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

Good morning and welcome to today's Corporate Update Conference Call with HLS Therapeutics. On this morning's call, we have Gilbert Godin, Chief Executive 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 on SEDAR at www.sedar.com. During this conference call, HLS will 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 on the company's website. Please note that all financial information provided is in Canadian dollars unless otherwise specified. I would now like to turn the meeting over to Mr. Godin. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us. We are very pleased to be here with you today to discuss Vascepa progress in gaining public market access, its positive implications to Canadians at risk for cardiovascular disease and the significant growth potential that it has for our company. In terms of agenda for the call today, I will share with you some brief remarks regarding the announcement and then we'll hold a brief Q&A session. This morning, we announced that we have completed a letter of intent or an LOI with the pan-Canadian Pharmaceutical Alliance or pCPA for the terms and conditions under which Vascepa would qualify for public market reimbursement in Canada. This LOI is a significant milestone for making Vascepa available to Canadians who are at risk for cardiovascular disease and who are part of one of the country's public payer plans. The LOI sets out the term for reimbursement of Vascepa for statin-treated patient with established cardiovascular disease and elevated triglycerides, which follows on the patient population recommendation issued previously by the Canadian agency for drugs and technology in health or CADTH. We now look forward to working diligently with all participating jurisdictions to secure coverage from publicly funded drug plans across Canada and for Vascepa to be added to their respective plans. In terms of time lines, based on recent examples, we believe that Vascepa will be progressively added to provincial and territorial formularies over the next few months. Having already achieved reimbursement for more than 90% of private payer in-label patients, inclusion in Canada in the -- of Vascepa, sorry, in the guidelines from Canada's leading organizations in the field of cardiovascular health and expansion of our sales force through an agreement with Pfizer, we believe that the execution of a letter of intent we are announcing today will help galvanize and strengthen the impact of these prior accomplishments and that it positions the company for transformational growth. With greater visibility now available regarding the prospect of public reimbursement, we're now in a position to update our peak year sales estimates. We now estimate peak year sales for Vascepa of between $250 million to $300 million, along with adjusted EBITDA margin of approximately 30%, compared to prior estimates of $275 million to $325 million in sales and adjusted EBITDA margin of 35% to 40%. COVID-19-related restrictions are being lifted across Canada. However, due to the cumulative effect and delays of the pandemic to date, most recently the restrictions that were in place from December '21 into early March of this year which again impacted our ability to reach physicians [ with the frequency we would ] under more normal circumstances, we now expect to reach our peak year estimates in 2026. In arriving at our peak year sales estimate, we considered the size of the addressable market, net unit revenues from the product and the market penetration. While the details and financial terms of the LOI and the product-listing agreements that will follow are confidential, based on Vascepa's favorable feedback from physicians and patients, healthy prescribing and adoption rates, the early result from the Pfizer collaboration and favorable long-term competitive developments, we are confident the negotiation to achieve a broad public market access will be largely compensated for by a higher penetration rate than previously estimated. Our view of the addressable market has not changed from prior estimates. In closing. We're very pleased to have completed the negotiation process with the pCPA. Vascepa is a "first in its class" therapy. And we're excited and energized by the potential for a -- to make a significant contribution in treatment of cardiovascular disease, which remains the #1 killer worldwide. Vascepa was subject to a priority review by Health Canada. It has strong clinical data supporting it. It is included in the treatment guidelines of Canadian and renowned international medical societies. And it is backed by solid pharmacoeconomic data regarding its contribution to the health care system. We believe this LOI is the optimal outcome for patients and physicians looking to gain access to this life-saving medication. And for HLS, we believe gaining public access will serve as a catalyst for growth and provide the potential for a nearly fourfold increase in the company's revenues and adjusted EBITDA over just a 5-year time horizon. That concludes my prepared remarks. At this point, I will ask the operator to please provide instructions for asking questions. Operator?

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

Congratulations on reaching this milestone. It's great to hear. I guess, first off, on the pricing, given the pricing that's finalized in this pCPA LOI, what do you think that does in terms of how private plans look at what they're paying?

Noel, thank you for the comment. Actually we're no different than just about every other drug being commercialized in Canada. We have been successful in convincing the PMPRB of the legitimacy of our price. And beyond that point, it's more, I will say, the interactions with the various parties, their own goals and needs that will regulate how access to the product will be accomplished. And in some cases, it will be under specific terms. And in many other cases, there will not be any restrictions at all as it relates to either the indication or the actual cost of the product, so I would say that every stakeholders in the industry is aware of the sequence of event by which market access is accomplished primarily through -- or at first through private plans because this is a highly competitive market, right? Private insurers want to provide to their members access to innovation, and they do so very rapidly when new drugs become available. Public plans will take their time. They try to fully appreciate how this may fulfill some of the needs of their population and they'll be more deliberate in negotiating. I think we've -- the sequence of event exemplifies exactly that, but I think I know that for all practical purposes that sequence of event [ in ] that development will have no bearings at all on what we have accomplished until now with the private plans.

Okay. And then secondly, could you just remind us again, like, the expected kind of rollout in general terms between sort of the federal plans and the larger provincial plans and the smaller provincial and territorial plans? Like what's the -- which ones typically move first?

Yes. Well, it's hard to predict, but there's been proven behaviors in the past. So a letter of intent implies that our -- all participating jurisdiction have been in agreement with the set of terms that have been negotiated. And therefore, the next step, which is to reach a final product-listing agreement, it's not about renegotiating those terms. It's more about working through the administration and the various process specific to every such jurisdiction so that it becomes formalized with legal documentation. So what we've observed over -- and we took a look at what happened in the pandemic era because we're still in it, so to speak. It could take 30 to 130 days for one or many of the jurisdictions to eventually formalize that and see the drug or a new drug appear on their drug formulary. There are no specific or rigid rules here, but we think that the conditions here have been met so that this can be dealt with and expedited so that the benefit can be provided to the population. But that's the sequence of event. Oftentimes, [ larger ] provinces will be at the forefront and lead the charge and the other follows, but here again there's no absolute rules. But they typically will proceed in progressive fashion. We're certainly hopeful that we can get the largest provinces onboard fairly rapidly given the importance of the need and the great added value that Vascepa brings to patients in need.

Okay, great. One more for me, if I may. So now this achievement, from what we've talked with doctors, this is a huge deal for you folks in terms of being -- getting physicians more willing to prescribe or suggest it for all their patients. Does this do anything now in terms of your marketing and sales efforts? Do you accelerate or expand your sales force internally [ or ] with Pfizer? Do you do anything differently now that everything is basically green light go here?

I think it's more the latter. Launching a product, like in many field, is about bringing down the obstacles or at least being able to jump over those obstacles. And what we've accomplished here is essentially -- we've called it a catalyst, but it was an obstacle until then. It allows us to simplify the message. It frees the doctor's mind about getting the blowback of a lack of reimbursement after they prescribed a product, so the job now is to evolve the message accordingly region by region as provincial jurisdictions will come onboard, but it's a great enabler. And it definitely motivates not only our people in the field scientific and medical but, I think, the physicians themselves. Many of them have been waiting for the product to be more universally covered so that they can adopt it as a standard of care, so this is clearly on the path to that last segment of the journey.

Your next question comes from Rahul Sarugaser with Raymond James.

Gilbert, Tim, congratulations also from us on this really, really important event. Really well done. So my first question is maybe a little bit following on your last few comments which was around the sales force. Now your sales force, particularly with Pfizer, have been converting docs. Those docs that have already started writing prescriptions now have the option to start writing for their public-paid patients, so how should we be -- as we get into our models, should be thinking about this initial sort of bolus relative to -- of new scripts based on existing docs versus the continuing growth of docs being incentivized based on public reimbursement?

Rahul, thank you for your comments as well. First of all, I mean, let's try to break it down into its part. And some of that happens almost in parallel, some of it sequentially, but we have an LOI. The LOI will result in product-listing agreements on a region by region. As those regions come onboard, physicians in those regions will be fully apprised and will evolve their behavior with respect to Vascepa and the patients that could get [ us ], right? So that's kind of the sequence. You are correct in saying that a doctor that is currently using Vascepa and prescribing it to their privately covered patients should take less time in generalizing their behavior to the publicly covered patients. In other words, they've already broken through. They have already been satisfied as all their objections were properly handled and managed, so that should create a quantum of growth that will be accomplished in shorter fashion. At the same time, we have to bear in mind that the Pfizer development is now -- it's kind of in the second phase. There was a first number of calls in the fourth quarter on new doctors, right, close to 7,000 or 8,000 new doctors that have been added to the targeted audience. And there was a first and maybe a second call in that quarter. In the first quarter of this year, we had a [ tough slug ] in Jan and Feb because of the lockdowns in Quebec, Ontario and the western provinces in particular but, through March, a very strong resumption in field presence. And what has been accomplished then with those doctors is a second, third. And hopefully, now we're getting to a fourth and fifth visit. And we know that through this accumulation of interactions we eventually break through and create product trial and, hopefully, product adoption. So that's in the making. Market access, I guess, is a catalyst because, otherwise -- some doctors, as I said before, will probably hold back otherwise, but that's why we think that we're certainly fast approaching here the curve getting steep. And that steepness is coming from the sum of those phenomenon, all right? First of all, doctors turning the switch from off to on, on the public patients, having already experienced the product with their privately covered patients. And then we got the second phase, which is a high number of new doctors that are now reaching that kind of critical level of awareness through the second, third quarter this year. So this is really the prelude to that strong, much more vertical [ uptake ] curve.

Great. That's really helpful. So now sort of a little bit more specifically on pricing, to come back to pricing: You had trimmed your estimates slightly, particularly given the EBITDA guidance, so is this primarily based on a more conservative estimate on adoption? Or is it because of a more modest pricing that you're expecting?

Okay, I think, on the subject of pricing or terms or rebates here, we're -- we've now got into a junction where any disclosure about that topic becomes counterproductive to us from a confidentiality and competitive standpoint. Every such agreements are under strict confidentiality for pretty obvious reasons. Having said that, it was a negotiation. And I think we've said in the communication even in our press release that what could be referred to as negotiations or concessions were to be offset by improvements in our prospect in terms of penetration. We've done so still by being pretty conservative. In other words, we've been talking for a couple of years now of an 8% to 10% penetration. We're now confident it's going to be north of 10%, so we're talking about the floor now being 10%. The upper limit, Rahul, we're not going to go there. There's no point in painting a blue sky scenario today. We'll have plenty of time, if we're heading in that direction, but all the -- already talking of a 10%-plus market penetration on the addressable market is, a, I think, very realistic as evidenced by how the product has been greeted, as evidenced by the involvement of a now fully deployed complementary sales force with a great partner, but also, and I want to talk about that very briefly, there's been some improvement also in the -- what I would call the competitive landscape, all right? There's a favorable development that relates to what we saw [ could be 2 ] competing therapies longer term, that those 2 developments didn't succeed. And they certainly were tangent, if not overlapping, on the segment of cardiovascular protection; and triglyceride, elevated triglycerides. So we see a [ freer path ] forward without immediate competitors in sight. So all those elements combined make us quite comfortable that -- 10% and up. We don't -- we will not say how high this might go, but I think there's reason to be optimistic when you think that statins are being used in 30% to 40% of all statin patient candidates. I don't think we'll ever get anywhere near this for all kinds of other reasons, but 10% and up seems like a legitimate and somewhat conservative penetration objective.

Great. That's some terrific color, Gilbert.

Your next question comes from David Martin with Bloom Burton.

Yes. And congratulations also in order for me. My first question: So the pCPA LOI specifies reimbursement for secondary prevention patients. And the private payers are currently reimbursing for both primary and secondary, so do you think this LOI will impact things on the private side? How many primary prevention patients are being treated now? And will you and Pfizer continue to market for primary prevention?

David, thank you for your comments as well. All along, and I think it was things we stated all along, we knew that in the public domain -- from the moment that CADTH had stated that it should be restricted to the secondary, we suspected that this would be the end outcome, so no surprise here, no surprises. On the private plan, very different situation, right? And we have to bear in mind here that it's not only about the indication [ and the ailment ]. It's the fact that privately covered patients are usually part of the active population more often so than not, can be somewhat younger, are more likely to be affected by the primary indication of diabetes and risk factors; and that therefore there's logic to that delineation between one and the other. Now this is not meant to say that all established cardiovascular diseases are in publicly covered patients. That's not the case at all, but it's certainly to reinforce the notion that diabetics -- diabetic with risk factors under a statin, with elevated triglycerides are much more likely to be in the primary. And therefore, we're covering well, as a result, the needs of those 2 most likely patient groups. I want to comment as well on the fact that we've been involved promoting the product, presenting the product to physicians and health care practitioners for 2 years now, targeting specifically the privately covered patients. Therefore, there's a head start. There's a knowledge and understanding and set of affinities here that have been fairly productive, but that was still somewhat inhibited by the fact that publicly covered patients were not in scope. And some physicians can be, I would say, a little principled about starting to use a product only when it's universally acceptable -- accepted. There is also a tiny portion of the privately covered patients that will have access to the product once the product is on their provincial formulary, all right? It's less than 10% of those patients. It's kind of the rules adopted by those private plans, so that's why there is a dimension to this public reimbursement that further enhance the performance in the private sector.

Okay, great. So I take from that you will continue to market the drug for primary prevention then.

Absolutely, absolutely. And I would say that it's going to be very central. Established cardiovascular disease is an obvious one because the risk is greater, but patients with need for primary protection could be a mere 5 or 6 years away from, unfortunately, becoming a need for secondary protection. So it's preventing that first event is of the utmost importance.

So for the past [ few ] years, there's been [ a bind ] for some of these physicians. "Some of my patients are covered. Some of them aren't." And that's held some of them back from prescribing the drug free in those patients that are covered. Now you've got on the private side primary and secondary covered, on the public side only the secondary covered. This -- will this not create as much of [ a bind ] for physicians? How do you think they'll deal with that difference in coverage private, public?

It's hard to tease out all the specifics. I will make rough -- I would say [ it's rough ] statements here. First of all, this primary prevention revolves around diabetic patients, all right? Those diabetic patients are usually at lower risk. That's why it's called primary prevention. That's why it's been deemed of lower risk by CADTH in particular. They're still at risk and that's an evolving situation. Therefore, [ they're at the ] entry level of the continuum, and that risk will increase over time. So they're usually followed by their primary care physician or an endocrinologist. They have diabetes, right? So this is a very distinct patient population in terms of who's looking after them today, but as they advance and as they may unfortunately have the establishment of a cardiovascular disease or, worst, heart attack or stroke or the need for a bypass, they would migrate to a higher level of cardiovascular specialists and therefore cardiologists, therefore sometimes an intervention cardiologist. And that's why we look at those [ indiscriminately ], but in fact, when you tease out here the patient journey and the progression of the disease, they are attended to by a team of physicians that evolves over time, all right? So that's why we can adjust our message, our need, the information we deliver to the specific audience depending on the patients that they would see [ in the journey ]. That makes sense?

Okay. Yes, got it.

Your next question comes from Justin Keywood with Stifel.

First, just a question of clarification on the peak guidance, the $250 million to $300 million with the adjusted EBITDA margins of 30%. That's just for Vascepa, if I understand correctly. That would be additive to the base business of Clozaril and the royalty assets.

Justin, you are correct, strictly for Vascepa. As we actually assessed where we are today, what has happened and what this will enable, this is our vantage point with respect to Vascepa going forward and peaking in 2026.

Okay, so I assume there's possibly some slight margin appreciation from that considering the base business is higher margin today.

That's correct. That's correct. I don't know if Tim want to comment, but we have [ Clozaril similar ] royalty and some other products coming online.

Great. And maybe also a question for Tim: if there's any working capital requirements that you anticipate in the coming months either in shoring up more Vascepa inventory; or also possibly providing public-access patients with Vascepa, before the LOIs are finalized, to have them start using the drug earlier.

Justin, that's a good question obviously projecting a peak sales number that's significantly larger by 2026. Over the course of that time, there will be a buildup in working capital, but in the very near term, I wouldn't expect there to be a very significant fluctuation. It'll build in line with the sales growth.

Yes. And I want to add it's unlikely that we would support public patients coming onboard while the discussions are ongoing. You need to understand there's kind of massive amounts of potential patients here; and that would be very hard to assess in terms, of course, liability. We want to sprint and try to get those agreements to be in place so that they can be properly and legitimately covered by product-listing agreements.

Understood. And if we just take a step back: I believe this was the fourth or fifth catalyst or goal for the company, but what would be some of the broader strategic objectives now that the public reimbursement is well on its way? I assume there is going to be some step function growth in the business for Vascepa, but if we take a step back, what would be some of the other goals that you're looking at for the company?

For the company in general, I think that we've been pretty glib about our intent to augment our presence in the U.S. marketplace. We've discussed the importance of developing a business of comparative size and potential in the U.S. territory; and that in doing so, we would gain visibility to an audience, an investor audience, that could fully [ appreciate ] and be quite appealed by the growth potential that we have currently in Canada. That would also provide us possibly with the possibility of gaining listing in a U.S. exchange. So in the end, the intent here is to continue to gain scale, the kind of scale that will, I think, give us more visibility; the kind of scale that will give us more -- I would say, more appropriate valuation; that will continue to diversify the sources of our revenues, which is something that is also in itself quite beneficial, so really not much different than any journey of a company that's trying to move from start-up to its teen ages and now from where we've gotten over in the previous 6 years to a certain state of adulthood and more materiality. So we know that in our field, specialty pharmaceutical field, it's been hard for companies of a smaller size to get a legitimate level of valuation and that this can be better accomplished with proper and measured progression towards a certain scale. So that's pretty much what we have in scope. This is not to override the priority of executing on Vascepa, but we have all the tools and the experience to divide and conquer and devote ourselves with appropriate level of focus to our 2 core markets.

Understood. And the success of Vascepa certainly bodes well for the next initiatives.

Thank you. There are no further questions at this time. Mr. Godin, you may proceed.

Okay, well, I just want to have -- in concluding remarks, I want to thank you. This is an exciting time for us. And we are [ healthfully ] motivated to move to the next step; and generate this concrete, tangible growth profile that we've been vying for quite some time as we were working through those catalysts. I want to thank you all for participating on today's call. We look forward to reporting to you on our progress throughout the year and specifically with our Q1 results [ to be ] released in early May. Thank you very much. Have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.