20.5-million to $22.5-million ($27.5-million (Canadian) to $30-million (Canadian)). The revised 2024 Vascepa revenue guidance represents an increase of 27 per cent to 38 per cent over 2023. Clozaril demand trends are in line with expectations through April and it remains on target with its 2024 revenue outlook of about $40-million. The 2024 outlook for the royalty portfolio also remains unchanged with it expected to generate revenue of $3-million to $4-million.

Based on lower expected sales of Vascepa, and not including any potential benefits the company may derive in 2024 from the termination of the agreement described above, HLS is also lowering its full-year adjusted EBITDA target to $17-million to $19-million from its prior expectation of $21-million. The company will continue to identify expense reductions and still expects Vascepa to make a positive contribution to adjusted EBITDA starting in the fourth quarter.

Q1 2024 financial review

The company's management's discussion and analysis, and consolidated financial statements for the three-month period ended March 31, 2024, are available at the company's website and at its profile at SEDAR+.

Excluding royalties, revenue for the company's marketed products (Vascepa and Clozaril) in Q1 2024 was down 2 per cent from Q1 2023. Lower-than-expected sales were driven in large part by the delayed timing of ex-factory orders for both Vascepa and Clozaril at the end of March and, in the case of United States Clozaril, excess year-end inventory.

Q1 2024 product sales in Canada increased 3.5 per cent in Canadian dollars compared with Q1 2023. This was led by growth in Canadian-dollar sales of Vascepa, which increased 27 per cent in Q1 2024, while Q1 2024 Clozaril revenue in Canada declined 7 per cent compared with Q1 2023. The last week of the quarter overlapped with the Easter holiday weekend, which resulted in certain orders typically placed during the final business days of Q1 2024 being pushed into the first week of April. The timing of orders negatively impacted both Vascepa and Clozaril net sales by a combined total exceeding $600,000 (U.S.). Reflecting strong underlying demand fundamentals, patient numbers for Clozaril Canada were up 1.4 per cent in Q1 2024 compared with Q1 2023.

Product sales -- United States

In the U.S., Q1 2024 Clozaril sales declined 18 per cent compared with Q1 2023. Key demand fundamentals remain in place with the variance to the prior-year revenue largely due to wholesalers in the U.S. ending 2023 with an unusually high level of inventory and subsequently working through that in Q1 2024.

Royalty revenues

Q1 2024 royalty revenues were down 75 per cent from Q1 2023 as the term for what was the largest royalty in the portfolio came to an end midway through Q4 2023.

Operating expenses

Cost of product sales was up for the quarter due to the higher sales volumes of Vascepa.

Excluding cost of product sales, Q1 2024 operating expenses were $8-million, down 3 per cent from Q1 2023. Selling and marketing, and general and administrative expenses were both down by 6 per cent compared with Q1 2023, while medical, regulatory and patient-support expenses increased 18 per cent due to timing differences for expense recognition, but is expected to be similar overall in 2024 to the prior year. For 2024, the company will continue to focus on cost management and seeking expense reductions throughout the business.

Adjusted EBITDA

Q1 2024 adjusted EBITDA was $2.7-million compared with $5.1-million in Q1 2023. The decrease for the quarter was due primarily to the 75-per-cent decrease in royalty portfolio revenue, as well as the timing of certain Clozaril and Vascepa orders during the quarter, which was partially offset by the 27-per-cent growth in Vascepa revenue.

For Q1 2024, the direct brand contribution from Clozaril to adjusted EBITDA was $6.1-million, while the direct brand contribution from Vascepa to adjusted EBITDA was a loss of $1.6-million.

Net loss

Net loss for Q1 2024 was $6.1-million, or negative 19 cents per share, compared with a net loss of $5.8-million, or negative 18 cents per share, in Q1 2023. Net loss increased in Q1 2024, primarily due to the changes to revenue and operating expenses as previously explained.

Cash from operations and financial position

Cash generated from operations in Q1 2024 was $800,000 compared with $4-million in Q1 2023. Cash was $19.4-million at March 31, 2024, compared with $22-million at Dec. 31, 2023.

Total borrowings under the credit agreement at March 31, 2024, was $86.4-million compared with $88.5-million at Dec. 31, 2023.

Q1 2024 conference call

HLS will hold a conference call today at 8:30 a.m. Eastern Time to discuss its Q1 2024 financial results. The call will be hosted by Mr. Millian, chief executive officer, and John Hanna, interim chief financial officer.

Conference ID:  64428

Date:  Thursday, May 9, 2024

Time:  8:30 a.m. ET

Webcast:  access on-line

Traditional dial-in number:  1-800-836-8184 or 1-289-819-1350

Rapidconnect:  Instantly join the conference call by phone by registering on-line for automatic connection

Taped replay:  1-888-660-6345 or 1-289-819-1450

Replay code:  64428 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 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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