HLS Therapeutics Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 7 speakers on the call.

Operator

Morning and welcome to the Q3 2023 Financial Results Conference Call for HLS Therapeutics. On this morning's call, we have Craig Millian, Chief Executive Officer and Tim Hendrickson, Chief Financial Officer. At this time, all participants are in a listen only mode. Following management's presentation, we will conduct a Q and A session during which analysts are invited to ask questions. To register.

Operator

Earlier this morning, HLS issued a news release announcing its financial results for the 3 9 months ended September 30, 2023. This news release, along with the company's MD and A and financial statements are available on HLS's website and on SEDAR Plus. Please note that slides accompanying today's call can be viewed via the webcast, a link to which is available in the company's earnings press release and at its website on the Events page. 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.

Operator

Risk factors that could affect results are detailed in the company's annual information form, which has been filed on SEDAR Plus at www.sedarplus.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 Plus and on the company's website. Please note that all financial information provided is in U.

Operator

S. Dollars unless otherwise specified. I would now like to turn the meeting over to Mr. Millian. Please go ahead, sir.

Speaker 1

Thank you, Chris. Good morning, everyone, and thank you for joining us. On our call today, I'll review highlights for the quarter, Tim will follow-up with a more detailed look at our financial results, and then we'll hold a Q and A session. In Q3, HLS achieved an important milestone. For the first time, we achieved quarterly product sales in Canada exceeding $10,000,000 and had our highest ever total product sales of 13 point to $4,000,000 This performance was driven by strong growth in Vascepa total prescriptions and prescribers as well as another consistent quarter from Clozaril.

Speaker 1

In the Q3, we made good progress executing against Vascepa key priorities such as aligning with Pfizer on changes to our 2024 go to market model, as well as taking steps towards improving access and reimbursement. We believe the progress we're making has us well positioned for the remainder of the year and into 2024. Regarding Q3 results, on a consolidated basis, Q3 revenue was $16,000,000 Adjusted EBITDA was $5,100,000 and cash from operations was $5,400,000 Overall, our revenues grew 2% year over year and our promoted product sales in Canada grew 9% in constant currency. Relying on positive cash from operations, we significantly increased the capital allocated to share buybacks in Q3, reflecting our belief that the current share price does not accurately reflect the underlying value of our business. Clozaril once again generated significant adjusted EBITDA and cash flow in Q3.

Speaker 1

In local currency, revenue grew sequentially by 3%, which was down by 3% or about CAD300000 year over year. Year to date patient volume is up 1% as growth in Ontario and Western Canada continues to offset modest declines in Quebec. We continue to look at ways of growing Clozaril and are aligning our strategies to address the unique challenges and opportunities on a province by province basis. These efforts are being undertaken with 3 objectives in mind. 1, expanding the number of patients being put on clozapine treatment in areas where we have leading market share 2, converting business from competitors where there is open access and 3 defending market share in our key accounts.

Speaker 1

One key differentiator that we continue to leverage is our CECON platform and associated technology with a goal of delivering a superior customer experience. We think our offering helps set us apart from the competition. And importantly, there's data to suggest it may help increase patient adherence. Real world evidence presented earlier this year at a psychiatric pharmacy conference showed a 32% higher retention rate after 18 months for Clozaril CSON patients versus those on the leading generic. This data is being submitted for publication and supports the argument for patients and physicians to have product choice.

Speaker 1

In addition, our own market research has found that nearly twice as many prescribers were very satisfied with Ceeson versus generic platforms. Beyond product choice, we continue to believe that clozapine treatment overall is greatly underutilized. Only about 1 in 4 treatment resistant schizophrenia patients receive clozapine treatment. Coming out of the pandemic, We're looking at ways to partner with psychiatrists and health systems to improve appropriate utilization for eligible patients. Achieving even modest growth in clozapine utilization would result in clozapine receiving a substantial proportion of that growth where we have leading market share, for example, in Ontario.

Speaker 1

Now let's switch gears and look at Vascepa's Q3 performance. Vascepa generated 44% year over year net sales growth in local currency, driven by 89% prescription growth. Q3 growth in Scripps and net sales is consistent with our year to date growth trend. In the quarter, we saw both continued growth in new prescribers as well as more consistent prescribing from existing writers. In addition to the 86% increase in total prescribers year over year, We saw a 97% increase in the average number of consistent prescribers.

Speaker 1

As a reminder, we define consistent prescribers as those physicians who have written a Vascepa prescription in at least 4 out of the 5 prior weeks. This growth came despite seasonal effects where there tends to be a slowdown in prescribing during July August. Importantly, we saw a strong uptick in Vascepa prescriptions in September, setting us up for what we believe will be a strong finish to the year. An important Vascepa milestone occurred in September as weekly prescriptions exceeded 2,000 for the first time. To add some context, it took 30 months from launch to exceed 1,000 weekly prescriptions, but just 13 months to go from 1,000 to 2,000 weekly scripts.

Speaker 1

We've also seen pickup in new prescriptions starting in September. This NRx chart compares the average NRx or new prescription generated in July August with the amount generated in September. The favorable trend shows strength coming out of the summer months with continued strong performance in Quebec along with recent improvements in Ontario. So I'd like to provide an update on 2 priorities to help drive Vascepa growth and profitability that I introduced on our Q2 call. First, we said we would work with our sales partner, Pfizer, to improve the Vascepa go to market model for 2024.

Speaker 1

I'm pleased to say that we have successfully amended our collaboration agreement with Pfizer with changes taking effect on January 1, 2024. Our partnership with Pfizer is a strong one, and they have shown a willingness to engage collaboratively with us since we began discussions on this issue last quarter. Vascepa is an important product for both partners, and we're excited about the prospect of moving forward together. We believe that with these changes, we will increase the productivity of our sales calls in primary care, while also reducing overall call capacity in realizing cost efficiencies. Our intent is to both improve profitability for Vascepa and invest some cost savings into reaching prescribers through other channels to augment the impact of our direct selling efforts.

Speaker 1

We look forward to continuing to strengthen our partnership with Pfizer in 2024, and I believe that the best is yet to come. 2nd, we spoke on our Q2 call about the opportunity to improve access and reimbursement at the provincial level. One area of focus is to improve the long delays being experienced by new patients eligible for treatment under Ontario's public plan. At the time of our Q2 call, the Ontario government wait time for processing new chronic drug requests was 44 business days. We have continued to engage with the province and express our concerns on behalf of patients.

Speaker 1

While the Ontario government is still reporting a backlog, Unlike when we reported earlier, we are now seeing a larger number of new Vascepa claims coming through. So progress has been made, But more work is needed to reduce those wait times further and clear the remaining backlog. The good news is that underlying demand and we continue to support physician offices wherever we can to pull those patients through. As I discussed previously, the goal is to move to a more appropriate and less restrictive level of access, employing a limited use or LU code. The LU code vastly simplifies and accelerates the authorization process for a newly prescribed patient.

Speaker 1

We believe the ongoing delays in Ontario further support our already strong rationale to secure an LU code for Vascepa as the majority of other cardiovascular medicines are reimbursed this way. To be clear, authorities are under no obligation to provide this level of access. However, we believe it is a question of when, not if, in terms of receiving an LU code, and we are actively engaging with provincial authorities at all levels to help make this happen sooner rather than later. We believe that liberating healthcare providers from the stream administrative burden of pre authorization paperwork and eliminating excessively long wait times for patients to get on treatment will have a profound impact on Vascepa utilization in the future. One final positive note related to access and reimbursement We recently reentered discussions with British Columbia Pharmacare and are working toward finalizing a product listing agreement in that province.

Speaker 1

Not only is the public market in BC an important one, but there tends to be a strong correlation between private and public access in BC. So we believe there will also be a lift in private coverage once the PLA is in place. We are currently working through coverage implementation with the province and will provide an update on the timing once we get a specific date for product availability under Pharmacare. Before I turn the call over to Tim, I just wanted to take a moment to also highlight some of the exciting scientific work that's still being supported on behalf of Vascepa. I recently attended the Vascular 2023 Congress in Montreal held in late October.

Speaker 1

This is a special event that occurs every 10 years. It brings together under one roof separate conferences sponsored by 6 leading Canadian professional associations in cardiovascular medicine and diabetes. It was a great opportunity for me and our leadership team to engage with many of our key opinion leaders throughout the conference. At the meeting, Doctor. Nila Seyaf from Paris presented a poster from REDUCE IT ACS.

Speaker 1

This data highlighted the benefits of Vascepa in patients who had a recent acute coronary syndrome prior to randomization into the REDUCE IT study. Additionally, Professor Preston Mason, who is internationally respected for his preclinical work establishing the mechanism of icosapendepal, and EPYL, which is the active ingredient in Vascepa, presented several posters with relevant new data. Looking forward, our partner Amarin recently announced new research from the REDUCE IT trial was accepted for presentation at the American Heart Association Scientific Sessions taking place this week in Philadelphia. 1 of the accepted abstracts of note is an oral presentation on the reduction in 1st and total CV events following treatment with Vascepa in a unique high risk patient subgroup with a history of metabolic Over the last couple of weeks, first at the Vascular 2023 Conference And now at AHA, it's been exciting to see the quality of science reporting out and building on the already vast body of evidence supporting the clinical benefits of Vascepa. So to sum up on Vascepa, supported by solid Q3 results, Strong trends in prescribing and progress on our top priorities, we are confident that we will achieve fiscal 2023 revenue guidance for Vascepa of CAD18 million to CAD20 million.

Speaker 1

In addition, we expect Vascepa to make a positive contribution to adjusted EBITDA starting in the second half of twenty twenty four. With that, I'll turn it over to Tim for a closer look at the numbers. Tim?

Speaker 2

Thank you, Craig, and good morning, everyone. Beginning with revenues, total revenue for Q3 2023 were $16,000,000 up 2% from $15,700,000 last year, bringing year to date revenues to $47,200,000 up 3% from $45,800,000 a year ago. Within this, excluding royalties, total product sales generated by HLS were $13,400,000 also up 2% from a year ago and just ahead of the previous highest quarter. Canadian product sales for the quarter were $10,200,000 exceeding $10,000,000 for the first time, an increase of 6% from a year ago despite a 3% negative currency headwind as the value of the Canadian dollar was lower than the year before. In constant currency terms, Canadian product sales were up 9% over last year, which is more reflective of the strong fundamentals of this growing business.

Speaker 2

Sales growth in Canada were led by Vascepa, which was up 44% from a year ago to CAD4.7 million, a growth rate that is in line with year to date growth. Notably, within this quarter, after slower months during the summer in July August, most of the growth in the quarter came in September after Labor Day. Earlier, we have commented that the growth in net sales would trail the growth in prescriptions as the business adjusted to the addition of public reimbursement, a process that began in the second half of last year. We are seeing that channel split starting to stabilize. Turning to Clozro.

Speaker 2

We also reported our strongest Clozro results of the year in Q3 for both the Canadian and U. S. Markets. Canadian Clozro product sales were up 3% sequentially in local currency, So down 3% year over year. For the year to date period, Canadian Clauzer sales are down 2%, while the number of patients continues to grow up 1% over the year.

Speaker 2

Over time, we expect that net sales will follow the underlying patient fundamentals. So there are some regional dynamics in gross to net adjustments and business concentration as well as quarter to quarter changes in channel inventories. U. S. Clozaril product sales were also up sequentially 3%, but were down $300,000 year over year as year ago net sales included favorable adjustments for lower rates of returns, while this year included modest erosion in unit sales, partially offset by pricing taken earlier this year as well as an increase in other gross to net adjustments.

Speaker 2

Royalty revenues were $2,600,000 for the quarter, a Small increase year over year, but noticeably down from the $3,400,000 in the last quarter, which included a large one time milestone receipt tied to the initial sales of Zenfizyme. The long anticipated launch of this 4th product in the royalty portfolio last year was last year, And it is encouraging to see that worldwide sales of this product are growing with Sanofi, the global marketer of the product, reporting strong growth for the quarter in all regions. The royalty term for what is currently the largest royalty in the portfolio will be coming to an end in Q4, so that we expect that royalty revenues for next year in 2024 will be in a range of $3,000,000 to $4,000,000 for the year before growing again driven by growth in ZEMTOZYM sales. Within operating expenses, cost of goods increased by 38% as a result of the strong growth year over year in Vascepa sales. Other operating expenses also increased by 8.5 percent or $700,000 for last year as a result of the increase in marketing and selling expense for Vascepa, particularly the expansion of primary care selling efforts.

Speaker 2

Both for the quarter and the year to date period, the medical regulatory and general and administrative costs to remain largely flat year over year. With the changes recently agreed with Pfizer for our 2024 primary care selling efforts for Vascepa, We can expect both increased productivity of selling efforts as well as a revamped go to market plan. As Craig mentioned earlier, Some of those cost savings will be reinvested in reaching target customers through other channels. But overall, we expect a net reduction of about 10% in Vascepa related sales and marketing expenses, which will contribute towards improved Vascepa profitability in 2024. For the quarter, adjusted EBITDA was $5,100,000 Looking at the 9 month period ending September 30, 2023, the direct contribution to adjusted EBITDA from Clozro was $21,700,000 For the same period, direct contribution loss to adjusted EBITDA from Vascepa was $7,000,000 As Craig mentioned, with the planned growth for Vascepa and other changes that we are making such as the recent amendment to our agreement with Pfizer, we expect Vascepa to make a positive direct contribution to adjusted EBITDA in the second half of twenty twenty four.

Speaker 2

In Q3, we generated cash from operations of $5,400,000 compared to $4,200,000 for the same quarter last year. Year to date, we have generated $12,100,000 in cash from operations. Cash and cash equivalents were $21,800,000 at September 30, up from $20,700,000 at December 31 last year. During the quarter, we amended our credit agreement, which is comprised of a senior secured term loan, a revolver facility and an expansion facility. The syndicate is led by JPMorgan and now includes 2 of our newest banking partners, TD Bank and Canadian Western Bank.

Speaker 2

Under the terms of the amended agreement, the maturity date has been extended to August 2026. The balance on the revolver facility at the time of the amendment was combined the principal amount remaining on the existing senior term loan for a new senior secured term loan balance. In addition, there is a new revolving facility of $30,000,000 that is currently undrawn and an expansion facility of up to $70,000,000 to support attractive strategic growth With solid fundamentals in place, we also continue to delever our balance sheet. And at September 30, 2023, the principal amount of the senior secured term loan outstanding was $91,700,000 down from $93,800,000 in August when we amended the credit agreement. Purchases under the company's normal course issuer bid were up by more than 3 times in Q3 compared to the 1st two quarters of this year as the company has increased its rate of share repurchases.

Speaker 2

In addition to the 143,000 shares purchased in the 3rd quarter, A further 87,000 shares were repurchased in October since the end of the quarter. The current NCIB agreement expires next week on November 13. Yesterday, the TSX approved a renewal of this agreement that will come into effect for end of the year as of November 14 on largely the same terms. Of note, due to the increase in HLS trading volumes, the renewed NCIB has a 47% higher daily limit on share repurchases, which will be helpful and will support a further increase in share repurchases as there were many trading days in Q3 where we were unable to purchase more shares as we had reached the daily limit. As part of the NCIB, we are also able to participate in block trades that are separate from the daily limit.

Speaker 2

We see this activity as an important use of capital, particularly at current share price levels that do not reflect the underlying value of the company. And with that, I'll pass it back to Craig for his closing comments.

Speaker 1

Thanks, Tim. To sum up, Q3 was a solid quarter financially, and we have made progress against key initiatives to drive Vascepa's growth, while accelerating our time line to brand profitability. We also continue to stay focused on Clozaril, seeking incremental growth opportunities while maintaining our strong margins. Our near term focus is operational excellence to drive the success of our existing product portfolio, while seeking to improve the overall financial strength of the business. In parallel, we will remain vigilant in evaluating business development opportunities that meet our strategic and financial criteria And that might expand our portfolio and scale our business over the longer term.

Speaker 1

That concludes my prepared remarks. At this point, I'll ask the operator to please provide instructions for asking questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Chieved. Your first question comes from Rahul Sarugaser, Raymond James. Rahul, please go ahead.

Speaker 3

Good morning, Greg. Good morning, Tim. Thanks so much for taking our questions. So heartening to see some key changes this quarter. I'm going to start with a big macro one because we can't turn a corner right now without being asked about GLP-one drugs and given the potential impact around cardiovascular.

Speaker 3

And I'm sure you're being asked about this all the time. So I'd like to get your view on the potential impact of GLP-one drugs on Vascepa.

Speaker 1

Yes. That's a great question, Rahul. So certainly, we are monitoring closely the adoption and impact of GLP-1s. Certainly, just Coming back from the Vascular 2023 Conference. There was a lot of understandable excitement about those treatments.

Speaker 1

I think regarding the role of Vascepa within secondary prevention, I think we Obviously, have a very strong data. And I think as we speak to key opinion leaders, they view Vascepa as potentially a foundational therapy for those eligible patients and I don't necessarily see The GLP-one so much as a consideration or threat there. I think in the diabetes side, obviously, They're viewed as foundational therapy and have been. And I think the question there is around The value proposition to add a product like Vascepa on top of kind of These effective earlier line diabetes treatments. And I think they are there certainly was a is a compelling case to be made.

Speaker 1

These are patients that have multiple risk factors and Vascepa obviously acts mechanistically in a different fashion to mitigate kind of persistent risk above and beyond these other treatments. So It really comes down to making the case to add Vascepa in that primary prevention patient. I think longer term, What's the kind of what's the impact from an epidemiology perspective in terms of rates of diabetes And heart disease down the road, it's difficult to predict. I don't think it's necessarily something That will have a dramatic impact in the near term. But I think if we look out many years from now, obviously, there could be a Ending of the curve in terms of disease, and obviously, that's a good thing from a societal perspective.

Speaker 1

But I don't think those sort of macro impacts Should affect our near to mid term trajectory for Vascepa, certainly not something in the next few years.

Speaker 3

Great. That's very helpful. Thanks so much for that, Craig. And then just a follow-up question. It's good to see that you've been revising and you In tone to this earlier about revising the agreement with Pfizer.

Speaker 3

Would you possibly give us a little more color into some of the mechanical changes in that agreement That should help boost productivity.

Speaker 1

Yes. I think it comes down to basically Focusing our selling efforts in primary care on kind of the highest value targets. I think earlier on, we cast a very wide net, and it was clear that a lot of the calls that were being made We're not necessarily having impact for a number of reasons. And frankly, some of the calls were being made on Not very high what I would characterize as high potential prescribers or those that see a lot of Vascepa eligible patients, for example, So what we wanted to do now is really kind of Narrow somewhat the size of the universe that we're calling on, but really concentrate that call activity on the highest value targets as well as those primary care physicians who've shown the greatest kind of interest or promotional responsiveness towards potentially writing Vascepa. So we think by doing that, we don't really pay much of a penalty by kind of rightsizing the overall kind of capacity, if you will.

Speaker 1

And we actually think there's opportunity By kind of concentrating those calls even more on those high value, high potential targets that are most likely to write Vascepa. So that's kind of the philosophy, kind of how we do that. There's a number of different parameters that we looked at and that we aligned with Pfizer on, and I won't get into Those details, but it was quite robust, quite rational. And I think both parties felt really good about how things netted out and Are excited about moving this model forward in 2024. I think the other thing this allows us to do, Rahul, is also Obviously, take some of those savings to the bottom line, but also reallocate a little bit of that towards other types of channel strategies that frankly we haven't been able to invest in.

Speaker 1

So We think there's an opportunity to even amplify the impact of our direct selling efforts moving forward.

Speaker 3

Terrific. That's really helpful color, Craig, and good luck. Certainly, we'll be looking for productivity there. Thanks again for taking our questions. We'll get back

Operator

Thank you. Your next question comes from David Martin, Bloom Burton. David, please go ahead.

Speaker 4

Yes. Thanks for taking my questions. The first one relates to what Raul just asked. As you're focusing or as Pfizer focus It's efforts. How many primary care physicians will they now be calling on versus what they were previously?

Speaker 1

Yes. So

Speaker 2

Some of those details will be sorted as we go about it. I think it's a concentration in both The potential to prescribe, but we're also making sure that the focus is right geographically and ensuring that we're getting especially in the larger markets of Ontario and Quebec. We're making sure that we're getting that level of coverage. I would expect that the total number of physicians would be down Fairly significantly, probably by a third.

Speaker 1

Yes, it's about 25% to 33% in Reduction overall call capacity, which will be largely driven by a smaller call universe. Bear in mind, We were calling on it, I believe, about a 4:one ratio of primary care the specialists. So, we'll still be calling on far more primary care physicians than cardiologists and endocrinologists. But again, the tail of that, when you look at kind of that bottom 25% or 30%, We're either we're actually very low decile writers. And by that, I mean, physicians who see a relatively small number of patients who fit the criteria for NACEVA, in terms of being on statins, for example.

Speaker 1

So in terms of even though it's a smaller call universe, let's say 25% to 30%, in terms of potential, it's much Smaller than that. It's a very small hit on the actual value of that aggregate group of physicians we're calling on because we're just cleaning off, Again, the lowest potential writers. Yes. And one thing to add that while there is kind of we're focusing on This group that's still

Speaker 2

a very large group, but that has higher potential, there's also room for there to be increased productivity, Largely as a result of being able to concentrate higher frequency of calls on those higher potential physicians. And so It will it's not just simply a reduction in areas where I don't think there's any direct loss from that, But it also is concentrating that effort in a way that we should start to see a greater increase in productivity out of that effort.

Speaker 4

Got it. Got it. Second question shifting to the royalties. Do you expect that Zempicyme will eventually Actually fully compensate for the loss of Emblem and when might that occur? And can you say what your royalty is on ZEMDYM?

Speaker 2

So that's a very good question, David. I think we are looking forward to a very, very long On Zenpezym, there's if we look at analyst coverage, there's a very wide range on what the expected results could be. Our own research would probably suggest that it will be at the healthier end of that range. And so we expect that to play out over time, but it's a little soon at this point to get into whether it would reach that level or not. But we are expecting it to grow and to be quite healthy for many years to come.

Speaker 4

And In that portfolio of royalties, are there any others that you're going to be leasing over the next 5 years?

Speaker 2

So it's interesting. What I'll comment there is if you look at the intangible asset note, we comment on the expected useful life for amortization purposes. And obviously, right now, that's been a range that's included Something falling off in the very near term. After that, I would think we're looking at useful lives that are in the 7 to 8 years range. So it's a very healthy runway going forward.

Speaker 4

Okay. Switching to Clozaril, you mentioned the modest declines in Quebec. How much is Quebec of Canadian Clozaril? What's the cause of the declines? And can will they Likely continue or can you reverse them?

Speaker 2

So I think some of the challenges in Quebec and this is something that We've talked about it a few times. Under Quebec's Bill 92, they've introduced some restrictions that Frustrate our ability to secure new patients. The efforts of the team have been really quite Astoundingly successful, very, very remarkable efforts that have been very effective in maintaining support for our existing patients in Quebec. We continue to have ongoing discussions with Quebec around seeking a way to reintroduce coverage for new patients. That is the most appropriate thing.

Speaker 2

Particularly new patients are probably most at risk and most would benefit from being able to be supported by And so that is remains an objective of ours. But even in the interim, we've been doing really quite well. In terms of the size of the business, it's one that's probably Directionally consistent with the importance of Quebec within the country. Our Ontario business is larger, But Quebec would be right up there after that. And so it's where you would expect it.

Speaker 2

And so it's important. And we're doing really frankly very well, all things considered and hope to restore the opportunity for growth going forward. Yes, David.

Speaker 1

So The study that I referenced around the impact of CSON on patient adherence versus a leading generic program. This is a very compelling, we think, support for getting an exception to this legislation in Quebec, which we hope in the future will allow us to begin to grow the business in Quebec. For now, it's about maintaining the pace that we have. And as Tim said, we pulled out all the stops to support the patients who are on treatment and have done a remarkable job of retaining

Speaker 4

them. Okay, great. Thanks. That's it for me.

Operator

Thank you. Your next question comes from Justin Keywood, Stifel Canada. Justin, please go ahead.

Speaker 5

Good morning. Thanks for taking my call. I was hoping just to clarify some early comments on the royalty portfolio. What are the expectations for

Speaker 2

So we're expecting royalty revenues for 2024 to be in a range of $3,000,000 to $4,000,000 So

Speaker 5

that would be down substantially from, I believe it's around US11 $1,000,000 in the last 12 months. Is that

Speaker 2

correct? That's correct.

Speaker 5

And what would be the expectation for that royalty Portfolio to rebound to the current levels.

Speaker 2

So, a very good question, Justin. That return would be driven by the growth in Zentesyme. That's a product that was approved and only launched kind of mid last year. Most recent quarter on quarter growth has been Very positive and encouraging for it reaching potential. I think it's a little early to say whether it gets to be As big as the decline this year, but it certainly will be growing quite a bit over the next few years.

Speaker 2

And as pointed out earlier, We also expect a very long runway on that.

Speaker 5

Are there any other initiatives being taken to offset That decline in EBITDA because it's quite substantial, I believe, at around 30% of the consolidated run rate.

Speaker 1

Yes. That's a good question, Justin. So we're aware of that. And actually, yes, we've our plans for next year call for The growth both in the top line and kind of a combination of growth as well as some The cost savings we've highlighted to offset that decline in royalty related EBITDA. So more to come on that, but we certainly have are aware of it.

Speaker 1

We put Plans in place to drive growth as well as move as quickly as we can, for example, with Vascepa to make it a positive contributor to EBITDA. So we're confident that we've got The tools within our current product portfolio to offset any of those declines.

Speaker 5

Thanks for taking my questions.

Operator

Thank you. Your next question comes from George Yuluby Shev, Clarus Securities. George, please go ahead.

Speaker 6

Good morning, guys. Thanks for taking our questions. Just a few here. On Vascepa, can you share with us a rough Split between specialists and general practitioners when it comes to total prescriptions written in the quarter. And are you guys seeing any meaningful uptick in the number of GPs prescribed in the drug?

Speaker 1

Yes. So The latest data is total prescriptions are about 2:one specialists to general practitioners. However, the new prescriptions are about even fifty-fifty. So suggested that the primary care of the general practitioners Continued to become an increasingly important component of overall prescribing, albeit At a slower pace than I think what was originally projected. And so certainly, we think There's a significant opportunity, and we think with the changes to the go to market model next year in primary care to really accelerate That rate of prescribing within primary care.

Speaker 1

And frankly, we see there's opportunities to there's still A good percentage of cardiologists, for example, that aren't consistently writing Vascepa. So we see opportunity really across the board, but in particular, Progress in primary care, but even more to come.

Speaker 6

Got it, got it. Thanks for that color. And If Alberta or BC were to go through on the public reimbursement side, how much of a lift in revenue could we potentially see relative Your current peak sales guidance. Is this something you could quantify for us?

Speaker 1

So for this year, we wouldn't see it Having a material impact just based on the timing. And again, we don't know exactly when that product listing agreement with British Columbia will be finalized. We are in regular contact with them and trying to advance this as quickly as possible, but obviously, the government Has whatever priorities they have. So obviously, the sooner we can get that in place, the more impact it will have. We do see it as a positive driver for 2024, and not just on the public side, but because of the very strong relationship with the largest Private Plan in British Columbia, in terms of really tracking the formulary of the public plan.

Speaker 1

We really see this as kind of a 2 for 1 where getting on the public listing will also drive our performance or at least our ability to To have access in the largest private plan as well in BC. So to answer your question, no impact in 2023, But depending on when the listing happens, we expect certainly some upside for 2024.

Speaker 6

Understood, understood. And has anything changed in the last few months that you guys decided to restart the discussions with the province of BC?

Speaker 1

Yes. That's a good question. I don't think we ever gave up. And I think on our last call, Obviously, we were disappointed with that the talks had stalled and actually had stopped at that point. But we never give up.

Speaker 1

We are committed to making Vascepa available to as many patients as possible regardless of whether they're private or public pay patients. And so We had the opportunity to reengage and again very encouraged by the progress we've made and Looking forward to getting this one to the finish line.

Speaker 6

Got it. Got it. That's it for me guys. Thank you very much.

Operator

Thank you. Your next question comes from David Martin, Bloom Burton. David, please go ahead.

Speaker 4

Yes. It just had to step away for Second, I just want to confirm, I don't think BC in your negotiations can negotiate a lower price than the rest of the provinces. Is that Correct. Those aren't the terms that you're discussing with them right now.

Speaker 2

So, David, we're going Steer carefully here. Of course, the terms are confidential, but you're quite correct. The terms all go back to the letter of intent that was signed with the PCPA and it is common to all provinces. And so this is not in any way a deviation from that. We're pleased that Progress is being made and we look forward to this coming about, but we can't really kind of get into the nature of the confidential terms.

Speaker 4

Okay. And then, sorry, what's the status of negotiations with Alberta? And when do you expect a resolution there?

Speaker 1

Yes. So ongoing and I would say I don't anticipate anything imminently with Alberta. Each province, there are some As Tim mentioned, there are some commonalities. There are some things that are unique. And again, without commenting on the We're still working through some things there.

Speaker 1

So I would say ongoing discussions, we don't expect any Closure on that, certainly not by the end of this year.

Speaker 4

Okay. Is this like a normal time course for Alberta? Are they using Slow or is this

Speaker 1

unusual? Yes, I can't comment on it. I don't think it's, again, there's some Each province, there's some unique aspects that without getting into the details are required a little bit more back and forth. And so that's again, what's encouraging is we continue to have a dialogue with them. We continue to look to find a solution that meets their needs and that would be acceptable to us.

Speaker 1

But yes, I don't know that there's anything unique about Alberta is probably just specific to this particular negotiation.

Speaker 4

Okay. And I guess going back to Justin's question About the EBITDA impact of the Emblem royalty. With all the initiatives you have in place, aside from that, Do you expect EBITDA margin to be relatively stable next year or is it going to take a hit?

Speaker 2

So as we're looking forward, we're looking to see growth and actually really quite Significant growth on our product portfolio and we're also looking to see EBITDA grow as well. And so How that plays out in terms of EBITDA margin, that obviously will vary quarter to quarter, but it should be a very, very Significant EBITDA contribution.

Speaker 4

Okay. Thanks.

Operator

Thank you. There are no further questions at this time. I will now turn it back to Mr. Millian for closing remarks.

Speaker 1

Yes. Thank you, Chris, and thank you all for participating on today's call. We look forward to reporting to you on our progress in the coming quarters and speaking with all of you again in the near future. Goodbye. Have a great morning.

Operator

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

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Earnings Conference Call
HLS Therapeutics Q3 2023
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