HLS Therapeutics Inc. (HLS) Earnings Call Transcript & Summary

Good afternoon, and welcome to the July 20, 2020 Investor Update Conference Call for HLS Therapeutics. On today's call, we have Greg Gubitz, Chief Executive Officer; Gilbert Godin, President and Chief Operating Officer; and Tim Hendrickson, Chief Financial Officer. [Operator Instructions] Certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's annual information form, which has been filed with SEDAR and can be accessed at www.sedar.com. During this conference call, HLS may refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is defined in the company's press release and annual filings that are available on SEDAR and the company's website. Please note that all financial information provided is in U.S. dollars, unless otherwise specified. I would now like to turn the meeting over to Mr. Gubitz. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone, and thank you for joining us. We are hosting today's call to discuss 2 recent and favorable developments with Vascepa, which we felt warranted additional discussion. The 2 events are: CADTH recommendation to reimburse Vascepa for patients with established cardiovascular disease; and two, PMPRB's positive notification on introductory pricing for Vascepa. These are separate and unrelated developments that happen to occur in the same time frame. We believe both bode well for HLS and enable us to reaffirm our peak year sales estimate for Vascepa of CAD 200 million to CAD 300 million with the potential for that to increase. I will spend some time discussing the events at a high level, and Gilbert will provide some additional commentary, along with a detailed look at how we view our market opportunity and arrive at our peak year sales estimate. I'll start with a few words on the PMPRB review and notification. PMPRB is short for Patented Medicine Prices Review Board. They are the federal agency tasked with reviewing the prices that are charged for each patented drug product in the Canadian market to ensure that the prices of patented medicines sold are not excessive. The PMPRB does not determine what price of manufacturers should charge for its drug, rather they establish a maximum or ceiling price that if exceeded could be considered excessive, which potentially triggers, among other things, an investigation or price rollbacks. We have been notified by PMPRB that they have completed their review of our introductory price submission and that Vascepa did not trigger the investigation criteria for excessive pricing. Having worked diligently to ensure an appropriate introductory price, we are very pleased with the results of their review. Moving on to the announcement regarding CADTH. CADTH is short for the Canadian Agency for Drugs and Technologies and Health. CADTH is an independent, not-for-profit advisory organization that, among other things, provides nonbinding recommendations to publicly funded payer organizations on whether or not to reimburse individual drugs. As we disclosed today, following completion of their review process for Vascepa, CADTH recommends that Vascepa be reimbursed for patients with established cardiovascular disease, whether they are diabetic or not. And have elevated triglycerides, which represents a very significant target population, as Gilbert will outline in a moment. However, CADTH have excluded from the recommendation, a subset of high-risk diabetics, defined as patients with diabetes and at least 1 other cardiovascular risk factor, even though those patients were included in the REDUCE-IT trial and are included in Vascepa's product label as approved by Health Canada following its priority review for the product. These products -- these patients were also included in the label granted by the FDA for Vascepa in the U.S. following the unanimous recommendation by the highly qualified Endocrinologic and Metabolic Drugs Advisory Committee of the U.S. FDA. Additionally, in 2019, the American Diabetes Association updated their standards of medical care in diabetes to add Vascepa to their guidelines and were soon followed by 9 other medical societies, including the American Heart Association. As much as we are pleased with the reimbursement recommendation for patients with established cardiovascular disease, diabetic or not, it is perplexing to exclude Canadians with diabetes and at least 1 of the risk factor, particularly as CADTH claims to be an evidence-based organization, and the evidence is clear. Vascepa is a proven, innovative treatment that will reduce their risk of a first major cardiac event, such as death, stroke, heart attack or the need for a surgical bypass or a stent revascularization. Fortunately, in the past, divided recommendations from CADTH have not always prevented the full in-label reimbursement for new therapies, especially when they have demonstrated such compelling clinical results in a critical disease state. We remain confident that public payers in Canada, who are the true custodians of Canadian's health and well-being, will recognize the importance and the value that Vascepa can bring to all high-risk patients included in the label's indication when making their reimbursement decisions. Based on the superb clinical value of Vascepa and the recommendation by CADTH, we believe that Vascepa's long-term sales potential remains strong. And as mentioned, we are reaffirming our peak sales estimate with the potential for that to increase. I'll now pass it over to Gilbert to provide additional commentary as well as market detail to support our forecast. Gilbert?

Thank you, Greg, and good afternoon, everyone. As Greg pointed out, this is an exciting set of outcomes for us. It's a good first step that will pave the way for the continuation of our efforts for the full recognition of Vascepa's demonstrated benefits with all the studied patient population. In the current set of affairs, the market opportunity for Vascepa remains as large as we thought and could be even higher as we achieve market penetration of the segment of high-risk diabetics. I will take a few moments now to illustrate the opportunity by commenting on the 3 parameters that can be used to model the market. Let's start with the market size and present a few definitions. Our aim is to estimate 2 things: number one, how many patients are on a statin with elevated triglycerides and have established cardiovascular disease, whether or not they are diabetic; and number two, how many patients are on a statin with elevated triglycerides are diabetics and have at least 1 of 9 additional risk factors. These are the 2 groups of patients studied in the REDUCE-IT trial, and that were the subjects of the approval by Health Canada. By definition, the first group with established cardiovascular disease is considered to be at very high-risk of a major cardiac event. Sometimes a second or third one. And the second group, the diabetics plus at least 1 risk factor is considered to be at high-risk. Now there's a subtlety that many do not integrate. And we'll repeat this because it's important as it relates to the diabetic population, and that is that some people can be both diabetic and have an established cardiovascular disease. If we think about it, it makes sense when we consider cardiovascular risk factors on a continuum. One day, someone is diagnosed as prediabetic, which can lead to becoming a full-fledged diabetic. And as risk factors augment with time and with other ailments, cardiovascular disease can set in and a first cardiovascular event can eventually happen. So cardiovascular risk is a continuum that can often grow with time and prevention is a powerful tool to reduce that risk. Having said that, I want to draw your attention to Slide #4 in the accompanying slides. I think that Dave is moving the presentation to that level. So for a few years now, we've been stating a number of facts here. 7 million to 8 million Canadians have elevated triglycerides. 2.5 million to 3 million Canadians are taking a statin. And we've been stating that Vascepa's market could be between 1.2 million to 1.9 million patients. Last 2 years, these are the numbers we kept repeating. Another fact, according to Diabetes Canada, 1 in 3 Canadians is diabetic or prediabetic. Now this slide refreshes the topic with additional epidemiological data from Statistics Canada and other sources that show that there are 2.8 million patients on statins in Canada. Within that population, we can isolate 4 distinct groups: Those with cardiovascular disease and those at the bottom right; those with cardiovascular disease and diabetes, this is the bottom left; those with diabetes and no established cardiovascular disease, that would be the top right; and finally, in the top left, those with neither diabetes nor cardiovascular disease. So if you're taking a statin today, you should fall -- and you're Canadian, you should fall into 1 of those 4 subgroups. In a perfect world, we could try to layer and cross additional criteria, but we bump into data source limitations due to the complexity of up to 9 additional risk factors. Now the articles in the literature inform us in a way permitting the calculation of the relative size of each of those 4 groups in percentage terms, approximately as follows. So statin patients with cardiovascular disease, 23%; those with cardiovascular diseases and diabetes, 21%; those with diabetes, 27%; and those with neither diabetes nor cardiovascular disease, 29%. As you can see from this slide, the CADTH recommendation to reimburse for Vascepa address those with cardiovascular disease and those with both cardiovascular disease and diabetes. Those 2 groups comprise 44% of the statin-taking population in Canada. So the CADTH's recommendation to reimburse to public drug plans could cover up to 44% of the total statin-taking population of 2.8 million Canadians, which is approximately 1.2 million people. This assumes that these patients present both lipid disorders, which is not uncommon for dyslipidemia and atherosclerosis patients. If we add the patient segment that is in label, but is not part of the CADTH recommendation, the total number could be closer to 2 million. You may recall, we used 1.9 million patients in the past. And a good portion of the additional 750,000 or so in that subgroup could be covered by many private payers. Important to remember that the market in Canada will be for approximately half of it covered by public payers and the other half by private payers. And by the way, full in label coverage is actually the case for most of the private drug plans that are covering Vascepa as of today. And that represents about 30% of privately covered lives. Now I want to point out that these are estimates that are based on epidemiological data that we evaluate to try to represent and quantify a number of inclusion criteria correlated with risk. When we use language such as up to, we recognize that there are no handbooks, no databases that can give us the possibility to cross-reference all the parameters and give us the exact answer. In spite of those limitations, we're comfortable with those estimates. And they are consistent with the numbers that we have cautiously been commenting on for a couple of years now. Having discussed the market size, I want to conclude by circling back on the other 2 parameters that we have commented on to support our range of peak year sales. One is pricing. While things have not fully played out yet, with the recent notification from the PMPRB, we feel pretty good about our overall future average net price. Going forward, as we devote efforts to secure listing agreements, it may become apparent to you as to where it may settle at steady state. But it's pretty clear that a fair amount of the uncertainty is now being lifted. Finally, the third variable in the equation is the penetration rate of the market discussed earlier. As indicated previously, with a conservative market penetration of 8% to 10%, we can arrive at peak year net sales range of CAD 200 million to CAD 300 million. In the coming weeks, we will closely review and assess the benefit and the clarity provided by the 2 events announced today to determine the potential positive impact on our projected peak year sales over and above our current estimates. So stay tuned. In addition, within the coming weeks and months, as our launch continues to progress, we may comment on some relevant parameters that could allow you to evolve your projections. It is important to note that we will continue to work to gain coverage for those patients that are high-risk diabetics and have at least 1 risk factor with all the payers. As Greg pointed out, CADTH's recommendation is nonbinding, does not necessarily mean that all public payers will not reimburse this subgroup of patients. We will continue to work with all stakeholders to secure listing agreements with public payers and with provincial plans, either directly or via the pan-Canadian Pharmaceutical Alliance. In conclusion, we are excited and energized having passed a critical stage of our journey that opens up the possibility to execute fully our launch strategy. CADTH's recommendation to reimburse very high-risk patient with cardiovascular disease is a good start, even if the recommendation to not reimburse high-risk diabetic, ignores part of Health Canada's official indication for Vascepa, and this represents the groundbreaking results from the landmark REDUCE-IT trial, a trial of 5-year involving 8,100 patients at risk. High-risk diabetic patients should not have to wait to have a cardiac event before they can get access to a drug intended to prevent those very events. The benefits of prevention and people's longevity and their quality of life may be positively impacted by adding Vascepa to their statin. While we clearly believe that at steady state, reimbursement for Vascepa should be available to all patients, types that fall under Health Canada's approved label. I hope that the market data we have shared with you today leaves no doubt in your mind that the opportunity in front of us for Vascepa in Canada is already very significant today. With that, I will pass it back to Greg.

Thanks, Gilbert. Let me try to summarize the events we announced today. First, we are very pleased with CADTH's recommendation to reimburse patients with established cardiovascular disease. And we are pleased with the outcome of PMPRB's pricing review of Vascepa. We are reaffirming our peak year sales forecast of CAD 200 million to CAD 300 million and hope that we have helped illustrate that this forecast is based on conservative estimates with upside potential. Vascepa has already gained access for 30% of our privately covered lives as of the end of May for all patients in the label's indication. And of course, we will continue working with both private and public payers to secure reimbursement of Vascepa for all patients in Health Canada's approved indication which could ultimately expand the market potential for this life-saving drug. That concludes our prepared remarks. At this point, I will ask the operator to please provide instructions for asking a question. Operator?

[Operator Instructions] Our first question comes from Noel Atkinson with Clarus Securities.

So initially, could you talk a little bit about what you were expecting on the pricing front in terms of what a typical pricing is -- discount is for public plans versus private plans?

Yes, I can repeat what we've been providing in terms of ranges and how this unfolds really. We always thought our list price was appropriate. I think those developments are comforting us in that respect. We also, I think, signaled that we thought that at CAD 180 to CAD 200 per month of therapy appear to be a good number to use to kind of model what are some of the possible outcomes. So this is typically -- and I'll give you the math here rather than where we think it will settle now. We -- that's what we're delving into. But if a drug sells for $10 per day of therapy and it gets rebated 30% to a payer, this would mean that the effective net price would be in the neighborhood of $7. What will happen in the case of Vascepa is that part of the audience will be covered by private plans. Those private plans will individually negotiate or simply accept the drug as is at the list price. And there's going to be a mean average resulting from that segment of the market. The other half of the market will actually decide to list a product with a level of rebate that will be the result of a negotiation. And that negotiation involves us on one side of the table. And as far as we know, most probably, the pCPA, the Canadian Alliance for the provinces on the other side, and that negotiation will deal with pharmacoeconomic benefits and arguments on both sides of the table until we meet and find a mutually agreeable position. So that would apply to the other half of the market that we will service -- the patients we will service. And the effective net price will be the sum of all those volumes and rebates that will, in the end, result in an average net price, and that will translate into the numbers that we report quarterly to the market. So that's kind of the how we go from a list price, through a market access strategy and a set of outcomes to a net price that will actually be at the core of the net sales that we will be reporting.

Great. So versus the original $180 to $200 that you were using as a guide, as sort of a framework. Does the CADTH's results push you guys below that number in your opinion? Or do you think you're sort of at the number or higher now?

I think we're in very good shape. We haven't fully processed all the numbers. This is pretty fresh information to us, not only CADTH, but also the confirmation at the PMPRB level, our list price is as appropriate. So we think that those numbers certainly comfort us in our initial position. We will hold our judgment for future reporting period that is forthcoming, and we'll be a bit more specific on the impact of all those ins and outs.

Okay. Just a couple of quick more here. So does CADTH's recommendation for the public plans, do you see that impacting current or future private plan reimbursement for population -- in terms of population, size or pricing?

Well, I think that it's a voice among many voices that are in the environment, right? The medical community is pretty adamant about the benefit. Publications, you have now 9 international medical societies and organizations that have included Vascepa in their guidelines, including the American Diabetes Association. So there are many voices coming. And the private payer will listen and weigh. They are there to provide a service to their clients and their clients are companies, their members are paying for their drug plans, and therefore, providing a current and innovative drug blend that is reflecting the advancement of sciences is important. So it's not only and solely about pricing. And CADTH had decided to provide a recommendation that is different from that of Health Canada following a priority review from the FDA, from expert committees all over the world. So the private plans so far have not shown any kind of interest in dividing or segregating the indication. So we think that it will be something that will be taken into consideration. But to what extent, very hard, and there will be more than 1 answer to that.

Right. And then what was the company's like initial focus when -- after you got -- even before you got your approval from Health Canada, and you were talking about going to market, can you just kind of refresh our memories on what the target population that you guys were going to pursue initially for Vascepa?

The entire population in label, we didn't separate the so-called primary and secondary prevention. We're calling on cardiologists and endocrinologists and we're certainly promoting completely in label.

Okay. Okay. Just finally, now the peak sales. It's good to hear that you haven't adjusted it so far. I think you were talking about sort of 4 to 5 years previously to reach peak sales. Do you -- does that time line change with this recommendation?

Typically, it doesn't change. I think that the 1 thing we commented on earlier this year because of the COVID-19 situation is that, that curve can be shifting to the right in the sense that there was a plateau or a lull of some sort without being able to activate the communication the same way. I think we are slowly coming out of that period. We certainly have been adapting. We've seen some tangible results of that adaptation. But overall peak year sale, unless this was to be a very prolonged situation that keeps us from interacting with doctors and keeping doctors from interacting with our patients, the 4 to 5 years, a typical uptake and most analog, irrespective of where they end up, typically get to peak year in that time frame.

Your next question comes from Justin Keywood with Stifel GMP.

I was just hoping to clarify. For the peak sales estimate of $200 million to $300 million per year, what would be the target market used for that calculation?

Well, here's the kind of the beauty of how we went about it because -- and it was driven by prudence and conservatism. The 3 parameters remain the same. So if you modulate the parameters within the range that we've given, which is a market of 1.2 to 1.9, a price point of $180 to $200 per month of therapy and a penetration level of 8% to 10%, you will cover the range. And right now, what we have to do within the next little while here is to reassess what the outcome of those will result in because there's private and public market and the CADTH recommendation that may in part impede what public market may do, we will see. On the price point, there will be a number of outcomes here that will be related to negotiations. So -- but these are the elements and I think that if you model them using those parameters and a fairly modest penetration of 8% to 10%, you'll cover the range.

Okay. Understood. And then does these events, the CADTH review and the PMPRB, does that change plans as far as expanding your sales force or other investments?

It doesn't -- other than putting us here on a more certain path from a time perspective, I think that we have been commenting that public access typically takes 18 to 24 months. So hopefully, we can speed it up. But that's still our assumption that would regulate the deployment of an additional up to 55 sales reps. So if it happens earlier, we'll deploy earlier. If it happens in the standard or expected time frame, we'll stick to that because here, again, there's no -- when it's not time to push, you don't push. You don't create demand for something that can be fulfilled. So these elements remain, but the conditions now have -- I talked about clarity. Uncertainty is the enemy of the kind of thing that we're trying to do and the motivation we're trying to generate. When we get to a point of clarity, it's much easier both for us but also for the stakeholders we're engaging in to understand where this whole process is leading and what opens up and what we can do in the interim in terms of assistance for patients who access the drug nonetheless and so on and so forth.

Okay. And are there any milestone payments to be paid for Amarin off these reports?

Sorry, Justin, based on these reports, you're asking?

Yes, the CADTH's review or the...

The next milestones under our agreement with Amarin are tied to commercial sales, hitting sales thresholds in the territory.

Okay. And then one last question. Just given the challenges with COVID-19, and I know some provinces are moving faster to reopening. Has there been any change in how you're seeing Vascepa sales, let's say, how they've trended in the past months versus in April and May, maybe?

Yes. First of all, I can say there was a resumption in our face-to-face activities at the end of June. It's still modest, but it's growing. And I would say, it's growing every week, and it's varying by geography. And we will provide a more fulsome update on our forthcoming second quarter call in a couple of weeks. But at a high level, we continue to be pleased with how it is progressing, given the broader situation brought on by the pandemic. And we're certainly seeing the kind of mathematical progression we need to see in the early days. When materiality is more distant, you really watch the equation and the multiplication and the growth. So that's what we're focusing on, and we'll try to be as comprehensive as we can when we comment on the second quarter results on some of those elements.

Our next question comes from Tania Gonsalves with Canaccord Genuity.

Just a couple for me here. We've talked a little bit about the primary prevention group. Now I'm hoping you can address some of the other conditions that CADTH has put forth. So namely the 45-year plus age requirement, and the triglyceride levels of 1.7 millimolar. Just remind me, how does that compare to Health Canada's labeling your expectations?

Health Canada did not specify a triglyceride level. But it did publish, I think, in the clinical section, the table and the parameters. And the 1.7 is actually the threshold for what is considered to be elevated triglycerides, right? In the U.S., it will be the famous 150-milligram per deciliter. So that's a 1.7. It is as per the protocol design, what the protocol was enrolling. And those patients could be as high as I think the upper mark is 5.6 or 7, which corresponds to 500-milligram per deciliters. So this is completely consistent with the clinical trial. With respect to the population age, it is also consistent. I think there were slight differences between male and female in the protocol, 45 and 50. But I think 45 is generally considered in the cardiovascular sphere as the point of where the risk starts to notch up for every year that goes. So very consistent with that as well.

Excellent. And secondly, wondering if CADTH -- so I know the price recommendation. CADTH recommends that you reduce the price, it's another one of their specifications. Do they quantify by how much?

They do mention -- they did mention, I think, a price reduction by 43%. Let me comment on that. The empirical evidence, and I think that some of the analysts following us here have done some work on that. The empirical evidence shows that virtually 100% of CADTH recommendation come with the condition of price reduction. In other words, it's just a standard line here. It's pretty much systematic. But when you look at it more closely, it's so systematic that it becomes almost unsubstantiated low balling for negotiation purposes. So we've presented very strong pharmacoeconomic data that this shows that this is a highly cost-effective medicine for the health care system. And we completely and totally stand by our pharmacoeconomic model, it should be public at some point in the fall. We have no qualms defending it. And our benchmark is much lower than the one that CADTH used. And we, of course, disagree with CADTH's economic model. But in the end, they're the one publishing the report, so they have the final word. But I think and I would say that most industry observers expect that. It's always taken with a grain of salt. And a lot of negotiations start there but end up at a place that is, again, as I said, mutually agreeable to all parties. So there's a bit of fun with numbers there, but that's fair game in context of negotiation. But that's how we view it. That's how we expected it. That's how a lot of people view it. It's kind of a classic, systematic, automatic clause in every report that CADTH has issued for the last 15 -- 10 years or 5 years. I don't know how long this format has been going on, probably more like 5 to 7 years, very systematic.

Okay. Good. That's in line with what I was thinking. And then now that we have this in the rear view, that has been -- you have your recommendation in place. Can you give us an idea of when negotiations with the pCPA and perhaps directly with certain provinces might commence?

Yes. I think that by virtue of their process, it could be 30 -- don't quote me on the exact number, 30 or 40 days following the CADTH report. I mean it has triggered some actions on our side already on this very day. But these are process driven and it's enabled by the publication of the report.

And then last one for me. If -- for the primary prevention group that was not included in the recommendation, if a physician deems that one of these diabetic primary prevention patients will benefit from Vascepa and wants to prescribe it to them, is there any way around this recommendation? Say the provinces don't decide not to list Vascepa on their formulary. Is there any way that a physician can prescribe it and still get it reimbursed based on their own risk assessment?